Corporate governance in a major British holding company: BSA in the interwar years

Abstract

This paper uses a case study of BSA to examine corporate governance in a holding company during the interwar years. Recognised as generally progressive in its policy towards financial disclosure, nevertheless BSA attracted hostile criticism from its shareholders, showed little evidence of developing administrative coordination and provided limited detailed information concerning the performance of its subsidiaries. Voice did have an effect in changing the pattern of financial reporting, but even under the pressure of its banker, when financial circumstances deteriorated in the early 1930s, BSA was only prepared to change personnel while organisational structures remained in place.

Keywords:

• BSA
• corporate governance
• financial reporting
• holding company
• voice
• exit
• loyalty
• administrative coordination
• Midland Bank

Acknowledgements

This work was supported by a grant from the Leverhulme Trust. We would like to thank the archivists at the HSBC Archive, London, the Modern Records Centre, Warwick, and at Coventry Archives. We would also like to thank participants at the ABFH conference at Cardiff 2003, Professor Trevor Boyns for advice and suggestions and for material he supplied on BSA deposited at Solihull, and two anonymous referees for helpful comments on earlier versions of this paper.

Notes

1. This reminds us that what is distinctive about firms is that their organisational capabilities ‘cannot be bought and sold short of buying the firm itself’ (Teece & Pisano, 1994: p. 541). Accepting that executives behave idiosyncratically, reinforces a case study approach to the examination of corporate governance. Church (1996) highlights the idiosyncratic behaviour of executive management in Britain's largest motor car company, Morris.

2. For an analysis of the Daimler merger see Lloyd-Jones et al. (2005: pp. 159–64).

3. For more information on the development of the company before 1914, and its leading managerial personnel, see Thoms and Donnelly (1985: pp. 49, 62), Ryerson (1980: Chs. 2–5), St John (1946: pp. 126–32), Boyns et al. (2000: p. 79), Davenport-Hines (1984, 1985a, 1985b, 1985d), and Lloyd-Jones et al. (2005).

4. As Langlois & Robertson (1995: pp. 13–14) argue, ‘the possession of knowledge by individuals and the way they act are at the heart of the firm as an organisation’.

5. These issues are discussed in detail by Arnold & Matthews (2002), Bircher (1991), and by Kitchen (1972). Certainly, at least before 1914, BSA did use secret reserves (Lloyd-Jones et al., 2005: pp. 154–59).

6. On the importance of tacit knowledge in business organisation see Metcalfe (1997: pp. 270–85); Hodgson (1999a: pp. 119, 125–56).

7. For the analysis of the relationship between action and performance in public companies see Zollo & Winter (2002: pp. 339–40).

8. From 1928, the BSA balance sheet included a financial statement totalling the subsidiaries' accounts, Option (3). The holding company's end of financial year was the 31 January but that of the subsidiaries was the 31 October, so that the statement of the subsidiaries was quite elderly when it appeared. In 1928, the AGM was held on the 11 April when the figures from the subsidiaries were more than five months old.

9. Business and social networks reinforced the relationship between BSA, the Midland Bank, and Dudley Docker. Prominent members of the BSA board in the interwar years were members of the British Commonwealth Union and the Federation of British Industries, both organisations that Docker had been instrumental in forming. Moreover, Docker was a large shareholder in BSA, a senior member of the board of the Midland, and the chair of the Birmingham Advisory Committee of the bank that had sanctioned much of BSA's borrowing (Davenport-Hines, 1985a, 1985b, 1985c).

10. A future aim of the research project is to examine the impact on the company's organisation of the chairmanship of Roger in the late 1930s.