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Structure of Organization and Nature of Corporate Governance of the East India Company

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Abstract

In this chapter, I attempt to analyse how the organization of the administration of the East India Company determined its role in the Indian sub-continent. The East India Company was the first joint-stock company, and being a joint-stock company, it experienced the consequences of separation between ownership and control. The separation between ownership and control provides opportunities to the people who controlled the day-to-day functioning of the company for opportunistic behaviour. To study the consequences of opportunistic behaviour of the management of the company, I analyse the nature of ‘corporate governance” of the East India Company.

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Notes

  1. 1.

    In this study, the authors explain the phenomenon of separation between ownership and control, which was emerging as an important paradigm of organization of businesses in the United States; see Berle and Means (1932).

  2. 2.

    See, for this strand of thought, the writings of Roe (2002, 2003) and La Porta (1999, 2003).

  3. 3.

    The authors who have established the relationship between the financial sector and the nature of corporate governance are Boots (2000) and Verdier (2002).

  4. 4.

    For the difference between stockholders’ interest and stakeholders’ interest, see Blair (1995) and Harsmann (1996).

  5. 5.

    To understand the relationship between policy regime and the nature of corporate governance, see Hall and Soskice (2001) and Rajan and Zingales (2003).

  6. 6.

    For understanding the approach to corporate governance based on the principle-agent approach, see Arrow (1985), Fama (1980) and Alchian and Demsetz (1972).

  7. 7.

    See Jensen and William (1976) and Fama and Jensen (1983).

  8. 8.

    For the understanding of the stewardship theory of corporate governance, see Donaldson and Davis (1991) and Davis et al. (1997).

  9. 9.

    For details regarding the stakeholders approach to corporate governance, see Jones and Wicks (1999). Freeman (1984) and Hill and Jones (1992).

  10. 10.

    The scholar who established the relationship between polity and nature of corporate governance is Roe (2002, 2003).

  11. 11.

    La Porta (1999, 2003) has explained the impact of a country’s legal system on the nature of corporate governance of the country’s corporation.

  12. 12.

    For understanding Royal Charter Companies, see Gower (1969), pp. 23–25.

  13. 13.

    For details regarding quasi-sovereign rights of a charted company, see Robins (2006), p. 25.

  14. 14.

    See for these facts, Carlos and Nicholas (1988), Bowen (2006) and Robins (2006).

  15. 15.

    See, Times of India (2010), August, 16.

  16. 16.

    For the documents that challenged the granting of chartered status to the companies, see Jones and Ville (1996).

  17. 17.

    See, Jones and Ville (1996).

  18. 18.

    For this idea, see McFetridge (1995) and Jones and Ville (1996).

  19. 19.

    The scholars who believe that granting of Royal Charter amounted to granting of intellectual property right to the corporation are Scott (1909–1912) and Carlos and Nicholas (1996).

  20. 20.

    For this, see Smith (1776, 2003), Book IV, Chapter I, p. 957.

  21. 21.

    For this fact, see Brendel (1982), p. 436.

  22. 22.

    For these facts, see Mukerjee (1974), p. 393 and Keay (1993).

  23. 23.

    For this, see Lawsan (1993), p. 21.

  24. 24.

    These facts have been taken from Robins (2006), p. 11.

  25. 25.

    For these facts, see Robins (2006) and Bowen (2006).

  26. 26.

    To know the pattern of shareholding of the East India Company, see Bowen (1987, 1989).

  27. 27.

    To know the description of the administrative structure of the East India Company, see Bowen (2006), Ch. VII, pp. 185–186.

  28. 28.

    These details are given in Bowen (2006).

  29. 29.

    To understand the difference between managerially coordinated transactions and market-coordinated transactions, see Chandler (1977).

  30. 30.

    For these ideas, see Alchian Demsetz (1972); Grief (1993) and Hajeebu (2005).

  31. 31.

    To understand the nature of opportunistic behaviour of the managers, see Arrow (1985), Fama (1980) and Alchian and Demsetz (1972).

  32. 32.

    This quotation has been taken from Smith (1776, 2003), Ch 1, p. 957).

  33. 33.

    See, Bearle and Means (1932).

  34. 34.

    The use of incentives to influence the behaviour of the agent has been described in greater detail in the writings of Grassmann and Hart (1983), Holmstrom (1979, 1982) and Shavell (1979).

  35. 35.

    For information asymmetry between employees, and the London office and employees working in the Indian sub-continent of the East India Company, see Carlos (1991, 1992a, b), Carlos and Nicholas (1990) and Anderson et al. (1982).

  36. 36.

    For the ideas of Henry Ford on giving higher wages to the employees of the Ford Motor Company, see Raff and Summers (1987). The quotation used here is taken from Raff and Summer (1987), p. 559.

  37. 37.

    For why employers pay efficiency wages to their employees, see Salop (1979), Stiglitz (1984, 1988), Weiss (1990), Akerlof (1982, 1984) and Seth and Aggarwal (2004).

  38. 38.

    The use of bond or entry-level fees on employees to minimize the problem associated with moral hazards has been discussed in the works of Carlos (1992a, b).

  39. 39.

    See, Carlos (1992b).

  40. 40.

    For detailed analysis of the contract that was executed between the East India Company and its overseas employees, see Hajeebu (2005) and Grief (1993).

  41. 41.

    For the process of remittance of earnings of overseas employees of the company to their families and relatives in Britain, see Hajeebu (2005).

  42. 42.

    To know how employees of the company working in India became wealthy individuals after completing their services in India, see Holzman (1926) and Marshall (1976), p. 229.

  43. 43.

    For the practice of multi-tasking by the overseas employees of the East India Company, see Holemstorm and Paul (1991).

  44. 44.

    To understand the consequences of the practice of own account trade by the employees of the East India Company, see Hajeebu (2005).

  45. 45.

    The use of dustaks and its consequences on the relationship between the Nawab of Bengal Subah and the East India Company, see Robins (2006), pp. 64–65.

  46. 46.

    For installing the Prince Mohammad Ali Wallajah at Arcot by the East India Company, see Bayly and Subrahmanyan (1988).

  47. 47.

    For insider buying of stocks by Robert Clive, see Robins (2006), pp. 85–86.

  48. 48.

    For these facts, see Stein (1999), p. 208.

  49. 49.

    For this, see Roy (1998), pp. 512–515.

  50. 50.

    See, Bowen (2006).

  51. 51.

    For this, see Travers (2007).

  52. 52.

    For this, see Stern (2004).

  53. 53.

    See, Travers (2007).

  54. 54.

    See, Robins (2006).

  55. 55.

    To know how Bolts described the practices of the officials of the East India Company, see Bolt (1772 [1998]).

  56. 56.

    This quotation has been taken from Robins (2006), p. 128.

  57. 57.

    See, Marx (1853a, b, c).

  58. 58.

    See, Desai (2009), p. 48.

  59. 59.

    See, Smith (1776, 2003), Book IV, Ch. I.

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  1. Faculty of Management Studies, University of Delhi, New Delhi, India

    Vijay K. Seth

  2. International Management Institute, New Delhi, India

    Vijay K. Seth

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Seth, V.K. (2018). Structure of Organization and Nature of Corporate Governance of the East India Company. In: The Story of Indian Manufacturing. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-10-5574-4_5

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