Adam Smith and the economics of corporate governance

Adam Smith surveys overseas trading companies in the last part of his 1784 pamphlet (Part #13). I went over the first five paragraphs of this part of Smith’s 1784 pamphlet in my previous post. The rest of Smith’s pamphlet is devoted to what today we refer to as “corporate governance” (see here, for example). To begin, Smith explains how an overseas trading company can be organized in one of two ways: either as a regulated company or as a joint stock company. “When those companies do not trade upon a joint stock, but are obliged to admit any person, properly qualified, upon paying a certain fine, and agreeing to submit to the regulations of the company, each member trading upon his own stock, and at his own risk, they are called regulated companies. When they trade upon a joint stock, each member sharing in the common profit or loss in proportion to his share in this stock, they are called joint stock companies. Such companies, whether regulated or joint stock, sometimes have, and…