The Past Speaks

Weathervane on the HBC’s former London headquarters

Yesterday, VoxEU posted a summary of some research on the role of headquarters in multinational firms. There is, of course, some truth the view that many company head offices are filled with administrative fat that doesn’t contribute anything to the bottom line of the company.  Cost-cutting CEOs often target layers of management in the head office rather than “productive” assets overseas. The reality, though, is that company head offices create a lot of value. They wouldn’t exist if they did. And their functionality is demonstrated by Masayuki Morikawa’s research, which found that:

Headquarters play important strategic roles in modern companies, but downsizing of headquarters is often advocated as a cost-cutting measure. This column presents evidence from Japanese firm-level data that the size of headquarters is positively associated with firms’ overall productivity. Moreover, the benefits of ICT are greater for companies with relatively large headquarters. Downsizing headquarters to cut costs may thus be harmful for long-term company performance.

This brings me to the Hudson’s Bay Company. As many readers of this blog will know, the HBC was founded in 1670 to trade for furs in Canada.  It is still in existence, although it has long since shifted from running trading posts to managing department stores in big cities. Until 1970, the headquarters of the HBC remained in London, even though virtually all of the productive assets of the firms were in Canada. Having your headquarters so far from your sites of production increases costs, which raises the question of why the HBC stuck with this business model for so long. In the 19th century, there were plenty of Free-Standing Companies with headquarters in London and productive assets overseas.  Mira Wilkins and others have published on this phenomenon. The Grand Trunk Railway Company of Canada is one example. But the HBC persisted with this model for much longer than the other firms. Why? How did paying for a head office in London help to create value?

I looked through my copy of E.E. Rich‘s classic history of the HBC yesterday. I was struck by how he says virtually nothing about the functions of the London headquarters on Fenchurch Street (later moved a few metres to Bishopsgate Street). There is nothing there about how many clerks worked there, what they did with letters arriving from Canada. Nothing. Nada. That’s a huge omission, in my view, although I will concede that Rich wrote the book just before Alfred Chandler’s research revealed to historians the sheer historical importance of company head offices.

What’s even weirder is that little research on this topic has been done since the 1960s.  The HBC has an excellent archive that is available to researchers. I strongly suspect that the papers created by the London headquarters had the highest survival rate of any type of HBC paper, so there must be suitable material for a study waiting there for someone. It’s astonishing that nobody has taken up the challenge of writing a study of how the headquarters operated. If there is such a study, I certainly don’t know about it.

There has been some great research recently about the history of this really important firm. This new research includes:

Binnema, Ted. Enlightened Zeal: The Hudson’s Bay Company and Scientific Networks, 1670-1870. University of Toronto Press, 2014.

Ogata, K., & Spraakman, G. (2013). The persistence of delegitimated structures: Insights from changes to management accounting at the Hudson’s Bay Company, 1670-2005. Journal of Accounting & Organizational Change, 9(3), 280-303.

Colpitts, George. “Intrinsic environments and metropolitan perceptions of nature in the nineteenth century: the case of the London–based Hudson’s Bay Company.”International Journal of Business and Globalisation 12, no. 2 (2014): 183-201.

Cavanagh, Edward. “A Company with Sovereignty and Subjects of Its Own? The Case of the Hudson’s Bay Company, 1670–1763.” Canadian journal of law and society 26, no. 01 (2011): 25-50.

I’m looking forward to reading all of these works. However, I really wish someone who do a good scholarly study of the functions of the HBC London office.  The new histories of the East India Company  by Roy and Lawson would doubtless be very useful to the author.

Roy, Tirthankar. The East India Company: The World’s Most Powerful Corporation. Penguin Books India, 2012.

Lawson, Philip. The East India Company: A History. Routledge, 2014.