History

History Continued:

• mid-19th century, politicians & business leaders changed the law to limit shareholders‟ liability to the amount they initially invested in company
• “limited liability” allowed people of all classes and incomes to invest in corporations & the stock markets
• the potential loss of money was restricted to the amount of the initial investment, while potential gains were unlimited
• investors were able to invest in ethically questionable enterprises & walk away relatively unscathed if it went bust
• “limited liability” became law in UK in 1856
• by the start of 20th century, corporations often had 1000s, if not 100s of 1000s of shareholders
• the investors‟ power became so dispersed that they are unable to influence managerial decisions as individuals
• shareholders effectively disappeared from the running of corporations
• law required that someone assumed the duties & legal rights necessary to operating in the economy, e.g. employ people, pay taxes, buy assets, be subject to the law, etc.
• managers are employees, so the Corporation itself became a legally recognised “person”
• separated from the real people who owned or ran it
• advances in communication technologies has meant that corporations are no longer tied to their original home
• can look to other countries for cheap materials, labour & production
• international trade tariffs were gradually reduced after the introduction of the General Agreement on Tariffs & Trade (GATT) in 1948
• this increased influence of corporations on governments & their economic policies
• countries need to “attract” corporate investors & have business-friendly policies