Creating Risk Capital. Ian Whalley
that Nicholas Murray Butler, President of Columbia University and one of the great sages of his era, considered the limited liability corporation to be the single greatest discovery of modern times. [25]
Endnotes
1 QuotationsBook, www.quotationsbook.com/quote/21186 (14 October 2010). [return to text]
2 William Bernstein, A Splendid Exchange: How Trade Shaped the World (Atlantic Books, 2009), p. 346. [return to text]
3 Department for Business Innovation & Skills, Statistical Press Release, www.stats.bis.gov.uk/ed/sme/Stats_Press Release_2009.pdf (13 October 2010). [return to text]
4 Anthony Sampson, Company Man: The Rise and Fall of Corporate Life (HarperCollins, 1996), p. 16. [return to text]
5 Bernstein, A Splendid Exchange, p. 346; see also Johnston Birchall, The international co-operative movement (Manchester University Press, 1997), p. 14. [return to text]
6 The following section draws heavily on Peter Pugh, The Magic of a Name: The Rolls-Royce Story (Icon Books, Parts One to Three, 2000-2002). [return to text]
7 The following section draws heavily on Donald Read, The Power of News: The History of Reuters (Oxford University Press, 1992) and Brian Mooney & Barry Simpson, Breaking News: How The Wheels Came Off at Reuters (Capstone, 2003). [return to text]
8 Read, The Power of News, p. vii. [return to text]
9 Read, The Power of News, pp. 241-242. [return to text]
10 Read, The Power of News, p. 283. [return to text]
11 Its full title is the Royal Society for the encouragement of Arts, Manufactures and Commerce. [return to text]
12 François Duchêne, Jean Monnet: The First Statesman of Interdependence (W.W. Norton, 1994), p. 9. [return to text]
13 Aneurin Bevan, quoted in Nicholas Timmins, The Five Giants: A Biography of the Welfare State (Fontana Press, 1996), p. 101. [return to text]
14 Harold Evans, Gail Buckland and David Lefer, They Made America: From the Steam Engine to the Search Engine: Two Centuries of Innovators (Back Bay / Little, Brown, 2006), p. 178. [return to text]
15 Malcolm Dean, ‘The Architect of Social Innovation’, in Dench, Flower and Gavron, eds., Young at Eighty (Carcanet Press, 1995), p. 105. [return to text]
16 Bernstein, A Splendid Exchange, p. 15. [return to text]
17 Richard Pipes, Property & Freedom (The Harvill Press, 1999), p. 217. [return to text]
18 For a discussion of comparative systems, see Jonathan Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries (Oxford University Press, 1995). [return to text]
19 This section draws heavily on John Micklethwait and Adrian Wooldridge, The Company: A Short History of a Revolutionary Idea (Weidenfeld & Nicolson, 2003). [return to text]
20 Micklethwait and Wooldridge, The Company, pp. 57-58. [return to text]
21 John Micklethwait and Adrian Wooldridge, ‘Stupid white men or the true revolutionaries of our age?’, Financial Times (22/23 February 2003). [return to text]
22 Rob Humphreys, The Rough Guide to Vienna (Rough Guides, 2001), p. 249. [return to text]
23 Micklethwait and Wooldridge, The Company. [return to text]
24 John Micklethwait and Adrian Wooldridge, ‘Stupid white men or the true revolutionaries of our age?’. [return to text]
25 John Micklethwait and Adrian Wooldridge, ‘The British invented it, by accident, then other countries did it better: the making of the modern company’, The Times (29 August 2003). [return to text]
2. Ownership, Control and Governance
All thoughtful people believe that corporate enterprise should be organized and operated to serve the interests of society as a whole.
Henry Hansmann and Reinier Kraakman [1]
The ownership, control and governance of enterprise are important, because they ultimately determine how an enterprise behaves and how it performs. The main forms of ownership, the factors which influence which form is adopted, and the principal models for running an enterprise, will be discussed in this chapter.
The importance of ownership
Ownership is important because in most cases it determines who has the formal right to control a particular enterprise. Consequently, it is the owners, defined as “those persons who share two formal rights: the right to control the firm and the right to appropriate the firm’s profits, or residual earnings”, who ultimately have the power to determine how successful an enterprise will be and how it behaves, even in cases where it is managers who exercise effective day-to-day control. [2]
Many authorities have addressed the subject of ownership. Leading economists John Kay and Aubrey Silberston pointed out in 1995 that in law, an English company does not appear to be owned by its shareholders, and that the large company may not be owned by anyone at all in the normal sense of ownership. They even suggested that ownership may not always matter: the River Thames and Oxford University do not appear to be owned by anyone, yet this does not seem to matter very much, if at all. [3] The same may be said of non-profit firms, which have no owners under the definition adopted above, since the persons who have control are not allowed to receive any residual earnings.
Nonetheless, non-profit organisations and the timeless Oxford University apart, the formal right to control an enterprise will normally flow from ownership. This makes ownership very important indeed.
The main forms of ownership
The main forms of ownership of enterprise are: proprietorship and family ownership, investor ownership, public sector ownership, and mutual and co-operative ownership. Non-profit enterprises have no owners, as noted above.
Proprietorship and family ownership
By far the most widespread form of ownership in market economies is proprietorship, especially of business firms. Most of these firms are small and medium-size enterprises, some of which may grow into larger firms under family ownership, or further into powerful business dynasties like, for example, Rothschild, Citroën and Schlumberger.
As a result, the family-owned business is the dominant form of business in many countries around the world, and family control is quite common even when enterprises become public companies.
Investor ownership
For large-scale companies, especially in Britain and the USA, investor ownership dominates the scene. Thus the important public limited companies are generally investor-owned, with their shares traded on stock exchanges. They attract the most attention due to their size and impact on the economy, as well as the requirement to publish regular financial reports and to inform the markets.
A number of such companies are multinational, emanating originally from European countries with large foreign interests which led the way with their investments overseas in railway and mining companies, trading companies and banks, and all kinds of consumer-goods firms. The Japanese and above all the Americans followed with companies like Mitsui, Ford, Quaker Oats and Coca-Cola already established internationally by 1914, followed by IBM, Kellogg, Heinz, Procter & Gamble, and more recently Wal-Mart and Microsoft.
Public sector ownership
In contrast, the system of public ownership and control of enterprise has