VOC: The birth of the modern corporation

The Dutch East India Company, otherwise known as Verenigde Oostindische Compagnie (or simply VOC), was established in 1602, and is regarded as one of the very first examples of a multinational corporation. VOC arose as a response to the issues surrounding merchants looking to profit from Indonesian spice trade. Prior to the commencement of VOC, merchants in Amsterdam who wished to undertake voyages would pool all their funds together and send ships over to Indonesia. Once these ships returned, they would split the profits between them and go on their merry way.

However, this had several limitations. Firstly, there was a relatively high amount of risk that the ships would not return – natural disasters and pirates could be a bit troublesome for these profit seeking individuals: no returning ships = no money. You can see where their issues with this situation arose. And even if the ships did return with all their riches – the voyage would then be over and the company liquidated, meaning the entire process of finding other traders to send ships would have to start again.

To combat this, the idea of a joint-stockcompany was implemented. Investors and merchants alike were able to purchase shares in the company for the first time, but were not permitted to receive dividends until 10 years after the purchase date of the stock. This helped solve the two main problems these traders had on previous voyages. Now, once a ship returned, VOC could reinvest the profits instead of liquidating the capital back to the investors like the previous method. This helped to facilitate further expansion and growth. The high amounts of risk carried by the investors was also significantly diminished – if a voyage went bust, those holding shares would not lose all of their cash in one hit, as it would be the company as a whole, not the individuals, who would shoulder the loss.

However, as we know all too well in economics, the solving of one problem usually leads to the creation of another – if investors couldn’t receive their dividends until 10 years later, where was the incentive to put in any of their hard earned money? Well, the Dutch were cunning in this regard as well – the creation of VOC lead to the establishment of a different kind of institution – the Amsterdam Stock Exchange, the first of its kind in the world. Although not in existence today, the ASE was revolutionary in that it allowed investors to sell their stocks in VOC on a secondary market – with the share price of VOC fluctuating due to simple supply and demand. This helped allow for VOC to have the continuity, or ‘going concern’, which is reflective of today’s corporations: one investor deciding to pull out and sell their shares wouldn’t adversely impact the company, as someone else could step in and purchase the shares. Although this seems quite obvious, at the time it was extremely innovative, and it has helped shape our economic system into the way it is today.

Now to end on an interesting piece of trivia – if not for a small twist of fate, I’d be writing this article in Dutch – in 1606, a VOC ship named the Duyfken landed in what is now known as Western Australia: however, the Dutch didn’t think much of the barren strip of land they had touched down upon, and chose not to colonise. Perhaps they weren’t so smart after all?

Duyfken – http://www.duyfken.com/original-duyfken

Image: ‘Duyfken Replica Under Sail’ by Rupert Gerritsen, https://commons.wikimedia.org/wiki/File:Duyfken_Replica_Under_Sail.jpg. Licence at https://creativecommons.org/licenses/by-sa/3.0/deed.en. by-sa