People have been gathering together for centuries to delegate authority and ensure the workings of society from growing food to education, health and defending land is carried out efficiently and effectively. As businesses for profit began to evolve they too developed a need for a group of ‘elders’ or leaders to hire workers, set direction and oversee performance.
The structure of the boardroom has however evolved differently country by country.
According to Franklin Gevurtz from the McGeorge School of Law large European businesses, such as England’s East India Company and the Dutch East India Company, had boards of directors in place from the early 17th century. These, differing in membership size from the mid-teens to 60, were made up of merchants who had the power to set strategy, manage performance and annually elect a new ‘governor’.
As European colonisation grew so did the concept of the board. The London Company, which founded the Virginia colony in today’s US had a governing board. The Bank of the United States, according to Gevurtz, “illustrated the tendency of former colonies to copy board governance from European institutions” with its 25-person board modelled on the Bank of England’s structure.
In contrast in the 16th and 17th centuries Japan had a system of ‘merchant houses’ which sold commodities such as rice and wood and were involved in money lending. They did not have a board. Ultimate authority was instead in the hands of the head of the house to “whom all employees and house members owed a duty of total obedience”.
In the mid-19th century however Japan, which to that point had been an isolated feudal society, began to look westwards for new ideas on everything from armoury to technology and institutions. The concept of a joint-stock company which raised money by selling stakes to investors proved particularly interesting. In time this led to the adoption of the board of directors as a governing institution.
Other major historical boardroom developments include the creation of the ‘dual board’ system in Germany in the 19th century. This comprises a Management board which covers everyday management issues and a Supervisory board looking at long-term decision making and strategy. Other countries with this structure include Finland and the Netherlands.