The ultimate undertakers of the risks incurred by a joint-stock company are the shareholders; but as a rule they do not take much active part in engineering the business and controlling its general policy; and they take no part in superintending its details.After the business has once got out of the hands of its original promoters, the control of it is left chiefly in the hands of Directors; who, if the company is a very large one, probably own but a very small proportion of its shares, while the greater part of them have not much technical knowledge of the work to be done.They are not generally expected to give their whole time to it; but they are supposed to bring wide general knowledge and sound judgment to bear on the broader problems of its policy; and at the same time to make sure that the "Managers" of the company are doing their work thoroughly.(6*) To the Managers and their assistants is left a great part of the work of engineering the business, and the whole of the work of superintending it: but they are not required to bring any capital into it; and they are supposed to be promoted from the lower ranks to the higher according to their zeal and ability.Since the joint-stock companies in the United Kingdom do a very great part of the business of all kinds that is done in the country, they offer very large opportunities to men with natural talents for business management, who have not inherited any material capital, or any business connection.
9.Joint-stock companies have great elasticity and can expand themselves without limit when the work to which they have set themselves offers a wide scope; and they are gaining ground in nearly all directions.But they have one great source of weakness in the absence of any adequate knowledge of the business on the part of the shareholders who undertake its chief risks.It is true that the head of a large private firm undertakes the chief risks of the business, while he entrusts many of its details to others; but his position is secured by his power of forming a direct judgment as to whether his subordinates serve his interests faithfully and discreetly.If those to whom he has entrusted the buying or selling of goods for him take commissions from those with whom they deal, he is in a position to discover and punish the fraud.If they show favouritism and promote incompetent relations or friends of their own, or if they themselves become idle and shirk their work, or even if they do not fulfil the promise of exceptional ability which induced him to give them their first lift, he can discover what is going wrong and set it right.
But in all these matters the great body of the shareholders of a joint-stock company are, save in a few exceptional instances, almost powerless; though a few of the larger shareholders often exert themselves to find out what is going on;and are thus able to exercise an effective and wise control over the general management of the business.It is a strong proof of the marvellous growth in recent times of a spirit of honesty and uprightness in commercial matters, that the leading officers of great public companies yield as little as they do to the vast temptations to fraud which lie in their way.If they showed an eagerness to avail themselves of opportunities for wrong-doing at all approaching that of which we read in the commercial history of earlier civilization, their wrong uses of the trusts imposed in them would have been on so great a scale as to prevent the development of this democratic form of business.There is every reason to hope that the progress of trade morality will continue, aided in the future as it has been in the past, by a diminution of trade secrecy and by increased publicity in every form; and thus collective and democratic forms of business management may be able to extend themselves safely in many directions in which they have hitherto failed, and may far exceed the great services they already render in opening a large career to those who have no advantages of birth.
The same may be said of the undertakings of Governments imperial and local: they also may have a great future before them, but up to the present time the tax-payer who undertakes the ultimate risks has not generally succeeded in exercising an efficient control over the businesses, and in securing officers who will do their work with as much energy and enterprise as is shown in private establishments.
The problems of large joint-stock company administration, as well as of Governmental business, involve however many complex issues into which we cannot enter here.They are urgent, because very large businesses have recently increased fast, though perhaps not quite so fast as is commonly supposed.The change has been brought about chiefly by the development of processes and methods in manufacture and mining, in transport and banking, which are beyond the reach of any, and by the increase in the scope but very large capitals; and functions of markets, and in the technical facilities for handling large masses of goods.The democratic element in Governmental enterprise was at first almost wholly vivifying: but experience shows creative ideas and experiments in business technique, and in business organization, to be very rare in Governmental undertakings, and not very common in private enterprises which have drifted towards bureaucratic methods as the result of their great age and large size.A new danger is thus threatened by the narrowing of the field of industry which is open to the vigorous initiative of smaller businesses.
Production on the largest scale of all is to be seen chiefly in the United States, where giant businesses, with some touch of monopoly, are commonly called "trusts." Some of these trusts have grown from a single root.But most of them have been developed by the amalgamation of many independent businesses; and a first step towards this combination was generally an association, or "cartel" to use a German term, of a rather loose kind.
