Corporate governance and personal capitalism: case studies in British manufacturing in the first half of the twentieth century

"The paper examines the evolution of corporate governance and personal capitalism in three highly reputable manufacturing companies. Corporate governance is taken to mean 'the institutions that influence how business corporations allocate resources and returns'. In effect it 'shapes who makes investment decisions..., what type of decisions they make, and how returns from investment are distributed'. (O' Sullivan, 2001, p1) Work on the historical evolution of corporate governance in the UK is still at an early stage and while there is a growing literature on the subject it is generally the case that such discussions are not informed by detailed empirical evidence. ( For recent literature see Keasey et al, 1997; Hopt et al 1998; Quail, 2000; Cheffins, 2001; Toms&Wright, 2002; Toms&Wilson, 2003). Economic and business historians are well placed to contribute to the debate, and it is argued in the paper that in the specific British context the evolution of corporate governance is closely related to the institutional arrangements of personal capitalism. The approach invites discussion of the Chandlerian argument that the alleged persistence of personal capitalism shaped the governance of British firms well into the 20th century and damaged their performance. But despite coming into common usage the notion of personal capitalism lacks specificity and is in danger of becoming a convenient yet ill-defined category into which a wide range of empirical material can be dumped. The paper addresses this problem and offers a more rigorous treatment of personal capitalism, including a clearer identification of its basic properties. For example, while it is acknowledged that personal capitalism can take a variety of forms, and is not simply reducible to family capitalism; particular focus is placed on the personal dimension of the notion. Emphasis is given to the networks of power and influence within firms and the fostering of distinctive, not to say idiosyncratic company cultures. This clearly relates to O' Sullivan's definition of corporate governance. The empirical base of the paper is supported by case studies of British manufacturing firms enjoying national reputations. The three firms selected were, in the first half of the 20th century, at the leading edge of technological development, were in or had diversified into new manufacturing sectors, and had established national and international business networks. The case studies comprise: Alfred Herbert, (Coventry, Britain's largest machine-tool firm combining manufacture and factoring); Hadfield's, (Sheffield, specialist steel, armaments, heavy engineering, motor vehicles); BSA, (Birmingham, armaments, bicycles, motor cycles, motor vehicles, machine-tools).The three firms were characterised by forms of personal capitalism but displayed differences in the pattern of evolution of their governance systems. These differences were related to variations in response to change both at the firm level and in the general business environment, the role of exit, voice and loyalty, and to cultural factors shaping organisational forms and regional business networks."