Corporate governance in the 19th century: Evidence from the Chesapeake and Ohio Canal Company

              Accounting Historians Journal
Vol. 36, No. 2
December 2009
pp. 113-137
Robert W. Russ
NORTHERN KENTUCKY UNIVERSITY
Gary John Previts
CASE WESTERN RESERVE UNIVERSITY
and
Edward N. Coffman
VIRGINIA COMMONWEALTH UNIVERSITY
CORPORATE GOVERNANCE IN
THE 19TH CENTURY: EVIDENCE
FROM THE CHESAPEAKE AND
OHIO CANAL COMPANY
Abstract: Presenting evidence from a 19th century corporation, the Chesapeake and Ohio Canal Company (C&O), the paper shows that issues of corporate governance have existed since the first corpora­tions were established in the U.S. The C&O used a stockholder review committee to review the annual report of the president and directors. The paper shows how the C&O stockholders used this committee to supplement the corporate governance structure. The corporate gover­nance structure of the C&O is also viewed from a theoretical structure as espoused by Hart [1995].
INTRODUCTION
The U.S. approach to corporate governance is being chal­lenged due to corporate failures in the early part of this decade and the more recent decline in markets and the trading value of corporate equity securities. These recent episodes have raised public concern over corporate behavior in many areas such as compensation, performance measurement, and accountability.
While these corporate failures have diverse consequences and details, the conditions which enabled them can be related to corporate governance failures. Evidence and theory avail­able to the investor show that managerial discretion combined with other incentives can cause managers to pursue personal interests at the expense of the investor. In their discussion of
Acknowledgments: We express our appreciation to the anonymous review­ers and the editor, Richard Fleischman, for their comments and suggestions which improved the paper significantly.