Ownership and Management

Part of the American Colossus blogchain

There is a thread in the beginning of H.W. Brand's American Colossus: The Triumph of Capitalism, 1865-1900 that is revealing to our current technology landscape. It starts with the origins of shareholding.

Brands points to shareholding origins in railroads. These were some of the first large corporations in America, and such size required a constant surge of unprecedented funding that even banks were wary of:

The capital demands of the railroads required expanding the pool from which that capital might be drawn. One way of acquiring capital was to borrow it from banks or other lenders. Railroads did borrow, but often their business plans were too risky, their collateral asserts too meager, or the banks too cautious to cover all the roads' investment needs.

Borrowing alone couldn't scale these businesses. That is where shareholding comes in:

The other technique was to sell partial ownership—that is, shares of the railroad corporation. This spread the risk among the many owners and allowed for more-rapid expansion than borrowing alone did.

Shareholding not only fueled the railroads but sparked growth in the financial markets in New York. Where once thirty shares at most were exchanged, hundreds of thousands of shares passed through the NYSE.

This shift caused an even greater shift to happen, a present-day thread that had its origins in the Gilded Age of America:

The massive sale of shares led to something new in American economic history: the divorce of ownership from management.

Brand explains further:

Previously, owners typically managed their firms, leaving little distance between the interests of ownership and the interests of management. But as ownership spread to hundreds and then thousands of people, the vast majority of whom had no responsibility for day-today management of the firm, owners and managers could develop interests that diverged and occasionally collided.

And as you read American Colossus, this thread contains to reveal itself in the shifty schemes taken by these individuals and corporations. These acts start to make sense when considering ownership isolated from the day-to-day considerations of management – less about people and more about abstractions. Such a divergence can be seen in the tech ventures of today. Decisions can be justified for business growth (ownership) but at the expense of employees (management).

It makes me wonder about where ownership and management converge in tech and elsewhere, about how the split can be mended where it is broken and whether that can still happen with shareholding.