Afternoon Tea: “Shareholder Activism at the Dutch East India Company 1622-1625”

This paper explores the reason for the absence of control rights of shareholders in the Dutch East India Company (VOC) and the background of the conflict between shareholders and directors that arose in 1622/1623 when the VOC Charter of 1602 was extended.

The VOC was the result of a merger between several companies that had been trading in the East Indies between 1594 and 1602. The legal structure of most of these “pre-companies” which were incorporated for a single voyage to the East Indies, prevented shareholders from having actual influence. In most of these companies, the shareholders invested their money, not in the company itself, but via one of the individual directors. The relationship between a shareholder and most of the precompanies was therefore indirect, which impeded the exercise of control rights. Furthermore, shareholders may not really have been interested in their control rights given the high returns and the expectations of the newly opened trade route.

When these pre-companies were merged into the VOC in 1602, nothing changed with respect to the absence of shareholder control rights. The VOC, however, was established for a longer period and had to meet other more long-term challenges than those faced by the pre- companies. The failure to adapt the control structure to suit the different circumstances may have been a source of the conflicts that arose between the directors and shareholders between 1602 and 1623.

In 1622, upon extension of the 1602 Charter, a significant conflict erupted between the shareholders and directors. The so called dissenting participants complained about the numerous conflicts of interests that had been arising between the various directors and the VOC. They accused the directors of abuse of power, short-selling and self-enrichment. They argued that shareholder approval was required for the VOC to turn to the capital market to borrow funds. They also demanded that large investors be entitled to vote on the appointment of new directors. As the dissenting participants supported their arguments by referring to the English East India Company, the corporate governance of the EIC is briefly described.

Publishing their complaints in pamphlets, the shareholders mobilized public opinion and attempted to convince merchants not to invest in the Dutch West India Company, which was being incorporated at the same time. They exerted pressure on the government to ensure that more rights were granted to the shareholders when the VOC Charter was extended. To a limited extent, the activism of the “dissenting participants” was successful. The 1623 Charter granted certain rights to large investors, including the right to nominate new candidates for appointment as director. The 1623 Charter further regulated insider trading by the directors and encouraged the directors to pay a yearly dividend to the shareholders. In addition, a committee of nine shareholders was entrusted with the supervision of the VOC directors. This corporate body was known as the “Lords Nine” (Heren IX).

This is from Matthijs de Jongh, a judge in the Netherlands. Here is the link.

RCH: 10 corporations that gave capitalism a bad name

That’s the subject of my weekend column over at RealClearHistory. An excerpt:

5. Dutch East India (1602-1799). The VOC, as the Dutch East India Company was known, exemplified corporate plunder and colonial oppression in the 17th and 18th centuries. Its demise was only met after Napoleon’s revolutionary armies conquered the Netherlands, and for nearly 200 years the VOC brutally oppressed and exploited Asian lands in the name of monopoly and Dutch interests of state. The VOC was created to give the Netherlands a presence in the burgeoning world of global trade that had been started by Spain and Portugal after the former’s colonization efforts in the New World. The VOC wanted to cut off Spain and Portugal (and, later, the U.K., France, and U.S.) from world trade, and monopolize industries in order to benefit Dutch society. This logic led directly to not only the horrible things that happened in VOC-governed territory, but also to the corruption and unnecessary wars that happened in the Netherlands.

Please, read the rest.