Personal Capitalism and Corporate Governance: British Manufacturing in the First Half of the Twentieth Century (review)

The questions underlying the theme of this book are interesting ones, not yet explored adequately by business historians. What happens when the founders of family firms, or the founding families of firms, arrive at the point where they need to seek capital from a large number of external investors? How do they manage the agency issues that arise? How do they negotiate the political space that inevitably opens up between the broader ownership base and the management of the firm? How is the personal control of company governance maintained? This book offers excellent examples of source-based business history, but unfortunately it fails to deliver answers to these key questions.

The book consists of four case studies, with a lengthy chapter devoted to each: Raleigh, the Nottingham cycle manufacturer; Hadfields of Sheffield (steel castings, machinery, and armaments); Birmingham Small Arms (BSA), the armaments and motor vehicle manufacturer; and Alfred Herbert of Coventry, Britain's largest machine toolmaker. A final, shorter chapter examines the shareholding and capital structure of Hadfield's and the Leeds machine tool makers, Greenwood and Batley. None of these firms are new to business historians. The authors of this volume have co written articles on BSA, Raleigh and Herbert were the subject of recent monographs by Lewis and Lloyd-Jones, Maltby and Tweedale have separately written on Hadfields, and Floud has written on Greenwood and Batley. Nevertheless, this volume does more than just synthesize the existing literature. Company records are again deeply excavated to provide a narrative of the governance and capital structure for each firm.

In terms of the central questions, the chapter on Alfred Herbert is the least revealing. While it describes a classic case of personal capitalism—Herbert and a small clique of relatives and managers ran the firm as a family concern from 1887 until his death in 1957; there were just nineteen shareholders in 1926—the story sheds no light on wider developments in corporate governance in British business.

The remaining chapters have much more to say about shareholder-director relations. Raleigh was founded as a partnership by the venture capitalist Frank Bowden in 1887. Bowden and his son ran the company until the latter retired in 1955. External financing was first sought in 1889, when the firm converted to a public company. By 1896, the company had 234 shareholders, mostly small investors located in the Midland counties. Shareholder confidence was shaken, however, by falling cycle sales and by boardroom divisions over Bowden's plans to diversify into motor car production. After several years of agitation by an unelected shareholders' committee, Bowden bought back the company's shares in 1908 and proceeded to run his firm as a private limited company. When a public holding company was eventually floated in 1934, this did not result in greater accountability or disclosure to shareholders. Bowden and his managers resisted pressure to increase dividends, and well into the 1950s, they maintained reserve building and internal finance as their priorities. The argument, therefore, is that personal governance reigned supreme at Raleigh, despite changes in corporate form. What is not explained is exactly how this was able to happen. The reader is given almost no information about the rights of shareholders, before 1908 or after 1934, that would help her assess Bowden's tactics, for example, voting rights, the right to approve board appointments, to diversify production out of core areas, or to wind up the company, in other words, the kind of rights long associated with both incorporated and unincorporated joint-stock companies in the UK.

A similar problem arises in the other principal chapters. Hadfields was dominated by Robert Abbott Hadfield, the son of the founder, who was chairman from 1888 till his death in 1940. Like Bowden at Raleigh, Hadfield viewed the ideal shareholder as a loyal but passive...