The Genesis of Corporate Governance: Nineteenth-Century Irish Joint-Stock Banks

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Notes

Thanks go to the Public Records Office of Northern Ireland (PRONI) and the Bank of Ireland for granting access to bank archives. Thanks also to William Roulston of the Ulster Historical Foundation for all his help. Earlier versions of this paper benefited from comments made by two referees, seminar participants at Queen's University of Belfast and participants at the European Business History Association conference, Helsinki, 2002.

T.L. Alborn, Conceiving Companies: Joint-Stock Politics in Victorian England (London, 1998); C. Cooke, Corporation, Trust and Company: An Essay in Legal History (Manchester, 1950); R. Harris, Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844 (Cambridge, 2000); B. Hunt, The Development of the Business Corporation in England 1800–1867 (Cambridge, MA, 1936).

Harris, Industrializing English Law, p.218.

A. Berle and G. Means, The Modern Corporation and Private Property (New York, 1932).

B.R. Cheffins, ‘History and the Global Corporate Governance Revolution: The UK Perspective’, Business History, Vol.43 (2001), p.87; idem, ‘Does Law Matter? The Separation of Ownership and Control in the United Kingdom’, Journal of Legal Studies, Vol.30 (2001), p.459.

Geo. IV, c.42.

Alborn, Conceiving Companies, pp.99, 108.

(2003).

Interestingly, the Munster Bank, a limited liability institution, collapsed in 1885 possibly due to weaknesses in corporate governance. See C. Ó'Gráda, ‘Should the Munster Bank Have Been Saved?’, UCD Centre for Economic Research Working Paper WP01/15.

F.G. Hall, The Bank of Ireland 1783–1946 (Dublin, 1949), p.14. Interestingly, Ó'Gráda argues that banking did not hold back the development of the economy at large. C. Ó'Gráda, Ireland: A New Economic History (Oxford, 1994).

This figure was estimated by an 1804 Parliamentary Committee. Hall, The Bank of Ireland, p.119.

&2 Geo. IV, c.72.

Geo. IV, c.73.

Geo. IV, c.42.

For further discussion on these two Acts, see C.R. Hickson and J.D. Turner, ‘The Trading of Unlimited Liability Bank Shares in Nineteenth-century Ireland: The Bagehot Hypothesis’, Journal of Economic History, Vol.63 (2003), p.931.

Several other joint-stock banks also established in this period, but these were very small banks, which were relatively insignificant in terms of the number of owners. For example, the Tipperary Joint-Stock Bank had only 50 or so owners. G.L. Barrow, The Emergence of the Irish Banking System, 1820–1845 (Dublin, 1975), p.162.

By 1875, the average English provincial bank only had 322 shareholders. Authors' calculations based on figures contained in J. Dun, ‘The Banking Institutions, Bullion Reserves, and Non-Legal-Tender Note Circulation of the United Kingdom Statistically Investigated’, Journal of the Statistical Society, Vol.39 (1876), p.1.

Even though Irish banks could adopt limited liability from 1858, only Munster Bank Ltd established on such a basis. The established joint-stock banks may not have adopted limited liability due to scepticism on the part of bank owners that limited liability would assure depositors of banking stability.

E. Fama and M.C. Jensen, ‘Separation of Ownership and Control’, Journal of Law and Economics, Vol.26 (1983), p.301; M.C. Jensen and W. Meckling, ‘Theory of the Firm: Managerial Behaviour, Agency Costs and Capital Structure’, Journal of Financial Economics, Vol.3 (1976), p.305.

A. Shleifer and R. Vishny, ‘A Survey of Corporate Governance’, Journal of Finance, Vol.52 (1997), p.737; X. Vives, ‘Corporate Governance: Does it Matter’, in X. Vives (ed.), Corporate Governance: Theoretical and Empirical Perspectives (Cambridge, 2000), p.1; C.P. Oman, ‘Corporate Governance and National Development’, OECD Development Centre Technical Papers, No.180 (2001), p.1.

See C.R. Hickson and J.D. Turner, ‘Free Banking and the Stability of Early Joint-Stock Banking’, Cambridge Journal of Economics, Vol.28 (2004), p.903.

S.G. Checkland, Scottish Banking: A History, 1695–1973 (Glasgow, 1975), p.475.

Macey and O'Hara, ‘Corporate Governance of Banks’, p.1.

See Hickson and Turner ‘Free Banking’.

One of the earliest commentators to make this argument was William Clay MP in the 1830s; S.E. Thomas, The Rise and Growth of Joint Stock Banking (London, 1934), p.213. The most prominent individual to hold this view was Walter Bagehot; Hickson and Turner, ‘Bagehot Hypothesis’.

Select Committee Report on Joint-Stock Banks (P.P.1836), Q.2129.

Ibid., QQ.504, 1022–3, 1453, 2152.

Geo. IV, c.42, s.22.

Geo. IV, c.42, s.18.

Hickson and Turner, ‘Bagehot Hypothesis’.

The only significant merger during this era was in 1845 between the National Bank of Ireland and the London and Dublin Bank, a small and not long-established deposit-taking bank. Barrow, The Emergence of the Irish Banking System, p.163.

The Belfast Banking Company referred to their shareholders' committee as the Board of Superintendence. N. Simpson, The Belfast Bank: 1827–1970 (Belfast, 1975), p.30.

Barrow, The Emergence of the Irish Banking System, p.82.

The Northern Banking Company initially had three directors. Public Records Office of Northern Ireland (hereafter PRONI), D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 8. The Belfast Banking Company had four and the Ulster Banking Company also had four. P. Ollerenshaw, Banking in Nineteenth Century Ireland: The Belfast Banks, 1825–1914 (Manchester, 1987), pp.28, 46.

Ollerenshaw, Banking in Nineteenth Century Ireland, p.12.

PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 9.

From its inception in 1836, the shareholders' committee of the Ulster Banking Company met monthly until 1863 when it began to meet fortnightly. PRONI, D/3499/AA/1 and D/3499/AA/1, Ulster Banking Company's Committee and General Meeting Minute Book (1836–64 and 1864–79).

The deeds of copartnership of the Belfast Banking Company and the Northern Banking Company both limited the number of shares that any one individual could hold to 100, apart from the founding partners who were permitted to own up to 200 shares. Initially, each bank had a total of 5,000 £100 shares. The maximum number of Ulster Banking Company shares that could be owned by any one shareholder was 2,000, rising to 3,000 in 1871 after an issue of new capital. W.J. Knox, Decades of the Ulster Bank, 1836–1964 (Belfast, 1965), p.97. Initially, this bank had 100,000 £10 shares.

PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 22.

The deed of copartnership of the Northern Banking Company and the Belfast Banking Company required directors to hold 40 shares, the chairman of the committee 30 and other committee members 20. PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 9; Simpson, The Belfast Bank, p.29.

Hickson and Turner, ‘Bagehot Hypothesis’.

PRONI, D/3499/AA/1 and D/3499/AA/1, Ulster Banking Company's Committee and General Meeting Minute Book (1836–64 and 1864–79).

PRONI, D/3499/AA/1, Ulster Banking Company's Committee and General Meeting Minute Book (1836–64), Shareholder Committee meeting on 1 Aug. 1836.

Ibid., Shareholder Committee meeting on 3 Sept. 1840.

Ibid., Shareholder Committee meeting on 3 Oct. 1836.

PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 10.

Cottrell describes how the Derwent Iron Company received huge loans from the Northumberland and Durham District Bank during a time of difficulty. The bank subsequently folded when the loans were not repaid. Notably, the managing director of the bank was also a director of the Derwent Iron Company. See P.L. Cottrell, Industrial Finance, 1830–1914 (London, 1980), p.211.

PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 9.

This stipulation was somewhat unique in this period as the directors of English and Scottish joint-stock banks usually had other business interests. Ollerenshaw, Banking in Nineteenth Century Ireland, p.12.

Select Committee Report on the Bank Acts (P.P. 1858), QQ.5207–14; N.R. Lamoreaux, Insider Lending: Banks, Personal Connections, and Economic Development in New England (Cambridge, MA, 1994); L. Newton, ‘Regional Bank–Industry Relations during the mid-Nineteenth Century: Links Between Bankers and Manufacturing in Sheffield c. 1850 to c. 1885.’ Business History, Vol.38 (1996), p.64.

PRONI, D546/4, Deed of Copartnership of the Northern Banking Company (1824), section 20.

Ibid., section 31.

Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.2463–5.

National Library of Ireland (hereafter NLI), IR641, The Origin and Principles of the Agricultural and Commercial Bank of Ireland.

NLI, IR641, The Origin and Principles of the Agricultural and Commercial Bank of Ireland.

Select Committee Report on Joint-Stock Banks (P.P. 1837), Q.2474. Interestingly, the Appendix to this report contains the answers of banks to a questionnaire. The question as to how many persons signed the A&C's deed of settlement has been left unanswered (p.104).

Hall, The Bank of Ireland, p.159.

Select Committee Report on Joint-Stock Banks (P.P. 1837), Q.2688.

Ibid., Q.2723.

Bank of Ireland (hereafter BoI), Court of Directors Transactions, 10 and 11 Nov. 1836.

Ibid., 12 Nov. 1836.

Ibid., 14 Nov. 1836. See also Ó'Gráda, Ireland: A New Economic History, p.143.

Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.2051–8.

Select Committee Report on Joint-Stock Banks (P.P. 1838), QQ.596–7, 1382–3.

NLI, IR641, The Origin and Principles of the Agricultural and Commercial Bank of Ireland, sections 16 and 17.

Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.4132, 4143–45.

Ibid., Q.4146.

Ibid., Q.3907.

Barrow, The Emergence of the Irish Banking System, p.153.

Ibid., p.118.

Ó'Gráda, Ireland: A New Economic History, p.142.

Select Committee Report on Joint-Stock Banks (P.P. 1836), Q.2220.

Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.3512–3.

‘Agricultural Bank of Ireland’, Banker's Magazine, Vol.1 (1845), p.67.

Hickson and Turner, ‘Bagehot Hypothesis’.

NLI, IR641, The Origin and Principles of the Agricultural and Commercial Bank of Ireland, section 9.

Select Committee Report on Joint-Stock Banks (P.P. 1837), Q.2509.

‘Agricultural Bank of Ireland’.

Select Committee Report on Joint-Stock Banks (P.P. 1838), Q. 518.

Ibid., Q.1359.

Select Committee Report on Joint-Stock Banks (P.P. 1837), Q. 2671.

Ibid., Q.3838.

Jeremiah Dunne suggests that there were several wealthy shareholders. Select Committee Report on Joint-Stock Banks (P.P. 1838), Q.1354.

The other Thomas Mooney was described by James Dwyer (a director of the A&C) as a very wealthy man. He also acknowledged that the other James Chambers, a director of the Bank of Ireland, was a man of considerable eminence and fortune. Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.2531–41.

Ibid., QQ.3843, 3968, 3288–9.

‘Agricultural Bank of Ireland’, pp.65–70, 200–206, 280–85.

Thomas, The Rise and Growth of Joint-Stock Banking; Hall, The Bank of Ireland; Simpson, The Belfast Banks.

Barrow, The Emergence of the Irish Banking System, pp.111–12. Barrow maybe goes too far in trying to exonerate Thomas Mooney in his claim that ‘it may be an exaggeration to say that if he had succeeded in what he tried to do in the 1830's there would have been no Famine in Ireland in the 1840's, but it is not in my view a very great exaggeration’. G.L. Barrow, ‘Justice for Thomas Mooney’, Dublin Historical Record, Vol.24 (1971), p.173.

Select Committee Report on Joint-Stock Banks (P.P. 1838), QQ.516–18, 524.

‘Agricultural Bank of Ireland’, p.70.

BoI, Court of Directors Transactions, 12 Nov. 1836.

Ibid.

Select Committee Report on Joint-Stock Banks (P.P. 1837), Q.3820.

Ibid., QQ.3821, 3889.

‘Agricultural Bank of Ireland’, The Banker's Magazine, Vol.1 (1845), p.200.

Select Committee Report on Joint-Stock Banks (P.P. 1837), QQ.3246–9, 3253, 3288–9.

NLI, IR641, The Origin and Principles of the Agricultural and Commercial Bank of Ireland, section 3.

‘Agricultural Bank of Ireland’, pp.281–5.

Alborn, Conceiving Companies, p.86.