The Early Development of Company Law in England and Wales: Values and Efficiency

Interdisciplinary PhD research: law, history and economics

A recent edition of Butterworth’s Company Law Handbook (London: LexisNexis, 2015), which set out the main companies’ legislation in the UK, stood at 3767 pages, including the index. The bulk and complexity of the institutional and regulatory framework for companies in the UK has become a disgrace. My motivation for my PhD was to try and understand what was essential for a company law system to work. What resulted was The Early Development of Company Law in England and Wales: Values and Efficiency, the sub-title for which was “An investigation into the extent to which the Joint Stock Companies Acts 1844 to 1856 and the values which shaped them were consistent with economic efficiency”. The Preface noted:

“The origins of this dissertation lie in a casual conversation one Saturday morning between the author and Professor Kevin McGuinness, then Steele Raymond Chair of Business Law at Bournemouth University. The gist of that conversation was that it was time some research was done into the values which shaped company law. There appeared to be an endless succession of textbooks and articles on company law but these rarely seemed to get beneath the surface of the subject and seek to answer the question “why?” rather than “what?” or “how?”

The period chosen for the research was 1844 to 1856. There were many reasons for this. The legislation commencing with the Joint Stock Companies Act 1844 and culminating in the Joint Stock Companies Act 1856 undoubtedly laid the foundations of modern company law and represented a distinct break from the past. It was also contemporaneous with a major leap in national income, the boom in railway development, the opening of the Great Exhibition, the completion of a submarine cable across the Channel and so on. In any event, the analysis came to include a major examination of previous law and its development.

Analysing the values on which Victorian company law was based proved to be difficult. While there was some consensus amongst legal scholars that values-based analysis of law was desirable, there were few precedents for how this should be done. For working purposes a “value” was defined as “ … a statement which conveys, explicitly or implicitly, the principle or standard by which a particular law reform proposal has been selected for adoption …”. The method used to analyse the values that shaped Victorian companies’ legislation was content analysis of the relevant Board of Trade Reports – the Bellenden Kerr and Gladstone Reports – and the records of Parliamentary debates set out in Hansard. So commenced many trips to the University of London library!

Analysing the consistency of Victorian company law with economic efficiency was more straightforward as the methodology was established and well-known. The neo-classical economic model was adopted as the basic approach, supplemented where appropriate by additional models relevant to institutions and social norms. This was used to evaluate the values identified from the content analysis as shaping Victorian company law. In addition, a chapter specifically evaluated the structure of early company law in terms of the balance between common law and statute, evaluating the comparative efficiency of the common law, the types of statutory rules adopted and enforcement methods. The efficiency of the statutory regime was evaluated by looking at the provisions for: incorporation and registration, the contractual base, shares and shareholders, directors, administration and disclosure and liability/ failure.

The final analysis of the values identified sought to identify the “top ten” values overall. It was found that the most important values across the period were (not in order): conservatism; doctrinal pragmatism; fear of fraud/ bankruptcy; laissez-faire; desire for state intervention; minimisation of expense or inconvenience; transparency of information; preference for interest groups; aversion to interest groups; and  respect for Parliamentary procedure and practice. A large number of these directly contradicted others. For example, conservatism and respect for Parliamentary procedure and practice can be contrasted with doctrinal pragmatism, laissez-faire with the desire for state intervention, the preference for interest groups with an aversion for interest groups. What were left were the minimisation of expense and/or inconvenience, the fear of fraud/ bankruptcy and the need for transparency of information. Given such values it is unsurprising that mandatory incorporation by registration coupled with limited liability were the end result.