EVOLUTION OF THE BUSINESS ORGANIZATION
Hawtrey and Dullard provide a brief account of how the legal basis of the modern corporation developed.30 The genesis of the modern corporation can be traced back to the Romans, "who in the ninth and tenth centuries formed organizations known as societas maris (maritime firms)."31 They had a structure to this organization, a socius stans or partner on land, and a socius tractor or partner at sea. Hawtrey and Dullard recognize this structure as "an early origin of the division between capital and labor."32 Angell and Ames described how this form found subsequent favor in France and England.33 Pollock and Maitland similarly described the development of the royal charter of incorporation.3 4 These charters were the devices through which the Crown, or a country's monarch, granted considerable powers of self-governance to the church and boroughs (administrative territories) through the 15th century. By the 16th century, the instrument of royal charter was being deployed in a business context to raise capital for mercantile trade and to create infrastructure for public goods such as turnpikes, canals, and railroads. The purpose of these developments was to provide organizations a degree of independence from the Crown in terms of rights of perpetual succession, ownership, and self-governance.35 Today, the process of applying for incorporation of a company in the United States and Canada results in the issuance of a written document by the state, referred to as the corporate charter, through which the society recognizes the company as a legal entity. This document is also known as the certificate of incorporation or the articles of incorporation.
The 17th and 18th centuries witnessed a financial revolution that brought "rapid growth to joint-stock companies, banking, insurance, and the first active stock market in Amsterdam."36 The emergence of the stock market had a dramatic effect on business. It made it possible for anonymous buyers and sellers, who did not participate directly in business operations or corporate governance, to transfer shares of the company from one party to another. By the time the Industrial Revolution occurred, the distinction between public and private interests was already clear. By the late 19th century, business organizations were greatly affected by the spectacular emergence of mechanization and large-scale manufacturing. After the severe depression of 1873, the nature of business changed from a focus on light to heavy industry. To accommodate mass production and associated economies of scale, organizations became large. Mass production also led to the significant expansion of consumption, and business organizations diversified from manufacturing into marketing, financing, and other essential business functions. As vertically integrated companies grew in size and complexity, the need for specialized expertise and administrative structures also became evident.37
As firms became too large for one person to manage, the owner brought in additional individuals into management. Although these individuals specialized in various business functions, management of the organization remained centralized. The legal structure of firms also went through a transformation. Businesses increasingly preferred becoming incorporated over functioning as partnerships. Incorporation provided the benefits of limited liability to individual owners who could sell or transfer shares to others without disturbing the business operation. As stated by Dhir, "Mergers and acquisitions followed. Single-product, single-function firms evolved into multiproduct, multifunction businesses."3 8 Acquisitions were no longer constrained by industrial boundaries. Companies that manufactured electric machinery diversified into appliances, automobile manufacturers began producing refrigerators, and meat packers used their by-products to manufacture soap. The management of diversified organizations required changes in the manner in which organizations were managed. Through the 1920s, companies such as DuPont, General Motors, Sears Roebuck, and Standard Oil were among the pioneers who decentralized their respective organizations.39 To ensure adaptability and agility, managerial responsibilities were differentiated and distributed throughout the organization.