2.2.2 The Verenigde Oost-Indische Compagnie

The advantages of establishing a firm contributed to the wish of Dutch merchants to start companies for their flourishing overseas trade in the sixteenth century. They founded voorcompagnieën to be regarded as opportunity firms: investors provided the voorcompagnieën with temporary capital meant for a specific expedition to Asia. By means of this temporary capital ships and equipment were rented or bought, and personnel were hired. After the expedition the ships were sold, the personnel dismissed and the invested money and any profits made given back to the investors of the capital (Frentrop 2002, p. 55) (http://www.voc-kenniscentrum.nl). The capital provided to those voor-compagnieën can - in addition to temporary - be characterised as outside capital, because the capital was refunded to the investors, as well as any profits made. After the expedition, the investors could decide whether they wanted to invest in the same voorcompagnie, in none at all or in another opportunity firm. As a result of this system the voorcompagnieën had to act in the best interests of their investors to keep them providing capital for their new expeditions. Due to strong competition between these voorcompagnieën, the growing trade by Portugal and other economical motives, the Dutch government decided to create a more permanent firm in the early seventieth century, named the Verenigde Oost-Indische Compagnie (hereinafter the VOC). All the voorcompagnieën, as established in the seven Dutch provinces, were dissolved. They subsequently united themselves in the VOC and gained the monopoly regarding the overseas trade in India (Frentrop 2002, p. 62). The VOC - as established on 20 March 1602 - can be considered the earliest limited liability company and the earliest firm dealing with corporate governance issues (http://www.voc-kenniscentrum.nl).

The VOC had an authorised capital divided into transferable shares for the total amount of 6,424,588 Dutch florins at its start (Frentrop 2002, p. 63). The ownership of the shares could be considered dispersed and the trading in these shares flourished. The first intention was to establish the VOC for a period of twenty-one years and to refund the entire invested capital every ten years, however the Dutch government decided otherwise (Frentrop 2002, p. 63). In 1612 the VOC became a permanent firm and started to pay dividends to its shareholders in cash instead of in spices as had been customary (http://www.voc-kenniscentrum.nl). The VOC consisted of six chambers1 (rather like trading houses) usually managed by the financially strongest investors, the bewindvoerders (the directors). Each chamber chose several delegates from their directors to send to the regular meetings in Amsterdam or Middelburg during which the general policy of the VOC was determined. These delegates were named the Heren XVII (the Lords Seventeen). In practice the Lords Seventeen were no mere delegates but had absolute power within the VOC and were supported by the Dutch Government. In general they did not intend to take the interests of the other investors into account, but looked after their own interests and the interests of their government. Although the other investors attempted to protest, they had little means of exercising power over those Lords (http://www.voc-kenniscentrum.nl). Next to being 'managers' of the VOC, the Lords and directors were merchants in daily life and had their own private companies. As a Lord or director, they were one of the first who had access to the goods imported by the VOC and could sell these goods through their private companies with great profits. Unlike the other investors, they were mainly interested in the imported goods, not dividends. Moreover, the Lords decided where and from whom the necessary equipment for the expedition was bought and could thus exercise favouritism towards their friends. On top of that, they were not too economical in their purchases, since a fixed percentage of the equipment bought was received as a reward (Frentrop 2002, p. 71). Besides discipline by means of competition, no other mechanisms inside the VOC existed to control the Lords Seventeen and the directors to prevent them from acting solely in their own interests.

The VOC - the first legal person with an authorised capital divided into transferable shares - had problems with regard to ownership and management that companies in current times still have. The absolute power of the Lords Seventeen, who mainly looked after their own and their friends' interests, and the investors with little influence2 are problems as a consequence of the separation of ownership (the investors) and control (the Lords Seventeen) within the VOC. In current times the same issues still arise due to this separation of ownership and control within firms. More than in the days of the VOC, it is nowadays endeavoured to control these problems by means of (corporate governance) regulation and monitoring functions. However, the theoretical background of the issue of separation of ownership and control remains unchanged and is explained in section 2.2.3.