Annual EBHS Conference, 39th Annual Economic and Business History Society Conference

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Corporate Governance and Social Responsibility: Metropolitan Water Companies Compared
Nicola Tynan, Helen Takacs

Last modified: 2014-03-10

Abstract


The early 1800s was a period of rapid growth in London’s population and urban footprint. This growth, along with the move to water-borne sewage removal, drove an increase in the demand for domestic water supply. Seven new water companies entered the London market between 1800 and 1825. Two of these companies, the West Middlesex and Grand Junction Water Works, were established within six years of each other to provide water to parishes west of the City of London. For five years, between 1810 and 1815, these two companies directly competed with each other before making boundary agreements.

 Some of the literature on the history of London’s water supply, both contemporary and recent, treats the two companies the same. In terms of corporate governance and their views on social responsibility, however, the two companies were quite different. Minutes from directors meetings reveal that they responded to public criticism in ways that reflect a different understanding of their corporate responsibility.

 The literature on corporate governance recognizes three broad roles for boards of directors: control, service, and resource access. Control refers to the hiring, firing, and monitoring of management, as well as determining compensation structures for managers. Provision of advice and oversight of company strategy constitute the service role. In the third role, directors secure vital resources for companies, the most significant of which is financial capital. In this paper, we compare and contrast how these three roles were fulfilled by the boards of the West Middlesex Water Works Company and the Grand Junction Water Works Company.

 Within a few years of being established, the West Middlesex Company shows evidence of a thoughtful and active Board of Directors. The Board was concerned about shareholder returns, but not at the expense of customer service and quality and the provision of good quality water supply to the public. The Company was innovative in its management structure, establishing three sub-committees to more effectively use scarce managerial resources. Its primary response to customer concerns was to invest in infrastructure improvements. By comparison, the Grand Junction Company reveals a much stronger emphasis on shareholder returns and greater willingness to turn to use personal connections with members of Parliament to resist regulation in response to customer complaints.

 Managerial decisions, at all levels including that of the board of directors, vary in the extent to which they are socially responsible and consider the full range of the company’s stakeholders. Recent literature has identified a positive relationship between corporate social performance (CSP) and corporate financial performance (CFP). Despite the difference in management style between the West Middlesex Water and Grand Junction companies, external challenges of the market during a time of technological change in sanitation and urban expansion meant that their results in terms of cholera mortality during the 1848-9 and 1853-4 epidemics were similar. Using other measures of CSP than cholera mortality, we explore the relationship between CSP and CFP for these two companies.