If you want to understand more about how India became part of the British Empire you should read William Dalrymple’s “The Anarchy”.  The book is a panoramic survey of the diplomatic intrigues, rampant duplicity and naked aggression used to divide and conquer the Mughal Emperor’s power and that of the various Mughal principalities.

My reason for reading this book was a desire to know more about the East India Company (EIC) and particularly whether, as one of the first joint stock companies, it provided lessons for current corporate governance issues. What shocked me was the extent to which the creation of the British Empire in India was in fact the work of the EIC.  “The Anarchy” charts the actions of the EIC from its creation in 1599 to its effective nationalisation in  1859. In its two and a half centuries the company went from an organisation negotiating commercial privileges with Mughal princes to a colonial power with its own navy and a security force (army) of 200,000 troops, more than the British army of the time.

I had mistakenly assumed the British State had opened up India to trade, supporting  and defending private sector organisations like the EIC. Clive of India I took to be a member of the British army who paved the way for British commerce. Someone who was Knighted for his service to the Crown. Just shows how wrong you can be.  In fact Clive was always an employee of the EIC and was rewarded for his services with an enormous fortune looted (a term originating in India, which I use advisedly, meaning “theft”) from the Indian nations making him one of the richest men in Europe.

Whilst I never bought into the imperial story of Britain bringing civilisation to the Indian sub-continent I had never appreciated how thoroughly the rampant exploitation of the vast area was done by the private enterprise of the EIC. A company which many members of the British parliament had substantial shareholdings in. Explaining, perhaps, a certain reticence when it came to considering stories of brutality as highly profitable commercial transactions were transformed into outright theft. Illustrative of the rapine behaviour is the fact that Powis Castle, the home of Clive’s son, contains the Clive Museum which has the largest collection in one place of Mughal artefacts from India. Larger even than that in the National Museum in Dehli.

There is no doubt the battle for supremacy in India was a physically demanding and dangerous business. Dalrymple’s book provides an even handed description of acts of bravery and cowardice, loyalty and treachery, honour and deceit on both sides of the battle. The European battle tactics, genuine bravery, modern cannons and pure luck all played a part in the ultimate success of the EIC. But victory transformed highly profitable trade to outright pillage. This in turn led to the degradation of the existing state and at times major famine. Unbound avarice with little thought for the future eventually undermined the viability of the EIC. As profits declined moral outrage grew oddly enough.

Putting aside belated outrage what lessons are there from the history of the EIC for today. Clearly one is about effective regulatory oversight. If you rely on the moral character of shareholders to curtail the drift from entrepreneurial energy through commercial sharp practice to sharp knifed theft then you need to hope that the returns remain modest. NINJA loans in the US, in the first years of the 21st Century were little short of outright theft. When billions of pounds are at stake peoples morals flex and bend and, in the absence of independent challenge, break.

Another lesson is the danger of scale posed by private companies. As the exploitation of India grew more and more aggressive, in every sense, the returns of the EIC grew in lock-step providing the resources in dividends and outright bribes to suppress the demands for closer parliamentary oversight. By the late 18th Century the EIC generated almost half of Britains trade, it had become “too big to fail”.

It was at this point that the risks of unregulated exploitation started to crystallise. In 1772 large debts, increasing military expenditures and declining revenues from over-exploited regions meant the company was running out of cash. A dividend maintained at 12.5% probably did not help matters. In July of that year the Directors applied to the Bank of England for a loan of £400k, a fortnight later they needed another £300k by August they needed another £1m. In total, close to £200m in todays money. Inevitably these unprecedented requests for cash raised questions as to how a company generating so much wealth for its employees could go bust or as Mr Dalrymple puts it, “…the contrast between the bankruptcy of the Company and the vast riches of its employees was too stark not to be investigated.” Similar to the Parliamentary questions concerning the remuneration of Carllion Directors after they went bust building the Royal Liverpool Hospital, for example.

The Government did investigate and indeed Clive was brought to the House to defend himself which he did with vigour. And the man who “earned” something in excess of £234k (£260m in todays money) in 16 years in India, apparently without laughing, said he was, “… astonished by my own moderation.” In the end Parliament found in favour of Clive, clearing his name by a vote of 155 to 95.

This is a really well written book which compels attention and provides real insights into the values and attitudes of the time, good and bad. It is a powerful testimony to the power of the financial innovation which is the joint stock company, and what it could achieve. It speaks to the importance of effective corporate governance but also for effective external regulation. It confirms that whilst shareholder value is a necessary component of corporate purpose, on its own it is far from sufficient.

The parallels with many of the current debates around large corporations are clear. Those who do not learn from history are condemned to repeat it. This book provides lessons our politicians would do well to learn. I wish I was optimistic they would.