Managing Big Business

In the years from 1820 to 1870, when corporations were still a novelty, private groups needed capital to construct bridges, canals, turnpikes, and railroads, to establish banks and to engage in manufacturing. The corporate form, with its legal devices of stock and bonds and limited liability of stockholders for the debts of the business, made it easier to raise capital. Under the partnership form of business, every partner was personally liable for the debts of the entire firm. This caused many nineteenth-century businessmen to lose his savings and his home upon failure or from a partner's incompetence or fraud. Under the corporate form, large merchants and small investors could get together in the confidence that each risked only his investment and not his fortune, home, or farm.

Although the corporate charters needed a governing board elected by the stockholders, the early corporations were small enough to be managed by one or two men. The success of the business depended on the ability of the managers to keep in touch with all aspects of the business in order to coordinate activities and direct the firm into new undertakings. But as the size and complexity of these enterprises increased, business management became too much to be controlled by one man's supervision. First with the trunk-line railroads of the 1850s, American corporations experimented with new forms of management. The Erie Railroad had four thousand employees, not confined to one yard but spread over five hundred miles of track. Not one office handled the cash; hundreds of station agents and conductors took in the company's money.

Mere size was not the extent of the manager's problems. These were times of rapid technological change in railroad construction and car design, as well as times of fierce competition. The manager could not fall behind on these developments and had to make quick decisions, such as merging with minor roads or cutting rates in order to attract more traffic. It was also a time when unscrupulous financiers maneuvered the stocks and bonds of the railroads for personal wealth, so that many firms were harassed and sometimes destroyed by these manipulations.

The necessity for dependable coordination of managing daily business transformed the trunk-line railroad into a modern centralized corporation. The Erie, Baltimore & Ohio, and the Pennsylvania Railroads were all pioneers in bureaucratic innovation. Between 1850 and 1880, they established the fundamental structure of the American corporation. Railroad management naturally divided into three departments - finance, operations, and traffic - each with distinct responsibilities. Finance was concerned with the collection and distribution of revenues as well as with issuing stocks and bonds. Operations controlled the movement of trains and their maintenance, while traffic was in essence a sales department; finding customers and watching the costs of passenger and freight movement. In this first stage of corporate development, the emphasis was on centralized control, because profits accumulated when all departments worked as one comprehensive undertaking.

Therefore each department and section within it had both line and staff officers. The line officer managed day-to-day operations within his section and dealt with the movement of cars, routine repairs of the rails, payments and collections in a given area. Staff officers reported directly to the central office. They were charged with the responsibility for long-range decisions, such as whether or not to purchase new cars or to establish new traffic patterns. This departmental management enabled the successful operation of the great railroad complexes of the time. It also made possible the coordination of many small lines, originally built by the cities and towns, into high-speed routes traveled by thousands of cars[14].

Corporate ownership also facilitated the standardization of track and of many aspects of everyday life of ordinary Americans. Almost everybody was brought within the reach of the market. Trunk lines ended generations of economic isolation for Southern farmers. Freight trains supplied local retailers with national name brand foods designed to appeal to the majority of customers. Railway men even did away with 'local mean time', a pre-industrial tradition in which each community set its clocks according to the sun. In 1883, without legislative sanction, railway executives divided the continent into the four time zones that are still in use today. Starting then, Americans lived their lives in accordance with the rhythm of industrial time[15].