History Lesson: When Companies Actually Protected Investors

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.