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Power and Accountability on the Pennsylvania Railroad, 1846–1878*

Published online by Cambridge University Press:  11 June 2012

James A. Ward
James A. Ward
Affiliation:
Associate Professor of History, University of Tennessee, Chattanooga
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Abstract

Despite attempts by the state legislature to fashion the charter of the Pennsylvania Railroad in such a way as to insure a high degree of managerial accountability to the board of directors and to make the corporation broadly accountable to the public, things turned out very differently. The volume and complexity of managerial decisions quickly brought a centralization of power in the hands of the road's professional managers as the board atrophied, and the economic and political power of the road and its dominant figures (J. Edgar Thomson and Thomas A. Scott) negated much of the principle of public accountability.

Type
Research Article
Information
Business History Review , Volume 49 , Issue 1 , Spring 1975 , pp. 37 - 59
Copyright
Copyright © The President and Fellows of Harvard College 1975

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References

1 McClure, A. K., Old Time Notes of Pennsylvania (Philadelphia, 1905) I, 127–129Google Scholar; Schotter, H. W., The Growth and Development of the Pennsylvania Railroad Company (Philadelphia, 1927), 1, 4–5Google Scholar; Burgess, George H. and Kennedy, Miles C., Centennial History of the Pennsylvania Railroad Comany, 1846–1946 (Philadelphia, 1949), 37–39Google Scholar.

2 Act of Incorporation of the Pennsylvania Railway Company, 1846 Pennsylvania Laws, 312–326.

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4 1846 Pennsylvania Laws, 316.

5 Ibid. Interestingly, this idea of a continuous accountability to the demos, evident in early corporate charters, became a political reality only with the Progressive Era, a movement concerned to a great extent with political accountability.

6 Ibid., 323–325; For a general discussion of these common charter restraints see Hurst, Legitimacy of the business Corporation, 29, 45, 56, 151; Bruchey, Stuart, The Roots of American Economic Growth, 1607–1861: An Essay in Social Causation (New York, 1968), 131–132Google Scholar.

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11 Burgess and Kennedy, History of the Pennsylvania Railroad, 785.

12 Minutes of the Board of Directors of the Pennsylvania Railroad, March 31, 1847 (Office of the Secretary of the Penn Central Railroad, Philadelphia, Pennsylvania).

13 Burgess and Kennedy, History of the Pennsylvania Railroad, 38–39.

14 The best biographical sketch of Thomson is contained in Watkins, J. Elfreth, History of the Pennsylvania Railroad Company, 1846–1896 (Philadelphia, 1896), I, 327–338Google Scholar. This book was never published, but a few copies exist in page proof.

15 Minutes of the Board of Directors of the Pennsylvania Railroad, April 9, 1847; For his authority, ibid., Vols. I and II, and John Edgar Thomson Letterbook, Pennsylvania Railroad, August 24, 1847–June 24, 1851 (Pennsylvania Historical and Museum Commission, Harrisburg, Pennsylvania).

16 After acting on his own initiative Thomson could write the president that “my proceedings in relation to the several contracts above referred to, I trust will meet the approval of the Board.” Thomson to Samuel V. Merrick, December 28, 1847, Thomson Letterbook.

17 Thomson was headquartered in Harrisburg until he became president of the road.

18 Thomson attended his first board meeting on August 11, 1847. Calculation of average attendance from Vols. I and II of the Minutes of the Board of Directors of the Pennsylvania Railroad.

19 Calculated from ibid.

20 Ibid., April 21, 1847.

21 Ibid., June 2, 1847.

22 Burgess and Kennedy, History of the Pennsylvania Railroad, 785–786.

23 Thomson to Lemuel P. Grant, December 22, 1847, Lemuel P. Grant Papers, Box 1 (Atlanta Historical Society, Atlanta, Georgia); Minutes of the Board of Directors of the Pennsylvania Railroad, December 11, 1847.

24 Thomson to Grant, March 29, 1848, Grant Papers, Box 1.

25 Minutes of the Board of Directors of the Pennsylvania Railroad, August 25, 1849. Patterson, upon accepting the presidency, agreed to relinquish all his outside business affairs to devote his full time to the position.

26 Ibid., June 8, 1849 and August 20, 1849.

27 Ibid., January 8, 1851.

28 Ibid., October 22, 1851.

29 Haupt, Herman, Reply of the General Superintendent of the Pennsylvania Railroad to a Letter From a Large Number of Stockholders of the Company Requesting Information in Reference to the Management of the Road (Philadelphia, 1852), 12Google Scholar.

30 Minutes of the Board of Directors of the Pennsylvania Railroad, February 19, 1851.

31 Herman Haupt, “How J. Edgar Thomson Became President of the Penna. Railroad Co. (in 1852),” 1–2 (Association of American Railroads, Economics and Finance Library, Washington, D.C.).

32 Minutes of the Board of Directors of the Pennsylvania Railroad, October 15, 1851.

33 In order of actions listed: Ibid., October 22, 1851; October 29, 1851; November 5, 1851; November 26, 1851.

34 Herman Haupt, “Reminiscences of Early History of the Pennsylvania Railroad Company,” Miscellaneous 1, 7, 10, 14 (Hill Railway Library Collection, University of Wisconsm, Madison); also divided according to voting lists entered in minutes for meetings listed in footnote 33. The remaining two directors represented Allegheny County and rarely attended meetings.

35 Philadelphia Evening Bulletin, January 3, 1852.

36 Minutes of the Board of Directors of the Pennsylvania Railroad, October 22, 1851. He also publicly stated the same in his Reply of the General Superintendent, 10, and added “I considered my department separate from that of the President, and myself as responsible to the Board for my official acts.”

37 Thomson was reluctant to run because he feared that if he lost he would have to relinquish his post as chief engineer. Haupt, “How J. Edgar Thomson became President,” 5.

38 Burgress and Kennedy, History of the Pennsylvania Railroad, 58–60. See also J. Edgar Thomson Letterbook, passim.

39 Haupt, “Reminiscences of Early History of Pennsylvania Railroad,” 17.

40 Minutes of the Board of Directors of the Pennsylvania Railroad, February 3, 1852 and February 4, 1852.

41 Calculated from ibid., Vols. II and III.

42 Ibid., May 20, 1853.

43 Ibid., April 14, 1858; August 18, 1858; September 15, 1858; September 29, 1858; January 5, 1859; February 28, 1859; January 11, 1860.

44 For wartime railway problems, see, Weber, Thomas, The Northern Railroads in the Civil War (New York, 1952)Google Scholar; Taylor, George Edward, Victory Rode the Rails: The Strategic Place of Railroads in the Civil War (Indianapolis, 1953)Google Scholar; Kamm, Samuel Richey, “The Civil War Career of Thomas A. Scott” (unpublished Ph.D. dissertation, University of Pennsylvania, 1940)Google Scholar. For specific problems on the Pennsylvania, see Robert Pitcairn to Enoch Lewis, October 12, 1861, Andrew Carnegie Papers, III (Library of Congress, Washington, D.C.), and W. W. Wilson to Enoch Lewis, October 15, 1861, ibid.

45 Minutes of the Board of Directors of the Pennsylvania Railroad, October 16, 1863; September 7, 1864; January 20, 1864; April 6, 1864; May 14, 1862.

46 See ibid., Vol. V.

47 Calculated from ibid., Vols. II–VI.

48 Scott assumed his seat March 21, 1860. Ibid., March 21, 1860; Thomson and his four vice-presidents all possessed seats on the board by May 1873. Tenure calculated from Burgess and Kennedy, History of the Pennsylvania Railroad, 785–788.

49 Minutes of the Board of Directors of the Pennsylvania Railroad, February 7, 1855.

50 John King to John Garrett, June 19, 1874, Baltimore & Ohio Railroad Papers, Box 62 (Maryland Historical Society, Baltimore); Minutes of the Board of Directors of the Pennsylvania Railroad, March 6, 1877.

51 In 1868 and 1869 the incumbent boards were returned with identical vote counts. In 1871, 1872, and 1873, a majority of board members received identical tallies, with the remainder garnering a few hundred less. Minutes of the Board of Directors of the Pennsylvania Railroad, March 4, 1868; March 3, 1869; March 23, 1870; March 8, 1871; March 6, 1872; and March 26, 1873.

52 Adams, Charles F. and Adams, Henry, Chapters of Erie and Other Essays (New York, 1886)Google Scholar; Benson, Lee, Farmers and Railroads: Railroad Regulation and New York Politics, 1850–1887 (Cambridge, 1955)CrossRefGoogle Scholar, particularly chs. I–III; Herbert H. Harwood, Jr., “Corporate History of the Lehigh Valley R.R.,” Bulletin, Railway and Locomotive Historical Society, no. 126 (April 1972), 5–36; Grodinsky, Julius, Jay Gould: His Business Career, 1867–1892 (Philadelphia, 1957)Google Scholar, chs. III–VI, X, XIX.

53 In 1874 the road had almost 7,500 stockholders and a valuation of $400,000,000. Report of the Investigating Committee of the Pennsylvania Railroad Company, Appointed by Resolution of the Stockholders at the Annual Meeting Held March 10th, 1874 (Philaadelphia, 1874), 167Google Scholar; Burgess and Kennedy, History of the Pennsylvania Railroad, 800.

54 Report of the Investigating Committee, 1874, 188; Burgess and Kennedy, History of the Pennsylvania Railroad, 783. The company did miss one dividend during the panic of 1857. Minutes of the Board of Directors of the Pennsylvania Railroad, November 2, 1857.

55 Burgess and Kennedy, History of the Pennsylvania Railroad, 198–200; Schotter, The Pennsylvania Railroad, 78; Grodinsky, Julius, Transcontinental Railway Strategy, 1869–1893: A Study of Businessmen (Philadelphia, 1962), 15–16CrossRefGoogle Scholar; Grodinsky, Jay Gould, 57–59, 62–66.

56 Minutes of the Board of Directors of the Pennsylvania Railroad, May 27, 1869 and November 2, 1869. Even a partial list of the western roads acquired by the Pennsylvania in the immediate postwar period is impressive: the Pittsburgh and Steubenville, the Pittsburgh, Cincinnati, and St. Louis, the Little Miami, the Erie and Pittsburgh, the Cleveland and Pittsburgh, and the Jeffersonville, Madison, and Indianapolis. Purdon's Pennsylvania Statutes Annotated, 12.

57 Purdon's Pennsylvania Statutes Annotated, 12; Minutes of the Board of Directors of the Pennsylvania Railroad, February 1, 1871. The Pennsylvania Company was incorporated by the legislature on April 7, 1870 but was not put into operation until April 1, 1871. Burgess and Kennedy, History of the Pennsylvania Railroad, 219.

58 Minutes of the Board of Directors of the Pennsylvania Railroad, March 13, 1850.

59 Ibid., January 25, 1871 and February 1, 1871; Burgess and Kennedy, History of the Pennsylvania Railroad, 241–266.

60 Grodinsky, Transcontinental Railway Strategy, 17–19. The Pennsylvania gained control of the Alexandria and Fredericksburg, the Richmond, Fredericksburg, and Potomac, the Richmond and Petersburg, and the Richmond and Danville in 1871. Stover, John F., Railroads of the South 1865–1900: A Study in Finance and Control (Chapel Hill, 1955), 105Google Scholar. No mention of any of these roads occurs in the board minutes for 1871.

61 Minutes of the Board of Directors of the Pennsylvania Railroad, February 23, 1870; January 26, 1871; March 22, 1871, in order of cited examples.

62 Calculated from Burgess and Kennedy, History of the Pennsylvania Railroad, 783, 784.

63 Minutes of the Board of Directors of the Pennsylvania Railroad, Nevember 7, 1873.

64 Report of the Investigating Committee, 1874, 3.

65 Italics in the original. Ibid., 165–166. The committee recognized that a principal reason for this state of affairs was “the tendency in leading officials and managers of railroad companies to act as if the property they manage was their own.” Ibid., 160.

66 Ibid., 166. The committee also scored the tendency of the stockholders to transfer all important questions to their directors for decisions. Ibid., 161.

67 Schotter, The Pennsylvania Railroad, 111.

68 Burgess and Kennedy, History of the Pennsylvania Railroad, 341–344; Watkins, , History of the Pennsylvania Railroad, I, 516–522Google Scholar; Kamm, “The Civil War Career of Thomas A. Scott,” 4–18.

69 In 1862 when Thomson was in Europe for much of the year, Scott chaired the board meetings and effectively performed the president's duties. Minutes of the Board of Directors of the Pennsylvania Railroad, May 28, 1862–December 31, 1862.

70 John King to John Garrett, July 16, 1874, Baltimore & Ohio Railroad Papers, Box 62.

71 The board was forced to sell many of the line's holdings in other companies at depressed prices to pare down the company's floating debt.

72 Report of the Investigating Committee, 1874, 190–195.

73 Schotter, The Pennsylvania Railroad, 126.

74 Minutes of the Board of Directors of the Pennsylvania Railroad, November 3, 1874.

75 Schotter, The Pennsylvania Railroad, 172. The board took no formal notice of the stockholders' resolution.

76 The first salary cut was for ten percent on all employees. Minutes of the Board of Directors of the Pennsylvania Railroad, December 24, 1873.

77 Another 10 per cent reduction on all salaries over ten cents per hour was made May 18, 1877. The board optimistically resolved that “it is hoped and believed that all persons in the service of the Company will cordially concur in this action.” Ibid., May 23, 1877; The road had paid an 8 per cent dividend in cash both the preceeding years. Burgess and Kennedy, History of the Pennsylvania Railroad, 800.

78 Bruce, Robert V., 1877: Year of Violence (Chicago, 1970), 225Google Scholar.

79 Scott also did his part with, “The Recent Strikes,” North American Review, CXXV (September, 1877), 351–362Google Scholar; The board passed a resolution thanking the 90 percent of the men of the company who had remained loyal. The directors also appropriated $3,000 for employees who had provided valuable service during the strike. Minutes of the Board of Directors of the Pennsylvania Railroad, August 1, 1877 and November 14, 1877.

80 Minutes of the Board of Directors of the Pennsylvania Railroad, August 17, 1877. This was Scott's own estimate.

81 The line paid quarterly dividends between August 2, 1875 and November 1, 1878, when it reverted to semi-annual payments. No dividend was paid after May 1, 1877 until November 1, 1878. Ibid., August 2, 1875 through November 1, 1878.

82 Ward, James A., That Man Haupt: A Biography of Herman Haupt (Baton Rouge, La., 1973), 53–56Google Scholar. Scott's interest in the Texas & Pacific venture was undoubtedly a causative factor in the expansion of the Pennsylvania into the South — an investment that became a financial disaster in 1873. Scott also attempted to have the Pennsylvania's board prop up the credit of his Texas & Pacific Railway with a bond trade favorable to the latter line. The request was referred to the board's financial committee and no further mention of the subject appears in the minutes. Minutes of the Board of Directors of the Pennsylvania Railroad, August 18, 1873.

83 U.S. Congress, House, Affairs of the Union Pacific Company, 42nd Cong., 3rd Sess., Rpt. 78, p. 741.

84 U.S. Congress, House, The Disposal of Subsidies Granted Certain Railroad Companies, 44th Cong., 1st Sess., Misc. Doc. 176, pt. 1, p. 38.

83 Ibid., 47–57; U.S. Congress, Senate, Testimony Taken by U.S. Pacific Railway Commission, 50th Cong., 1st Sess., Vol. 2, pp. 443–446.

86 Stover, John F., American Railroads (Chicago, 1961), 81–82Google Scholar.

87 William Jackson Palmer to Isaac Clothier, September 14, 1859, in Letters: General William J. Palmer, 1853–1868 (Philadelphia, 1906), 43Google Scholar; Gilead A. Smith to Palmer, November 25, 1869, William Jackson Palmer Papers (Colorado State Historical Society, Denver).

88 Robert H. Lamborn to Palmer, August 6, 1867, Palmer Papers; Edward Miller to Palmer, November 5, 1867, ibid.; Palmer to Harry Lamborn, December 6, 1866, ibid.; Robert Lamborn to Palmer, December 3, 1866, ibid.

89 Ralph and Hidy, Muriel, Pioneers in Big Business, 1882–1911: History of the Standard Oil Company (New Jersey) (New York, 1955), I, 118–120, 202, 543Google Scholar; Tarbell, Ida, The History of the Standard Oil Company (New York, 1902), I, 59–61, 90–92, 170Google Scholar; Charles Hinchman to Palmer, June 20, 1866, Palmer Papers.

90 Thomson and Scott owned numerous stocks in the Pittsburgh coal regions, but their primary investment seems to have been in the Westmoreland Coal Company; See Wall, Joseph F., Andrew Camegie (New York, 1970), 310–311Google Scholar, for the story behind the naming of Carnegie's mill after Thomson.

91 Robert Lamborn to Palmer, September 17, 1865, Palmer Papers; Lamborn to Palmer, June 15, 1867, ibid.

92 See Burgess and Kennedy, History of the Pennsylvania Railroad, 344, who relate the story of a state senator who rose after Scott had engineered two bills through that chamber in 1864 and asked, “Mr. Speaker, may we now go Scott free?”; Evans, Frank B., Pennsylvania Politics, 1872–1877: A Study in Political Leadership (Harrisburg, 1966), 52, 74–76, 140–141, 160, 268Google Scholar; McClure, , Old Time Notes of Pennsylvania, II, 380–381Google Scholar.

93 Robert Lambom to Palmer, March 22, 1867, Palmer Papers.

94 David D. Colton to Collis Huntington, May 3, 1877, in Ellen Colton vs. Leland Stanford et al. in Superior Court of State of California in and for the County of Sonoma, 1883, XII, 7496.

95 Daughen, Joseph R. and Binzen, Peter, The Wreck of the Penn Central (New York, 1971), 312Google Scholar.