The Company
There are two usages that dominate the word ‘Company’, one very familiar, and the other somewhat more limited. That second usage is American, where The Central Intelligence Agency (CIA) is often called ‘the Company’ due to its role as the coordinator of intelligence activities and its origins in the Office of Strategic Services (OSS). Indeed, it was first referred to as the Company during World War II. The wartime OSS was the precursor to the CIA, and as a result the nickname carried over to the newly formed agency. While The Company is an informal nickname, it reflects the CIA’s central position in the U.S. intelligence apparatus and its historical roots in the OSS.
However, the choice of the nickname influenced by the history of Ivy League universities, especially Yale. The very first American spies against the British in the War of Independence were educated at Yale. Further, Russell & Company, the most successful American Company in the opium smuggling business, was very influential in all of the Ivy League universities and the Russell Family played a key role in Yale’s Skull and Bones, from which many went into intelligence. Gaddis Smith, a History Professor at Yale, said, “Yale has influenced the Central Intelligence Agency more than any other university, giving the CIA the atmosphere of a class reunion.” And “Bonesmen” have been foremost among the ‘spooks’ in the building known as the CIA’s ‘haunted house’. Professor Antony Cyril Sutton of Stanford University wrote a book about how the Skull & Bones club focused on the Hegelian Dialectic: ‘Thesis Vs Antithesis which will create Synthesis’. “The power elite applied this to Politics & Geopolitics with a few changes, rather than waiting for the Antithesis to evolve naturally, create the Antithesis in the first place and make gains & profits out of the evolving Synthesis. In other words, create a Problem against the established system, learn what type of Reaction will occur, find the Solution, and while achieving that collect the benefits.”
Then there is the more familiar usage, a company being “an organization that produces or sells goods or services in order to make a profit” (from the Cambridge Dictionary). The word ‘the’ before ‘company‘ is key, of course: by itself company refers to “the fact or condition of being with others, especially in a way that provides friendship and enjoyment’. When 22 years ago, John Micklethwait and Adrian Wooldrige combined to write a ‘short history of a revolutionary idea’, The Company they were referring to the organisation (and not the CIA).
At the time, Micklethwait oversaw US issues for The Economist, and Wooldridge was the magazine’s Washington correspondent. Micklethwait was appointed as editor-in-chief of The Economist in 2006, and in 2015, he was appointed as a Trustee of the British Museum. Currently he is the editor-in-chief of Bloomberg News, a position he has held since 2015. Wooldridge worked at The Economist for more than 20 years. In September 2021, he joined Bloomberg Opinionas the Global Business Columnist.
The Company is a fascinating book. It was reviewed in 2012 in The Ratchet of Technology, by Michael Magoon. He rated its scope 3.5 stars (out of 5); readability was 4 stars, while his personal rating was 5 stars. He summarised its ideas in six key points. First, he suggested it could be regarded as the most important organization in the world, concluding the modern company brought together three big ideas: “it could be an ‘artificial person’ with the same ability to do business as a real person; it could issue tradable shares to any number of investors; and investors could have limited liability.”
He went on to add some other factors. He suggested that the modern corporation, invented in 19th-Century Britain, has slowly spread throughout the world. Americans added on some key attributes, that it employed professional salaried managers; that many had wide networks of suppliers; and it was organised into various operating units. Later developments in Germany and Japan in particular enhanced the corporate model by utilising bank financing, largely through investment banks, and by focussing on developments based on connections with technical universities, combined with their own research and development labs. In more recent decades the model has been complicated by developments such as the increasing use of lean manufacturing techniques, and by acquisition and selling by corporate raiders. Today, especially in the West, it is often seen as the most important form of organization in the world. Regulation has grown, and Companies Acts rapidly emerging in many countries, allowing entrepreneurs to raise money, safe in the knowledge that investors had protections.
Time has seen other gradual changes appear. A company’s past is often more dramatic than its present, despite alarmist accounts in books like Barbarians at the Gate and Only the Paranoid Survive. Many would also argue that, in general, companies have become more ethical, more honest, more humane, more socially responsible. The early history of companies was often one of imperialism and speculation, of frequent disasters, even the use of slavery and opium. Generally free from these and other historical hangovers, the company today has given the West great competitive advantage. Finally, in more recent years we have seen a cluster of competing companies creating an innovative economy, like Silicon Valley.
As Micklethwait and Wooldridge make clear, today’s modern company has a long, varied and sometimes fascinating history. In the early Middle Ages, the law began to recognize the existence of “corporate persons”: loose associations of people who wished to be treated as collective entities. These corporate persons included towns, universities, and religious communities, as well as guilds of merchants and tradesmen. The sixteenth and seventeenth centuries saw the emergence of some remarkable business organisations: ‘chartered companies’ that bore the names of almost every part of the known world (“East India,” “Muscovy,” “Hudson’s Bay,” “Africa,” “Levant,” “Virginia,” “Massachusetts”). Many were the lucky recipients of royal charters giving them exclusive rights to trade in specific areas.
These chartered companies also drew on two other ideas . The first was offering investment shares that could be sold on the open market. The other was limited liability. Colonization was so risky that the only way to raise large sums of money from investors was to protect them. Approaches varied. The Dutch East India Company obtained a monopoly from the state in 1602 and became a model for many chartered firms. Investors were the first to trade their shares at a stock exchange: the first was founded in 1611. Using a slightly different approach the English East India Company initially treated each voyage as a separate venture.
In the journal Medium, Rohan Murdeshwar, (on May 9, 2020) reviewed The Company, and noted: “One theme that flows through the book is the relationship between companies and the state. Between 1500 and 1750, the British and Dutch East India Companies grew to behemoths on the back of state-sanctioned monopoly power. Unlike their counterparts in the south of the continent, Northern European nations ‘subcontracted imperialism’ to privately owned companies resulting in a symbiotic relationship between company and state. The company was given monopoly rights and the state obtained a steady stream of revenue from the trade that followed. Politicians in governments also received lucrative shares in the monopolies they’d delivered to the world, the world‘s first taste of crony capitalism.”
By the first half of the nineteenth century, the state began to step back, at first in the United States of America. There were three prompts for change. The most important was railroads, which by 1840 needed funds to build thousand miles of track to establish the bare bones of a national network. This could only be financed by chartered joint-stock companies. The second was legal. In an 1819 ruling about the status of Dartmouth College, the Supreme Court found that corporations of all sorts possessed private rights, so states could not rewrite their charters capriciously. The last prompt was political. Concerns over losing potential business led legislatures to loosen control over companies.
However, these development were still a long way from modern shareholder capitalism. British law provided remarkably little protection for shareholders. It was not until 1897, when the House of Lords ruled in favour of a leather merchant who had transferred his assets into a limited company, that the separate legal identity of the company, and the “corporate veil” of protection that it offered to its directors, was firmly established in UK law.
Why did these extraordinary organisations take off when they did? Alfred Chandler provided the classic answer: “Modern business enterprise” became viable “only when the visible hand of management proved to be more efficient than the invisible hand of market forces.” First, a new system of transport and communication was necessary. The railroads were not just great enablers for modern business; they were also the first modern businesses. The first American companies to take advantage of the railway infrastructure were in distribution and retailing. In 1840, most goods were distributed around the country through a system of wheeling and dealing. Within a generation, distribution was dominated by giant companies. The 1850s and 1860s saw huge wholesalers emerge buying directly from producers and selling to retailers. Next modern mass retailers emerged, chain stores, department stores, and mail-order companies. Integrated companies dominated most vital industries by the turn of the century.
From the middle of the 19th century to the early years of the twentieth, different approaches to capitalism across the world gave birth to different types of companies. American and capitalism enthusiastically embraced each other, with a combination of light regulation, a scientific approach to management and a growing acceptance of business seeing the rise of large vertically integrated multidivisional firms. Across the Atlantic, a preference for small family firms meant British companies failed to develop the managerial expertise needed in in a globalising world. This was exacerbated by a “fatal snobbish distaste for business”.
In Germany and Japan, where companies were meant to serve the nation, stakeholder capitalism triumphed over shareholder capitalism. For example, capitalism in Germany “emphasised cooperation rather than competition”. The state took a leading role by legalising collusion and encouraging cartels as the resulting agreements on prices and output “benefited the country as a whole”. Company boards included representatives from lenders, unions and government. Japan’s family-owned conglomerates, the zaibatsu, adopted western methods and hired managers from outside the family to run their business that “operated in a bewildering number of industries”. They were helped by the government which showered them with subsidies and put money into infrastructure, universities, helping business and offered credit.
America’s analytical approach to business takes us to the third theme in the book and the reason why American companies superseded their British counterparts in the early 20th century. The authors argue that the multidivisional firm, pioneered in the 1920s at General Motors, put American companies on the fast track to global domination. A centralised corporate strategy together with the latest “management science”, worked together like a well-oiled machine. Markets were segmented so that there was a car for “every purse and purpose” (General Motors), delivery trucks were painted with a strict shade of red (Coke) and “brand management” identified everyday items in people’s homes (Procter & Gamble). Britain was reluctant to establish companies. Germany and Japan embraced the idea, but tried to twist it to rather different ends, such as workers’ welfare and the quest for national greatness. British entrepreneurs clung to the personal approach long after American businesses had embraced professionalism. As late as 1939, a remarkable number of British firms were still managed by founding family members. Germany’s companies were focussed on the new economy, especially metals, chemicals, and machinery. Both countries emphasised cooperation rather.
A second difference was the influence of the big banks. Germany’s capital markets were too localized and inefficient to power its industrialization. Germany’s bankers stepped into the breach by forming joint-stock and limited-partnership banks that duly channelled money from savers of all sorts, first into the railways and then, after the railways were nationalized in 1879, into young industrial companies like Siemens. Germany’s success might owe less to stakeholder capitalism than to other practical issues. The first was emphasising scientific and vocational education, and technical universities acted as both research agencies and recruiting grounds. German firms also developed internal laboratories investing in research and development. Second was the relatively high respect accorded to managers. Japan’s approach had many similarities to Germany’s. It embraced a conception of the company that combined up-to-date professionalism with a pronounced nationalism. Mitsubishi was the model for the zaibatsu, Japanese conglomerates (“financial cliques”) that dominated business in the country until the Second World War (and were subsequently reborn as keiretsu.
The first two decades of the twentieth century saw the gradual separation of ownership from control. By 1920, the ‘Company Man’ combined professional standards and corporate loyalty: he was defined by credentials rather than by lineage or collective muscle. The 1950s and 1960s were the heyday of Company Man, or Organization Man, as he became known. Then came change. The rate at which large American companies left the Fortune 500 increased fourfold between 1970 and 1990. Big became a code for inflexibility. In 1974, America’s one hundred biggest industrial companies accounted for 35.8 percent of the country’s GDP; by 1998, that figure had fallen to 17.3 percent. Companies were gradually forced to focus on their “core competencies.”
Next came Silicon Valley which changed companies in two ways. The first was through the products it made. In the last three decades of the twentieth century, the cost of computing processing tumbled by 99.99%, 35% a year. Computers offered increasing power, while the growing Internet reduced transaction costs. It also changed the company with an alternative form of corporate life. The Valley epitomized the idea of “creative destruction” with much of the Valley’s growth coming from gazelle companies, firms whose sales had grown by at least 20% in each of the previous four years.
The Company: A Short History of a Revolutionary Idea is just that, too brief a book to answer pressing questions that businesses and society are asking today: Who are companies meant to serve? How should governments regulate monopolies? And what do companies need to do to make profits without destroying the planet? Rather than provide original insight, the authors summarise research by previous business historians. However, the book’s well worth re-reading now, as the study of the past offers insights into organisations that have become increasingly important to understand in solving the problems of the present.
