Coincidentally with the growth of European overseas trade in the sixteenth and seventeenth centuries was the use of the chartered company as the preferred means by which trade was carried out. These chartered companies were, for all intent and purposes, multinational firms. The head office was located in Europe and managers, factories, and trading sites were located around the world - in Africa, Asia, Canada. Because these firms operated their branch plants with salaried managers, the head offices were immediately faced with the question of how to ensure that those managers worked for the company and not for themselves. This is a problems which faces all modern multinational and multilocational firms. In fact, it is the very immediacy of the issue that makes the study of these far older companies important. These companies operated in a less complex environment. Communications were slower and a separation between ownership and control at the head office level did not exist. Thus, the links between owners and strategies chosen are very clear, and it is possible to analyze which strategies chosen to control managers were viable solutions and to examine what circumstances allowed firms to choose those solutions. This information will help us to better understand why some American firm structures are successful while others not in different situations and time periods. Because chartered companies were vertically integrated firms, they faced potentially serious principal/agent problems. In fact, the secondary literature is almost unanimous in its verdict that a company's agents were the company's worst enemies. Despite such statements, little archival work has been done to examine the extent of managerial opportunism. These companies may be old, but this does not necessarily mean that they were unsophisticated in managerial practices. The objective of this research is to study a range of early chartered companies and to examine the strategies and solutions chosen by firms operating in different external markets, but all with the same internal structure. The theoretical literature on such problems and on game theory directs the focus of this project towards employment contracts, bonding relations and monitoring strategies; all of which help to ameliorate moral hazard and adverse selection amongst managers.

National Science Foundation (NSF)
Division of Social and Economic Sciences (SES)
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Lynn A. Pollnow
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University of Colorado at Boulder
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