Lincoln’s Corporate Proclamation

posted in: Values-Based Business | 0
Share on FacebookTweet about this on TwitterShare on LinkedInShare on TumblrDigg this

Abraham Lincoln memorial

Until its demise in 2006, the oldest surviving company was Kongo Gumi, a Japanese temple builder founded in 578 AD.  Corporations have been around for a long time.  The word “corporation” derives from corpus in Latin, meaning “body” or “body of people.”  While the most basic forms of corporate entities date back to the Roman Empire, the modern equivalent began to surface in 1600, with the founding of the British East India Company.  Corporations of this era of mercantilism received royal charters to have a monopoly on trade to a particular region.

The East India Company grew from a tiny operation run out of the house of its governor, Sir Thomas Smythe, to a global powerhouse for more than 250 years, dominating trade to Asia.  With a private army larger than many nations (200,000 men), the EIC conquered Bengal (part of modern day India), ruling over 90MM Indians and controlled the opium trade to China.

Less than a year before his death in 1865 and ten years before the dissolution of the East India Company, Abraham Lincoln wrote in a letter to Col. William F. Elkins:

“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country… corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”

Just six years later, America would enter its famous Gilded Age in which the infamous Robber Barons like J.P. Morgan, Andrew Carnegie and John D. Rockefeller would fulfill our sixteenth president’s prediction.  Lincoln’s words seem all too true even now, some 150 years later when 63% of the top 175 economic entities in 2011 were corporations.

Corporations in and of themselves are neither good nor bad.  Their direction falls upon the shoulders of the men and women that stand at the helm.  New management can easily erase all semblances of the old order and chart a new course.  For this reason, it is critically important to attract likeminded investors, board members and employees who share the purpose and values of the founders.

I wonder if the quarter vision that plagues corporations today will exacerbate the decline of some of our oldest and strongest companies.  In a study published in the Journal of Accounting and Economics, Graham, Harvey, and Rajgopal found:

“The majority of managers would avoid initiating a positive NPV [net present value] project if it meant falling short of the current quarter’s consensus earnings. Similarly, more than three-fourths of the surveyed executives would give up economic value in exchange for smooth earnings.”

It is not hard to speculate that this type of behavior runs contrary to the planning needed to match Kongo Gumi’s 1,400 year run or even the East India Company’s 250 year existence.

Photo Credit: Gage Skidmore

Share on FacebookTweet about this on TwitterShare on LinkedInShare on TumblrDigg this

Leave a Reply