Business History

Business history is the study of how business ventures evolve. Researchers in the field analyze the decisions made by business owners and managers, over time, within the physical, regulatory, political, cultural, and technological constraints imposed by their environments. This entry first recounts the emergence of business history as a distinct field. It then examines the link between reputation and business history and how those linkages can affect business leaders and their firms.

Histories of businesses have been produced for centuries, and economists have written about enterprises and industries at least since the 18th century. However, business history was first recognized as a field in its own right during the 1920s with the establishment of the Bulletin of the Business Historical Society at the Harvard University Graduate School of Business Administration. (In 1954, the Bulletin became known as the Business History Review.) The dean at the time, Wallace Donham, allegedly coined the term business history when he proposed a research professorship for the study of “specific situations as they came to business men and their communities in the past” so that they may be compared with “current conditions” (McCraw, Koehn, & Nelles, p. 246).

The approach, along with other initiatives at Harvard, eventually coalesced into the case study teaching method, in which instructors led students in the discussion of specific managerial problems faced by senior executives. The case studies provided a detailed narrative of how executives or firms arrived at their current dilemma. By implication, understanding how a problem arose within its specific historical context assisted business executives to formulate solutions. Norman S. B. Gras and his Harvard colleague Henrietta Larson published the Casebook in American Business History in 1939. Harvard established the Isidor Straus Chair of Business History in the late 1920s, with Gras as its first incumbent.

In the United Kingdom, business history was institutionalized in 1958 with the founding of Business History at Liverpool University. Other journals established in Europe at the time included the French publication the Revue d’Histoire de la Siderurgie (1960), devoted to the study of the steel industry.

In the 1960s, the works of Alfred Chandler transformed the field. Chandler’s empirical investigations of large firms such as DuPont and General Motors led him to construct general explanations about the evolution of big businesses. These explanations included how management structures developed, why professional managers emerged, and the factors that drove firms in certain industries to expand and vertically integrate. Strategy and Structure (1962), The Visible Hand (1977), and Scale and Scope (1990) became seminal works, establishing new standards of scholarship that replaced company biographies with analyses of firms, industries, and countries. Chandler’s works had a strong influence on sociologists, economists, and management scholars, who incorporated Chandler’s generalizations into their theories of the firm. Among the most prominent was Oliver Williamson, who was awarded the Nobel Memorial Prize in Economics in 2009 for his work on transaction costs.

On the face of it, the Chandlerian frameworks left little room for the study of reputation. Yet as one of Harvard’s leading business historians, Arthur Cole, wrote in 1962 (the year Strategy and Structure was published), business history should include investigations of “the attitudes of specific groups in society toward the business world as a whole, [and] to the traits of character perceived in representative figures within that world.” He argued for the study of “the changing public censors of business, the reasons for [their] approvals or disapprovals, [and] the competence of their observations” (p. 104). In other words, Cole and others believed that the reputations of business leaders, firms, and the entire business sector constituted a fertile field for exploration.

The dominance of the Chandlerian paradigm invited challenges. From the viewpoint of reputation studies, one of the most important was the 2003 article by Naomi Lamoreaux, Daniel M. G. Raff, and Peter Temin, which argued that solving the problems of asymmetric information was the key challenge that all businesses have faced across time. (The problem exists because in any transaction one party knows more than the other about some aspect of the exchange, such as the quality of the goods.) To manage the problem, businesses devised a spectrum of “coordination mechanisms” ranging from simple spot transactions (one-time dealings in the market) to the elaborate bureaucratic structures that characterize modern firms. The framework devised by Lamoreaux et al. made room for mechanisms such as long-term social connections, a historical phenomenon to which Chandler had paid scant attention. More fundamentally, the framework’s focus on information as the core problem of business transactions opened up space for the study of reputation’s role in the history of business.

Reputation as a Recurring Theme

Although reputation has not been often featured as an explicit construct in business history, it has been an important explanatory factor in how business transactions occur. Historical actors have long used reputation as an informal mechanism to facilitate market exchanges, deter malfeasance, and enforce contracts. Good reputations are linked to conformity with norms (legitimacy), and many histories have attributed the downfall of companies and businesspeople to their transgressions not just of laws but also of the norms of their societies.

Facilitating Market Exchanges

Good business reputations are particularly useful in long-distance exchanges and in undeveloped or poorly regulated markets, where the costs of gathering information and enforcing contracts are high. In low-trust environments, traders have historically relied on ties of kinship, religion, and other such networks, where the incentives to fulfill contracts transcend the merely economic. The family firms that succeeded in building a reputation for integrity were highly trusted by other merchants, as illustrated by the Rothschilds, Barings, and Browns, three early merchant bankers of trans-Atlantic commerce who rose to prominence in the late 18th and early 19th centuries. Merchants knew that an alliance with these families enhanced their own trustworthiness. The Browns even monetized their reputation by selling letters of credit—documents that vouched for the integrity of the merchants who bought them. In the late 20th century, technology made information available to greater numbers of businesspeople. As a result, the explicit reliance on reputation became confined to specific activities such as venture capital, mergers and acquisitions, and private equity.

Deterring Malfeasance and Enforcing Contracts

The threat of developing a bad reputation helped deter wrongdoing and enforce contracts. Such informal threats were most effective among closed groups of homogeneous traders. For example, reliable information moved quickly among the 11th-century Maghribi traders in North Africa, enabling them to ostracize cheaters. Later, guilds and mutual protection societies formalized the transmission of reputation (e.g., by compiling blacklists, which they circulated among their members). In the late 20th century, online marketplaces such as eBay developed feedback mechanisms that enabled buyers and sellers to rate one another. The ratings were aggregated to create online reputations that most eBay traders deemed to be valuable and worth protecting.

The threat of losing one’s good reputation has not always deterred corporate wrongdoing. At times, the lure of short-term gains has proved more powerful, as happened in the scandals involving Enron in the United States (2001), Parmalat in Italy (2003), and banks during the financial crisis of 2007–2008.

Adherence to Norms and Laws

Reputations are the result of social evaluations. The perception of legitimacy (conforming to norms) is therefore a critical component of companies’ good reputations. Conversely, the failure to conform to social norms has almost always resulted in a loss of reputation. Some companies have attempted to differentiate themselves from their competitors by pushing the boundaries of what is acceptable (e.g., by creating advertising designed to shock or titillate). But there have been few, if any, companies that have prospered by consistently violating social norms. Historically, legitimacy has also been conferred on companies by bodies such as the press, political groups, legal professionals, and regulators. These actors too have actively created and sustained their own reputations.

Business Histories as Shapers of Reputations

Business histories can shape the reputations of firms and business leaders, especially in the areas of commissioned history and CEO biographies. Influential works such as those of Alfred Chandler have conferred legitimacy and prestige to particular forms of enterprise and elevated the reputations of some countries’ business systems.

Commissioned Histories

Commissioned company histories remain a staple of business history despite having a mixed reputation among many academic historians, who criticize the genre’s lack of objectivity and inability to make generalizations. One early work that maintained a high academic standard was Charles Wilson’s two-volume History of Unilever (1954, 1968). But even Wilson’s history had the effect of enhancing Unilever’s reputation. In particular, the second volume, published in 1968 and covering the recent period of 1945 to 1965, depicted Unilever’s policies as enlightened: Its employees were generally content, the African suppliers of its raw materials were treated fairly, and its consumers were safe from exploitation and manipulation.

In a few instances, academic historians have explicitly offered their services on a commercial basis. For example, the Winthrop Group, founded in the 1980s, produced commissioned histories of firms such as Procter & Gamble and Corning, Inc. Winthrop highlighted the utility of its histories, arguing that the works enabled companies to “honor service and celebrate accomplishment, authenticate a brand, substantiate a message, or just set the record straight” (History Services, Winthrop Group, n.d.).

The Nazi Period

In at least one instance, commissioned histories were undertaken to examine the nature of companies’ collaborations with a violent and corrupt regime. Beginning in the 1990s, a number of German, Austrian, and Swiss companies responded to class action suits and negative publicity by commissioning histories of their activities during the Nazi period (1933–1945). The project was most fully realized in Germany, where a working group of historians studying the Nazi era eventually included about 80 members. The resulting histories had titles such as From Cooperation to Complicity: Degussa in the Third Reich (2004) and Inside IG Farben: Hoechst During the Third Reich (2008). Lawsuits were also brought against the U.S. firms General Motors (GM) and Ford, prompting GM to seek the help of historians to determine its exact role in the Nazi regime. The research resulted in a history, General Motors and the Nazis: The Struggle for Control of Opel, Europe’s Biggest Carmaker, published in 2005. Both GM and Ford subsequently made large contributions to the funds that were set up to compensate the victims of forced and slave labor.

The Chandlerian Effects

Although Alfred Chandler did not use reputation as a lens through which to analyze businesses, his work has had a considerable effect on the modern reputation of large firms and professional management. Chandler’s contention that some companies became large to capture efficiencies of scale and scope provided a strong counterargument to the accusations that large corporations were simply trying to gain or preserve market power. Chandler’s focus on corporate strategy helped confer legitimacy on the profession of management consulting. His portrayal of professional managers as more effective than the market in coordinating and allocating resources boosted the status of the managerial class. Chandler’s thesis that in the Second Industrial Revolution (ca. the 1860s to 1920) large American and German firms successfully invested in production, distribution, and management—while companies in other countries mostly did not—enhanced the reputations of the U.S. and German business systems. More controversially, Chandler argued that British companies failed to make these investments. The observation contributed to the narrative of national decline in the United Kingdom and spurred its business historians to try to counter Chandler’s thesis.

Charismatic Business Leaders

The biographies and autobiographies of business leaders construct the reputations of not only the leaders themselves but also of their organizations. Powerful CEO reputations, in particular, can help shape industries, direct consumer behaviors, and influence regulation. Very often, decisions taken by other executives within the organization become attributed to a powerful CEO. Henry Ford and Steve Jobs, for example, came to personify their organizations. Aware of their power, they consciously manipulated their images with the help of “reputation entrepreneurs”—such as public relations staff who interacted with the media to ensure favorable coverage.