AH GraoParaMaranhao

Accounting History
Corporate governance regulations: A new term for an ancient concern? The case of Gro Par and Maranho General Trading Company in Portugal (1754)
Lcia Lima Rodrigues
Universidade do Minho
Alvaro Ricardino
Pontifcia Universidade Catlica de So Paulo
Sofie Tortelboom Aversari Martins

Fipecapi Fundao Instituto de Pesquisas Contbeis, Atuariais e Financeiras Brazil
Abstract
In 1754, Governor Francisco Xavier de Mendona Furtado requested his brother, the Marquis of Pombal, obtain the Kings approval to establish a trading company in Brazil. The Governor sent his brother a draft of the proposed trading companys by-laws. Its 27 paragraphs mimic the by-laws of the English East India Company and contain various provisions that may be described today as good corporate governance regulations. Later, the approved by-laws of the Gro Par and Maranho General Trading Company (GPM), as based on the draft prepared in Brazil and issued by Pombal in Portugal, were amended under the influence of the by-laws of the Dutch and French
Copyright 2009 The Authors (Los Angeles, London, New Delhi, Singapore and Washington DC) and AFAANZ Vol 14(4): 405435. DOI: 10.1177/1032373209342475
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Accounting History Vol 14, No 4 2009
East India companies. This local, time-specific study of the by-laws of the Gro Par and Maranho General Trading Company is intended to contribute to the literature on the evolution of governance regulations, including the use of accounting and auditing mechanisms. Keywords: Accounting; Brazil; chartered company; governance; government; Portugal; regulations
Introduction
The second half of the twentieth century is usually regarded as heralding attempts to regulate and consolidate corporate governance practices,1,2 despite common acceptance of the view that the maximization of the companys performance and access to capital3 has always been part of investors concerns. Research on the historical evolution of corporate governance, as it is known today, or the good governance of companies, is still at an early stage (Toms & Wilson, 2003). As Maclean (1999, p.109) has suggested, business historians are well placed to contribute to the contemporary debate on corporate governance. Maclean argued that issues such as board selection, board performance, family control, shareholder maneuvering and the influence and regenerative potential of business elites, would profit from systematic and closely documented historical enquiry. He also stated that the contemporary corporate governance debate offers a framework through which the past may be revisited and reassessed. In the same vein, Lloyd-Jones et al. (2005) pointed to the relevance of a historical perspective to the study of corporate governance. Carlos and Nicholas (1988) argued that the early trading companies sold goods and services across national boundaries and had a geographical extension that rivals the present day multinational corporations, but which has been generally overlooked or ignored. The present study contributes to an understanding of notions of good governance of companies in the eighteenth century, including local, time-specific accounting and auditing mechanisms, specifically in the case of Companhia Geral de Comrcio do Gro Par e Maranho (Gro Par and Maranho General Trading Company hereafter known as GPM) of Portugal. In so doing, the study indicates that existing concerns about corporate governance in an increasingly globalized world should not be regarded as a peculiarly modern day concern. To better understand this case, some brief clarifications are provided regarding the geographic location of the business, as well as the socio-economic conditions experienced by inhabitants in that region at the time. The State of Gro-Par and Maranho was located in the north-east of Brazil and covered an area of about 9,900,000 m2. It stretched from the current state of Cear to the
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Rodrigues et al.: Corporate governance regulations
extreme west of the Amazon region, including the current states of Tocantins and Mato Grosso. The first colonization attempts in the area were in the seventeenth century. The Portuguese monarchy wanted to extend its dominion to the North, with a view to establishing permanent colonies to defend the land from possible Dutch, French and English attacks. But the land in Maranho was not as fertile for the growing of sugar cane as other regions in Brazil. There were also other difficulties such as geographical dispersion, a lack of labourers with sufficient endurance to work in agriculture, and insufficient administrative capacity to support economic development in the region. Thus, during the second half of the seventeenth century and the first half of the eighteenth century, the efforts of colonists in the State were essentially aimed at survival. Furtado (1980, p.91) summarized the poverty of the inhabitants of So Luiz, the second city in the State, stating it was a small colony, in whose port there were one or two ships per year, and whose inhabitants depended on the work of some Indian slaves to survive. In this article it is argued that the by-laws proposed by Mendona Furtado, which he composed in Par, Brazil, from memory, were based on or closely related to the British model of governance. In contrast, the approved by-laws and the specific statutes for the good governance of the company, issued by Pombal, were influenced strongly by the Continental model of governance. Therefore, in this particular case, the cultural, political and legal context of the country, Pombals regime of enlightened despotism combined with his knowledge of chartered companies was evidently more influential than the mimetic pressures on Mendona Furtado in explaining the approved government regulations. The rest of the article is organized as follows. The next section briefly reviews the development of corporate governance ideas and practices and the history of joint stock companies. The sections that follow describe how and why GPM was created, and analyse both the proposed and approved by-laws and the specific statutes for the good government of the company. The last section of the article discusses the extent of differences between Mendona Furtados proposal and Pombals decisions and presents the conclusions. This discussion focuses attention on how governance can be explained in this case by reference to the cultural, political and legal context of Portugal and by reference to the knowledge and power held by Pombal.
Corporate governance and the history of joint stock companies

Jensen and Meckling (1976) published one of the first studies that included a theoretical framework on conflicts of interest between a companys shareholders, managers, creditors and employees. Their reasoning was based on the relations between agents and principals where the former represent the latters interests.
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Using the agency perspective, Shleifer and Vishny (1997, p.737) characterized corporate governance as the set of mechanisms by means of which resource suppliers guarantee that they will get a return on their investment. According to these authors, a problem arises when the agent contracted to defend the principals interests gives priority to the agents own interests to the detriment of the principals interests. This kind of relationship is more strongly present in companies where the shares are widely rather than narrowly held. In enterprises where an individual (or groups of individuals) are shareholders and managers at the same time, this conflict of interest dissipates or disappears. However, another conflict arises: small external investors versus the controlling shareholders. In this sense, shareholders or managers willingness to invest in a business becomes proportional to the existence of protection mechanisms against the controllers expropriation (La Porta et al., 2000, p.17). Corporate governance regulations have developed around the world in response to market forces and national culture (La Porta et al., 1997). La Porta et al. (1997) have classified French, Scandinavian and German law in the civil law tradition. Buck and Tull (2000) argued that countries with the strongest civil codes, such as France and Portugal, generally offer the strongest support to relational institutional investors (that is, shareholders who hold large parcels of shares) and the weakest protection for individual investors and, consequently, they have the least developed capital markets. It has been demonstrated that the common law basis of company regulation in the USA and UK has led to an emphasis on the protection of individual shareholders from expropriation by insiders and also from restrictions on the free tradability of their shares (Buck & Tull, 2000, p.120). Baskin (1988, p.199) pointed out that the development of corporate finance from its beginnings among the British trading companies to its modern transformation in the USA was a result of the efforts (by capital markets) to minimize the problems created by the asymmetry of information between company insiders and potential investors. Academics have sought to explain and evaluate the reorientation of corporate governance along Anglo-American lines, but the literature is largely ahistorical in nature (Maclean, 1999; Cheffins, 2001, p.87). The development of joint stock companies is usually classified according to two models: the British on the one hand and the Continental on the other. The Continental model is represented essentially by Holland and France (Marcos, 1997). Under the Continental model, the government of the Dutch East India Company, for instance, was in the hands of seventeen directors, nominated by the State, who were required to have a minimum holding of equity capital. Usually, these directors managed the company according to their discretion without necessarily responding to matters raised by shareholders at meetings, and without rendering accounts (Marcos, 1997). Under the British model, in the East India Company of England, the general assembly of
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shareholders had absolute deliberative power: each shareholder had one vote, the right to be informed about the daily life of the company and the right to inspect the accounting books (Marcos, 1997). The creation of the company was essentially an initiative of individuals and the influence of the State was unimportant (Marcos, 1997). The differences between the two models can be explained by the way capital was collected. In the Dutch case, capital was subscribed by individuals with money; nobles, farmers or waiters; inversely in the English case, capital was subscribed by elites, specifically the merchants and the nobles (Marcos, 1997). Therefore, while the democratic root of the English model was generally supported by elitist shareholders, the dictatorial Dutch model was supported by common shareholders (Galgano, 1980, p.118). However, as time passed the Dutch model became more democratic and it was almost impossible for the English East India Company to keep shares solely in the hands of the elite (Marcos, 1997). The French East India Company was similar to the Dutch model: the directors subscribed a minimum amount of the capital while experience as a merchant was important and the shareholders did not influence the management of the company except in the election of directors. In addition, there was a considerable degree of State intervention over the company (Marcos, 1997). As will be seen, the government regulations of the GPM, as proposed by Governor Mendona Furtado, were based on the British model of governance, while the subsequently approved by-laws and the specific statutes for the governance of the company were much closer to the French and Dutch models. Under D. Joo V (John V), Portugal began to imitate French mercantilism (Dias, 1984, pp.14250, 21213). As Colbert (161983) had done in France, Cardeal da Mota, Chief Minister of D. Joo V from 1736 to 1749, supported big corporations that were in the hands of certain privileged bourgeois (Falcon, 2005). For Pombal, who succeeded Cardeal da Mota, this model was desirable: royal interests could not be contested by ignorant shareholders who did not know or appreciate the States interests. In effect, the board of the company was executing the official policies of the King. The next section presents the research method and analyses both the proposed and the approved by-laws. In the examination of the proposed and the approved by-laws, the following themes were identified and form the basis of analysis: share capital and shareholders rights; duties and responsibilities of directors; accounts and reports; directors remuneration; dividends, and audit.
The formation of GPM

This article presents a case study of GPM which poses two basic questions in the context of the creation of the company (Yin, 2003, p.7): How did it happen?
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and why did it happen?. In discussing the use of case studies as a research strategy, Yin referred to how and why as the most frequent questions to answer in historical research. This is due to the fact that these questions deal with operational links that need to be established over time, instead of being considered as mere repetitions or incidental occurrences (Yin, 2003, p.25). Responses are now provided to these questions. How did it happen? The creation of the (GPM) The reign of D. Jos I (175077), through the action of his Chief Minister Pombal, was characterized by the re-emerging importance of Portugals colonial dominions, notably Brazil and Angola (Serro, 1996b, p.141; Schwartz, 1998, p.93). To assist in bringing about this objective, different Viceroys and Governors who shared such intentions were appointed to administer the Portuguese colonies. One of the measures used to connect the empire was the creation of monopoly trading companies that had important implications in the commercial and financial administration of the colonies, particularly in Brazil (Arruda, 1986; Serro, 1996b, p.140).4 The objective of establishing such companies was to develop the economy of Brazil through the monopoly of trading African slaves and exporting colonial products (Boxer, 1981; Serro, 1996b). The GPM resulted from an initiative of Governor Francisco Xavier de Mendona Furtado, the brother of the Marquis of Pombal. Mendona Furtado was forced to find a solution for the economic viability of the state of Gro-Par and Maranho, of which he was governor at the beginning of the second half of the eighteenth century. The contents of a series of official and private letters, which they exchanged from 1751 onwards, enable an understanding to be derived of the companys origins and evolution. The first letter, dated 21 November 1751, indicated, in broad terms, that the granting of tax exemptions to the Companhia de Jesus (Society of Jesus) was a partial cause for the extreme poverty of local inhabitants. The governor also argued that the region depended on rudimentary agriculture and the trade of native forest products. European inhabitants did not work sufficiently hard and, consequently, did not produce anything of consequence. Agriculture and mining depended on the local Indian workforce which, due to the religious instruction of the Jesuits by the Society of Jesus, worked almost exclusively for the Jesuits, in semi-slavery. As a result, most of the items for local consumption or export to Portugal were traded by the Jesuits. The fiscal exemptions they were granted by the Portuguese crown thwarted any competitive attempt by local traders, who did not have such privileges. The governor described the gravity of the situation as follows:
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As the regulars [Jesuits] neither pay taxes on goods [products] of the land, nor do they pay, under the pretext of the missions, Consulado e Mercearia [Consulate and Food Commerce branches from the Portuguese government], in Lisbon, nor the Alfandega [Customs] in this state, and as they do not pay any taxes, it is demonstrated by actual calculation that, in the commercial balance, the priests are gaining 80 per cent against the seculars [local traders], which allows Your Excellency to understand the progress the poor traders can make when they are up against the Powerful Body [the Jesuits] with 80 per cent of guaranteed gains in trade against them. (Mendona 1982, p.32)
The extent of the disadvantage that the local traders faced was such that the inhabitants of this State were reduced to misery ... because, nevertheless, its Reais Errios (Treasury) is extinct and without hope for relief; its dependents are reduced to extreme poverty and misery, to the extent that there is not one soul in this captaincy (capitania)5 who can pay a debt of 30 ris ... (Mendona, 1982, p.33). The governors words mirror the gravity of the situation at that time and demonstrate the need to promote initiatives to help overcome the problem. Two years later, during which time many letters were written, Mendona Furtado sent his brother a further letter, in which he proposed the creation of a trading company. The explanation for this project is contained in the text of the letter of 24 January 1754 as follows:
Among various ideas that have occurred to me to try and partially repair the sad destruction to which these two captainships [Maranho and Gro Par] have been reduced to, none seemed better to me than to establish a Companhia Geral de Comrcio here, which could introduce such a quantity of blacks into this State that the lords of sugar mills and other farms would find a market ready for them, where they could buy them for an adequate price and thus recover the extreme ruin they are in. (Mendona 1982, p.35)
The business, which was effectively nothing more than the official transport of slave labour, had two aims: to introduce a more resistant and dependable workforce than that provided by indigenous people; and to take the trade monopoly from the hands of missionaries (Jesuits).6 At the beginning, the idea was rejected by local inhabitants. The locals initially contended that they did not possess sufficient resources to undertake the business. However, when the Portuguese military officials in the region agreed to the creation of the company the local traders had a change of view and the traders managed to collect 32,000 cruzados, as share capital for the project7 an amount that surprised the projects instigator himself (Pombals brother) (Mendona, 1982). The Governor was enthusiastic about the support that emerged and extended his plan to the people of Maranho, who accepted his decision. The initiative was not an original one in Portuguese colonies, and even less so in other countries. Many years before, two other businesses had been created for the commercial exploration of Brazilian territory: the Companhia
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Geral do Comrcio do Brasil, the Brazilian General Trading Company (1647), whose main role was to supply slaves and guarantee sugar transports to Europe; and the Companhia do Maranho (1682), which was also active in sugar and cotton exports and supplied credit, transport and slaves to the producers (Serro, 1996a, pp.11721). In the same letter dated 24 January 1754, Mendona Furtado requested Pombal to intervene with the King in favour of tax exemptions for the business, a prerogative that seemed to be unprecedented for private companies. Later, the arguments in favour of this request are reinforced ... If our Majesty grants this exemption to the Company, he will realize a business of extreme utility to his royal crown (Mendona, 1982, p.37). Three weeks later, Mendona Furtado wrote another letter to his brother advising that he had collected the starting capital of 250,000 cruzados and that he had prepared minutes of the company by-laws.8 In their first version, the proposed by-laws referred to the difficulties that had been experienced in their preparation due to the absence of literature or suitable persons that may have been of assistance:
As this Company could only be founded under certain conditions that were useful for the interested parties and that by themselves served as ruling laws, I found myself facing the obstacle of making them, since there is not one single person in this land who understands these determinations [subjects]. ... Because I do neither have a book about this subject here, nor a copy of any of these determinations to serve as guidance and accommodate them to the modes of the country, I needed to set the mentioned conditions through the rigour of a strong discourse, and only with a slight recollection of something I saw, the interested parties were thus advised to send the determinations to Lisbon, notwithstanding the satisfaction they had in them, to consult individuals to ensure all possible precautions were taken.9 (Mendona 1982, p.39)
It is highly probable that Mendona Furtados claim that he composed the by-laws on the basis of a slight recollection of something I saw referred to the knowledge about this subject that he had acquired during the time in which the Briton John Cleland,10 on Pombals request, was visiting Lisbon. Cleland showed the Portuguese court plans for the constitution of a trading company which, due to the envy of its opponents, was not turned into reality (Barreto, 1986; Azevedo, 2004, p.58; Rodrigues & Craig, 2004). Pombal and Cleland became acquainted when the former was in London in the service of the Portuguese crown. Barreto (1986, p.LIII) claimed that Pombal developed a friendship in London with John Clelands father, William Cleland (see also Rodrigues & Craig, 2004) and, at that time, he came to know Cleland, a British esquire who recently arrived from the East and who had occupied a high post in the East India Company of England.
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The repeated conversations between them would finally give rise to a project for a company for the Portuguese possessions in India, which was similar to the British Company (Azevedo, 2004, p.42). Pombal became so interested in and familiar with the subject that, in 1742, in a letter to Cardinal da Mota, he described the script elaborated by Cleland for setting up the East India Company. This is quite a generic enumeration of the basic points of a project which, as stated in the text itself, is modeled on the East India Company of England model (Falcon, 1982, p.290). In this letter, Pombal argued that Cleland held many documents relating to the rules or articles of the English Company. In December 1742, Mendona Furtado arrived in London to join Pombal. It is also possible that the three met there and worked on the idea of developing the East India Company together. Clelands links with Portugal are evident also in a letter that Pombal wrote from Vienna in 1748, disclosing that Cardeal da Mota had received Cleland in his home in the presence of Portugals Secretary of State, Marco Coutinho (Pombal, 1748; Rodrigues & Craig, 2004). A comparison made of the by-laws proposed by Mendona and the by-laws of the East India Company of England revealed certain similarities. Common points between these by-laws relate to the internal organization of the companies, especially the importance of the general assembly and the rule that all shareholders could vote independently of the amount subscribed. By including what is nowadays known as corporate governance mechanisms, Mendona Furtado displayed his preoccupation with the going concern status of the company. In the Governors own words, these initiatives seemed to me that they could help in the good government of the company (Mendona 1982, p.40). This care for government or governance of the proposed company was not without reason. The failure and fraudulent conditions in which previous businesses had been settled in Portugal are mentioned in the same letter dated 15 February 1754:
It seems to me that the authority which the interested parties [stockholders] ask of His Majesty, for the directors of the Company, will help a lot to disclose the endless frauds with which these people usually surround business, so that accounts are never found and, while the money is extinguished through the tricks by which lawyers usually render things of this kind useless, the business is totally ruined, the interested parties suffer and the current account is hardly ever or never obtained, of which Your Excellency must have seen a lot of examples at our court, mainly in numberless companies that wanted to establish themselves, whose accounts were destroyed with eternal demands and, as I know about some myself, I have not heard of any that had an end. (Mendona, 1982, p.40)
He concluded the letter to his brother intimating ... the love I have for this new undertaking and the anxiety to see it prosper. Mendona Furtado attached the minutes of the by-laws with the following title: Conditions for the establishment
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of the new company by the inhabitants of the Par captaincy to supply Negroes to the state of Maranho and Minas do Mato Grosso. In view of the focus of this study, one part of the title stands out: which the inhabitants of the captaincy intend to establish. This highlights the likelihood that the initiative emerged from the colony, for the benefit of its inhabitants. There is nothing in the proposed by-laws that suggested the intention to go beyond the frontiers of the colony for administration and control purposes, as will be demonstrated below. Analysis of the proposed and adopted by-laws The proposed minutes consist of 27 articles. The minutes contained a series of initiatives that, two and a half centuries later, are comparable with some of the main regulations of what is now known as corporate governance regulations. As mentioned earlier, several levels of analysis are used to analyse the articles: share capital and shareholders rights; duties and responsibilities of directors; accounts and reports; directors remuneration; dividends; and audit. The proposed by-laws
Share capital and shareholders rights
Art. 1. That this company is established with one thousand shares of one hundred mil ris each, giving each person the liberty to enter with one or many shares ...
The by-laws do not distinguish between the shares according to kind but, as can be seen in article 6, all shareholders had the right to vote.
Art. 2. That, after contemplating the mentioned one thousand shares, the company can issue another one thousand shares. The price of these second shares is one hundred and fifty mil ris.
The figure of share premium on the occasion of a second stock issue can be observed here.
Art. 3. That ..., after completing the second shares, ..., the directors can issue another one thousand shares; however, the third set of shares will be at 200$ rs each, and the second as well as the third ones will only be rated at 100$ rs per share, like the first ones, while the surplus amount at which they entered [difference between the acquisition value and the nominal value] is incorporated into company funds.
Apart from the figure of share premium, this article indicates its nature. There is no indication about its accounting treatment.
Art. 6. To elect the mentioned administrators, all interested parties [shareholders] will be called, and they will freely chose 13 shareholders.
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Although the writing sequence of articles 6 to 8 is somewhat confusing, the shareholders elected 13 partners, equivalent to a Board, (article 7), which would then elect the four Administrators mentioned in articles 7 and 8. As happened in the East India Company, the general assembly had deliberate powers and it was by that assembly that the directors were elected (Marcos, 1997). Also, each partner had one vote at these meetings (Marcos, 1997, pp.5960; BL, Shelfmk, 100.m.39, p.32).11
Duties and responsibilities of directors
Art. 7. As soon as the mentioned 13 persons have been elected ... among those interested parties who seemed to be most capable, they will elect the mentioned four administrators, always keeping in mind that the solid establishment and development of the mentioned Company, or its total ruin, depend on their good or bad choice of the mentioned Administrators.
The Governors intention conforms with present day corporate governance regulations which state that 5.1 Duties of the Board: The boards duties and responsibilities and key functions, for which they are accountable, include those set out below: [ ] iii) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.12 In this case, the Directors, equivalent to a Board, would not only elect one, but four main executives, since all of them have equal powers and had co-responsibility:
Art. 8. The administrators will buy a safe with four keys, one for each administrator where the monies of the Company will be kept and it will not be possible to receive or to pay without the presence of the four administrators.13 Art. 18. Every time any of the administrators is proven guilty of omission, ... the thirteen directors will be called and they, in the same way as in the beginning, can install another administrator to replace the one found guilty as mentioned above ... and they have the right to maintain or dismiss the above mentioned administrators as they consider to be most convenient for the companys interested parties.
This reinforces the privileges of the directors to nominate and dismiss the company directors, as described in the seventh article.
Accounts and reports
Nowadays, it is recognized that financial accounts are a means of relieving the asymmetry of information between managers (agents) and shareholders (principals) (Whittington, 1993). It is recommend in all modern day corporate governance codes that companies establish an internal control system, as a means of safeguarding their assets and enhancing the transparency of corporate governance practices.
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Art. 9. For a good expedition [development] of the business that belongs to the mentioned company, the mentioned Administrators will meet at least three days per week ... at that house agreed upon by the mentioned administrators, in which the books will safely be kept.
Article 9 refers to the use and safe-keeping of accounting books (without specifying the particular books involved). However, at that time, the accounting books used in Portugal were the Borrador (waste-book) the Razo (ledger) and the Dirio (journal) (Pedreira, 1995, p.404). The recognition of the importance of accounting may have derived from the personal knowledge of many directors of Mediterranean commercial practices who found double entry bookkeeping to be an important tool for business control purposes (Pedreira, 1995, p.400). During the early years the reporting had a managerial rather than a financial emphasis (Baskin & Miranti, 1997, p.67).
Art. 11. As soon as any of the companys ships reach this port, the same administrators will be required, ... to offer some public reports to the interested parties [shareholders], about the uses made in Lisbon [contents acquired and embarked in Lisbon]; the navigation the ships carried out and which ports they entered; the uses [acquisitions] and expenses they incurred with them; the effects [goods] they brought; and, after the sales are realized, they will offer other reports of what the mentioned effects imported [value obtained from the sale], the load the ships transported to the kingdom, for the mentioned interested parties to be fully informed about the way in which the business is handled in the good faith of trade, and about the profits they may expect from them, whose reports will also be sent to the administrators, for the interested parties in the kingdom to be informed in the same way.
One key component of present good corporate governance practices relates to disclosure of accounting information. In this case, the intention of the writer of the minutes becomes clear, when establishing that all operations of the entity and not only the final result of a period should be known in detail by all shareholders. To be able to inspect the accounting information was also a characteristic of the operations of the East India Company of England (Marcos, 1997, p.76). The Governors intention was extremely healthy, mainly when taking into account that the business was located in two distant continents (Carlos & Nicholas, 1990, p.856). Even when the commodities arrived, the directors still had to ascertain whether their officials had cheated them (Carlos & Nicholas, 1990, p.856). Cheating could involve an active policy of trading for commodities on ones own account at the expense of the company. This problem (private trade) is believed by most historians of the chartered companies to have been widespread (Carlos & Nicholas, 1990, p.856). The East India Company of England complained that the inter-Asian trade was poorly developed because of private trade (Carlos & Nicholas, 1990, p.857). Furthermore, in 1710 the Dutch East India Company
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accused its Bengali factories of putting aside the most profitable assortment of textiles for their own benefit (Carlos & Nicholas, 1990, p.857).
Art. 12. The Lisbon cashiers and administrators will be obliged to make the same reports ...
The information prepared in Brazil must be prepared in the same way as in Portugal on the grounds of consistency and for equity purposes.
Directors remuneration
Art. 15. While the administrators will be occupied with this administration, ... as a premium, from Company gains, they will get 100$ rs per year, and for what they register and collect for the Company books on their own account [the business they generate with income returned to the company], they will get another 60$ rs, through the same gains ...
The by-laws anticipated increases in remuneration as new share issues were subscribed. The publication of remuneration bases for the entitys main executives is an important corporate governance regulation. An obvious place instrument for any firm to exercise control is with the employment contract (Carlos & Nicholas, 1988, 1990; Baskin & Miranti, 1997). The remuneration package and work provisions in employment contracts are critical in reducing opportunism and encouraging managers to work in the best interests of the firm. Firms can use both fixed and incentive fee payments to encourage managers to be productive in the interest of the owners. For their part, managers promise to work effectively and in the best interests of the company (Carlos & Nicholas, 1988, 1990).
Dividends
Art. 20. Since the company will take one or two years to be properly established, the shareholders will not receive dividends in the first three years.
The first distribution of dividends happened only after three years.

Art. 21. After the first distribution, the four administrators will be obliged to render accounts every two years to the two interested parties [the experts who will examine the accounts]. At the same time the profits will be divided by all shareholders and the new thirteen directors will be elected. This will be observed throughout the future.
This article sets the period of two years for rendering accounts. While current corporate governance principles establish a period of one year, it seems that two years is an acceptable period, given the characteristics and geographic distance of the business. The two interested parties were to be two partners of the company (see also Article 19).
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Audit
Art. 19. After any ship leaves this place [Brazil] with its load, the administrators will be obliged to update and settle their account [render updated accounts], and the thirteen administrators will nominate two members of the interested parties [shareholders] who are most expert to assist [verify] and take the accounts to the four administrators, about whose result [closing] they will render account to the same directors, not only for them to know but also to make public how the administration of the companys cabedal [resources] is doing.
Although it is conjectural to refer to auditing in Portugal in 1754, the governors intention is obvious: to establish the examination of accounts by two of the most experienced interested parties for them to assist and take accounts from the administrators,14 and make public how the administration of the Companys resources is doing. In using the expression make public, the intention to effect disclosure when conducting business is again made clear. When referring to the East India Company of England, Baskin and Miranti (1997, p.82) also state that arrangements were made for regular audits of overseas account balances.
Art. 22. The two interested parties that have to take accounts from the four administrators will be obliged, after closing the accounts, to inform the 13 directors about the state they found them in [opinion about company accounts], and they will enter the closing register in the ledger, which they will sign together with the four administrators.
In accord with modern day corporate governance practices, the experts would express their opinion on the companys accounts. The criteria for analysis are not specified in the by-laws.
Art. 23. If, after the accounts are approved, a fraud is detected, the four administrators and the two shareholders nominated to observe the accounts will be responsible and they will immediately forfeit their shares to the Company. Art. 24. The shareholders who will audit the accounts will have two months to perform the task; if not possible in this period, they are allowed to ask another two months to the 13 Directors, at the maximum.
Since employment contracts do not necessarily solve the problem of private trade, firms needed to generate supplementary sources of information by means of systems of internal controls and from auditors in order to monitor managers. Written records of decisions and notification of compliance to formal rules and procedures (accounting procedures, inventory systems) provide a flow of information to the board (Baskin & Miranti, 1997; Carlos & Nicholas, 1990, p.858). Managers were required to follow standards in the maintenance of post records and, in particular, of all account books. Through these accounting records
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the company could also monitor the trading activity of individual managers (Carlos & Nicholas, 1990, p.875).
Art. 25. The interested parties [experts] nominated to take the accounts from the four administrators cannot be nominated for the two following years, and they will only be allowed to take accounts again after six years, and each of these two nominees will receive fifty mil ris, for each account he takes.
Two hundred and fifty years before the enactment of the Sarbanes-Oxley Act of 2002, Mendona Furtado had already anticipated the need for the rotation of account analysts/experts, so as to preserve the fairness of business account analysis. As indicated earlier, the Governor, as author of the proposed by-laws, does not imagine anywhere in the by-laws or throughout the letters sent to his brother, that the administration would be located in Lisbon, as actually eventuated. The biggest concession Mendona Furtado made in his proposal (Art. 27) is that there be administrators in both places: that the four administrators, in this City as well as in Lisbon . The order in which the cities were indicated, in an age characterized by high levels of servitude, suggests that the authors wanted the central business administration to be established in Belm, Brazil. But this did not occur because the central business administration was indeed established in Lisbon. As evident from the earlier outline of the proposed by-laws, the Governor placed importance on the general assembly of the company, the democratic participation of all shareholders in all its events, and the importance of disclosure of all kinds of accounting information (as happened with the East India Company of England). As will be seen, the system proposed by Pombal was less democratic and transparent in terms of the way the company reported its earnings and how it described its operations to shareholders. The approved by-laws and the specific statutes for the good government of GPM On 6 June 1755, the King of Portugal, D. Jos I (Joseph I), approved the 55 articles that made up the final version of the GPM by-laws. Several draft versions of these by-laws were produced and they provide evidence of successive negotiations in reviewing and refining the articles. For instance, in a document found at the Arquivo Histrico Ultramarino there are several annotations and corrections to the proposed by-laws in different handwriting.15 The changes introduced in the document were considered in the final version of the by-laws and confirm the influence of Pombal in the elaboration of the by-laws (Marcos, 1997). To reduce the directors discretion, and in accord with similar corporations in many European courts,16 specific statutes (also known as rules for the economic government of the Company) were issued for each chartered company in Portugal. The objective of each statute was to regulate the boards conduct. The
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specific statutes of the GPM were issued on 16 February, 1760.17 The origin of this document can be found in a Royal resolution on 15 December 175618 which, although incomplete, as certain parts were missing from this initial draft version, was very similar to the last published version of the specific statutes. The delay is explained in the Preface of the specific statutes of the GPM: the effects of the Lisbon earthquake which occurred in 1755. Hence, there were two key documents for regulating the affairs of the GPM: the approved by-laws and the specific statutes. In Portugal, these formal documents were complementary. The by-laws were more general in their orientation while the specific statutes established many management procedures. Share capital and shareholders rights The approved by-laws established the main privileges conceded to the company,19 the way the capital should be constituted, and the rights and duties of the shareholders. The companys capital was 1,200,000 cruzados, divided into 1,200 shares of 400 mil ris each. This was paid half in cash and the rest in two equal installments, due four and eight months later, respectively. According to the third article of the by-laws, the political body, a Junta (Board), was elected from only those Portuguese partners whose stock interest was higher than 10,000 cruzados (Art. 2). Only those partners who individually or collectively represented interests higher than 5,000 cruzados were allowed to vote. The by-laws also considered the right to sell the shares (Arts. 50 and 51) and the right over remaining assets in the case of the liquidation of the company (Art. 53). Duties and responsibilities of directors In the proposed by-laws, the board was to be composed of 13 directors. In the approved by-laws, this proposal for a board of 13 people was replaced by a political body composed of one superintendent, eight deputies and one secretary.20 In addition, three merchant counsellors who did not hold any shares in the company were appointed as independent advisers. The political body was called a Junta (Board) and the Superintendent/President was the Provedor. Nevertheless, for the first three-year mandate, the members of the board were designated by the King, that is, the partners did not elect them. After this threeyear period, the mandates were to be annual and a member of the board could only be elected again if he achieved two thirds of the votes (Arts. 3 and 5). Because it was a private initiative, the business could be managed without the interference of the State, although the King had the power to intervene himself. It was the task of the eight deputies to supervise the conduct of the business. The specific statutes for the good government of the company established that the deputies were forbidden to practice commerce in their own interests,
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because it was considered that such behaviour could damage the company (Art. 31).21 In addition, a cash fine was to be applied to any deputy who missed any meeting without reason. The specific statutes also established the principle of co-responsibility of all deputies concerning the deposits and withdrawals from the safe and the importance of providing shareholders with access to accounting books. However, such access to accounts was not a right of the shareholder but a duty of the directors. Accounts and reports Under the approved by-laws, the company took the initiative of disclosing the annual detailed and summarized balance sheet (prepared using double entry bookkeeping [Art. 29]),22 to all the interested shareholders (Art. 28).23 The printed summary was informative to shareholders since it showed the sum of the capital and accumulated profits which, when divided by the number of shares, provided the official quotation to transfer stocks.24 The need to disclose financial information annually is related to the fact that the directors were to render accounts because every year there were elections to choose the new board, and because of profit distributions. Directors remuneration The directors remuneration under the approved by-laws was established as a commission of six per cent, comprised as follows (Art. 25): two per cent of the expenses in Lisbon, two per cent of the sales in Gro Par and Maranho and two per cent of the profits. However, this money was to be used also to pay the directors located in Gro Par and Maranho, the accountant and two cashiers (see, AHMF, Livro e Registo das Consultas, sheet 11V where it is stated that these people assisted the board and, therefore, should be paid by the board; see also Dias, 1984). As already discussed, such variable remuneration was considered to help guarantee that the interests of the board members accorded with those of the company (Marcos, 1997). Dividends In terms of the rights of shareholders, a period of no less than three years was the time for the first profit distribution, in accordance with the minutes of the proposed by-laws. Further distributions were to occur on an annual basis (Art. 52). Audit The examination of accounts under the approved by-laws was to be undertaken by two experts, both offering their opinion about them. Article 6 stated All [superintendent and deputies] will serve as long as the Company wants to maintain them and will keep accounts of its revenues and will offer a settlement signed by two deputies and sealed with the Companys seal, after being seen and examined by the Company Accountant. But the auditing was not independent,
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Table 1: The proposed and the approved regulations

Proposed regulations Share capital and shareholders rights Share Capital: 250,000 cruzados; All shareholders had the right to vote and elect the Board. Approved regulations Share Capital: 1,200,000 cruzados; The Board was elected from only the Portuguese partners whose stock interest was higher than 10,000 cruzados. Only those partners who individually or collectively represented interests higher than 5,000 cruzados were allowed to vote. The regulations specified clearly that the directors were forbidden from practising commerce in their own interests. The access to accounting information was not a right of the shareholder but a duty of directors. The directors remuneration was established as a commission of six per cent, comprised as follows: two per cent of the expenses in Lisbon, two per cent of the sales in Gro Par and Maranho and two per cent of the profits. Three years was the minimum time for profit distribution; further distributions were to occur on an annual basis. The examination of accounts was done by only two deputies (managers).
Duties and responsibilities of directors
Accounts and reports
Directors remuneration
The solid establishment and increase of the Company, or its total ruin, depend on their good or bad choice of the mentioned Administrators. The shareholders should be fully informed about the way in which the business is handled in the good faith of trade. From Company profits, they were to receive 100$ ris per year, and for the business they generated with income kept in the company they will get another 60$ ris, through the same gains.
Dividends
Audit
Shareholders will not receive dividends in the first three years; further distributions were to occur biennially. The examination of accounts by two of the most experienced shareholders; the experts nominated to take the accounts cannot be nominated for the two following years.
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since the auditors were managers (deputies). Article 23 of the specific statutes established the control of expenses. Each deputy responsible for an expense presented a supporting document to the board, which passed the document on to the accountant, who duly acknowledged the expense. Only then was the expense paid. To illustrate the main differences, Table 1 presents the most important characteristics of the proposed and the approved regulations. As was common in that age, the duration of the business was pre-set at 20 years. However, in accordance with shareholder interests, this could be extended by another 10 years (Art. 53). The prerogative of nominating eight deputies for the first mandate was described as follows in the last article (Art. 55) of the by-laws.
Art. 55. It is because Your Majesty, hearing the petitioners, was served by nominating the people mentioned below for establishing and governing this Company during the first three years: all of them will sign this paper for the mentioned Company, assuming obligations for the capital by which they enter this Company and, in general, that of the persons who also become part of it only by means of their entries ... , Lisbon, June 6 1755. Sebastio Jos de Carvalho e Mello Jos da Costa Ribeiro Rodrigo de Sande e Vasconcellos Antonio dos Santos Pinto Domingos de Bastos Vianna Estevo Jos de Almeida Bento Jos lvares Manoel F. da Costa Joo Francisco da Cruz Jos Francisco da Cruz Joo de Arajo Lima
Francisco Xavier de Mendona Furtado, the enthusiastic idealist of the Company who wrote the initial by-laws, was not included as a member of the business board. All the Pombaline companies had the same characteristic: the figure of Pombal who was always the first subscriber of the companys capital. As Marcos (1997) argued, although the idea to form the company was from Mendona, its by-laws were elaborated by Pombal and Jos Francisco da Cruz.25 The by-laws of all the Pombaline companies were similar (see Marcos, 1997)26 and Pombal is recognized as being directly involved in the writing of several of them (see, Fonseca, 1961/1962, p.16). Marcos (1997) argued that Pombals presence in the formulation of the by-laws of the Pombaline companies is absolutely incontestable. Pombal was very well versed in international commerce and chartered companies (see Pombal, 1742, 1748).
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Why did it happen? The characteristics of the new entrepreneurs

Why would the new enterprise have excluded Mendona Furtado from membership of the board of directors? What was the main reason for making substantial changes in the by-laws? Before answering these questions, it is important to understand the economic and political context of the time. Pombals reign was one of the enlightened despotism. He yielded supreme power, consolidated by enlisting into the government persons he trusted (Livermore, 1976; Maxwell, 1995). The authoritarian and sometimes ruthless character of Pombal was so strong that all subjects concerned with the administration of the country, regardless of their importance, were assigned to his supervision (Schneider, 1980, p.209). Pombals main actions in leading the country were influenced by enlightenment ideals and mercantilist policies, and by the experiences of several European countries based on his own observation. In particular, the knowledge Pombal acquired while abroad determined his preference for French mercantilism (Dias, 1984, pp.14250, 21213). From his own writings, it is clear that Pombal strongly admired French Statesmen:
lately France with the King Louis XIV having the help of the important Minister Jean Baptiste Colbert [facing the opposition against the novelties] made all the useful establishments of Commerce and Navigation, in what imitated all the others mentioned before [cities of Genoa and Venice, Hansa cities, The Netherlands, and England]. (Pombal, 1777, p.256) and from all of this [talking about the French measures related with industry and commerce] came as a natural consequence all the measures that the King adopted [imitating the example that the King Louis XIV had practiced with Colbert], and made me the honour of serving him and help with my diligences to establish the manufactures and industries of this kingdom (Pombal, 1777, p.298)
This can explain why Pombal was always the first subscriber of the chartered companies, as Colbert was in France (Marcos, 1997). Indeed, according to Serro (1982, p.412), France was for the Portuguese of that time the exemplary school of culture and civilization. All things that were associated with France were defended even if they were contrary to the national spirit. Therefore, it is not surprising that when Pombal was creating this company the French model of governance was considered. Pombals preference for the Continental model can also be explained by the general lack of regard Pombal had for English exploitation. In his important economic manuscript Relao dos Gravames (Report on Grievances), Pombal (1741) reflected Portugals angst at economic exploitation by England. The Portuguese believed the English were profiteering unduly at their expense (Rodrigues & Craig, 2004).
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The first directors, as nominated by Pombal, were important merchants of Lisbon (see for example Pedreira, 1995). Such was Pombals desire to promote merchants that it was said widely that if a merchant and a nobleman were announced simultaneously [in his ante-chamber], it was Pombals custom to receive first the merchant since, he said, a merchants time was more valuable than a noblemans (Cheke, 1969, p.159). Under all the by-laws of the Portuguese chartered companies that were established (during Pombals reign) (Art. 39), the merchants who were shareholders of those companies could become a Knight of Christs Order. This prestigious award was a quasi-nobility title, awarded to people who rendered exceptional service to Portugal. It was regarded as a certificate of pure blood (Pedreira, 1995, p.88). Article 39 of the company by-laws praises and encourages those who adhered to it: Not only will the trade, realized in this company as described above, not impair the nobility of persons who realize it ... but, rather the opposite, it will be a means of achieving the acquired nobility (Mendona, 1982, p.66). The main investors were the Cruz family, monopolist traders of the Tobacco Company and a closed merchant group that was very important to the Portuguese economy. This familys influence was so large that, according to Ratton (1813/1920), Antonio Jos da Cruz, one of its members, had been responsible for the rise of Pombal. A significant sample of his power can be found in the nomination of the deputies to the first board of the Companhia de Comrcio do Gro Par e Maranho. Two of them belonged to the Cruz family. When the initiative attracted the governments attention, the 250,000 cruzados collected by Mendona Furtado became insignificant in comparison with the total subscribed capital (1,200,000 cruzados), which consequently led to the removal of him and other provincial investors from management of the company. This capital concentration gave rise to a complaint in 1755, entitled Complaint against the Company that was established for the State of Maranho e Gro-Par in the name of commerce in Lisbon. The complaint was against the creation of the company which, through its monopolistic privileges, threatened free commerce. It was signed by the Deputies of the Confraria da Mesa do Esprito Santo (Brotherhood of the Esprito Santo Table)27 and indicated that the company [de Comrcio do Gro-Par e Maranho] is dominated by a small group of contractors. This put an end to the thesis that anybody could be a shareholder, since only the people they confided in would manage the Company (Falcon, 1982, pp.3756). The differences between the proposed and the approved by-laws can be explained as well by the different cultural and knowledge background held by Pombal and by his brother. Pombal was a very well travelled man and strongly skilled in commerce. The period of time Pombal spent abroad allowed him to have access to different literature and ideas,28 and therefore to develop an understanding of economy and society in many prominent European countries, particularly in
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England, France and in the Netherlands (Serro, 1996b, pp.98100). During the period spent in London, Pombal developed important contacts and connections with foreign businessmen and attended conferences with important professors of commerce (Pombal, 1742, para.37). He also had discussed this matter with the previous Prime-Minister, Cardeal da Mota, who was also an admirer of Colbert. Pombals brother only had contact with this matter when Cleland was in Lisbon and when he went to visit his brother in London in December 1742. Like today, in companies where stock control is concentrated in the hands of a small number of people, minority shareholders did not have the right to participate in a companys day-to-day life. The Pombaline companies were created not only to provide dividends to shareholders but were also considered to be a key element of the economic measures of the State (Marcos, 1997). In England, the impulse to create the East India Company came from individuals (Coornaert, 1967, p.240). The Pombaline companies were essentially a state initiative (Marcos, 1997), as had occurred in France. The first directors were selected by Pombal and were important merchants in Lisbon.29 At that time, Portugal was experiencing a regime of enlightened despotism and those who dared to stand up against the crown or its chief minister, Pombal, were persecuted and punished without mercy, like, for example, the members of the Confraria do Esprito Santo (Falcon, 1982). After having sent their complaint to King D. Jos I, they were captured and punished by imprisonment and exile (Falcon, 1982, p.376). Marcos (1997) argued that the main difference between the English and the Continental East India companies was the internal organization of the companies: the English company was democratic and shareholders were permitted to make clear their points of view in general assembly; the Dutch and French companies were autocratic and shareholders were almost unable to influence the evolution of the company. In this Portuguese case study, it is apparent that Mendona Furtados proposal was indeed close to the English model in terms of internal organization of the company since a more democratic and transparent model was proposed (the general assembly was important and all shareholders could vote and be elected). Pombal, however, in view of his experience and skills was influenced instead by the Continental model (the management of the GPM was in the hands of the big merchants of Lisbon). As with the Dutch East India Company, partners were placed in the hand of the directors, who managed the company in an arbitrary way (Marcos, 1997, p.64). Partners had the right to transmit their shares and abandon the company if they did not agree with directors management. Furthermore, as it was a royal chartered company they could appeal to the King.
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Discussion and conclusion

Concerns for adopting mechanisms to protect shareholders, whether against the power of majority shareholders or against the agents chosen to manage businesses in their name, did not commence in recent decades. While the academic community has endeavoured to characterize and give names to ancient practices, for example agency theory, businessmen in other times, without worrying about labels, sought to establish rules of behaviour to safeguard their interests, including the adoption of accounting and auditing mechanisms. The original minutes of the GPM are a clear example of such an attempt. However, they were substituted by another form of management that focused exclusively on the interests of majority shareholders. Mendona Furtado, the State Governor, aided by his memory and the experience he had acquired in London and during Clelands stay in Lisbon, seems to have had a good understanding of what is now called good corporate governance regulations (that is consistent as per abstract). The governance rules of today may have been considered as appropriate and, therefore, as contributing to the good government of companies by readers of the proposed by-laws for GPM of approximately 250 years ago. As in the East India Company of England, each partner had one vote, independently of capital participation, the right to be informed about the business of the company, and to inspect the accounting books. The creation of the company was thought to be an initiative of individuals, with the support of the State. However, not all practices that are now part of different guidelines throughout the world were applied to those minutes. The needs for shareholder protection in the eighteenth century were substantially different from current needs, due to the nature of businesses and the commercial characteristics of both ages. Pombal wanted to integrate and connect what action within the Empire was dispersed through the world and permanently connect the colonies with the metropolis. The monopoly trading companies were a characteristic of the monopolistic policy of Pombalism (Serro, 1996b). The objective was to develop the economy of Brazil, and consequently of the Portuguese Empire, through the monopoly in trading African slaves and in exporting colonial products (Schwartz, 1998; Serro, 1996b). The administration of the colonies reflected the enlightened despotism practised by Pombal in Lisbon. Therefore, the action of the different governors appointed to the colonial territories became oriented and conditioned by an authoritarian conception of power akin to what Pombal was exercising in Portugal (Magalhes, 1998, p.35). This state conception makes it easy to understand that although the minutes were written by his brother, the approved by-laws and the specific statutes were very different.
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The State and Portuguese people experienced strong French influences. Therefore, it is not surprising that the approved by-laws and the specific statutes of the GPM, as well as all other monopolist trading companies created by Pombal, were influenced by the Continental model of governance. The system of capital subscription at the GPM was democratic but the management of the company was autocratic. Only shareholders who individually or collectively represented interests higher than 5,000 cruzados were allowed to vote, although the number of votes was independent of the amount subscribed. To be a director it was necessary to subscribe to a minimum amount of shares. To be a member of the board, as in the case of French companies, it was necessary to be a merchant. This requirement assured that the board was composed of people who were knowledgeable in business. The shareholders did not influence the management of the company except in the election of the directors. There was a considerable state interference. The accounting and governance practices of the GPM are a rich source for further enquiry. The National Archives of Torre do Tombo (ANTT) provides an inventory of 217 books, including accounting books, legislation and documents dealing with legal aspects of the company as well as documents dealing with important financial transactions, and others dealing with the way the company was organized. This is a major under-explored archival resource that merits closer attention by scholars, fluent in the Portuguese language, who wish to enhance our understanding of accounting and governance practices in Portugal in the eighteenth century. It will be important to understand what sorts of information flows shareholders could rely on to protect their interests, and how they monitored business activities to protect them against the opportunism of agents. It is also important to understand how managers and officials were controlled, since one of the major problems confronting the trading companies was that of effectively controlling them at a distance. In spite of the assertions that the early trading companies failed or suffered from their inability to control their managers, there has been very little archival research undertaken to ascertain whether the directors understood the nature of the agency problem; and what steps, if any, they took to assist in dealing with the problem (Carlos & Nicholas, 1990, pp.8556). Further study of the documents of the GPM seems to be highly desirable.
Notes
1. For further reading on the origins of corporate governance, see Carlsson (2001, p.307), Siffert Filho (1998, p.2), Jensen and Meckling in Silveira (2002, p.13). 2. Government of the company is a long-used term but corporate governance, as a term, seems to date from the 1990s. Portuguese regulations use the term
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3.
4.
5. 6.
7.
8. 9. 10.
11.
12. 13.
government of the company (governo da companhia). The same words can be found on the East India Company of Englands by-laws. We use the term corporate governance when we refer to the present regulations and practices, and the term government of the company when we refer to the analysis period. Text extracted from the definition of corporate governance published by the IBGC Brazilian Institute for Corporate Governance, according to which it is a set of practices and relations among stockholders, administrative council, board, independent auditors and fiscal council, aimed at optimizing the companys performance and facilitating access to capital. (http://www.ibgc.org.br/Secao. aspx?CodSecao=20, emphasis added). After the Companhia Geral do Gro-Par e Maranho (Company of GroPar and Maranho) (1755), the Companhia Geral do Pernambuco e Paraba (Company of Pernambuco and Paraiba) was created, in 1759. Captaincy (Capitania) was the name given to the administrative regions of Brazil. Companies activities were substantially broadened. According to the approved by-laws, the company possessed commercial exclusivity from the Gro Par and Maranho captainship to trade dry and liquid foods, construct ships, capture ships and their respective loads from nations considered enemies, as well as transport loads from third parties. The monetary unit was the real (plural ris, and abbreviated to rs.). To indicate one thousand ris a $ was written, followed by three zeros. Thus, 2,000 ris was written as 2$000. One cruzado values 400 ris. 54th letter from 15 February 1754 (in Mendona, 1982). He left the interested parties the freedom to consult professionals in Lisbon who could adequately evaluate the mentioned by-laws. Cleland had served with great distinction as an employee of the East India Company of England in Bombay between 28 August 1728 and 23 September 1740 and was described as well versed in the Portugeze [sic] Language (Epstein, 1974, pp.32, 52, 48; Rodrigues and Craig, 2004). And we do hereby ordain and appoint, that no one member of the said company shall, in any election of any director or directors or other officers of the said company or in any business or affairs of the same, have or give any more than one vote, whatsoever his share or interest in the said principal stock or fund shall be (BL, Shelfmk, 100.m.39, p.32). http://www.calpers-governance.org/principles/international/global/page05.asp, accessed 10 September 2007. This was a usual practice at the chartered companies of the time (Marcos, 1997, p.729).
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14. Independently from the name, the description of both experts activity is pertinent. 15. Arquivo Histrico Ultramarino (AHU), Maranho, box 36, no.866. 16. AHU, Estatutos Particulares, ou Directrio Econmico para o governo interior da Companhia geral de Pernambuco e Paraba, Lisbon: Officina de Miguel Rodrigues, 1760, codice 450, p.1. 17. Charter of 16 February 1760 (ANTT, Estatutos Particulares ou Directrio Econmico para o Governo interior da Companhia Geral do Gram Par e Maranho, Conservatria da Companhia Geral do Gro Par e Maranho, box 67). 18. AHMF, Livro do Registo das Consultas, sheet 10V. 19. The Governor only asked for three privileges but many others were established in the approved by-laws (Marcos, 1997, p.386). 20. The use of the word deputy suggests an official delegation. 21. As mentioned before, private trading was a very common practice in chartered companies and an active policy of trading for commodities on ones own account at the expense of the company was usually forbidden. 22. At the time, most of the bookkeepers were foreigners. The first bookkeeper of the company was a Frenchman, Darnaud (Ratton, 1813/1920). 23. A document found at the archive AHMOPTC explains the information provided to the shareholders:
on the right side [of the balance sheet] the debt of the company is exposed, being specified the capital, profits by year and liabilities The same formality should be used to the credits of the company, the assets hold to pay those debts. These assets are composed by stocks hold in the city where the company is being managed and overseas; but also the ships, fixture assets and others, all evaluated to the acquisition cost. The credit part should finish with the cash account. The utility of this method is related with the clarity since only a few words are used [ ]. The shareholders who are instructed in commerce matters and who wish to understand the accounts in detail used to elaborate the balance sheet, can read the Ledger book; and using this book and others detailed accounts, the progress of which business can be observed by the shareholders (AHMOPTE, Companhia Geral do Gro Par e Maranho, 3).
24. There are at least two copies of this statement for this company: Resumo do Estado da Companhia Geral do Gram Par e Maranho no fim do anno de 1767 (BGUC, mao 2976, no.15, sheets 402) and Resumo do estado da Companhia Geral do Gro Par e Maranho no fim de 1769. All the members of the board signed this summary of this last accounting statement (BGUC, mao 693, sheet 271).
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25. Cruz was a prominent merchant in the city of Lisbon and had been involved in the creation of the Depsito Pblico [Public Deposit] and was deputy of the Board of Trade. He was later administrator of the Company of Gro-Par and Maranho. 26. The differences were related to the kind of business. For example, the Companhia dos Vinhos do Alto Douro (Alto Douro Wine Company) allowed for capital subscriptions in the form of wine. 27. This was an unofficial body; it was the heir to the Junta de Comrcio Geral, (which operated until 1720). Its prestige peaked during the reign of D. Joo V. 28. His diplomatic career took him to London, where he represented the Portuguese Crown from October 1738 until May 1743, and during a further period of six months in 1745, and also to Vienna, from 1745 to 1749 (Barreto, 1986, p.xxvi). 29. Deputies were required to be a merchant, since Pombal believed that the good government of the companies made it necessary to have people with commercial knowledge. Most of the shareholders of the Pombaline companies were merchants (Marcos, 1997). See, for example, the pleasure expressed in the letter of the Board of Companhia Geral de Pernambuco e Paraba (the other Brazilian Company) on 24 December 1759 because most of the capital was subscribed by merchants (AHMF, Copiador de Pernambuco, no.1, sheet 1).
References Primary sources

Arquivo Histrico do Ministrio das Finanas (AHMF), [Historical Archive of the Ministry of Finance], Portugal. AHMF, Livro do Registo das Consultas, sheets 10V and 11V. AHMF, Aces da Companhia Geral do Pernambuco e Paraba, Copiador de Pernambuco, no.1, sheet 1. Arquivo Histrico do Ministrio das Obras Pblicas e Transportes e Comunicaes (AHMOPTC), [Historical Archive of the Ministry of Public Works and Transport and Communications], Portugal. (AHMOPTC), Companhia Geral do Gro Par e Maranho, 3. Arquivo Histrico Ultramarino (AHU), [Overseas Historical Archive], Portugal. AHU, Estatutos Particulares, ou Directrio Econmico para o governo interior da Companhia geral de Pernanmbuco e Paraba, Lisbon: Officina de Miguel Rodrigues, 1760, codice 450, p.1. AHU, box 36, no.866. Arquivo Nacional da Torre do Tombo (ANTT), [National Archives Torre do Tombo], Portugal.
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ANTT, Estatutos Particulares ou Directrio Econmico para o Governo interior da Companhia Geral do Gram Par e Maranho, Conservatria da Companhia Geral do Gro Par e Maranho, box 67. Biblioteca Geral da Universidade de Coimbra (BGUC), [General Library of University of Coimbra, Portugal]. BGUC, Fundo Geral, Resumo do Estado da Companhia Geral do Gram Par e Maranho no fim do anno de 1767, mao 2976, no.15, sheets 402. BGUC, Resumo do estado da Companhia Geral do Gro Par e Maranho no fim de 1769, mao 693, sheet 271. British Library (BL). Collection Shelfmk, Humanities, 100.m.39. Charter Granted the Tenth Year of King William III to the East India Company of England in the Year 1698, London, printed in the year of 1766, 51 pages.
Secondary sources
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Acknowledgements: The authors thank Garry Carnegie for ongoing editorial support and the two anonymous reviewers for the constructive and helpful comments that were provided on earlier versions of the articles. Address for correspondence: Lcia Lima Rodrigues, Universidade do Minho, R. da Universidade, 4710 Gualtar, Braga, Portugal. E-mail: lrodrigues@eeg.uminho.pt
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Accounting History

Sofie Tortelboom Aversari Martins

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Corporate governance and the history of joint stock companies

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

The formation of GPM

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

The first distribution of dividends happened only after three years.

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Table 1: The proposed and the approved regulations

Duties and responsibilities of directors

Accounts and reports

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Why did it happen? The characteristics of the new entrepreneurs

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Discussion and conclusion

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

References Primary sources

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

Accounting History Vol 14, No 4 2009

Rodrigues et al.: Corporate governance regulations

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