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The evolution of shareholder voting rights: separation of ownership and consumption.

2. Insurance

Voting restrictions also appeared among early property and casualty insurance companies. (141) Maximum vote provisions were common, although not universal, in late eighteenth- and early nineteenth-century stock insurance companies in Pennsylvania and Massachusetts. (142) Approximately one third of stock insurance corporations chartered by special act in Connecticut through 1856 adopted restricted voting schemes. (143) By contrast, the overwhelming majority of New York finance and insurance companies (144) and New Jersey insurance companies (145) granted voting rights in direct proportion to share ownership. Our multi-state analysis shows 38% of insurance companies chartered between 1790 and 1859 adopting restricted voting.

A significant number of the early insurance corporations were, both in name and substance, mutual insurance companies. These firms were owned by their customers--the insured--and typically adopted one vote per member or another form of stringent voting restrictions. Early mutual insurance companies were particularly common in the fire insurance business. (146) The economies of scale in building an insurance pool gave many of these companies substantial monopoly power, and created a strong incentive for collective ownership by their customers. (147)

While many consumer-owned insurance companies were organized formally as mutuals, a number of insurance companies formed as joint stock corporations were also effectively mutuals, serving principally to insure their shareholders. In this sense, the history of insurance companies is essentially akin to, and closely related with, that of banks. (148) As described by Alfred Chandler in the context of marine insurance, "[b]y pooling resources in an incorporated insurance company, resident merchants, importers, exporters, and a growing number of specialized shipping enterprises were able to get cheaper insurance rates"; as a result, "[n]early all these companies handled only the business of local shippers and ship owners." (149) The local element of early insurance firms was made explicit in their charter provisions; state citizenship--or, in some cases, town residency--requirements for directors were common. (150)

Take, for example, the Insurance Company of North America, the first U.S. stock insurance company, which was chartered in Philadelphia in 1784. Historians attribute the decision to transform what was initially a failing tontine into a marine insurance company to John Maxwell Nesbitt, one of its founders and its future president who, as virtually all leading merchants at the time, had significant experience both as a policyholder and underwriter of marine insurance. (151) The company came to insure the ventures of many of its shareholders and directors--a situation expressly contemplated and permitted by the corporation's charter, provided that insiders did not receive special privileges. (152) However, not all prospective customers were able to become shareholders in the company. In fact, the Pennsylvania legislature granted a charter to another marine insurance company, the Insurance Company of the State of Pennsylvania, signed into law just four days after the charter of its predecessor, with the justification that "a number of the ship owners and traders of Philadelphia, from local circumstance, have not been able to obtain shares in [the Insurance Company of North America]." (153) Both insurance companies adopted a graduated voting scheme, subject to an absolute cap on the number of votes per shareholder. (154)

Leading merchants were also instrumental in establishing the first stock insurance corporation in Connecticut, the Hartford Fire Insurance Company, in 1810. According to P. Henry Woodward, "[a] sense of ever-present peril, a desire to avert the worst effects of calamity from the immediate sufferer by distributing the loss through the community, and a willingness to contribute fairly to the common fund, brought the company into existence"; even though its subscribers certainly intended to make a profit, "money-making was a secondary consideration." (155) Nevertheless, its shareholders and directors turned out not to be avid purchasers of insurance policies, and the company initially struggled for lack of a clientele. (156) The corporation's charter granted voting rights in proportion to share ownership. (157)

The inspiration for the establishment of another fire insurance company in Hartford came from merchants who were previously customers of the Hartford Fire Insurance Company. Interestingly, their main motivation for creating a competing business was allegedly not the firm's monopoly prices, but rather its slack customer service. The story goes that the office of Walter Mitchell, the secretary and sole salesman of the Hartford Fire Insurance Company, had a highly inconvenient location, erratic hours of operation, and no regard for agreed-upon appointments. A disgruntled group of merchants then "pooled their discontent in a general protest" and incorporated the Aetna Insurance Company in 1819. (158) Although originally a local endeavor, competition soon led the Aetna to expand to other localities and procure outside business through agents. (159) The company's original charter capped voting rights at fifty per shareholder, a rule that was, however, abandoned in favor of voting by shares in 1877. (160)

C. Manufacturing

In sharp contrast to the types of firms discussed above, one vote per share was from the outset the dominant voting rule in U.S. manufacturing corporations. Only one out of 135 manufacturing corporations chartered by special act in Connecticut through 1856 adopted voting restrictions. (161) Similarly, restricted voting schemes were present in only 2% of the manufacturing corporations chartered in New York between 1790 and 1825 and 5% of such firms incorporated in New Jersey between 1790 and 1867. (162) New York's path-breaking general incorporation act for manufacturing firms of 1811 provided a one-share-one-vote rule--a pattern that prevailed in most such statutes subsequently enacted by other states. (163)

Our multistate analysis shows 31% of manufacturing firms chartered between 1790 and 2859 as having restricted voting, but this proportion is, almost certainly, misleadingly high. Manufacturing firms, in contrast to other types of firms, appear to have been formed under the period's new free incorporation statutes in substantial numbers from an early stage. (164) Indeed, the pioneering New York corporation statute of 1811 was limited to manufacturing firms. Consequently, manufacturing firms are probably underrepresented in these data, which exclude corporations chartered under free incorporation statutes. Moreover, there is good reason to believe that the omitted manufacturing corporations had a substantially higher ratio of one-share-one-vote rules than did the specially chartered manufacturing corporations included in the data. One reason is that the early statutes providing for free incorporation, such as the New York statute of 1811, were not only limited to manufacturing firms but also mandated a rule of one-share-one-vote. (165) Thus our multistate analysis presumably understates the disparities between the voting rules adopted by manufacturing corporations and those adopted by corporations in other industries. Nonetheless, the regression reported in Table 2 shows that the frequency of restricted voting was significantly smaller in manufacturing corporations than in corporations organized to provide banking, bridges, canals, insurance, or roads.

The trend towards voting by shares in manufacturing firms was already apparent upon the incorporation of the pioneering Society for Establishing Useful Manufactures (S.U.M.) in New Jersey in 1791. The S.U.M. was a privately owned, but state-sponsored, corporation intended to foster the development of manufacturing in the United States. Even though the corporation was ultimately chartered and headquartered in New Jersey, most subscribers were New York capitalists and speculators. Unlike other contemporary corporations, which specified the object of the firm with considerable precision, the purposes clause of the S.U.M charter was exceedingly broad, providing that the corporation was to carry on "the Business of Manufactures in this State" and to employ its capital stock in "Manufacturing or making all such Commodities or Articles as shall not be prohibited by Law." (166) The S.U.M. charter granted one vote per share to private shareholders, while limiting the voting rights of the U.S. and state governments to one hundred votes each if they were to become shareholders in the firm. (167) Interestingly, Alexander Hamilton, who vigorously defended the adoption of voting restrictions in the First Bank of the United States, was one of the chief promoters of the S.U.M. (168)

While many of the early corporations previously examined--such as bank, insurance, and transportation companies--were customer-owned local monopolies, shareholders of manufacturing corporations were almost always investors, not consumers. In contrast to the public utilities of the time, most manufacturing firms that required enough capital to employ the corporate form--which produced mostly textiles and, in smaller numbers, glass and metal (169)--were likely to be part of a reasonably broad market and thus face substantial competition. Moreover, the consumers of manufacturing firms were generally so dispersed, and purchased their products so sporadically, that they could not be efficiently organized to become owners of the enterprise. In this respect, they contrasted with the users of turnpikes, banks, and insurance companies, who would have continuously transacted with those service providers at a fairly constant rate of expenditure. Finally, as Donald Smythe observes, manufacturing firms required more active and innovative management than the early public utilities, and were therefore best served by active owners who faced and reacted to strong financial incentives, as compared to the broad cross-section of customers who presumably shared ownership of the monopolistic service industries. (170)

II. ULTRA VIRES AS CONSUMER PROTECTION

The recognition that a great number of early business corporations were owned by consumers rather than investors can shed light on other historical aspects of corporate law beyond shareholder voting rights. Another prominent feature of nineteenth-century corporation law that later fell into desuetude was a strong doctrine of "ultra vires" (literally, "beyond the powers"), which essentially prohibited corporate managers from deviating from the particular set of activities (or "purposes") set forth in the corporation's charter. Nineteenth-century business corporations typically listed in their charters a relatively narrow and specific set of corporate purposes. Corporate acts falling outside the scope of the specified purposes were subject to particularly stringent remedies, which ranged from shareholder and state lawsuits against corporate managers to the voiding of ultra vires contracts by the corporation or its counterparty. (171)

Since the late nineteenth century, this restrictive approach to corporate purposes has been progressively abandoned in both law and practice. (172) Two conventional explanations have been offered for the rise and fall of the ultra vires doctrine. The first is that a narrow definition and construal of corporate powers made sense at a time in which incorporation conferred special privileges, a rationale that faded with the decline of the franchise view of the corporation, the spread of general incorporation statutes, and the gradual acceptance of general purpose clauses. The second is that the ultra vires doctrine served as a form of investor protection, assuring investors that their capital contributions to the firm would only be used in industries or activities in whose profitability they had some faith. (173) The abandonment of the doctrine in more recent times is then explained on the grounds that it was ultimately ineffective and rendered unnecessary by the advent of the norm of shareholder supremacy and by the increasing liquidity of securities markets and the easy exit this permitted for shareholders unhappy with a corporation's change of activities. (174)

We suggest that purpose restrictions might have served an additional important function in those early corporations--such as turnpikes, banks, and insurance companies--that were in essence consumer cooperatives. In consumer-owned firms, the nature and specifics of the business that the corporation engages in matter a great deal from a shareholder's perspective. The early turnpike cases in which shareholders refused to pay for their subscriptions after a change in the proposed location of the road provide an illustrative example of this concern. (175) A strong ultra vires doctrine not only assured firm members that their contributions would be channeled to the desired services, but also reduced the potential for using rents from the monopoly activity to cross-subsidize another activity that had a different distribution of benefits across the firm's shareholders--a problem that haunts cooperatives up to this day. (176) Moreover, the binding character of the proposed lines of business helped assure early shareholder-merchants that their corporate subscriptions would not be used to fund potential competitors. This concern was at the heart of the case of Colman v. Eastern Counties Railway Co., which contains what is arguably the first overt reference to ultra vires in English law. (177)

Nevertheless, as product market competition increased the prevalence of purely investor-owned firms, this early function of the ultra vires doctrine lost its raison d'etre for most business corporations. If what a shareholder expects from the firm is not a specific product or service, but a profit--the fungible good par excellence--the precise purposes and activities specified in a corporate charter should be comparatively less important. Indeed, flexibility in switching lines of business in response to changing market conditions and technological advances is critical to maintaining profitability. It should therefore come as no surprise that, in parallel to the decline of the ultra vires doctrine, investor-owned business corporations came to take advantage of the law's permission to craft exceedingly general purpose clauses that do not impose any meaningful limitation to their scope of action. (178)

Consequently, ultra vires was gradually abandoned as investor-owned firms came to dominate the corporate landscape. Consistent with this interpretation, (i) the ultra vires doctrine first started to lose its force as applied to manufacturing firms (which, as noted above, were overwhelmingly investor owned) (179) and (ii) ultra vires has only subsisted (although in increasingly weakened form) in firms where the corporate purpose is not profit, such as nonprofit corporations in general and charities in particular. (180) Although voting restrictions persisted as the norm in consumer cooperatives' law and practice, the courts' willingness to police ultra vires acts in cooperatives faded just as it did with respect to business corporations. (181) But unlike business corporations, cooperatives continue to include purpose restrictions in their charters, as required under some statutes and encouraged by tax laws (182) and, more importantly, because this avoids the strong conflicts of interest, and consequent governance problems, that arise when different groups of owners have conflicting interests in a firm's activities. (183)

III. THE DECLINE OF VOTING RESTRICTIONS

Throughout this paper, we have sought to demonstrate the link between shareholder voting restrictions and consumer ownership of monopolistic corporations in the late eighteenth and early nineteenth century. Just as in the twentieth century, (184) restricted voting schemes historically functioned as takeover defenses, albeit of a different kind. Unlike their modern counterparts, voting restrictions in early business corporations served not to shield corporate management and employees from a hostile acquisition, but rather to protect consumers by preventing the corporation from falling under the control of either a profit-maximizing investor or of a single merchant who would favor his own business over other local merchants in setting output allocation and pricing policies.

The consumer protection account predicts that the disappearance of voting restrictions would follow a shift from consumer to purely investor ownership of business corporations. We suggest that the nineteenth century witnessed precisely such a shift, for several reasons.

A. Governmental Provision of Infrastructure

By the late nineteenth century, general physical infrastructure, such as roads and bridges, were commonly financed and frequently owned and operated by government at one or another level, removing the need to fund such projects through quasi-philanthropic financing in which prospective beneficiaries purchased non-remunerative shares in private corporations. This expansion of the role of government paralleled more general changes in the structure of government in the first decades of the new nation, which saw the municipal corporation, in particular, evolve from its medieval role as a politically closed guild-like regulator of commerce to a new incarnation as a relatively democratic institution supported by general taxes rather than fees and flexibly organized to provide a variety of collective goods and services. (185) In effect, the shift from provision by a private corporation with restricted voting to provision by local government involved the replacement of a makeshift type of cooperative with a much more durable one. Local governments are, after all, effectively territorial consumer cooperatives established in large part to provide services that would otherwise be local monopolies. (186) And, of course, modern democratic governments have abandoned old practices of censitary suffrage in favor of the same highly restricted voting scheme that is the norm in consumer cooperatives--namely, the rule of one person, one vote.

B. Separation of Competition Law from Corporation Law

The scope of corporate law became increasingly narrow during the course of the nineteenth century, as the field progressively specialized in the respective rights and duties of a firm's shareholders, managers, and creditors--the "internal affairs" of the corporation. Concerns about monopoly--which were initially addressed by limitations in charter provisions and in corporation statutes- became increasingly extraneous to this area of law. (187) Early corporate charters and statutes contained several mechanisms that regulated monopoly pricing and dissuaded anticompetitive combinations-of which restricted voting is but one unappreciated instance. (188) Over time, however, the regulation of monopoly (natural or otherwise) came to be the object of specialized areas of law--namely, antitrust law and utility regulation--that were much better focused, and less needlessly constraining, than were charter-based corporate voting restrictions.

C. Evolution and Differentiation of Standard Corporation Statutes

Over the course of the nineteenth century, the franchise view of the corporation was all but abandoned. Since the Supreme Court decision in Charles River Bridge in 1837, monopoly privileges were no longer implied by the mere grant of a corporate charter, and they became increasingly rare thereafter. (189) Moreover, general incorporation laws, which allowed firms to incorporate without the need to obtain special legislative charters and conferred no exclusive privileges, gradually became dominant after the mid-nineteenth century; by the end of the century, they were the typical basis for incorporation, rendering the corporate form easily available to entrepreneurs seeking to raise outside capital. (190)

As this standardization and generalization of business corporation law proceeded, making that body of law particularly suited to investor-owned firms, separate statutes were adopted specifically to govern consumer-owned mutual and cooperative corporations. Maryland, for example, passed a special statute governing mutual savings and loan associations in 1843, and was followed by New Jersey in 1847, Pennsylvania in 1850, and subsequently other states as well. (191) In 1857, New York adopted one of the first mutual insurance company acts. (192) And, while early business corporations included many cooperatives in disguise, from the mid-nineteenth century onward cooperatives began to be recognized as a distinctive form of organization and to be expressly formed and labeled as such. (193) Scholars typically view the establishment of the Rochdale Society of Equitable Pioneers, an English consumer cooperative, in 1844 as marking the birth of the cooperative movement and the first enunciation of cooperative principles, including the rule of one member, one vote. (194) In 1865, Michigan enacted the first U.S. cooperative corporation statute, (195) followed within a few years by Massachusetts, New York, Pennsylvania, Connecticut, and Minnesota. (196) These cooperative statutes regularly imposed a mandatory rule of one member, one vote. (197) The statutes for mutuals generally did not make such a voting rule mandatory, though the structure of their business would generally have rendered the number of shares held by customer-owners similar. (198)

The result was that consumer-owned and producer-owned firms, as distinct from investor-owned firms, increasingly faced the option of organizing, not as jury-rigged business corporations, but under specialized statutes that provided explicitly for the formation of cooperative and mutual corporations. And while voting restrictions have disappeared from the basic business corporation statutes, and in practice from publicly traded corporations in general, the sharply restricted rule of one-member-one-vote has subsisted as the voting rule commonly chosen by cooperatives. (199)

The anti-monopoly role played by restricted voting in the early nineteenth century was, by the end of the century, largely taken over by these mutual and cooperative corporations. A dramatic example involves the large farmer-owned marketing cooperatives that started to form in the late nineteenth century in direct response to the growing market power of investor-owned grain elevators, grain brokers, and railroads, often exercised through cartels. By around 1910, after more than a decade of economic warfare, the farmer-owned marketing cooperatives achieved dominance over investor-owned firms in the markets for the major grain crops (200)--a position that the cooperatives largely retain today. (201) Indeed, mutual and cooperative firms continue to account for a large fraction of the nation's economic activity. Farmer cooperatives market roughly a quarter of all farm products and provide farmers with a similar fraction of their supplies, such as oil, fertilizer, and seed, (202) while mutual companies currently write roughly a quarter of all property and liability insurance in the United States. (203) But, in general, these firms no longer form under the basic business corporation statutes.

D. Increased Competition

Increased competition in both capital markets and product markets was presumably also important in the decline of voting restrictions. The decline of legislative chartering and the rise of free incorporation statutes meant that governmentally-granted monopolies became rare outside of regulated industries. The development of stock markets made it easier for firms to obtain financing, both to undertake capital-intensive infrastructure projects such as railroads that had previously relied upon quasi-donative customer financing and to compete with established monopolies. Improvements in transportation and communication expanded the potential scope of a given firm's market, thereby reducing the market power of local providers of goods and services. And, beginning around the middle of the nineteenth century, government regulation to protect consumers--such as reserve requirements for banks and insurance companies--permitted investor-owned business corporations to enter markets for services that had previously been limited to nonprofit and mutual enterprise. (204)

The suggestion that increased market competition was responsible for the decline of voting restrictions in business corporations is not entirely novel. Colleen Dunlavy attributes what she sees as the premature abandonment of the democratic conception of the corporation in the United States to the early intensification of competition for capital in the United States compared to Europe. (205) David Ratner, in turn, has speculated that, with the rise of general incorporation statutes and the demise of the franchise view of the corporation, "the external control afforded by competition supplanted the internal control provided by voting restrictions." (206)

We argue, by contrast, that the competition that helped foster a change in voting patterns did not take place in capital markets, but rather in product and service markets. Moreover, it was not competition in itself, but the decline of customer ownership made possible by competitive markets and governmental activity, that ultimately led to the abandonment of restricted voting rules.

E. Ease of Evasion

Another reason for the decline is that share ownership with restricted voting is an unstable means of restraining monopolistic behavior. Over time, increasing numbers of consumer-shareholders are likely to sell their shares to non-consumers (or themselves become non-consumers) whose only benefit from the shares comes from distributed profits. When the latter shareholders, no matter how fragmented, come to hold a majority of the votes among themselves, they have an incentive to turn the firm toward profit maximization rather than consumer protection. Moreover, the constraint of restricted voting structures can often be evaded by various forms of subterfuge, such as breaking up a large block of shares into smaller--and hence higher-per-share-vote--blocks whose nominal ownership is distributed among family and friends.

These various forms of evasion could largely be avoided by making shares in the corporation non-transferable--something that is often permitted or required by mutual and cooperative corporation statutes. But the business corporation statutes adopted in the nineteenth century, and the interpretations that the courts gave those statutes, generally required that shares be freely transferable, presumably on the theory that transferability was necessary to provide the liquidity that would otherwise be lost owing to the potentially infinite life of a business corporation and the inability of its shareholders, acting as individuals, to force liquidation of their investment in the firm as they could in a partnership. Strong restrictions on the transferability of shares in business corporations came to be accepted only well into the twentieth century. (207)

F. The Interests of Small Versus Large Shareholders

One of the advantages of the one-share-one-vote rule compared to restricted voting, from an economic perspective, is that it gives large shareholders an incentive to monitor and influence management. But creating incentives for shareholder monitoring was arguably less important in the consumer-owned enterprises of the early nineteenth century than in the average listed corporation today. Because early shareholders transacted with the firm on a regular basis in their role as consumers, they were in a better position to observe mismanagement than were small and dispersed investors. Moreover, early turnpikes, bridges, canals, and banks were fundamentally local enterprises, and geographic proximity to the firm's headquarters and operations further facilitated monitoring. Finally, investment shares in the consumer-owned enterprises were presumably relatively equal, as they typically are in mutual and cooperative firms, since the amount of fire insurance bought by local merchants, or the use made of a short turnpike by local farmers and merchants, probably did not vary by large amounts. Only investors seeking profit would have an incentive to buy a large block of stock in such a corporation.

In contrast, for the purely investor-owned firms that became increasingly prevalent among business corporations over the course of the nineteenth century, one-share-one-vote was the natural rule. In addition to stimulating efficient monitoring, as just described, that rule avoids the exploitation of large shareholders by small ones that can result from restricted voting--for example, through the threat of holding up efficient transactions in an effort to induce redistribution from large to small shareholders.

In sum, as consumer ownership increasingly came to be either inefficient or accommodated through specialized statutes for cooperative and mutual firms, a rule of one-share-one-vote naturally became the dominant practice among business corporations, as well as the default rule in the business corporation statutes and a requirement for listing stock on the nation's largest stock exchange.

G. Mixed and Muddled Motives

Although we have been seeking here to make a persuasive case for the consumer protection theory of restricted voting schemes, we do not mean to suggest that there were no other motives behind their adoption, or that the reasons for adopting restricted voting--whether consumer protection or something else--were always clear in the minds of the individuals who formed business corporations or the minds of the legislators who granted individual corporate charters or enacted general corporation statutes.

In the late-eighteenth and early-nineteenth centuries, there was clearly widespread concern about the power and autonomy of business corporations. That vague but strong concern surely extended well beyond the possibility that corporations might engage in monopolistic exploitation of their customers. It led legislators to impose a variety of relatively arbitrary restrictions on incorporated firms--such as maximum lifespans and maximum capitalization--that had no special bearing on consumer protection, and that were evidently intended simply to limit the power of corporations generally, as a prophylactic against unforeseen abuses. Viewed this way, the various limitations imposed on early business corporations, including restricted voting, appear broadly consistent with Dunlavy's interpretation of them as an expression of the nation's democratic spirit.

It is also quite possible that there is some validity to the investor protection theory. There may have been firms that adopted restricted voting with the intention of protecting small shareholders from large ones. This would not have been illogical. The difficulty is that-in contrast with the consumer protection theory--we see little direct evidence of this motive. Moreover, as a general explanation, it seems inconsistent with both the pattern of restricted voting across industries and the gradual disappearance of restricted voting over the course of the nineteenth century.

Eric Hilt, in an article written in response to an earlier draft of this article, presents a comparative test of our consumer protection theory with the investor protection theory developed earlier by him and others. (208) For this purpose he reviews the data from his earlier studies, and also adds to that data an impressive survey of the wealth and general occupation of shareholders in New York corporations as of 1826 who were resident in New York City. (209) Hilt recognizes the force of the consumer protection theory, accepting in particular that the pattern of restricted voting he observes is consistent with that theory: restricted voting rules were nearly ubiquitous in New York turnpike companies, almost totally absent in manufacturing companies, and present in about a quarter of bank charters. Only the insurance companies in his sample--which rarely had restricted voting--differ from the pattern we have observed in other states. (210) Nonetheless, Hilt argues that there is other evidence that weighs in favor of the investor protection theory.

First, Hilt shows that the median wealth of shareholders in manufacturing companies was considerably larger than that of shareholders in other types of corporations, and that the value of the stock held by the median shareholder was much larger in manufacturing companies than in other types of corporations. Indeed, he observes that the par value of stock was generally set much higher in manufacturing firms than in other types of firms, impeding all but the wealthy from buying shares. Hilt concludes from this that, "[c]onsistent with the investor protection theory, manufacturing firms did not employ graduated voting rights because they had no small investors to protect." (211) But the logic runs more easily in the other direction. Why did only manufacturing firms have no small shareholders? A plausible answer is: because manufacturing firms, lacking market power, had no consumers to protect. (Hilt himself notes that, "manufacturers often produced undifferentiated products such as cotton cloth and faced intense competition from domestic and foreign producers, and thus did not hold much market power." (212) Consequently, the charters of manufacturing companies did not subject them to restricted voting, because the principal purpose of such a rule was to facilitate distribution of stock, and, correspondingly, voting power, among the firms' (prospective) customers as protection from product market exploitation by the firm.

Second, Hilt observes that when a company's charter provided for restricted voting, the charter often contained other restrictions that were unambiguously designed to protect customers. In particular, the charters of turnpike and bridge companies commonly set out in detail the tolls that the companies could charge for different types of traffic. Hilt concludes from this that turnpike and bridge companies "had no discretion over pricing," and that restricted voting "was therefore most likely motivated by concerns unrelated to the market power of firms." (213) But the strength of this inference is doubtful. For one thing, as Hilt concedes, the presence of price restrictions in corporate charters is unambiguous evidence that the legislature was concerned about the firm's exercise of monopoly power vis-a-vis consumers. (214) For another, it seems unlikely that legislators would have believed that price restrictions in a company's charter would successfully eliminate all of a firm's market power. The prices set were maximums; a customer-controlled firm would presumably have been free to set lower tolls, or no tolls at all, if costs permitted. Moreover, companies subject to charter provisions limiting prices presumably retained the ability to increase their profits by cutting their operating and maintenance costs to inefficiently low levels. And one must wonder how well the pricing provisions in the charters were enforced in any event. The more convincing interpretation, it seems, is that legislatures imposed multiple limitations in the charters of early corporations that were perceived as monopolies, in the hope that together those controls might be effective. Other such (crude) controls, for example, included limits on the lifespan of a corporation and on the total assets that a corporation could hold.

But we do not want to overstate our own case. The pattern of restricted voting revealed in Table 1 of the Appendix, while broadly consistent with the consumer protection theory, contains a great deal of variation--across industries, across states, and across time--that seems hard to explain in great detail with the consumer protection theory, or with any simple functional theory. On top of variations in interests, ideologies, and understanding, there was presumably much copying of charter provisions from one firm to another, and from one statute to another, without much hard thought as to whether the old provisions made sense in the changed context. (215) We see further evidence of this noisiness when we turn, as we do now, to the historical experience with restricted voting in other countries.

IV. VOTING RESTRICTIONS IN COMPARATIVE PERSPECTIVE

Early U.S. corporations were not unique in resorting to voting rules that limited the number of votes that large shareholders could cast. Similar schemes were present among the closest antecedents of the modern business corporation, dating back to the Dutch East India Company, as well as in a number of other jurisdictions in the nineteenth century. This Part examines the characteristics and the rationale for the adoption of restricted voting in these contexts. Although the evidence of consumer ownership in these cases is mixed, voting restrictions still appear to serve more plausibly as a response to concerns about market power than as a mechanism to protect the financial interests of small investors.

A. The Dutch East India Company

The pioneer Dutch East India Company--also known as the VOC, an acronym for its Dutch name Vereenigde Oost-Indische Compagnie--is widely recognized as the first publicly-traded business corporation. (216) The company was chartered in 1602 as the product of a merger, clearly designed to eliminate competition, of six existing trading companies, each of which previously operated as a form of commenda or limited partnership established for single voyages. (217) In exchange for a grant by the state of a monopoly on the trade routes between the Cape of Good Hope and the Straits of Magellan, the VOC was also to fulfill public functions such as assisting in wars of independence against Spain.

The VOC charter restricted the voting rights of large shareholders, though hardly in a way that benefited minority investors. The company had a two-tier shareholding structure composed, on the one hand, of governors or bewindhebbers, who were the active merchants who had been in charge of the six prior trading companies and had hereditary status, and, on the other hand, of the outside investor class of participanten. Bewindhebbers had one vote each and only they could be elected to the VOC governing body, the "Seventeen Directors." (218) Participanten, by contrast, lacked voting and information rights altogether. Although the VOC's initial charter gave shareholders the right to withdraw their capital contributions after the first ten years, a subsequent charter amendment orchestrated by bewindhebbers and the state eliminated this right, effectively locking in outside investors against their will. (219)

The VOC gradually came to boast most of the key elements of the corporate form as we know it today--legal personality, limited liability, delegated management, and transferable shares--as well as partial investor ownership. (220) Nevertheless, the company also was partly owned and entirely controlled by the merchant traders in charge of the partnerships that it replaced, thus effectively functioning as a consumers' cooperative. As described by a Dutch scholar, similarly to the early companies, "the governors [of the VOC] were simultaneously the suppliers of the goods sent to Asia and the main buyers of the spices and other goods that the ships returned with." (221) Until 1623, the governors had a right to prior purchase on the goods shipped by the company, which they then resold at a profit. From the perspective of the outside investors, the merchant governors were essentially self-dealing by charging themselves low prices for the merchandise to the detriment of the firm's profitability. (222) Despite the charter's mandate, dividends were not distributed until 1610 and 1612, and then were paid out only in kind--in mace, pepper, and nutmeg--at a time in which the market price for these commodities was particularly low due to excess supply. (223)

In this context, the rule of one vote per governor ensured that no single merchant would be able to appropriate the benefits of the firm's monopoly to himself at the expense of other merchants. The famous episodes involving Isaac Le Maire are illustrative of this concern. Initially the largest single shareholder in the Amsterdam Chamber (224) and a bewindhebber sitting on the board of governors, Le Maire was among a handful of directors that apparently attempted to divert the firm's potential trading profits to themselves by undertaking an expedition of fourteen ships under their own accounts instead of those of the company. (225) Since his large shareholdings were not accompanied by greater voting power, Le Maire was soon ousted by other governors in 1605 on charges of embezzlement, and was eventually forced to sign an agreement not to compete with the VOC. (226)

Having retained stock in the company following this incident, in 1609 Le Maire led one of the first expressions of shareholder advocacy. (227) Le Maire protested in a petition to the VOC board, denouncing the "impotence" of the VOC, its failure to make discoveries, and its tendency to send out too few ships. (228) In addition to his written complaint, Le Maire launched a bear raid against the company, (229) which ultimately resulted in the enactment of a ban on naked short selling. (230) But Le Maire's main source of discontent was not the lack of dividend payments by the company, but rather the extended scope of its monopoly, which legally (though not practically) prevented him from launching competing ventures. (231) In fact, Le Maire

   subordinated his ... criticism [of the company's corporate
   governance] to his main concern, that the VOC's monopoly should be
   restricted and not, as the board wanted, extended. Big merchants
   such as he and De Moucheron were keen to get the scope of the
   intercontinental trade widened and chafed at the unremunerative VOC
   monopoly. (232)


Over time, however, the protests of outside investors were heard. The VOC's charter of 1623 simultaneously curbed self-dealing by the merchant governors and increased the rights of large investors. The new charter eliminated the governors' right of prior purchase, only permitting bewindhebbers to purchase goods from the company if they had fixed prices or were bought in public auctions. (233) It also modified the system of director compensation by providing for a joint remuneration of one percent of net returns in lieu of the prior scheme that was based on the value of the equipping of ships. (234) At the same time, the charter granted voting and supervisory rights to the major shareholders. Major participanten became eligible for a newly created Committee of Nine, an early form of supervisory board, and had a say in the appointment of governors, but small shareholders remained thoroughly disenfranchised. (235)

In short, the early VOC was essentially a monopolistic traders' cooperative--a cartel--whose restrictive voting rules were clearly designed not to protect small outside shareholders, but instead to protect the firm's trader-members from the control of either outside investors or prominent insiders like Le Maire.

B. Nineteenth-Century Voting Restrictions in England, Brazil, and France

In recent years, economic historians have documented the presence of charter rules limiting the number of votes that large shareholders could cast in a variety of jurisdictions in the early nineteenth century. (236) This raises the question of whether the shift from restricted voting to proportional voting paralleled the separation of ownership and consumption in these other countries as well--an issue which we have examined in greater detail in a companion article. (237)

In England, the pattern of shareholder voting rights in the late eighteenth and early nineteenth centuries is largely similar to that of the United States, and seems to support the consumer protection account of voting restrictions. Restricted voting schemes were particularly common among firms providing essential infrastructure services to their merchant-owners--such as canal, insurance, and gas lighting companies--but were rarer among purely investor-owned firms. (238) Just like U.S. turnpikes, gas lighting companies in the U.K. rarely paid dividends, but this was hardly the object of discontent among shareholders, who seemed more than happy to receive a return on their investment in the form of lower gas prices. (239)

By contrast, the Brazilian Council of State and the French Conseil d'Etat--the central government bodies in charge of approving requests for incorporation--consistently imposed voting caps across the board, without regard to industry or ownership structure, as a condition to the grant of a corporate charter. (240) This poses challenges to both the investor protection and the consumer protection interpretations of voting restrictions. To be sure, a significant number of early corporations in both jurisdictions had their roots in the insurance and public works industries, hinting at their cooperative or mutual character. (241) Nevertheless, voting restrictions were clearly prevalent among purely investor-owned firms as well, which contradicts the association--largely present in the United States and Britain-between consumer ownership and restricted voting schemes.

But if the observed patterns on nineteenth-century voting rights in Brazil and France fail to confirm the consumer protection view of voting restrictions, they certainly help to refute the interpretation of these rules as an investor protection device. First, both countries' Councils of State not only insisted on strict voting caps but also admitted minimum stock ownership requirements for attending and casting votes in shareholder meetings, thereby disenfranchising small shareholders. (242) Second, the incidence of voting restrictions fell precipitously as soon as merchants began to have a real choice as to the voting rule following the advent of general incorporation in these jurisdictions. Contrary to the view that restricted voting schemes "were critical to encouraging the participation of small investors in equity ownership" in Brazil, (243) voting caps were being abandoned precisely as the country's capital market boomed. (244)

CONCLUSION

Shareholders in business corporations around the world today are generally investors whose primary, and typically only, interest in the firm is to obtain a financial return. (245) The need to protect outside investors against abuse by insiders--either managers or controlling shareholders--largely dominates corporate law and policy. (246) The dominance of investor-owned firms came to be such that the application of the U.S. federal securities law regime that emerged in the twentieth century--notably, as a result of the Securities Act of 1933 and the Securities Exchange Act of 1934--is premised on the existence of an "investment contract" where the shareholders' primary interest in the enterprise is to "invest for profit." (247) The separation between investment and consumption thus became a defining element for the scope of securities regulation, placing possible abuses of shareholder-consumers in cooperative corporations, no matter how large, (248) outside the purview of securities law.

Before the late nineteenth century, however, shareholders in a significant fraction of business corporations were not primarily interested in obtaining a financial return on their investment but rather in having access to the firm's services at reasonable cost. Accordingly, some peculiar features of early corporate law and practice--including, in particular, restricted voting schemes--served not to protect the shareholders as investors but to protect them as consumers.

By the late nineteenth century, governmental provision of infrastructure had expanded, while legal rules addressing problems of market power were spun off from the law of business corporations and embodied in separate statutory regimes (such as antitrust law, utility regulation, and regulation of banking and insurance), and distinct bodies of organizational law were developed to cover cooperative corporations. This evolution permitted business corporations, and the corporate law that governs them, to focus on the agency problems within investor-owned firms--between controlling and non-controlling shareholders, and between managers and the shareholders as a group--for which the rule of one share, one vote appears more suitable than restricted voting. (249)

The appreciation of the distinctive ownership structure of nineteenth-century corporations cautions against automatically drawing policy lessons from historical practices for the development of capital markets today. Contrary to existing suggestions based on a misreading of nineteenth-century corporate practice, (250) voting caps are as unlikely to protect investors' interests today as they were in the past. For one thing, it is not apparent that, to be effective, corporations subject to restricted voting rules require less well-developed legal regimes than do corporations operating under a rule of one-share-one-vote. Moreover, there are obvious costs to restricted voting that seem relatively larger for purely investor-owned firms than for consumer-owned firms. Restricted voting is likely to discourage investors from investing relatively large amounts of money in a firm, since the investment will be disproportionally under the control of other smaller investors. Moreover, with restricted voting, a firm can fall under the control of entrenched managers lacking a strong incentive to maximize profits. And, over time, restricted voting rules can be avoided, especially if the courts do not develop and enforce a relatively sophisticated set of doctrines to prevent it. Analogous problems surely faced the cooperative-type corporations of the early nineteenth century, though they may have been relatively modest. The essentially donative share purchases in those corporations might not have varied greatly in magnitude even without restricted voting. And the geographic propinquity of an infrastructural firm's shareholder/donors may have afforded them relatively easy control over the managers of those firms.

Legal and economic scholarship today focuses heavily on agency problems regarding managers and controlling shareholders, and on the evolution of the separation between ownership and control that has aggravated those problems. If we look back to the nineteenth century, however, we see another important--though frequently overlooked- turning point in the history of the business corporation: namely, the separation between ownership and consumption. Ignoring that earlier phase in the development of the business corporation can result in an anachronistic misinterpretation of the restricted voting structures that were so widely employed in the past, but that have now largely disappeared. Failure to understand the role played by restricted voting in the past, moreover, may lead us to overestimate the potential advantages of current proposals for a return to restricted voting, in both developing and mature economies.

APPENDIX: PATTERNS OF RESTRICTED VOTING ACROSS INDUSTRIES, STATES, AND DECADES

The results reported in Tables 1 and 2 below are derived from the Sylla/Wright data set. (251) That data set includes corporations with legislatively granted charters, but excludes corporations that formed under statutes--such as the New York statute of 1811 for manufacturing firms (252)--that provided for incorporation as of right without special legislative action. For most industries, legislatively granted charters were evidently dominant until the middle of the nineteenth century even in the presence of incorporation statutes. (253) For this reason, the pattern of corporate voting rules reflected in the Sylla/Wright data set presumably offers a reasonably accurate picture of the relative prevalence of restricted voting to be found among firms in different industries, states, and decades. That is evidently not true for manufacturing firms, however, as discussed in the text. (254) Thus, the results in the tables below presumably understate the disparities between the voting rules adopted by manufacturing corporations and those adopted by corporations in other industries.

The full data set includes 22,419 observations. The voting rule for each of these corporations was coded as "one-share-one-vote," "one-person-one-vote," "prudent mean" (which includes all capped and graduated voting rules), or "not specified." We aggregated the firms with one-person-one-vote and prudent mean rules into a single category of "restricted" voting, permitting us to code each firm with a binary variable indicating whether the firm had restricted voting or one-share-one-vote.

The voting rule is specified for less than half the corporations in the sample, perhaps because the voting rule was included in the corporate bylaws rather than in the charter, or because the voting rule was established by a separate statute not located by the coder of the data. For the analyses reported here we eliminated all firms for which the voting rule was missing, though this of course leaves questions about systematic bias in the sample that remains. We were left with a sample of 10,996 firms. We then eliminated all firms chartered in states other than the original thirteen, firms operating in industries (usually small) other than those reported in the tables below, and all firms incorporated in either Massachusetts or South Carolina (because of irregularities that suggested systematic miscoding or missing data. (255)). We also eliminated all observations for the decade of the 1860s, which were quite limited. We were finally left with a sample of 6,387 corporations, which we used for the analyses reported here.

The Sylla/Wright data set contains no information on the ownership of the firms involved other than the names of the original incorporators. As a consequence, it does not permit us to explore directly the relationship between firms' voting rules and the number and nature of their shareholders.

Table 1 below offers a simple breakdown of the frequency of restricted voting rules among firms by industry and decade. Table 2 presents a regression analysis in which the dependent variable is an indicator variable taking the value of 1 if the firm has a restricted voting rule and o if the voting rule is one-share-one-vote. The omitted variables in that regression are manufacturing (industry), Georgia (state), and 1850s (decade). Therefore, each regression coefficient in Table 2 reflects the difference between (1) the probability that a corporation in the given industry, state, and decade will have a restricted voting rule and (2) the probability that a restricted voting rule will be found in a corporation engaged in manufacturing in Georgia in the 1850s.

(1.) 1 ADAM SMITH, THE WEALTH OF NATIONS 116-17 (P.F. Collier & Son 1909) (1776).

(2.) 3 id. at 111-12.

(3.) See, e.g., John Armour, Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategies, in THE ANATOMY OF CORPORATE LAW: A COMPARATIVE AND FUNCTIONAL APPROACH 35 (Reinier Kraakman et al. eds., 2d ed. 2009) [hereinafter ANATOMY OF CORPORATE LAW].

(4.) See infra notes 14-15.

(5.) After more than a century of relative stability, we are now in the midst of another period of rapid change in legal forms of enterprise organization. See Henry Hansmann, Reinier Kraakman & Richard Squire, The New Business Entities in Evolutionary Perspective, 2005 U. ILL. L. REV. 5 (describing the trend in new business forms as "extending strong entity shielding to unrestricted types of entities").

(6.) See, e.g., ALDO MUSACCHIO, EXPERIMENTS IN FINANCIAL DEMOCRACY: CORPORATE GOVERNANCE AND FINANCIAL DEVELOPMENT IN BRAZIL, 1882-1950 (2009).

(7.) As Justice Scalia has recently noted, "[m]ost of the Founders' resentment towards corporations was directed at the state-granted monopoly privileges that individually chartered corporations enjoyed." Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 387 (2010) (Scalia, J., concurring).

(8.) HENRY HANSMANN, THE OWNERSHIP OF ENTERPRISE 24-25, 122-25, 150 (2000).

(9.) There is, to be sure, deviation from that norm again today, for reasons not universally understood. These modern deviations are progressive rather than regressive.

(10.) David L. Ramer, The Government of Business Corporations: Critical Reflections on the Rule of "One Share, One Vote," 56 CORNELL L. REV. 1 (1970).

(11.) Colleen A. Dunlavy, Social Conceptions of the Corporation: Insights from the History of Shareholder Voting Rights, 63 WASH. & LEE L. REV. 1347 (2006).

(12.) Id. at 1354.

(13.) Id. at 1354-56 (suggesting that early Americans saw one-vote-per-share constructions as allowing shareholders to buy control of the company, a dangerous exercise of power); see also Colleen A. Dunlavy, Corporate Governance in Late 19th-Century Europe and the U.S.: The Case of Shareholder Voting Rights, in COMPARATIVE CORPORATE GOVERNANCE 5, 12-13 (Klaus Hopt et al. eds., 1998) (attributing the "aversion to plutocratic voting rights" both to the prevailing view that shareholders were "members" of the corporation, rather than providers of capital, and to the characteristic American fear of concentrated power).

(14.) Eric Hilt, When Did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century, 68 J. ECON. HIST. 645, 660 (2008); see also MUSACCHIO, supra note 6 (arguing that voting restrictions compensated for the weak institutional environment in early twentieth-century Brazil).

(15.) Hilt, supra note 14, at 648; see also Yoshiro Miwa & J. Mark Ramseyer, Corporate Governance in Transitional Economies: Lessons from the Prewar Japanese Cotton Textile Industry, 29 J. LEGAL STUD. 171, 199 (2000) (describing the adoption of similar voting restrictions by early nineteenth-century corporations in Japan and regarding these arrangements as minority protection devices against misbehavior by controlling shareholders); Aldo Musacchio, Laws Versus Contracts: Shareholder Protections and Ownership Concentration in Brazil, 1890-1950, 82 Bus. HIST. REV. 445, 449 (2008) (describing the maximum voting provisions and graduated, regressive voting scales in Brazil as mechanisms to

balance voting power across investors of different sizes); Robert E. Wright & Richard Sylla, Corporate Governance and Stockholder/Stakeholder Activism in the United States, 1790-1860: New Data and Perspectives, in ORIGINS OF SHAREHOLDER ADVOCACY 231, 240 (Jonathan G.S. Koppell ed., 2011) (arguing that capped and graduated voting schemes in nineteenth-century U.S. corporations were "designed to mitigate agency problems between large and small shareholders"); Pedro Neves & Jaime Reis, Corporate Law vs. Company Charter: Shareholder Protection and Corporate Governance in Late Nineteenth Century Portugal (Aug. 2010) (unpublished manuscript) (on file with authors) (interpreting restricted voting provisions in Portuguese corporate charters as an investor protection device); Gonzalo Islas Rojas, Finance Without Law? An Analysis of Corporate Charters in a Laissez-Faire Environment (July 3, 2009) (unpublished manuscript), https://editorialexpress.com/cgi-bin/conference/download.cgi ?db_name=SECHI200g&paper_id=65 (finding that charters for Chilean corporations included provisions favorable to outside investors during a period when Chilean corporate law was silent on such matters).

(16.) Both of these questions are well documented but so far unexplained in the literature. See, e.g., Pauline Maier, The Revolutionary Origins of the American Corporation, 50 WM. & MARY Q. 51, 78 (1993) (noting that voting "[r]estrictions were sometimes applied to certain types of corporations but not to others, or they might be abandoned in a process of change that has never been fully traced or explained").

(17.) See, e.g., ALFRED D. CHANDLER, JR., THE VISIBLE HAND: THE MANAGERIAL REVOLUTION IN AMERICAN BUSINESS 28 (1977) (describing the creation of early U.S. corporations by merchants interested in obtaining "essential specialized ancillary services to support their profit-making commercial activities").

(18.) Donald J. Smythe, Shareholder Democracy and the Economic Purpose of the Corporation, 63 WASH. & LEE L. REV. 1407, 1416-18 (2006).

(19.) Joseph H. Sommer, The Birth of the American Business Corporation: Of Banks, Corporate Governance, and Social Responsibility, 49 BUFF. L. REV. 1011, 1021, 1034-45 (2001).

(20.) Most of the existing economic literature underscores the superior incentives generated by the one-share-one-vote rule. See, e.g., Renee Adams & Daniel Ferreira, One Share-One Vote: The Empirical Evidence, 12 REV. FIN. 51, 52 (2008) ("The idea that the 'one share-one vote' principle is desirable is what might be considered the dominant view in the literature."); Paul A. Gompers, Joy Ishii & Andrew Metrick, Extreme Governance: An Analysis of Dual-Class Firms in the United States, 23 REV. FIN. STUD. 1051 (2010) (finding an association between dual-class shares and lower firm value) ; see also Mike Burkart & Samuel Lee, One Share-One Vote: The Theory, 12 REV. FIN. 1, 41 (2008) (describing the tradeoffs associated with the oneshare-one-vote rule, and concluding that "mandating one share-one vote may not improve overall efficiency"). For recent works defending the potential benefits of augmented voting, see Zohar Goshen & Assaf Hamdani, Concentrated Ownership Revisited: The Idiosyncratic Value of Corporate Control (Columbia Univ. Ctr. for Law & Econ. Studies, Working Paper No. 444, 2013), http://ssrn.com/abstract=2228194, which interprets dual-class shares as a mechanism that allows entrepreneurs to retain uncontested control over the firm and, therefore, to pursue the idiosyncratic value related to their business ideas; and Ronald J. Gilson & Alan Schwartz, Contracting About Private Benefits of Control (Yale Program for Studies in Law, Econ. & Pub. Policy, Research Paper No. 461, July 1, 2013), http://ssrn.com/abstract=2182781, which argues that dual-class shares allow controlling shareholders to extract private benefits of control that compensate for their monitoring efforts.

(21.) Eric Posner & E. Glen Weyl, Quadratic Vote Buying as Efficient Corporate Governance, 81 U. CHI. L. REV. (forthcoming 2014), http://ssrn.com/abstract=2264245.

(22.) JON C. TEAFORD, THE MUNICIPAL REVOLUTION IN AMERICA: ORIGINS OF MODERN URBAN GOVERNMENT 1650-1825, at 16-34 (1975).

(23.) See id. at 28.

(24.) Id. at 64-78.

(25.) See, e.g., LOUIS HARTZ, ECONOMIC POLICY AND DEMOCRATIC THOUGHT: PENNSYLVANIA, 1776-1860, at 11-12, 42-43 (1948); see also GEORGE ROGERS TAYLOR, THE TRANSPORTATION REVOLUTION, 1815-1860, at 98-99 (1951) (positing that regional rivalries accounted for the local nature of early railroads' financing sources); Paul Chen, The Constitutional Politics of Roads and Canals: Inter-Branch Dialogue over Internal Improvements, 1800-1828, 28 WHITTIER L. REV. 625 (2006) (arguing that the failure to establish a coherent system of federally funded infrastructure during the early nineteenth century was due to the strong "constitutional scruples" of Republican Presidents during the period and the corruption of sectional influences within Congress) ; Smythe, supra note 18, at 1416 (attributing the lack of governmental funding of public improvements to prevailing fears of higher taxes). One example of such opposition came in 1816 when President Madison vetoed a federally funded internal improvements bill for state infrastructure, arguing that without amending the U.S. Constitution, Congress lacked the power to pass such a bill. See Pamela L. Baker, The Washington National Road Bill and the Struggle to Adopt a Federal System of Internal Improvement, 22 J. EARLY REPUBLIC 437, 442-43 (2002).

(26.) TAYLOR, supra note 25, at 24 ("The corporate form of organization appears to have been used for the turnpikes practically without exception.").

(27.) RONALD E. SEAVOY, THE ORIGINS OF THE AMERICAN BUSINESS CORPORATION, 1784-1855, at 39-40 (1982); TAYLOR, supra note 25, at 25 ("From 1815 to 1830 probably more charters were granted for this type of business than for any other.").

(28.) Daniel B. Klein & John Majewski, Economy, Community, and Law: The Turnpike Movement in New York, 1797-1845, 26 LAW & SOC'Y REV. 469, 470 (1992).

(29.) 2 JOSEPH STANCLIFFE DAVIS, ESSAYS IN THE EARLIER HISTORY OF AMERICAN CORPORATIONS 323 (1917).

(30.) Hilt, supra note 14, at 658 tbl.1. Hilt's sample reflects the prevalence of turnpike companies in New York, as they make up 304 of the total sample of 812 business corporations. Id. New York's general incorporation law for turnpikes of 1807 provided for one vote per share up to ten shares, and one additional vote per five shares beyond that. An Act Relative to Turnpike Companies, ch. 38, [section] 2, 1807 N.Y. Laws 50, 50.

(31.) Hilt, supra note 14, at 658 tbl.1.

(32.) JOHN W. CADMAN, JR., THE CORPORATION IN NEW JERSEY: BUSINESS AND POLIT1CS 1791-1875, at 308-09 (1949). And although a higher proportion of bank charters than turnpike charters made use of graduated voting schemes, the reverse was true of voting caps. Id.

(33.) The dataset has been used in earlier work by Richard Sylla and Robert E. Wright. See Wright & Sylla, supra note 15; see also Robert E. Wright, Corporation Nation: Rise and Demise of the American Economic Juggernaut (2011) (unpublished manuscript) (on file with author).

(34.) See TAYLOR, supra note 25, at 25.

(35.) SEAVOY, supra note 27, at 41; see also JOSEPH AUSTIN DURRENBERGER, TURNPIKES: A STUDY OF THE TOLL ROAD MOVEMENT IN THE MIDDLE ATLANTIC STATES AND MARYLAND 104 (1931) (analyzing numerous turnpike shareholder lists and concluding that "subscribers were usually more interested in the possible benefits the new lines of communication would bring than in the profitableness of their investment"); Klein & Majewski, supra note 28, at 469 ("Landowners, merchants, and farmers struggled to finance turnpikes, not so much in hopes of company dividends but in hopes of improved transportation, stimulated commerce, and higher land values.").

(36.) See, e.g., Essex Tpk. Corp. v. Collins, 8 Mass. 292, 297 (1811) ("It is well known that in this country enterprises of this description have not been productive of profit to those who have engaged in them; nor is this generally a primary object of consideration with the subscribers.") ; see also infra notes 43-44 and accompanying text.

(37.) Daniel B. Klein, The Voluntary Provision of Public Goods? The Turnpike Companies of Early America, 28 ECON. INQUIRY 788 (1990).

(38.) Id. at 802-03 (stating that mechanisms of social pressure served as drivers of turnpike investments).

(39.) Id. at 804; see also Essex Tpk. Corp., 8 Mass. at 297 ("IT]he benefit contemplated to accrue individually to the new subscribers from this new direction of the turnpike formed another valuable consideration.... [The subscribers] are well aware that the community is benefited by them, and they agree to take a share of the burden."); Klein & Majewski, supra note 28, at 501 (excerpting a newspaper article encouraging subscriptions for the New Paltz Turnpike that argues that the enterprise "can only be done by the stock being distributed very generally among the inhabitants of the village-each finding a motive to take a little, not from an expectation of its being productive (though it no doubt would pay something) but from an expectation that the investment would be returned with treble interest, in the addition which would be made to business and the value of property" (internal quotation marks omitted)).

(40.) 8 Mass. 267 (1811).

(41.) Id. at 270-71.

(42.) Id. at 271 ("The defendant may truly say, Non haec in foedera veni. He was not bound by the application of the directors to the legislature for the alteration of the course of the road, nor by the consent of the corporation thereto.").

(43.) 2 Pen. & W. 466 (Pa. 1831).

(44.) Id. at 469; see also id. at 470 ("That an expectation of benefit from a rise in the value of property near the route has been a powerful spring, in putting these incorporated bodies in motion, is not to be denied. Yet though reliance has been placed on the effect of it, the legislature has never encouraged it so far as to recognize it as a condition of the contract of subscription.").

(45.) Id. at 470-72.

(46.) To be sure, toll prices were typically set by corporate charters and were subject to legislative scrutiny. Nevertheless, charter amendments were common, hence leaving open the possibility that a dominant shareholder with a financial interest in the firm would lobby the legislature for toll price increases. See Wright & Sylla, supra note 15, at 237 (describing the high frequency of charter amendments in the nineteenth century).

(47.) Klein & Majewski, supra note 28, at 499 ("To what extent companies even petitioned for [toll] increases we do not know, but it appears to have been little."). Interestingly, the typical toll pricing structure seemed to privilege productive over leisurely transportation; by far the most expensive tolls rates applied to "pleasure carriages" (as opposed to the transportation of commercial and farm products). Id. at 484. Furthermore, English turnpikes in the same period were commonly constructed by nonprofit corporations rather than business corporations, with adjacent landowners and small investors purchasing bonds issued by the nonprofit corporation. Those bonds paid a reasonable rate of interest, and tolls were kept high enough to pay the interest. Thus, English turnpikes were effectively profit-making ventures in nonprofit form, while the U.S. turnpikes were essentially nonprofit ventures in profit-making form. See, e.g., William Albert, The Turnpike Trusts, in TRANSPORT IN THE INDUSTRIAL REVOLUTION 31 (Derek H. Aldcroft & Michael J. Freeman eds., 1983) (on turnpike trusts in England); Dan Bogart, Did Turnpike Trusts Increase Transportation Investment in Eighteenth-Century England?, 65 J. ECON. HIST. 439 (2005) (same).

(48.) REPORT OF THE REVISORS OF THE CIVIL CODE OF VIRGINIA MADE TO THE GENERAL ASSEMBLY AT DECEMBER SESSION 1846, at 335 n.* (1847).

(49.) Id. (emphasis added) (noting additionally that the large voting power of small shareholders and their considerations "foreign to the interests of the stockholders, as such" had often "conduced to the bad success which has attended so many of [Virginia's] works of internal improvement"). The Report ultimately proposed the adoption of a more flexible graduated voting scale that gave far greater voice to large shareholders. Id. at 336 n.*.

(50.) Hilt, supra note 14, at 658 tbl.1. The 42% figure may be a slight underestimation, as Hilt reports no information on voting rules for 3% of bridge companies. Id.

(51.) CADMAN, supra note 32, at 309; EDWIN MERRICK DODD, AMERICAN BUSINESS CORPORATIONS UNTIL 1860 (WITH SPECIAL REFERENCE TO MASSACHUSETTS) 243 (1954).

(52.) Alex Dreier, Shareholder Voting Rules in 19th Century American Corporations: Law, Economics and Ideology 22 tbl. (Apr. 24, 1995) (unpublished manuscript) (on file with author) (showing that only one out of nineteen bridge companies chartered in Connecticut between 1789 and 1836 adopted a voting cap).

(53.) 36 U.S. (11 Pet.) 420 (1837).

(54.) 14 N.J.L. 222 (1834).

(55.) But see Ramer, supra note 10, at 9 (arguing that "there is no real indication that any common law rule of one vote for each member of a business corporation ever existed" and highlighting that the Taylor court failed to cite any precedent on this issue).

(56.) 2 DAVIS, supra note 29, at 187. The charter of Charles River Bridge itself was silent as to shareholder voting rights, but bridges subsequently incorporated in Massachusetts usually adopted voting caps.

(57.) Charles River Bridge, 36 U.S. at 470 (acknowledging that the chartering of Warren Bridge "has ruined the property of subsequent innocent stockholders [of Charles River Bridge], who have made their investments at a high price").

(58.) Taylor v. Griswold, 14 N.J.L. 222, 234 (1834).

(59.) Id. at 237.

(60.) Dunlavy, supra note 11, at 1370-71.

(61.) Taylor, 14 N.J.L. at 242 (emphasis added and omitted).

(62.) Id. at 234. The Revisors of the Civil Code of Virginia expressly discussed the link between regressive voting rules and consumers' interests. See supra notes 48-49 and accompanying text; see also Ratner, supra note 10 (proposing the adoption of a one-shareholder, one-vote rule in order to implement a stakeholder-oriented model of corporate governance).

(63.) DODD, supra note 51, at 249-51. Some of these proposed canals, however, never came into being.

(64.) CADMAN, supra note 32, at 309; 2 DAVIS, supra note 29, at 174 (giving three examples "of which charters were secured but upon which no work was done" in Massachusetts); Dreier, supra note 52, at 22-23.

(65.) See CHANDLER, supra note 17, at 35 ("The first canal lines were organized by merchants who needed the facilities to transport their goods. But they quickly came to be owned and operated by specialists.").

(66.) 2 DAVIS, supra note 29, at 167-69 (noting that Dutch capital contributed to "the Proprietors of the Locks and Canals on Connecticut River," chartered by Massachusetts in 1792, and London Capital financed most of the construction of a canal on the Connecticut River at Bellows Falls in Vermont, also chartered in 1792).

(67.) CHRISTOPHER ROBERTS, THE MIDDLESEX CANAL 1793-1860, at 28 (1938) (reporting that the leading citizens of Medford "were interested both directly as landowners and more indirectly as men of business attracted by the prospect of general prosperity").

(68.) Id. at 45.

(69.) Id. at 41. The original charter provided that "[f]rom one hundred to three hundred dollars, inclusive, there shall be allowed one vote; from three hundred and one, to six hundred dollars, inclusive, shall be allowed one vote more; and for every thousand, above one thousand, shall be allowed one vote more, provided no one Proprietor shall have more than twenty votes." An Act for Incorporating James Sullivan, and Others, by the Name and Stile of the Proprietors of the Middlesex Canal, ch. 21, 1793 Mass. Acts 325, 326 (emphasis omitted).

(70.) See H. JEROME CRANMER, THE NEW JERSEY CANALS: STATE POLICY AND PRIVATE ENTERPRISE, 1820-1832, at 34, 144 (1978) (arguing that the adoption of a regressive voting rule in the Delaware and Raritan (granting one vote per share up to ten shares, and one vote per every five shares thereafter) was designed to prevent the corporation from falling under the control of New York or Pennsylvania).

(71.) E.g., 2 DAVIS, supra note 29, at 185 (concluding that, with respect to eighteenth- and early nineteenth-century canals, "the corporate form, while necessary here, proved unequal to the task").

(72.) For a discussion of the U.K. experience with canal companies, see infra Section IV.B.

(73.) DAVID R. MEYER, THE ROOTS OF AMERICAN INDUSTRIALIZATION 28 (2003).

(74.) Julius Rubin, Canal or Railroad? Imitation and Innovation in the Response to the Erie Canal in Philadelphia, Baltimore and Boston, TRANSACTIONS AM. PHIL. SOC'Y, Nov. 1961, at 5 (1961).

(75.) CHANDLER, supra note 17, at 34 (describing the insufficiency of private corporations to finance canal development). For a study on the role of the government in canal development, see CARTER GOODRICH, GOVERNMENT PROMOTION OF AMERICAN CANALS AND RAILROADS, 1800-1890 (1960).

(76.) See WINTHROP M. DANIELS, AMERICAN RAILROADS, FOUR PHASES OF THEIR HISTORY 3 (1932) (tracing the development of U.S. railroads back to the 1830s). A few railroad companies, however, were launched before then, such as the Baltimore and Ohio Railroad of 1827 and the Mohawk and Hudson Railroad of 1826. See infra notes 95 & 100.

(77.) See STEPHEN SALSBURY, THE STATE, THE INVESTOR, AND THE RAILROAD: THE BOSTON & ALBANY, 1825-1867, at 80 (1967).

(78.) DODD, supra note 51, at 258-63. All of the first Massachusetts railroads chartered in 1830 capped the number of votes per shareholder, even if one of them placed the rather lenient cap of "one-fourth of the whole number" of shares. Id. at 262.

(79.) Mass. Rev. Stat., ch. 39, [section] 50 (1836) ("[E]ach member shall ... not be entitled to any vote for any shares beyond one tenth part of the number of shares of the stock of such corporation.").

(80.) Dreier, supra note 52, at 27-28.

(81.) See DANIELS, supra note 76, at 8-10 (finding that much of the early capital required for railway construction was raised directly from contributions at home); TAYLOR, supra note 25, at 98-100.

(82.) Thelma M. Kistler, The Rise of Railroads in the Connecticut River Valley, 23 SMITH C. STUD. HIST. 1, 81 (1938).

(83.) Id.

(84.) Dreier, supra note 52, at 28.

(85.) An Act to Authorise the Formation of Railroad Corporations, and to Regulate the Same, ch. 140, [section] 5, 1850 N.Y. Laws 211, 213. Even after the enactment of general incorporation laws for railroads, however, corporate promoters continued to seek special charters for additional privileges. See COLLEEN A. DUNLAVY, POLITICS AND INDUSTRIALIZATION: EARLY RAILROADS IN THE UNITED STATES AND PRUSSIA 70 (1994).

(86.) Dunlavy, supra note n, at 1383 (describing developments at the Western Railroad); see also Colleen A. Dunlavy, Corporate Democracy: Stockholder Voting Rights in Nineteenth-Century American and Prussian Railroad Corporations, in INSTITUTIONS IN THE TRANSPORT AND COMMUNICATIONS INDUSTRIES: STATE AND PRIVATE ACTORS IN THE MAKING OF INSTITUTIONAL PATTERNS, 1850-1990, at 33, 47 (Lena Andersson-Skog & Olle Krantz eds., 1999) (noting that by the mid-nineteenth century "graduated voting schemes--even a simple cap on total votes--seem generally to have fallen out of favor in the United States, except possibly in Massachusetts").

(87.) DANIELS, supra note 76, at 25-27.

(88.) Id. at 4.

(89.) Kistler, supra note 82, at 84.

(90.) Id. at 85.

(91.) TAYLOR, supra note 25, at 97 ("As with the turnpike companies, many of the early railroads secured most of their private capital from merchants, small manufacturers, farmers, and professional men living along the proposed route of the new railroad.").

(92.) DANIELS, supra note 76, at 4.

(93.) Kistler, supra note 82, at 84; see also TAYLOR, supra note 25, at 98-99 (noting that "New York competition was so feared that when badly needed funds for the Western Railroad were offered by New York capitalists, they were refused"). Two years later, the Western succeeded in obtaining public financial support; the new subscriptions by the Commonwealth of Massachusetts made it a "one-third partner" in the enterprise and entitled it to appoint three of its nine directors. See SALSBURY, supra note 77, at 143; Dunlavy, supra note 11, at 1376.

(94.) An Act to Establish the Western Railroad Corporation, ch. 116, [section] 10, 1833 Mass. Acts 660, 666-67.

(95.) To be sure, not all merchant-backed railroads adopted voting restrictions. Merchants seeking to regain the trade that was being diverted through the Erie Canal promoted the creation of the Baltimore & Ohio Railroad, chartered in 1827. This corporation, however, enjoyed substantial governmental support from its inception, with the state of Maryland and the city of Baltimore subscribing for one half of its total capital. See EDWARD HUNGERFORD, THE STORY OF THE BALTIMORE & OHIO RAILROAD 1827-1927, at 27-28 (1928). Perhaps because of its concentrated government ownership and the infeasibility of a takeover, its charter adopted a one-share-one-vote rule. Id.

(96.) Cf. Frank W. Stevens, The Beginnings of the New York Central Railroad, N.Y. CENT. LINES MAG., Apr. 1926, at 21 (describing how the Mohawk & Hudson Railroad began to receive subscriptions for stockholding within six months of incorporation) ; see also DANIELS, supra note 76, at 15 ("[T]he Mohawk and Hudson was the first railroad to appear on the stock market.").

(97.) EDWARD HAROLD MOTT, BETWEEN THE OCEAN AND THE LAKES : THE STORY OF ERIE 9 (New York, John S. Collins 1899).

(98.) See Stevens, supra note 96, at 17, 24.

(99.) DANIELS, supra note 76, at 13-14; Stevens, supra note 96, at 24-25.

(100.) An Act to Incorporate the Mohawk and Hudson Rail Road Company, ch. 253, [section] 4, 1826 N.Y. Laws 286, 287.

(101.) Kistler, supra note 82, at 92.

(102.) Id. at 35-36.

(103.) DANIELS, supra note 76, at 9.

(104.) Id. at 16; see also TAYLOR, supra note 25, at 101 (stating that stocks "tended to gravitate into the hands of railroad magnates and promoters who used them for purposes of speculation and control").

(105.) 1 FRANK PARSONS, THE RAILWAYS, THE TRUSTS, AND THE PEOPLE 115 (C.F. Taylor ed., 1905). As late as 1906, railroad securities represented 85% of the bonds and 50% of the stocks traded on the New York Stock Exchange. See DANIELS, supra note 76, at 26.

(106.) ARTHUR T. HADLEY, RAILROAD TRANSPORTATION: ITS HISTORY AND ITS LAWS 21 (New York, G.P. Putnam's Sons 1896).

(107.) DODD, supra note 51, at 215.

(108.) Dreier, supra note 52, at 24-25. Dreier's study also reveals that caps on share ownership were widespread among early Connecticut banks as well.

(109.) CADMAN, supra note 32, at 308 (noting that this proportion included "nearly every bank charter passed before 1850").

(110.) Hilt, supra note 14, at 658. In the period covered by Hilt (all incorporations through 1825), the chartering process in New York was particularly corrupt, with politicians expecting financial and political benefits in consideration for banking charters. A backlash against these corrupt practices led to the adoption of Free Banking in New York in 1838. See Howard Bodenhorn, Bank Chartering and Political Corruption in Antebellum New York: Free Banking as Reform, in CORRUPTION AND REFORM: LESSONS FROM AMERICA'S ECONOMIC HISTORY 231-44 (Edward L. Glaeser & Claudia Goldin eds., 2006).

(111.) See, e.g., DODD, supra note 51, at 214 ("The eagerness to organize new banks was in many cases due more to the desire of prospective borrowers to create a bank from which they could obtain credit than to the desire of prospective investors to profit by means of dividends on bank shares."); SEAVOY, supra note 27, at 53 ("Merchants organized the first state banks because they wanted to use the credit the banks created.").

(112.) DEBATES AND PROCEEDINGS OF THE GENERAL ASSEMBLY OF PENNSYLVANIA, ON THE MEMORIALS PRAYING A REPEAL OR SUSPENSION OF THE LAW ANNULLING THE CHARTER OF THE BANK 44 (Mathew Carey ed., Philadelphia, Carey & Co. Seddon & Pritchard 1786).

(113.) Id. at 95. For a detailed description of the commercial motives behind the later opposition to the Bank of North America, see Sommer, supra note 19, at 1034-37.

(114.) HENRY WILLIAMS, REMARKS ON BANKS AND BANKING; AND THE SKELETON OF A PROJECT FOR A NATIONAL BANK BY A CITIZEN OF BOSTON 17 (Boston, Torrey & Blair 1840) (noting that investor contributions made up only a modest proportion of the banks' total capital).

(115.) HAROLD VAN B. CLEVELAND & THOMAS F. HUERTAS, CITIBANK 1812-1970, at 8 (Alfred D. Chandler, Jr. ed., 1985); see also Sommer, supra note 19, at 1028 (describing the early U.S. banks as "considered merchants' utilities, chartered perhaps as public corporations, but operated as private credit clubs").

(116.) See BRAY HAMMOND, BANKS AND POLITICS IN AMERICA: FROM THE REVOLUTION TO THE CIVIL WAR 75-76 (1957) (noting that "the first American bankers were merchants seeking to advance their own interests by an improved means of providing the credit they needed," that "they lent as bankers the way they had lent as merchants," and that "the earning assets acquired by banks were obligations arising from the sale and purchase of merchandise at wholesale"); cf. DODD, supra note 51, at 214 ("The eagerness to organize new banks was in many cases due more to the desire of prospective borrowers to create a bank from which they could obtain credit than to the desire of prospective investors to profit by means of dividends on bank shares.").

(117.) Naomi R. Lamoreaux, The Structure of Early Banks in Southeastern New England: Some Social and Economic Implications, 13 Bus. & ECON. HIST. 171, 176 (1984) ("[W]hen these merchants borrowed money from the banks they controlled, they were to a great extent merely withdrawing their own funds.").

(118.) Dreier, supra note 52, at 49 n.119.

(119.) See, e.g., Richard Sylla, Early American Banking: The Significance of the Corporate Form, 14 BUS. & ECON. HIST. 105, 111 (1985) (noting that "[u]nincorporated enterprises, glorified in most fields, were actually crusaded against in banking"). For a political economy account of branching restrictions, see Ronald J. Gilson, Henry Hansmann & Mariana Pargendler, Regulatory Dualism as a Development Strategy: Corporate Reform in Brazil, the United States, and the European Union, 63 STAN. L. REV. 475, 519-20 (2011).

(120.) See Efraim Benmelech & Tobias J. Moskowitz, The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century (Nat'l Bureau of Econ. Research, Working Paper No. 12851, 2007), http://www.nber.org/papers/w12851 (finding that nineteenth-century usury laws allowed incumbents to deter entry and competition while decreasing their own cost of capital).

(121.) HAMMOND, supra note 116, at 147.

(122.) See HANSMANN, supra note 8, at 248-50.

(123.) Stuart Bruchey, Alexander Hamilton and the State Banks, 1789 to 1795, 27 WM. & MARY Q. 347, 348 (1970).

(124.) The "Petition of William Phillips and Five Others for a Charter," dated January 1784, argued that "it would prove beneficial to the Public in general & particularly to all Persons concerned in Trade to have a well regulated Bank established in this State." N.S.B. GRAS, THE MASSACHUSETTS FIRST NATIONAL BANK OF BOSTON 1784-1934, at 213 (1937).

(125.) Id. at 54 (noting that Phillips "borrowed only small sums from the Bank and indeed seems generally to have stood before the community as a lender or stockholder rather than as borrower").

(126.) An Act to Establish a Bank in the State, and to Incorporate the Subscribers Thereto, ch. 2, 1784 Mass. Acts 54, 56 ("IT]he number of votes to be determined by the number of shares each voter holds or represents.").

(127.) NAOMI R. LAMOREAUX, INSIDER LENDING: BANKS, PERSONAL CONNECTIONS AND ECONOMIC DEVELOPMENT IN INDUSTRIAL NEW ENGLAND 12 (1994) ; see also GRAS, supra note 124, at 53-54 (noting that, through the stock repurchase, the Massachusetts Bank "seemed to be about to step down the primrose path of early banks in New England . . . owned by stockholders who were more interested in borrowing from the Bank than in loaning to it, more concerned with becoming ftxed debtors than permanent creditors").

(128.) See LAMOREAUX, supra note 127, at 12-13.

(129.) Id. at 13 ("The suspicion began to take root, both inside and outside the state legislature, that a handful of wealthy individuals had gained control of the bank and were using it for their own private purposes.").

(130.) An Act in Addition to an Act, Entitled "An Act to Establish a Bank in this State, and to Incorporate the Subscribers Thereto," ch. 48, 1792 Mass. Acts 188, 188.

(131.) 2 DAVIS, supra note 29, at 68-69 (explaining that "[t]his act (1) fixed a minimum denomination of $5 on notes issued; (2) made directors personally liable for payments of notes in case notes plus loans exceeded 'double the amount of their capital stock in gold and silver, actually deposited in the Bank, and held to answer the demands against the same'; (3) required directors to furnish statements to the governor and council semi-annually, or oftener upon request, of the amount of capital, debts, deposits, circulation, and cash on hand; (4) forbade dealings in merchandise or bank stock on penalty of forfeiture of double the value, half to go to the informer; (5) limited the votes per stockholder to ten").

(132.) Alexander Hamilton, Report on a National Bank, Communicated to the House of Representatives, Dec. 14, 1790, reprinted in 3 THE WORKS OF ALEXANDER HAMILTON 388,423 (Henry Cabot Lodge ed., 1904). The voting rule ultimately adopted provided as follows:

   for one share and not more than two shares, one vote; for every two
   shares above two, and not exceeding ten, one vote; for every four
   shares above ten, and not exceeding thirty, one vote; for every six
   shares above thirty, and not exceeding sixty, one vote; for every
   eight shares above sixty, and not exceeding one hundred, one vote;
   and for every ten shares above one hundred, one vote; But no
   person, co-partnership, or body politic, shall be entitled to a
   greater number than thirty votes.


National Bank Act, [section] 7, 1 Stat. 191, 193 (179a).

(133.) See Sommer, supra note 19, at 1042 ("Although this rationale [described in Hamilton's Report] can be read as providing for community control of the merchants, it reads more logically as providing mercantile control of the directors. In theory, regressive voting would ensure that the respectable merchants would collectively dominate the bank, but would keep individual merchants (or factions) from oppressing the rest." (footnote omitted)).

(134.) LAMOREAUX, supra note 127, at 7 (quoting FRITZ REDLICH, THE MOLDING OF AMERICAN BANKING: MEN AND IDEAS 11 (1947)).

(135.) Hamilton, supra note 132, at 419 (also arguing that "[p]ublic utility is more truly the object of public banks than private profit. And it is the business of government to constitute them on such principles, that, while the latter will result in a sufficient degree to afford competent motives to engage in them, the former be not made subservient to it").

(136.) Id. at 420-21.

(137.) HANSMANN, supra note 8, at 246-64.

(138.) See, e.g., 2 DAVIS, supra note 29, at 69 (describing a charter amendment prohibiting the Massachusetts Bank from dealing in merchandise).

(139.) For a description of this process, see LAMOREAUX, supra note 127. Lamoreaux focuses on an intermediate stage of the process, in which the banks remained under the partial ownership and control of their merchant customers, and argues that those customers provided reputational reassurance to prospective non-customer investors: "[i]nvestors knew that when they bought stock in a bank they were actually investing in the diversified enterprises of that institution's directors." Id. at 5. We do not engage the latter issue here.

(140.) See Prasad Krishnamurthy, Financial Market Integration and Firm Growth (Sept. 20, 2012) (unpublished manuscript) (on file with author).

(141.) 2 DAVIS, supra note 29, at 246-47 (noting that, with respect to late eighteenth-century insurance companies, "regressive voting, or else one vote per share up to a maximum of ten, thirty, or fifty, was the rule").

(142.) DODD, supra note 51, at 225; JAMES MEASE, THE PICTURE OF PHILADELPHIA 109-12 (Philadelphia, B&T Kite 1811); see also Ratner, supra note 10, at 7-8 (citing an 1832 Massachusetts statute on insurance companies capping the number of votes at thirty per shareholder).

(143.) Dreier, supra note 52, at 23.

(144.) Hilt, supra note 14, at 657-58.

(145.) CADMAN, supra note 32, at 308-09.

(146.) The first U.S. insurance company was, famously, the Philadelphia Contributionship, a mutual firm founded with the assistance of Benjamin Franklin in 1752. F.C. Oviatt, Historical Study of Fire Insurance in the United States, 26 ANNALS AM. ACAD. POL. & SOC. SCI. 155, 157 (1905).

(147.) HANSMANN, supra note 8, at 278. However, while the mutual form of organization mitigated potential conflicts between investors and consumers, it also gave rise to disputes among heterogeneous consumers themselves. For instance, a decision by the Contributionship board to stop insuring houses surrounded by trees (for they arguably hindered fire-fighting efforts) caused much discontent among some of its members, who ultimately created a new mutual insurance company to provide such coverage upon payment of an additional premium--the Mutual Assurance Company, whose symbol, fittingly, was a green tree. See Oviatt, supra note 146, at 157. In Currie's Administrators v. Mutual Assurance Society, 14 Va. (4 Hen. & M.) 315 (1809), a member sued over an amendment to the charter of a mutual insurance corporation increasing the premium to be charged from residents in the town vis-a-vis those of the country. The court held that the amendment had been approved by a majority of the corporation and was therefore valid.

(148.) 2 DAVIS, supra note 29, at 245-46 (stressing the close relationship between banks and insurance firms). Davis notes that "the merchant class demanded both services and naturally tended to control both types of institutions." Id. at 246.

(149.) CHANDLER, supra note 17, at 31, 32.

(150.) 2 DAVIS, supra note 29, at 324. Prohibitions on interlocking directorates were also widespread.

(151.) See MARQUIS JAMES, BIOGRAPHY OF A BUSINESS 1792-1942: INSURANCE COMPANY OF NORTH AMERICA 16 (1942) (noting that leading Philadelphia merchants of the time previously "banded together to insure one another's shipping ventures"); THOMAS HARRISON MONTGOMERY, A HISTORY OF THE INSURANCE COMPANY OF NORTH AMERICA OF PHILADELPHIA 11 (Philadelphia, Press of Review 1885).

(152.) An Act to Incorporate the Subscribers to the Insurance Company of North America, ch. 220, 7, 1794 Pa. Laws 489, 494 [hereinafter Insurance Company of North America Act] ("Any member of the corporation may, nevertheless, become assured thereby, on any vessel, goods, wares, merchandise, or lives, in the same manner and with the same effect, as if such member had no interest in the corporation."); JAMES, supra note 151, at 36.

(153.) MONTGOMERY, supra note 151, at 43 (emphasis omitted) (quoting the report of the legislative committee on the companies' charter applications).

(154.) Insurance Company of North America Act, supra note 152, at 492 (granting one vote per share up to fifty shares, one vote for every ten shares above fifty, subject to a cap of one hundred votes per shareholder, in his own right or as a proxy); An Act to Incorporate the Insurance Company of the State of Pennsylvania, ch. 227, [section] 4, 1794 Pa. Laws 512, 516 (providing one vote for the first share, one vote for every two shares up to ten, and one vote for every four shares up to thirty, subject to a maximum of twenty-four votes per shareholder).

(155.) P. HENRY WOODWARD, INSURANCE IN CONNECTICUT 14 (Boston, D.H. Hurd 1897).

(156.) HAWTHORNE DANIEL, THE HARTFORD OF HARTFORD: AN INSURANCE COMPANY'S PART IN A CENTURY AND A HALF OF AMERICAN HISTORY 34 (1960) (noting that "some of the Directors were very slow about taking out policies, and a good many of the stockholders apparently never did").

(157.) Id. at 273 app.

(158.) HENRY R. GALL & WILLIAM GEORGE JORDAN, ONE HUNDRED YEARS OF FIRE INSURANCE: BEING A HISTORY OF THE AETNA INSURANCE COMPANY, HARTFORD, CONNECTICUT, 1819-1919, at 29 (1919). Gall & Jordan detail that "[t]he trip out to Wethersfield along a clayey road, sometimes swamped by rains or rutted by drought, was an exasperating journey at the best.... Merchants or business men who wanted insurance did not relish the 'Gone for the day' sign that greeted their eyes so often on the door of his office." Id. at 28-29.

(159.) Id. at 46 ("It was realized at the very beginning that the local field, shared as it was with another company, would be small, and that it would be essential to stimulate outside business through carefully selected agents.").

(160.) Id. at 232 app., 236 app.

(161.) Dreier, supra note 52, at 22-23.

(162.) Hilt, supra note 14, at 658 tbl.1; CADMAN, supra note 32, at 206 tbl.1, 207 tbl.2, 309 (finding that 15 of 283 manufacturing firms incorporated over this period had restricted voting schemes).

(163.) An Act Relative to Incorporations for Manufacturing Purposes, ch. 68, [section] 3, 1811 N.Y. Laws 151, 151 [hereinafter Manufacturing Purposes Act]. The Connecticut and Michigan general incorporation laws of 1837 followed the New York example. Rather, supra note 10, at 7. By contrast, the 1837 Virginia statute was unusual in providing a regressive, although uncapped, graduated scale for manufacturing companies. An Act Prescribing General Regulations for the Incorporation of Manufacturing and Mining Companies, ch. 84, [section] 5, 1837 Va. Acts 74, 76.

(164.) See W.C. Kessler, A Statistical Study of the New York General Incorporation Act of 1811, 48 J. POL. ECON. 877, 879 tbl.1 (1940) (showing that between 1811 and 1848, 362 manufacturing corporations were incorporated in New York under the Act of 1811, while only 150 were incorporated under special acts); see also Henry N. Butler, Nineteenth-Century Jurisdictional Competition in the Granting of Corporate Privileges, 14 J. LEGAL STUD. 129, 144 (1985) ("Between 1848 and 1871, only 143 business corporations were created under Wisconsin general incorporation laws while 1,130 were created by special acts--a ratio of almost eight to one. Thus, in Wisconsin as in New York, the constitutionally mandated, dual system did not significantly alter the legislators' behavior toward special charters. In general, it appears that the constitutionally mandated, dual system failed to have a negative impact on the market for special corporate charters." (footnote omitted)).

(165.) Manufacturing Purposes Act, supra note 163, at 152.

(166.) 1 DAVIS, supra note 29, at 380.

(167.) Id. at 382-83.

(168.) For a very thorough review of the establishment and early development of the S.U.M., see id. at 349-89.

(169.) 2 DAVIS, supra note 29, at 275-79; SEAVOY, supra note 27, at 62-64.

(170.) See Smythe, supra note 18, at 1419.

(171.) Interestingly, the old doctrine to the effect that ultra vires contracts are void was not part of the ancient English common law, but rather a U.S. legal development. See 2 ARTHUR W. MACHEN, JR., A TREATISE ON THE MODERN LAW OF CORPORATIONS 826 (1908) ("If ultra vires contracts of royal-charter corporations were binding at common law, the universal and apparently spontaneous growth in America of the doctrine that ultra vires contracts of all kinds of corporations are void is very difficult to explain.").

(172.) See, e.g., ROBERT CHARLES CLARK, CORPORATE LAW 675-76 (1986) (describing the ultra vires problem as only of historical interest); 1 WILLIAM W. COOK, A TREATISE ON THE LAW OF CORPORATIONS HAVING A CAPITAL STOCK, at vii (4th ed. Chicago, Callaghan & Co. 1898) (noting that "[t]he doctrine of ultra vires is disappearing"). But see Kent Greenfield, Ultra Vires Lives!.: A Stakeholder Analysis of Corporate Illegality (With Notes on How Corporate Law Could Reinforce International Law Norms), 87 VA. L. REV. 1279 (2001) (arguing that the ultra vires doctrine subsists in depriving managers of authority to commit illegal acts).

(173.) Some later interpretations of ultra vires have treated the doctrine as protecting the interests of investors. See ADOLF A. BERLE & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 122 (Transaction Publishers 1991) (1932) (arguing that the strict purpose limitations of nineteenth-century firms were "probably designed to prevent corporations from dominating the business life of the time," but that "to the shareholder, however, it meant that he knew the particular enterprise, or at the widest, the type of business in which his capital was to be embarked"); Michael A. Schaeftler, Ultra Vires--Ultra Useless: The Myth of State Interest in Ultra Vires Acts of Business Corporations, 9 J. CORP. L. 81, 81 & n.1 (1983) ("The judicially-created doctrine of ultra vires evolved as a mechanism for the protection of shareholder interests ... [since] [s]upposedly, a critical factor in the investment decisions of shareholders is the scope of permissible business activities in which a corporation may engage.").

The view of purpose restrictions as an investor protection device was explicitly articulated in the prominent decision in Colman v. Eastern Counties Railway Co., 0846) 50 Eng. Rep. 481 (Rolls Ct.); 10 Beav. 1, which marked the overt recognition of the ultra vires doctrine in English law. The dispute concerned the authority of a railroad corporation to invest in a steam packet company, a strategy designed to increase the railroad's passenger traffic. In enjoining the transaction as ultra vires, the court argued that "a railway investment should not be considered a wild speculation, exposing those engaged in it to all sorts of risks, whether they intended it or not." Id. at 18. Accordingly, the court enforced the charter limitations even as it acknowledged that the ultra vires activities could be financially rewarding to the firm. Id. at 15 ("I am far from saying that that which is proposed to be done might not be extremely profitable to this company."). Interestingly, the fact that the shareholder plaintiff in the case was clearly defending not the financial interests of regular investors, but the conflicting interest of a competing navigation company whose position was threatened by the proposed transaction, did not seem to influence the court's reasoning. For a discussion of the Colman decision, see Harry Rajak, Judicial Control: Corporations and the Decline of Ultra Vires, 26 CAMBRIAN L. REV. 9, 16-18 (1995).

(174.) Greenfield, supra note 172, at 1284 (arguing that although once the norm of shareholder supremacy and the profit maximization rule were put into place, shareholders no longer needed ultra vires for protection from corporate overreach, the doctrine still increases transparency to shareholders); Michael A. Schaeftler, Clearing Away the Debris of the Ultra Vires Doctrine--A Comparative Examination of U.S., European, and Israeli Law, 16 LAW & POL'Y INT'L BUS. 71, 106-07 (1984) (showing that as distrust of corporations gave way to acceptance, and as states sought to attract business, legislators broadened the statutory language authorizing incorporation to include a wide-ranging purpose clause in place of ultra vires restrictions); Schaeftler, supra note 173, at 86 (arguing that the right of the state to challenge ultra vires activities lost "much of its persuasive force" with "the emergence of new attitudes towards the corporation in modern times").

(175.) See supra notes 40-42 and accompanying text.

(176.) See Abhijit Banerjee et al., Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra, 109 J. POL. ECON. 138 (2001) (finding evidence that controlling members of sugar cooperatives in India engage in rent-seeking by directing the firm to enter into ancillary activities that provide disproportionate benefits to themselves).

(177.) D.L., Ultra Vires, 25 AM. L. REG. 513, 514-15 (1877); see supra note 173 and accompanying text. The formulation of U.S. case law on the consequences of charter limitations of corporate powers long preceded these developments in Britain. D.L., supra, at 515.

(178.) See, e.g., FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GOOGLE INC., art. III (June 22, 2012) ("The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.").

(179.) HERBERT HOVENKAMP, ENTERPRISE AND AMERICAN LAW, 1836-1937, at 60 (1991) (noting that courts first relaxed the application of the ultra vires doctrine with respect to manufacturing corporations).

(180.) James J. Fishman, Improving Charitable Accountability, 62 MD. L. REV. 218, 237 (2003) ("The duty of obedience mandates that the board refrain from transactions and activities that are ultra vires, that is, beyond the corporation's powers and purposes as expressed in its certificate of incorporation."); Linda Sugin, Resisting the Corporatization of Nonprofit Governance: Transforming Obedience into Fidelity, 76 FORDHAM L. REV. 893, 900 (2007) ("While the ultra vires doctrine is nearly dead in the jurisprudence of for-profit corporations, it is potentially powerful in nonprofit enforcement ....").

(181.) See, e.g., Cal. Canning Peach Growers v. Harkey, 78 P.2d 1137, 1148 (Cal. 1938) (holding that the same legal regime applicable to an ultra vires contract by "an ordinary commercial corporation" applied to cooperatives).

(182.) CHARLES T. AUTRY & ROLAND F. HALL, THE LAW OF COOPERATIVES 3 (2009).

(183.) See HANSMANN, supra note 8, at 120-67.

(184.) The comeback of voting restrictions in the twentieth century aimed primarily at avoiding corporate takeovers--be they by foreign firms at the expense of national ownership of industry, by corporate raiders to the detriment of managerial interests, or by investors at the expense of consumers. See, e.g., Thomas J. Andre, Jr., Cultural Hegemony: The Exportation of Anglo-Saxon Corporate Governance Ideologies to Germany, 73 TUL. L. REV. 69, 167 (1998) (attributing the adoption of voting caps by German companies in the 1970s to the threat of foreign takeovers fueled by oil wealth from the Middle East); Marcello Bianchi, Magda Bianco & Luca Enriques, Pyramidal Groups and the Separation Between Ownership and Control in Italy, in THE CONTROL OF CORPORATE EUROPE 154, 160 (Fabrizio Barca & Marco Becht eds., 200l) (describing the prevalence of voting caps among privatized firms and cooperative banks in Italy in the 1990s); Ronald J. Gilson, The Case Against Shark Repellent Amendments: Structural Limitations on the Enabling Concept, 34 STAN. L. REV. 775, 814-15 (1982) (explaining the potential use of voting caps as an antitakeover device in the United States during the 1970s).

(185.) See TEAFORD, supra note 22, at 16-34.

(186.) See Henry Hansmann, Ownership and Organizational Form, in THE HANDBOOK OF ORGANIZATIONAL ECONOMICS 891, 910 (Robert Gibbons & John Roberts eds., 2013).

(187.) See HOVENKAMP, supra note 179, at 243 (noting that by the early twentieth century antitrust policy was already recognized as entirely distinct from state corporate law, so that compliance with corporate laws was no longer a defense against claims of anticompetitive conduct).

(188.) Hovenkamp has highlighted what turned out to be powerful antitrust provisions of early corporate charters, which frequently prevented corporations from operating out-of-state, from holding shares in other corporations, and from engaging in activities not expressly contemplated by the charter. Id. at 63. These restrictions, in turn, led many firms to adopt the trust form in order to obtain greater organizational flexibility--hence the term antitrust. Id. at 64. Similarly, many other forms of regulation in the nineteenth century, including pricing schemes for public utilities, also took place via corporate charters. Id. at 126. In fact, before the Supreme Court decision in Munn v. Illinois, 94 U.S. 113 (1877), it was not even clear that states had constitutional authority to regulate unincorporated entities.

(189.) In Charles River Bridge v. Warren Bridge, 36 U.S. (11 Pet.) 420 (1837), the Court construed a corporate charter of a bridge company narrowly and refused to imply an exclusive privilege to operate a bridge in the same location. The case became a watershed in the history of business corporations in the United States by dissociating corporations from monopoly.

(190.) LAWRENCE M. FRIEDMAN, A HISTORY OF AMERICAN LAW 390-91 (3d ed. 2005).

(191.) SEYMOUR DEXTER, A TREATISE ON CO-OPERATIVE SAVINGS AND LOAN ASSOCIATIONS 43, 49, 65 (New York, D. Appleton & Co. 1891).

(192.) Harold Hedges, Integrating Economic and Legal Thought Relating to Agricultural Cooperation, 31 J. FARM ECON. 908, 911 (1949).

(193.) AUTRY & HALL, supra note 182, at 14-15 (noting that prior to the enactment of cooperative statutes, cooperative organizations were formed as business corporations). The lack of a separate organizational form for cooperatives for most of the nineteenth century and beyond was also apparent outside of the United States. Rob McQueen argues that pressures for an organizational form granting limited liability to worker cooperatives may have played an important role in the enactment of the English Joint Stock Companies Act in 1856. ROB MCQUEEN, A SOCIAL HISTORY OF COMPANY LAW: GREAT BRITAIN AND AUSTRALIAN COLONIES 1854-1920, at 67-76 (2009). Similarly, the first cooperative statutes in Brazil date back to the twentieth century; before then, companies serving cooperative functions were organized as regular business organizations, often taking the form of sociedade anonimas under existing corporations laws. See, e.g., WALDIRIO BULGARELLI, AS SOCIEDADES COOPERATIVAS E A SUA DISCIPLINA JURIDICA 64-65 (2d ed. 2000).

(194.) For discussion of the functions of the one-member-one-vote rule in cooperatives, and the deviations from it, see HANSMANN, supra note 8, at 13-15.

(195.) Charles E. Nieman, Revolving Capital in Stock Cooperative Corporations, 13 LAW & CONTEMP. PROBS. 393, 394 n.3 (1948).

(196.) Kimberly A. Zeuli & Robert Cropp, Cooperatives: Principles and Practices in the 21st Century, UW EXTENSION 17 (2004), http://www.learningstore.uwex.edu/pdf/A1457.Pdf. There is some disagreement about the precise dates. See, e.g., Nieman, supra note 195, at 394 n.3; Diane Rizzuto Suhler & Michael L. Cook, Origins of a Current Conflict? An Examination of Stock-Nonstock Cooperative Law, 8 J. AGRIC. COOPERATION 54, 57 (1993).

(197.) E.g., An Act in Relation to the Formation of Cooperative Associations, ch. 62, [section] 7, 1875 Conn. Laws 34, 35; An Act in Relation to the Formation of Co-Operative Associations, ch. 290, [section] 7, 1866 Mass. Laws 270, 272; An Act Relating to the Organization of Co-Operative Associations, for the Purpose of Carrying on Any Mechanical, Mining, Manufacturing or Trading Business in the Commonwealth of Pennsylvania, no. 61, [section] 6, 1868 Pa. Laws 100, 102.

(198.) E.g., An Act to Encourage the Establishment of Mutual Savings Associations, 1847 N.J. Laws 172, 172 (providing no voting rule but stating, in the Preamble, the intent to facilitate creation of associations permitting members to accumulate a fund "to be finally distributed equally among them").

(199.) Bruce J. Reynolds, Thomas W. Gray & Charles A. Kraenzle, Voting and Representation Systems in Agricultural Cooperatives, USDA iii-iv (June 1997), http://www.rurdev.usda.gov /rbs/pub/rr156.pdf. Indeed, one area in which the legal transition was at least partially towards rather than away from restricted voting was that of mutual insurance. While an 1859 Wisconsin statute authorized the grant of voting rights proportionately to the firm's patronage, a subsequent law of 1929 adopted the rule of one vote per member. See Ratner, supra note 10, at 8 n.41.

(200.) See Oscar N. Refsell, The Farmers' Elevator Movement, 22 J. POL. ECON. 872 (1914); Oscar N. Refsell, The Farmers' Elevator Movement II, 22 J. POL. ECON. 969 (1914).

(201.) HANSMANN, supra note 8, at 120-22.

(202.) Id. at 120, 149.

(203.) Id. at 265.

(204.) Id. at 246-86.

(205.) Dunlavy, supra note 13, at 5 (contrasting the timing of the abandonment of voting restrictions in the United States and Europe); Richard Sylla, Comment, in A HISTORY OF CORPORATE GOVERNANCE AROUND THE WORLD 661 (Randall K. Morck ed., 2005) (describing and analyzing Dunlavy's account of the early "plutocratic turn" in shareholder voting rights in the U.S. in her forthcoming book Shareholder Democracy).

(206.) Ratner, supra note 10, at 45-46.

(207.) See F. Hodge O'Neal, Restrictions on Transfer of Stock in Closely Held Corporations: Planning and Drafting, 65 HARV. L. REV. 780-84 (1952).

(208.) Eric Hilt, Shareholder Voting Rights in Early American Corporations, 55 Bus. HIST. 620 (2013).

(209.) Id. at 635.

(210.) Id. at 624-25.

(211.) Id. at 625-26.

(212.) Id. at 624.

(213.) Id. at 627.

(214.) Id.

(215.) Cf. Sommer, supra note 19, at 1017 ("There is a lot of mindless copying in United States banking law....").

(216.) For a description of the antecedents of the modern joint-stock company in Roman law--the slave-based peculium arrangement and the societas publicanorum, see Henry Hansmann, Reinier Kraakman & Richard Squire, Law and the Rise of the Firm, 119 HARV. L. REV. 1333 (2006).

(217.) Ron Harris, Law, Finance and the First Corporations, in GLOBAL PERSPECTIVES ON THE RULE OF LAW 145, 156 (James J. Heckman et al. eds., 2010).

(218.) Ella Gepken-Jager, Verenigde Oost-Indische Compagnie (VOC): The Dutch East India Company, in VOC 1602-2002:400 YEARS OF COMPANY LAW 4.1, 54 (Ella Gepken-Jager et al. eds., 2005). The Seventeen Directors were governor representatives of each of the VOC's six chambers, which were remnants of the early trading companies existing before the merger. The division of activities and votes among the chambers was done in a manner such that no single chamber would come to dominate the others, even though the chamber of Amsterdam had invested the most capital. See FEMME S. GAASTRA, THE DUTCH EAST INDIA COMPANY: EXPANSION AND DECLINE 21 (2003).

(219.) See Andrew von Nordenflycht, The Great Expropriation: Interpreting the Innovation of "Permanent Capital" at the Dutch East India Companies, in ORIGINS or SHAREHOLDER ADVOCACY, supra note 15, at 89, 90-91.

(220.) John Armour, Henry Hansmann & Reinier Kraakman, What is Corporate Law?, in ANATOMY OF CORPORATE LAW, supra note 3, at 1, 1-14; Giuseppe Dari-Mattiacci, Oscar Gelderblom, Joost Jonker & Enrico Perotti, The Emergence of the Corporate Form (2013) (unpublished manuscript) (on file with authors) (describing the VOC's progressive adoption of corporate characteristics).

(221.) Gepken-Jager, supra note 218, at 66.

(222.) Klaus J. Hopt & Patrick C. Leyens, Recent Developments of Internal Corporate Governance Structures in Germany, the United Kingdom, France, and Italy, in VOC 160:2-2002:400 YEARS OF COMPANY law, supra note 218, at 283, 284 (noting that "the governors' right to prior purchase turned out to be unfortunate, leading to an early form of what we today call self-dealing").

(223.) GAASTRA, supra note 218, at 23-24.

(224.) HENK DEN HEIJER, DE VOC EN DE BEURS: DE VERENIGDE OOST-INDISCHE COMPAGNIE ALS GRONDLEGGER VAN DE EERSTE AANDELENBEURS 16 (2002) [THE VOC AND THE EXCHANGE: HOW THE VOC LAID THE FOUNDATIONS FOR THE WORLD'S FIRST STOCK EXCHANGE].

(225.) J.G. van Dillen, Isaac Le Maire and the Early Trading in Dutch East India Company Shares, in 1 PIONEERS OF FINANCIAL ECONOMICS 45, 47-48 (Geoffrey Poitras ed., Asha Majithia trans., 2006).

(226.) Id. at 45.

(227.) Oscar Gelderblom, Abe de Jong & Joost Jonker, An Admiralty for Asia: Business Organization and the Evolution of Corporate Governance in the Dutch Republic, 1590-1640, in ORIGINS OF SHAREHOLDER ADVOCACY, supra note 15, at 29, 29-30.

(228.) Johan Matthijs de Jongh, Shareholder Activists Avant La Lettre: The "Complaining Participants" in the Dutch East India Company, 1622-1625, in ORIGINS OF SHAREHOLDER ADVOCACY, supra note 15, at 61, 66.

(229.) Gelderblom et al., supra note 227, at 30; see also de Jongh, supra note 228, at 66.

(230.) See de Jongh, supra note 228, at 80.

(231.) In fact, in 2607 Le Maire entered secretive negotiations with the French King, Henry IV, to establish a competing company. Id. at 66.

(232.) Gelderblom et al., supra note 227, at 50.

(233.) Gepken-Jager, supra note 218, at 66-67.

(234.) de Jongh, supra note 228, at 79.

(235.) Gepken-Jager, supra note 218, at 57-58; Hopt & Leyens, supra note 222, at 284.

(236.) See supra note 15 and accompanying text.

(237.) Mariana Pargendler & Henry Hansmann, A New View of Shareholder Voting in the Nineteenth Century: Evidence from Brazil, England and France, 55 Bus. HIST. 585 (2013).

(238.) Id. at 587-89.

(239.) JOHN F. WILSON, LIGHTING THE TOWN: A STUDY OF MANAGEMENT IN THE NORTH WEST GAS INDUSTRY 1805-1880, at 90 (1991).

(240.) Pargendler & Hansmann, supra note 237, at 591, 593.

(241.) See ANNE LEFEBVRE-TEILLARD, LA SOCIETE ANONYME AU XIXE SIECLE: DU CODE DE COMMERCE A LA LOI DE 1867, HISTOIRE D'UN INSTRUMENT JURIDIQUE DU DEVELOPPEMENT CAPITALISTE 369 (1985); Pargendler & Hansmann, supra note 237, at 589, 594. For further discussion of early French corporate forms, see RAYMOND SALEILLES, DE LA PERSONNALITE JURIDIQUE: HISTOIRE ET THEORIES 116-34 (1910), which describes how French non-profit firms in the nineteenth century adopted the corporate form in the absence of more suitable organizational alternatives.

(242.) For instance, France's Conseil d'Etat raised from twenty to forty the number of shares required for a vote in the Societe Generale Algerienne. CHARLES E. FREEDEMAN, JOINT-STOCK ENTERPRISE IN FRANCE, 1807-1867, at 128 (1979).

(243.) Musacchio, supra note 15, at 461.

(244.) Pargendler & Hansmann, supra note 237, at 593.

(245.) See Armour, Hansmann & Kraakman, supra note 220, at 5-16 (listing legal personality, limited liability, delegated management, transferable shares, and investor ownership as the basic elements shared by business corporations worldwide).

(246.) See, e.g., id. at 35.

(247.) United Hous. Found., Inc. v. Forman, 421 U.S. 837, 851-52 (1975) (holding that shares in a housing cooperative did not qualify as a "security" or as an "investment contract" subject to federal securities laws).

(248.) See id. Exclusion of cooperatives from coverage by securities law was not a reflection of the size of the firms involved. Farmland Industries, for example, had--near its peak, just prior to a 2003 restructuring--600,000 farmer-members, 13,800 employees, and $6.5 billion in sales. Farmland Industries, NNDB, http://www.nndb.com/company/590/000098296 (last visited Oct. 14, 2013). See generally HANSMANN, supra note 8, at 120-22 (noting that among other evidence of the economic scale of cooperatives, as of 1992 there were fourteen cooperatives among the Fortune 500 largest industrial firms).

(249.) See supra note 20 and accompanying text.

(250.) See, e.g., MUSACCHIO, supra note 6, at 253-54 (arguing that historical lessons suggest that restricted voting schemes may be more conducive to minority investor protection than the rule of one-share, one-vote).

(251.) See supra note 33 and accompanying text.

(252.) Manufacturing Purposes Act, supra note 163.

(253.) FRIEDMAN, supra note 190, at 390-91.

(254.) See supra note 164 and accompanying text.

(255.) Massachusetts and South Carolina, in contrast to the other states, have substantial amounts of non-random missing data. The majority of observations for these states do not have a voting style specified and the missing data is significantly related to particular business types.

Henry Hansmann is Oscar M. Ruebhausen Professor of Law, Yale Law School. Mariana Pargendler is Professor of Law at Fundacao Getulio Vargas Law School in Silo Paulo (Direito GV). For helpful comments and suggestions on earlier drafts of this article we specially wish to thank Ian Ayres, Howard Bodenhorn, Ronald Gilson, Timothy Guinnane, Leslie Hannah, Eric Hilt, Daniel Ho, Naomi Lamoreaux, John Langbein, David Le Bris, Aldo Musacchio, Claire Priest, Richard Sylla, Andrew Verstein, Charles Whitehead, and Robert Wright, as well as participants at the American Law and Economics Association 2011 Annual Meeting at Columbia Law School, the Latin American and Iberian Law and Economics Association 2012 Annual Meeting in Lima, and the Comparative Law and Economics Forum in Rio de Janeiro, and at conferences and workshops at Columbia Law School, Fundacao Getulio Vargas Law School in Sao Paulo, Tel Aviv University, Toulouse School of Economics, Vanderbilt Law School, and Yale Law School. For valuable research assistance, we are grateful to Allison Gorsuch, Ian Masias, Nicholas Walter, Julie Wang, and particularly Joanne Williams. David Louk and his colleagues at the Yale Law Journal provided excellent editing.

Table 1.
PERCENTAGE OF RESTRICTED VOTING CHARTERS BY INDUSTRY AND DECADE

                  1790s     1800s     1810s      18205    1830s

Bank                87.5      63.3      82.0      43.1      42.9
                    (16)      (30)     (128)      (58)     (156)
Bridge               3.3      34.0      27.2      44.6      42.0
                    (30)      (47)      (81)      (65)     (119)
Canal               65.5      68.8      45.8      39.0      30.4
                    (29)      (16)      (24)      (41)      (23)
Insurance           61.5      46.9      26.1      17.0      20.0
                    (13)      (32)      (46)      (53)     (175)
Manufacturing       50.0      40.0      31.4      10.0      37.6
                     (2)      (10)      (70)      (80)     (335)
Mining              N/A       0.00      14.3       9.1      71.7
                     (0)       (3)       (7)      (22)     (187)
Railroad            N/A       N/A      100.0      48.4      41.3
                     (0)       (0)       (1)      (31)     (322)
Road                 3.0      45.5      66.8      71.2      67.7
                    (33)     (231)     (316)     (146)     (288)
Utility             25.0       333      28.6      21.7      28.6
                     (4)      (18)      (14)      (23)      (42)
Total               35.4      45.5      56.6      41.0      46.1
                   (127)     (387)     (687)     (519)    (1647)

                  1840s     1850s     T0ta1

Bank                34.7      46.9      52.8
                    (49)     (271)     (708)
Bridge              45.3      45.0      37.8
                    (75)      (80)     (497)
Canal               45.5       4.8      42.6
                    (22)      (21)     (176)
Insurance           48.4      47.8      37.8
                   (155)     (253)     (727)
Manufacturing       39.1      19.6      31.4
                   (161)     (148)     (806)
Mining              53.1      25.0      48.4
                    (98)     (152)     (469)
Railroad            33.9       5.8      27.4
                   (121)     (276)     (751)
Road                67.5      72.1      65.3
                   (268)     (605)    (1887)
Utility              333      25.4       273
                    (60)     (205)     (366)
Total               48.9      42.6      45.9
                  (1009)    (2011)    (6387)

Total observations are reported in parentheses

Table 2.
LOGISTIC REGRESSION

Dependent Variable: Percentage of Firms with Restricted Voting
Omitted Variables: Manufacturing, Georgia, 1850s

Industry    Coefficient   State   Coefficient   Decade     Coefficient

Bank        1.724 ***     CT      -0.330        1790s      0.109
            (0.134)               (0.240)                  (0.228)
Bridge      0.351 **      DE      -0.218        1800s      0.206
            (0.148)               (343)                    (0.136)
Canal       0.599 ***     MD      -0.0637       1810s      0.504 ***
            (0.210)               (0.223)                  (0.112)
Insurance   0.600 ***     NC      1.647 ***     18205      0.199
            (0.133)               (0.225)                  (0.124)
Mining      0.161         NH      -0.400        1830s      0.213 **
            (0.155)               (0.260)                  -0.0885
Railroad    -0.0641       NJ      -0.101        1840s      0.210 **
            (0.137)               (0.209)                  -0.0969
Road        1.599 ***     NY      0.610 ***     Constant   -2.322 ***
            (0.118)               (0.198)                  (0.213)
Utility     0.0696        PA      1.796 ***
            (0.168)               (0.192)
                          RI      1.303 ***
                                  (0.219)
                          VA      3.686 ***
                                  (0.219)

Standard errors in parentheses: *** p<0.01, ** p<0.05, * p<0.1
Number of observations: 6,387
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Title Annotation:I. Corporate Ownership and Voting Rights in Early U.S. History B. Financial Infrastructure 2. Insurance through Conclusion, with appendix and footnotes, p. 981-1013
Author:Hansmann, Henry; Pargendler, Mariana
Publication:Yale Law Journal
Date:Jan 1, 2014
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