The Delaware State Bar Association

Book Review

Good Company:
The Company, A Short History
of a Revolutionary Idea
by John Micklethwait and Adrian Wooldridge
(The Modern Library, 2003)

reviewed by Richard A. Forsten, Esquire

What one invention, more than any other, has contributed to our world’s extraordinary progress and success? Paper. Movable type. Gunpowder. The steam engine. The telephone. The automobile. Radio. The transistor. The computer. The micro-chip. It’s an interesting question to say the least, and there are lots of good arguments for and against various inventions. But what if one of the greatest “inventions” contributing to that success is not a tangible thing at all? What if one of the greatest “inventions” is an intangible idea – specifically, the corporation, or, as authors John Micklethwait and Adrian Wooldridge refer to it, the joint-stock, limited-liability company.

Given Delaware’s status as the “corporate capital,” it’s perhaps a bit easy to take corporations for granted. Corporations are certainly important legal constructs, and Delaware’s finely-tuned General Corporation Law a very important part of this State’s success, but it isn’t very often (if at all), that someone identifies the corporation as one of the greatest “inventions” of the western world. And yet, like so much of what we take for granted, the importance of the corporation as an invention is something easily overlooked.

With their book, The Company, A Short History of a Revolutionary Idea, authors Micklethwait and Wooldridge demonstrate just how important a concept the corporation was and is, making three important things possible: (1) large-scale investment, (2) limited liability on the part of investors, and (3) the ability for assets and an organization to survive its owners. Without these things, so much more would not have been possible – for example, railroads, telephone networks, and skyscrapers – that it is difficult to imagine what the world might be like with corporations.

The Company begins in ancient Mesopotamia, and in a few short pages, runs through 4000 years of history, including the Assyrians, the Greeks, the Romans, the Chinese (who created large, state-controlled monopolies, which, while enjoying large economies of scale, had other problems). It was not until the Italian Renaissance that something close to modern companies (large, family firms in which all members were jointly liable) began to emerge.

In the 16th and 17th century, government-chartered companies began to appear, the most famous of which was probably the East India Company – at one point accounting for nearly half of England’s foreign trade. The Hudson’s Bay Company, founded in 1670, is still in existence (albeit in differentform), making it the world’s oldest surviving multinational company.

But the chartered companies were just that – specially chartered. The really great leap forward came with general corporation laws. Once freed of the capricious whims of politics (at least in terms of getting started), businessmen could concentrate on what they did best – business – and business prospered. Micklethwait and Wooldridge, in relatively few pages provide an overview of the history of the corporation as an enterprise. Railroads, not surprisingly, were really the first business to take advantage of the corporate form. Indeed, given the capital requirements for a rail line, it seems doubtful that the railroad boom of the 1800’s would have been possible without the corporate form. Other industries followed, and, of course, the robber barons ultimately arrived, taking the corporate form to, perhaps, its ultimate end in the absence of anti-trust laws.

From the beginning of the 20th century to today, the authors trace the ups and downs of the corporation. In 1973, Sears and Roebuck opened the world’s tallest building, and, ironically enough, the early seventies may have marked the high point of the large corporation. Less than twenty years later, Sam Walton (who had once been offered a job with Sears) was America’s richest retailer, and Sears had a net loss of $3.9 billion. Large corporations disappeared from the Fortune 500 to be replaced by upstarts like Netscape and Enron. As the authors demonstrate, the last 25 years has seen an unbundling of the corporation, as corporations have been forced to focus on their core competencies. Ford’s River Rouge plant in Dearborn, Michigan, for example, once employed 100,000 people to produce 1,200 cars a day, making virtually all of the components itself. Now, at the same plant, it employs only 3,000 people to make 800 cars a day, using components produced elsewhere.

The Company traces the history of corporations through the Enron scandal, and concludes with some thoughts about the future of the company. It is interesting to note that many of the same problems which plague the company and the stock market today are some of the same problems which have plagued companies since they were first being formed. The problem of manager loyalty has been around since at least one Edward Fenton who, given the captaincy of an East India ship in 1582, sailed out of port only to announce to his crew a change of plans – instead of proceeding with the planned voyage, they would sail to and capture the island of St. Helena, where Fenton would be proclaimed king. Stock manipulation and stock bubbles also date to some of the earliest chartered companies. In 1720, the South Sea Company saw its stock price rise from 128 pounds in January to a high of 950 pounds in July, before crashing later that year and forcing Parliament to essentially nationalize the company.

Micklethwait and Wooldridge are unabashed supporters of the corporate form and the progress it has brought; but, in their concluding paragraphs they express a fear for the future: