Home » The Blog » Haven’t you got too much on? The activities of British railway directors, 1897

Haven’t you got too much on? The activities of British railway directors, 1897

1840-1917 schottischer Adel.

John-Stewart-Murray, 7th Duke of Atholl

In 1897 Britain’s 28 significant railway companies had between them 314 directors. These individuals had a diverse backgrounds. At one end of the spectrum, the very rich end, was the Highland Railway’s John Stewart-Murray, 7th Duke of Atholl, whose family was a very well established member of the peerage.[1] At the other John Holloms, as South Eastern director, was a solicitor for his firm Holloms, Sons, Coward & Hawksley.[2] While none of the directors would have had low-incomes, after all considerable stock ownership was required to become a director of a company, a fair few would not have been nearly as wealthy as the richest. Directors also were active in business varying degrees, as evidenced in the pages of the Directory of Directors.[3] Fifty-nine directors – just under fifth of the sample (18.79%) – only sat on the boards of their railways. They were not necessarily inactive, many likely performed civic functions, were Members of Parliament (MP) or ran private unlimited companies and partnerships. Yet within the pages of the Directory it appears their lives were rather slower than some of their compatriots. Over half of all directors (55.37%) held between two and nine directorships outside the railways, and a very small number, seven, held more than ten. The life of one of these seven individuals, John William Maclure, must have been a parade of meetings. In addition to being an MP and a director of the Cambrian and Manchester, Sheffield & Lincolnshire Railways, he held twenty positions in businesses. [4]

SirWilliamPollitt

Sir William Pollitt

In business history the issue of who controls companies’ policies and strategies is a constant. Was it the shareholders, who owned the companies? Was it the directors, who were the shareholders’ representatives? In large firms particularly, was it the managers, who ran the organisation day-to-day and perhaps knew more about the business than the directors? In the context of the nineteenth century British and American railways, it has been suggested that this last scenario occurred frequently. Faced with having to manage complex, geographically spread organisations safely, companies invested in cadres of managers to coordinate and control operations who, it has been suggested, became more important in deciding company strategy than investors or directors. The boards who met (in most cases) fortnightly could not possibly hope to understand the nuances and detail of a large business better than the full-time salaried managers. These could therefore control what directors learned about what was going on and were thus able to influence policy.[5] In this scenario, men like Maclure theoretically fade into the background of railway history, while the Manchester Sheffield & Lincolnshire and Cambrian Railways’ general managers –  Sir William Pollitt and C.S. Dennis – played an important role shaping their companies’ destinies.[6]

The reality – I am starting to believe – was quite different. British railway directors after 1880 largely controlled, or at least were expected to control their railways’ affairs very closely, and this is where board members’ activities outside the railway become important. How much attention railway directors gave to their company invariably shaped the extent to which they controlled policy and strategy formation, and its financial performance. Indeed, where a directorate was so active outside the railway industry that they they could not give the activities of managers adequate oversight, the managers might take decisions which served their own ends, such as career progression and job security, rather than profit maximisation.[7] Scholars’ analysis of modern businesses have shown the effect on profitability of inadequate board oversight of management, and these studies are instructive. Ferris, Jagannathan and Pritchard found that directors with multiple directorships can become over-committed by external obligations, leading them to neglect responsibilities within all their firms and giving managers scope to run down companies’ profitability.[8]  Fich and Shivdasani argued that companies where most directors possessed three or more outside directorships had lower profitability and operating returns on sales. Moreover, where most directors had less than three external commitments, companies’ values were on average 4.2% higher than those where the majority of board members had more.[9]

Lord_William_Hay_Vanity_Fair_1874-12-12

William Hay, 10th Marquess of Tweeddale

Whether nineteenth century railway directors imperilled their railways’ profitability by having too many external business positions, thus giving mangers space to act independently, is a question requiring more investigation. It can be presumed however that directors with a large number of positions, like Maclure, surely could not have given their railway full attention, as one case demonstrates. The Marquis of Tweeddale and Sir Charles Tennant been the chairman and vice-chairman of the North British Railway (NBR) since the 1880s. Yet by the late-1890s they stood at the helm of a company with had unhappy shareholders; the dividends on ordinary shares were consistently low – 0.63% in 1895, 1.13% in 1896, 1.00% in 1897 and 1.33% in 1898.[10] Many shareholders blamed the results on the infrequency of board meetings and the inadequate oversight of the company’s management, which had been left to its own, inefficient, devices.[11] At the September 1898 half-yearly general meeting, T.O. Ockleston, who owned considerable company stock, put a case to those assembled. Whereas most railway boards and their sub-committees met fortnightly, his investigation found that the NBR meetings took place only once every four weeks. The sub-committees met in the morning, with the board meeting in the afternoon, an amount of time he considered inadequate to deal with every matter arising from the operation of a great concern. On top of this the chairman and his deputy were infrequent visitors to the company headquarters at Edinburgh, a result of them both living 400 miles away in London. Ockleston acted; he tabled a resolution that the board should meet more frequently, which was welcomed by those in attendance. Tweeddale called the motion ‘incompetent’, and he and Tennant to refused to allow a vote on it as notice of the motion had not been received before the meeting, as per standard procedure. [12]

It may be called conspiracy, it may be called protecting one’s own interests, but in early 1899 a previously placid NBR director, Henry Grierson, a shipowner and one of the largest holders of company stock took up the complaining shareholders’ cause.[13] He was a logical ally. In 1897 he had argued at the board to increase the frequency of their meetings to once a fortnight, but this was rejected, the opposition being led by Tweedale and Tennant. Thus, days before the March 1899 half-yearly general meeting he sent a circular to shareholders stating that ‘the time devoted to the directors to the business of the company is, in my opinion, utterly inadequate.’ The board only met for four hours once a month, and consequently ‘the chief officials of the company are left virtually uncontrolled.’[14] Whether this was true or not is open to further research – the emergence of considerable levels of bad debts and the company’s low ordinary dividends may suggest that this was so (N.B. I need to look into this further).[15]

1899-04-15 – RN – NBR case 576

Sir Henry Grierson

Grierson was however unequivocal about why this situation had come about and why Tweeddale and Tennant had resisted so vehemently the holding of more frequent board meetings. Firstly, they lived in London. The Directory of Directors for 1897 confirms this, and in addition to having Scottish residences, one of Tweedale’s homes was at 6 Hill Street in Mayfair, while Tennant resided at 9 Mincing Lane in the City of London. Most seriously, Grierson was concerned they were over-committed and did not have the time to dedicate to the NBR; ‘doubtless that the chairman and vice-chairman are (between them) directors of not less than 30 other companies, most of which have their headquarters in London, where these gentleman reside a large part of the year.’ This was also true, and in 1897 the two men held thirty-one positions.[16] At the March meeting, Grierson challenged the men’s alleged lack of commitment to the company. With proxies from a very large number of absent shareholders, he forced the board to adopt fortnightly meetings. At the same time four of the five company directors up for re-election (railway directors resigned by rotation and re-elected) were displaced by his nominees.[17] In the days after Tennant and Tweddale resigned.[18]

The strength of the link between the number of directorships the NBR Chairman and Deputy held, the low frequency of board meetings, and the company’s alleged poor financial performance is unclear. Although, despite the need for further research, the evidence here suggests there may be one. Link or not though, what the NBR case demonstrates is the expectation of what railway directors’ role in the management of their companies was at the end of the nineteenth century. Grierson was able to successfully use the fact that Tennant and Tweeddale allegedly paid insufficient attention to the business to raise the votes against them. NBR shareholders clearly felt railway directors were to be close overseers of their companies’ affairs. But this affair elicited wider comment on what the role of directors in company management was generally. The Daily Gazette for Middlesbrough stated on 24 March that ‘Mr Grierson’s agitation may be accepted as a sign of the increasing demand for efficient service on the part of directors of companies, and a protest against the use of mere figureheads in the management of great concerns.'[19] It is probably no coincidence that on the day after Grierson issued his circular the influential Financial Times, in an editorial reviewing that year’s Directory of Directors, commented that ‘it appears to us that the vice of pluralism has made little progress during the past twelvemonth… we may most potently believe that the veriest club-lounger or half-pay captain is perfectly capable of assuming without the notice the direction of a complicated and technical business, yet it is hard to stretch one’s faith sufficiently to credit him with the capacity for running twenty or more such businesses at the same time.'[20]

These comments and the NBR case suggest that directors at the end of nineteenth century were still expected to have full charge of policy and strategy formation within their companies, irrespective of whether they really controlled their senior managers or not. The challenge, for me at least, is now to see exactly what the power relationships were within in British railway companies were around this time. As I go forward into my research though, my strong feeling is that I will find that directors were calling the shots and cases of managerial control were in the minority.


[1] “John James Hugh Henry Stewart-Murray, 7th Duke of Atholl,” The Peerage, June 28, 2015, accessed Aug 24, 2015, http://www.thepeerage.com/p1120.htm#i11193.
[2] The Directory of Directors, (London: Thomas Skinner, 1897)
[3] From 1880 this recorded all the directorships of directors of public companies and numerous private limited companies. Directors’ business activities are not mentioned in totality, positions in private unlimited companies and partnerships being mostly excluded.
[4] The Directory of Directors, (London: Thomas Skinner, 1897)

MacLure: Ashbury Railway Carriage and Iron Company; British American Investment Company Ltd; Burnley and District Tramways Company; Calais Tramway Company Ltd; Earle’s Shipbuilding and Engineering Company Ltd; Elephants Kloof Gold Mining Company; Evesham, Redditch and Stratford Junction Railway Company; Globe Accident Insurance Company Ltd; Lombardy Road Railways Company Ltd; London and Northern Assets Company Ltd; London and Northern Debenture Corp Ltd; Neath and Brecon Railway Company; Neuchatel Asphalte Company; Oldham, Ashton-under-Lyne &c Railway Company; Ontorio Lands and Oil Company; Rochdale Canal Company; Tramways and General Works Company Ltd; Wigan Junction Railways; Wrexham and Ellesmere Railway; Wrexham, Mold and Connah’s Quay Railway Company

[5]  Alfred D. Chandler, The Visible Hand: The Managerial Revolution in American Business, (Harvard: Belknap 1977); T.R. Gourvish, Mark Huish and the London & North Western Railway, (Leicester: Leicester University Press, 1972)
[6] George Dow, Great Central: Volume 2 – Dominion of Watkin, (London: Ian Allen, 1962), 352; “Railway Officials and Nationalisation of Railways,” editorial, Edinburgh Evening News Nov. 11, 1897, 2
[7] Naomi R. Lamoreaux, Raff, M.G. Daniel and Peter Temin, “Economic Theory and Business History,” in The Oxford Handbook of Business History, ed. Geoffrey Jones and Jonathan Zeitlin, (Oxford: Oxford University Press, 2008), 45-46.
[8] Stephen P. Ferris, Murali Jagannathan and C. Pritchard, “Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments,” Journal of Finance 58, no.3 (2003):1109-1110
[9] E. Fich and A. Shivdasani, “Are Busy Boards Effective Monitors?,” Journal of Finance 61, no.2 (2006): 721
[10] Board of Trade, Railway Returns, (London: HMSO, 1895, 1896, 1897, 1898)
[11] Circular from Henry Grierson to the shareholders of the North British Railway, 14 March 1899. Reprinted in “The North British Railway Company. Disagreement at the Board. Charges of Neglect. New Candidates for Directorate,” editorial, Aberdeen Journal March 17, 1899, 5.
[12] “North British Company Meeting,” editorial, The Glasgow Herald Sept 23, 1898, 4
[13] “Sir Henry Grierson,” obituary The Times, Jan 28, 1914, 9
[14] Circular from Henry Grierson to the shareholders of the North British Railway, 14 March 1899. Reprinted in “The North British Railway Company. Disagreement at the Board. Charges of Neglect. New Candidates for Directorate,” editorial, Aberdeen Journal March 17, 1899, 5.
[15] “The North British Report,” The Economist, Sept 22, 1900, 1336
[16] Tennant: Union Bank of Scotland Ltd; Linlithgow Oil Company; North British and Mercantile Insurance Co. (Chairman of Glasgow Bd); Charles Tennent, Sons & Co.; Nobel-Dynamite Trust Company Ltd; Nobel’s Explosives Company Ltd; United Alkali Company Ltd; Champion Reef Gold Mining Company of India; Coromandel Gold Mining Company of India; Goldfields of Mysore Ltd; Mysore Gold Mining Company Ltd; Nine Reefs Company Ltd; Oriental Gold Mining Company of India Ltd; Road Block Gold Mining Company Ltd; Tharsis Sulphur and Copper Company; Steel Company of Scotland Ltd; Forth Bridge Railway Company

Tweeddale: Commercial Bank of Scotland Ltd; Scottish Widows’ Fund Life Assurance Soc.; Stock Conversion and Investment Trust Ltd; Submarine Cables Trust; Direct Spanish Telegraph Company Ltd; Eastern Extension &c. Telegraph Company; Eastern Telegraph Company Ltd; Europe and Azores Telegraph Company Ltd; Globe Telegraph and Trust Company; Western Telegraph Company Ltd; Eymouth Railway Company Ltd; Forth Bridge Railway Company; Newport Railway Company; West Highland Railway Company

[17] “The North British Railway,” Daily Gazette for Middlesbrough Mar. 24, 1899, 2
[18] “The North British Railway,” The Economist, Mar. 25, 1899, 427
[19] “The North British Railway,” Daily Gazette for Middlesbrough Mar. 24, 1899, 2
[20] “The Directors’ Roll Call,” editorial, The Financial Times, Mar 18, 1899, 4

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1 Comment

  1. Greg Tingey says:

    The NBR was … odd.
    If you look at the skim-history in 2 volumes by John Thomas, (Pub Daviid & Charles) you will see that the Grierson/Wemyss take-over itself had very bad & far-reaching effects.
    There was also the case of very bad internal politics on the Midland Railway, leading to the sudden resignation of R M Deely as CME, after a bitter row, which had very long-term effects on the profitability of said company, as, in a totally false economy, the MR was then stuck with a “small engine” policy from then until the arrival of the “Royal Scots on the LMS in 1927

    Like

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