History Lesson: When Companies Actually Protected Investors

Last Updated May 18, 2010 10:45 AM EDT

In these days of financial giants working against the interests of investors, it was enlightening for me to learn of a time 100 years ago when companies were forthcoming about CEO salaries and actually offered protections to consumers who invested in their companies.

In a recent book on the Brazilian financial industry in the late 19th and early 2oth centuries, Aldo Mussachio discovers a golden period in corporate transparency. It seems that the Brazilian government's laws protecting investors were light, so the best way for companies to encourage people to risk their money in the stock market was to grant safeguards themselves.

They did this by offering prospective investors robust disclosure on executive compensation, and provisions that protected shareholders from abuses by large shareholders, managers, and other corporate insiders. It worked: The stock market enjoyed a golden run between the 1880s and 1915.

Another lesson, this one for business. Companies are not necessarily constrained by the institutional framework in which they operate.

In an interview with me on HBS Working Knowledge, Mussachio recommends that modern-day policy makers seeking increased regulation of Wall Street not forget that investors properly armed with information can be an important check on corporate excess. His book is Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882-1950.

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.