Creating Risk Capital. Ian Whalley
Reuter founded his news agency in London in 1851. The British provincial press acquired control in the 1920s, and sold a 50% share to the national press in 1941, in wartime, when the Reuter Trust Agreement was drawn up. This proclaimed that the first objective of the company was “to maintain in every event its position as the leading world news agency”. [8] It also aimed “to protect the agency from outside influence and interference, notably by the British Government. But equally it aimed to protect Reuters from inside corruption, from any abandonment of standards by the directors or management”. [9]
In the 1960s the company embarked on a transformation of its business, and entered what the Chairman, Sir Denis Hamilton, subsequently described as “a period of incredible risk taking and technical innovation”. [10] At this time the company was making a modest annual surplus, essentially as a co-operative collectively owned by newspaper publishers, some of whom were in financial trouble and more interested in realising their investment than in investing any more. So funding came from bank loans.
Alongside its traditional business, by the early 1980s the company was enjoying the remarkable success of its Monitor market data and news services business, and was funding, still with the aid of bank loans, a major development programme aimed at providing new dealing services for the financial markets. Eventually, for a variety of reasons, it decided to go public.
The flotation in 1984 enabled the company to further increase its capital fund for development and acquisitions; it enabled its owners to recognise the full value of their investments; it provided a means of rewarding senior management; and it strengthened the Reuter Trust, which had turned out to be simply a shareholders’ agreement capable of being altered or scrapped by them. The Trust ended up with a ‘Founders’ Share’ controlled by the trustees, enabling them to outvote the entire body of shareholders in the event of any threat to Trust principles.
The company went on to enjoy remarkable growth through its Monitor and dealing services, and through successful acquisitions. It was declared an internet company and its stock rose in the boom and fell in the bust around the turn of the century, as it suffered a severe reversal in its fortunes. Eventually in 2008 it combined with The Thomson Group of Canada to form a new company, Thomson Reuters.
Clubs and societies
Clubs and societies often start locally. Thus in Britain, some have their origins in London coffee houses, and have grown into august institutions like the London Stock Exchange, Lloyd’s of London and the Royal Society of Arts. [11] Most clubs remain small, but others grow, like the All England Lawn Tennis Club, the not-for-profit organisation which runs Wimbledon, and now attracts over 500,000 visitors, as well as commercial sponsorship coverage worldwide on broadcast television.
A few grow into major enterprises, like the Royal Automobile Club, The Automobile Association, and football clubs like Manchester United. These may hive off operations into public companies or even become public companies themselves. Thus, many building societies, which came about through people clubbing together to build their homes, have also either turned into or become part of major groups.
Ex-public sector
Other private enterprises owe their origins to initiatives set up or encouraged by the state and public authorities. Examples in Britain include the development finance institution, CDC Group, formerly the Commonwealth Development Corporation, which was restructured in 2004 in order to invest indirectly through private fund managers; the Industrial and Commercial Finance Corporation, set up in 1945 to supply long-term finance for small and medium-size businesses, and floated in 1994 as 3i plc; and the National Research Development Corporation, the inventions and technology agency, which formed the core of the group listed on the stock market in 1995 as BTG plc.
Key factors in the origins of enterprise
There is accordingly a rich heritage of enterprise in Britain and elsewhere, so it is worth examining how these diverse enterprises came into being. Important factors include the role of the entrepreneur, a secure environment with developed systems of law and property rights, and the facility of capital and credit systems. The introduction of the limited company as a vehicle for business and enterprise also made a major contribution to the development of business in Britain and elsewhere by enabling investors to limit their otherwise open-ended liability to the amount of their investment. We will now look at these four factors in turn.
The entrepreneur
At the origin of each and every enterprise, great and small, it is generally possible to identify one or more of the founders: an entrepreneur who makes it happen. Thus, the grand enterprise of postwar European integration owes its origins to the practical visionary and one-time brandy merchant Jean Monnet, “a little man from Cognac”. [12] The institution of the Red Cross was founded by the Swiss businessman Henry Dunant, after he witnessed the appalling suffering of war on the battlefield of Solferino in 1859. And Britain’s NHS, “the biggest single experiment in social service that the world has ever seen undertaken”, [13] was launched in 1948 by Aneurin Bevan.
The origins of great industrial and business enterprises can usually be traced to the leaders and entrepreneurs, or projectors as they were sometimes called, who launched them. Thus Rolls-Royce can be traced back to Henry Royce and the Hon. Charles Rolls, and the Reuters news and information agency to Paul Julius Reuter; behind the American firm General Electric, there were men such as Thomas Alva Edison, who “gave us light, heat, power, music and the movies”; [14] and behind some of the major enterprises which make up the British rail industry, there were the railway king George Hudson, the entrepreneur Thomas Brassey, and Isambard Kingdom Brunel, who built the Great Western Railway. More recently, the mobile phone company Vodafone can be traced back to the British company Racal and the man who ran it, the late Sir Ernest Harrison.
Similarly, the J P Morgan banking group can trace its origins to the business of the merchant (and later philanthropist) George Peabody. The Standard Oil companies will always be associated with John D Rockefeller, who also became a major benefactor. Some enterprises still bear the names of their founders, like Ford, Honda and Siemens. Others have become a shadow of their former selves, like ICI, the chemical giant created by Alfred Mond, which was once the bellwether of the British economy and is now part of a Dutch conglomerate.
It is the same with organisations set up by entrepreneurs to meet public needs. In Bangladesh, Muhammad Yunus founded the Grameen Bank in 1983 to provide small-scale credit for private enterprise. In Britain, at the heart of private social enterprise, Michael Young created the Institute of Community Studies in 1953, from where he set up practical ventures enabling citizens to come together and create organisations to “produce a public benefit, not a private fortune”. [15]
Law and property rights
Enterprises need a fertile soil for healthy growth, starting with a stable environment free from wars and civil strife. Thereafter, they need sound property rights and capital markets, and their handmaiden, the rule of law. These all developed in England after the Glorious Revolution of 1688 and contributed greatly to the nation’s prosperity, in stark contrast to other nations like France and Russia, which had their own, bloodier, revolutions much later and fell behind as a consequence.
William Bernstein’s book, The Birth of Plenty, celebrates the recent wealth of the modern world “underpinned by the development of property rights, rule of law, capital market mechanisms, and scientific rationalism… The failure of the communist experiment and the current wealth and poverty of individual nations testify to the power of these critical institutions”. [16]
In Russia, the collapse of the Soviet Union in 1991 demonstrated very clearly the close relationship between the rule of law, property rights and prosperity. This was an economic collapse as much as anything else, in a country where for generations property rights had remained undeveloped and weak, or indeed abolished altogether under communism, so that economic resources