1Information,ContingencyandtheEvolutionofUSCorporateMonitoringbyPaulJ.Miranti,Jr.SchoolofBusinessRutgersUniversityNewBrunswick,NJ08903andMaryEllenO'GradyRamapoCollegeMahwah,NJ07430-16802Information,ContingencyandtheEvolutionofUSCorporateMonitoringSynopsisThisessayevaluatestheevolutionoffourmodelsofUScorporategovernanceandthewaysthattheyusedinformationfrom1840tothecontemporaryera.DrawingontheworkofLouisGalambos,thestudyexplainshoweachmodelwasresponsivetochangingpatternsintechnology,polticialeconomyandprofessionalknowledge.ItconcludeswithabriefconsiderationoftheimplicationsforcorporategovernancebothofthegrowinginternationalizationofbusinessandthedriveforaccountingharmonizationandofthenewcommunicationcapacitiesoftheInternet.Keywordsaccountinghistory;agency;asymmetricinformation;corporategovernance;transparency;securitiesregulation31.IntroductionInexplainingthedevelopmentofcontemporarycorporatemonitoringstructures,UShistorianshaveunderstandablyconcentratedonthefactorsthatcontributedtotheriseofthecontemporarydualgovernmental-professionalsystemfirstlaunchedduringtheNewDealerawhichsoughttoreduceinvestorriskperceptionsbyenhancingthetransparencyofcorporateaffairsthroughfinancialreporting[Carey,1969-1970;Edwards,1960;McCraw,1984;Miranti,1990;Parrish,1970;PrevitsandMerino,1979;Seligman,1995].Thiscommonfocusofscholarship,however,hasoverlookedthreealternativemodelsofgovernancewhichplayedsignificant,albeittransitional,rolesintheevolutionofUScorporatefinancesincethelatterhalfofthe19thcentury.ThefirstsuchalternativewasprivatecommunitiesofeconomicinterestthatcenteredcontroloveracircleofrelatedbusinessentitiesinthehandsofdominantfinancialinstitutionsinthemannerofmodernGermanHausbanksorJapanesekereitsustructures[BaskinandMiranti,1997,pp.322-30;Walter,1993]andwhoseaffairsremainedlargelyopaquetooutsidersbecauseofthereliancethesegroupsplacedoninformal,privatechannelsofinformation.Thesecondwasdirectgovernmentaloversightemployinguniformaccountingregimestoassureahighdegreeoftransparencyofcorporateaffairswhichwereestablishedtoprotectconsumersfromthemarketpowerofnaturalmonopolies,suchasrailroadsandpublicutilities.Athirdwasthemoderatelytransparentsystemofindependentmonitoringbyprofessionalgroupswhichflourishedduringthe1920slargelyfreeofanygovernmentalinterference.Thispaperevaluatesthehistoricalcircumstanceswhichledtotheeventualtriumphofdualprofessional-governmentalmonitoringintheUSduringtheperiod1840-1940overthethreepotentialalternatives:communitiesofeconomicinterest,pureprofessionaloversightanddirectgovernmentalregulation.Thesubsequentsectionswillexplainhowthedevelopmentofinstitutionalrelationshipstosatisfytheinformationrequirementsoffinancialstakeholdersinbusinessenterprisesofgreatscaleandscopewereshaped,aspredictedintheorganizationalsynthesismodelofLouisGalambos,bychangesinprofessionalknowledge,politicaleconomyandtechnology[Galambos,1983,pp.471-493].Theanalysisinthefollowingsectionfocussesontheriseofthefirsthouseofcorporategovernance--bank-sponsoredcommunitiesofinterest--andexplainswhytheyeventuallydeclinedbecauseofthepressuresofProgressivereform.ThethirdsectionofthisstudyconcentratesontheriseofdirectgovernmentalinterventionthatwasfavoredbymanyProgressivestoresolvetheproblemofrailroadmonopolyinthe19thcenturyandthereasonsforitslaterrejectionasameansforcontrollingindustrialoligopolypriortoWorldWa...
