The Origin of the Managing Agency System in India

Author(s): Blair B. Kling

Source: The Journal of Asian Studies , Nov., 1966, Vol. 26, No. 1 (Nov., 1966), pp. 37-47
Published by: Association for Asian Studies

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 The Origin of the Managing Agency
System in India

BLAIR B. KLING

r HE managing agency system" has been the dominant form of business organi-
zation in India for over a century, yet no one has described the circumstances
surrounding its first emergence. It is not difficult to understand why an aura of
mystery enshrouds the early years of the system. Students of managing agency in-
variably have been economists. Although they feel obliged to make some reference
to its historical origins, they neglect the sources where the evidence abounds. A
typical statement from a recent official Indian study of managing agency reads:

Little is known about the early twilight zone of the history of our industrial de-
velopment in which the managing agency system and the joint stock companies
played a great part.2

A British authority on the system writes:

It is unfortunate that the source material on which the economic historian would
normally rely for the study of the genesis of a great institution is, in the case of
managing agency, scattered and fragmentary.3

Other writers attribute its origins to the mercantile "agency houses" which flour-
ished in Calcutta from I793 until their failure in the eighteen thirties or to their suc-
cessors, the agency houses of I834 to' I847.4 Without citing specifics they skip to the
period after i86o, by which time the system had fully matured.
It was, in fact, in the period from I834 to i847 that a type of business organiza-
tion recognizable as managing agency took form. A mercantile agency house first
assumed the duties of a managing agent in Calcutta in I836. Other Calcutta agency
houses followed their example and undertook the management of joint stock
companies in the eighteen forties. Simultaneously, the system appeared in Madras,5
and by the eighteen fifties British houses in Calcutta, Madras, and Bombay were em-
ployed increasingly as local agents of companies organized in the British Isles.

Blair B. Kling is Assistant Professor of History, University of Illinois, Champaign. Research for this
article was supported by grants from the American Philosophical Society and the American Institute of
Indian Studies.
1 In essence, managing agency is the vesting of the management of a joint stock company in the
hands of a firm of professional managers. In practice, the managing agent is usually responsible for the
initial promotion, financing, underwriting, and organization of the joint stock company. Useful descrip-
tions of the managing agency system are found in P. S. Lokanathan, Industrial Organization in India,
London, 1935; Raj K. Nigam, Managing Agencies in India, Delhi, I957; S. K. Basu, The Managing
Agency System, Calcutta, I958; and D. R. Samant and M. A. Mulky, Organization and Finance of In-
dustries in India, Calcutta, I937.
2 Nigam, p. 2.
3 Geoffrey Tyson, Managing Agency, Calcutta, n.d., p. 5.
4 Basu, pp. I-4, and Samant and Mulky, pp. 32-35.
5Parry and Co. became agents for the Porto Novo Steel and Iron Co. in the late eighteen thirties.
See Hilton Brown, Parry's of Madras, Madras, I954, p. 65.

37

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 38 BLAIR B. KLING

Thereafter, until they reached their apex of power immediately before World War I,
British managing agents managed both the sterling and rupee companies that dom-
inated the tea, jute and mining industries. In the meantime Indian firms, beginning
in I858, adopted the managing agency system when they established textile mills in
Bombay and Ahmedabad. Although the system is now declining in importance,
managing agency control still prevails among the larger industrial units and in the
more technologically advanced industries of the private sector. As late as 1955 man-
aging agents controlled public companies whose paid-up capital accounted for over
seventy percent of the total for all Indian public companies.'

The managing agency system came into existence when an agency house first
promoted and then acquired the management of a joint stock company. This
combination of events occurred initially in I836 when Carr, Tagore and Company
promoted and assumed the management of the Calcutta Steam Tug Association. In
this arrangement Carr, Tagore and Company followed certain precedents-organ-
izational forms developed by the defunct mercantile agency houses in the period
before I834. Originating in the late eighteenth century, the old agency houses were
private partnerships capitalized by the savings of civil and military employees of
the East India Company. The houses advanced money to indigo manufacturers
and then received the manufactured dye on consignment for sale in Europe. They
also invested in government securities, shipping, docking and sugar production.
The bulk of the country trade, including the shipping of opium to China, and the
private trade between Bengal and Europe was channeled through their hands. In
their time the agency houses held unchallenged control of the commercial life of
Calcutta.7
The agency houses also conducted the handful of joint stock associations founded
before I834. Though the joint stock form was limited to insurance and laudable
societies, the employment of agency houses as managers provided the organizational
model for the later managing agency system.8 In the financial crisis of I829-33 all of
the old agency houses failed, and their place was taken by a new set of agency houses.
These performed many of the same functions-especially that of advancing money
to indigo planters-but relied on the hypothecation of goods imported from Britain
for the greater part of their capital.9
Carr, Tagore and Company, founded in October, I834, was the most energetic,
though by no means the largest, of these new houses. Dwarkanath Tagore, one of
the wealthiest merchants in Calcutta, joined in a partnership with William Carr, a
respected indigo trader, in the first equal business partnership between an Indian and
a European. When Carr left for England in I836, Tagore brought into his firm aln
insolvent merchant, William Prinsep, member of a prominent British-Indian fam-
ily.10 In time Tagore brought other new partners into his firm, among them Cap-

O On the decline of the managing agency system see Michael Kidron, Foreign Investments in India,
London, I965, pp. 52-53. The figure of seventy percent is exclusive of insurance and banking companies
in whose management agents are now forbidden to take part. Nigam, pp. 3-4.
7 Amales Tripathi, Trade and Finance in the Bengal Presidency (1793-I833), Calcutta, I956, passim.
8 Bengal Directory and General Register for I824 and succeeding years, Calcutta, i824, etc.
9 Sketch of the Commercial Resonrces of British India, London, I837, p. 74.
10 His father, John Prinsep, had been a leading entrepreneur in India in the late eighteenth century
and his brothers included Henry Thoby, Secretary to the Governments of India and Bengal, James, the

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THE ORIGIN OF THE MANAGING AGENCY SYSTEM 39

tain T. J. Taylor, reformer of the Indian postal system, and

who would succeed to the firm's enterprises-Donald McLeod Gordon and James
Stuart. Tagore's fortune had been founded on landholding and moneylending,
and among his business interests were the import and export trade, indigo and silk
manufacture, sugar refining, ocean shipping, docking, newspapers, insurance and
the Union Bank. As the only continuing partner and as the provider of capital, he
was, undoubtedly, the chief entrepreneurial spirit behind his firm's activities."'
On January 2, I836, Tagore made the most momentous investment of his entire
career. He purchased for 70,ooo rupees India's largest coal mine, the Raniganj Col-
liery in Burdwan.'2 To further the sale of coal, Tagore promoted during the next
decade a series of coal-utilizing enterprises and was responsible, more than any
other individual outside of government service, for leading India into the age of the
steam engine. On February 20, I836, Tagore purchased in the name of his firm the
steamer Forbes from one of the defunct agency houses.13 Six days later he invited to
his office a group of British and Indian business and professional men and with
them formed a joint stock company, the Calcutta Steam Tug Association. The as-
sociation planned to operate the Forbes as a tugboat plying between Calcutta and
the mouth of the Hughli River.14
Why did Tagore form a joint stock association instead of operating the Forbes as
an adjunct of his agency house? Undoubtedly the need for capital was his primary
consideration. The Forbes had cost iio,ooo rupees and his plans called for the pur-
chase of a second steamer for go,ooo rupees. The joint stock form freed Tagore from
the full risk of the new enterprise while permitting him to maintain control over its
management and coal-purchasing policy.'5 The very title of the new company-
Steam Tug Association-provides another clue. Associations were promoted in
Calcutta for civic and economic improvement, and people invested in them to sup-
port "good causes" as well as to earn a return. To promote his plan Tagore took ad-
vantage of this connection in the public mind between civic improvement and the
joint stock form of organization.
In time, however, the conception of a joint stock company as a beneficent society
would prove to be the strongest obstacle to the ambitions of his firm. As it observed
the manner in which the Steam Tug Association consumed Dwarkanath's coal and
used his docking facilities, the investing public grew indignant and averse to allow-
ing new joint stock companies to fall into the hands of agency houses inclined to use
the control of public companies for their own profit. In addition, the agency houses
of the post-I834 period were still tainted by the scandals of their defunct predeces-
sors. The old agency houses had left a considerable number of insolvent debtors,
impoverished widows, and destitute civil and military servants in the wake of their
bankruptcies. Understandably, the Calcutta public viewed with suspicion any proj-
ects undertaken by the new houses.
engineer and archeologist, and George, promoter of steam shipping and the Bengal Salt Company. See
H. T. Prinsep, "Four Generations in India," India Office Library, Mss. Eur. C. 97.
1lKissory Chand Mittra, Memoir of Dwarkanath Tagore, Calcutta, I870, passim.
12 Calcutta Monthly journal, I836, p. 50. One rupee was equivalent in value to two shillings.
13 Bengal Hurkaru, February 22, I836.
14 Ibid., March 5, I836.
15 Coal consumption was a considerable item in operating a steamer like the Forbes. In full operation
its two fifty-horsepower engines consumed almost ten tons of coal per day. The entire output of Raniganj
in this period was about II5 tons per day.

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 40 BLAIR B. KLING

The investing public

the peculiar condition
of managing a compan
technical and business problems involved. The European mercantile community
was a small one whose members pursued their own commercial interests and ex-
pected relatively quick returns on their investments. When a merchant had accumu-
lated his fortune, he left his partners in India and sailed for the healthier climate
and more congenial life of England where his children would have opportunities
for good schooling and marriages. With few exceptions, Indians were not trusted
with the responsibilities of business management.'6 Thus the agency house was the
only subsystem in the economy with the capital, business experience and continuity
to provide entrepreneurial and managerial talent.
Between 1836 and i846 Carr, Tagore and Company promoted and managed six
joint stock companies. Of these they were able to bequeath only two-the Steam Tug
Association and the Bengal Coal Company-to their successor firm. Of the other four,
two were taken from their control and two failed, leaving behind a host of resent-
ful investors.
The Steam Tug Association was the most successful of their joint stock ven-
tures. Since the deed of the association includes the first "managing agency con-
tract," its provisions are worth noting. The deed provided for the continued exis-
tence of the Association for a term of five years with half-yearly meetings of
shareholders to approve accounts and declare dividends. The initial call was for a
capital of 200,000 rupees, divided into shares of I000 rupees each, to be invested in the
purchase of two steamboats. No shareholder was to hold more than twenty shares,
and individuals were to have one vote for one share, two for five shares, three for ten
shares or four for twenty shares. The Association was to be conducted by a com-
mittee of five annually elected directors under whose control the secretaries were to
manage the details of the business. Carr, Tagore and Company were appointed
secretaries and were paid five percent on the net earnings of the steamers.17
Two important points of law should be noted. First, the joint stock company was
legally a copartnership, unincorporated and not regulated or licensed by the Govern-
ment. Second, according to the laws of partnership, each shareholder was responsible
for the liabilities and debts of the Association. To protect themselves the sharehold-
ers ruled that any transfer of shares had to be sanctioned by the entire body of
proprietors in Calcutta.18
The Association launched its second tug in October, I836, and in September,
1837, decided to double the capital by issuing two hundred new shares, the pro-
ceeds of which would be used to purchase two additional tugs. Until I844 the Steam
Tug Association never paid less than ten percent per annum in dividends.'9 Its suc-

16 In addition to Dwarkanath, one of these few was Rustomjee Cowasjee, Parsi merchant and Secre-
tary of the Calcutta Docking Company.
17 Bengal Hurkaru, March 5, I836 and October Io, I839.
18 The first limited liability act in India was not passed until i866. The only chartered joint stock
companies with limited liability in Calcutta in Tagore's period were the Bank of Bengal and the Bonded
Warehouse Association.
19 Calcutta Monthly journal, I836, p. 543; Bengal Hurkaru, January 9, I838 and February 2, I844.

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THE ORIGIN OF THE MANAGING AGENCY SYSTEM 41

cess eventually brought two competitors into the field, an

"managing agency" system.20
The world-wide commercial crisis of I847 fell particularly h
community of Calcutta. The Union Bank failed in Decembe
many agency houses that failed were Carr, Tagore and Com
doors on January I5, i848. Dwarkanath himself lay buried in London, and his
former partners, D. M. Gordon and James Stuart, salvaged what they could of the
firm's enterprises and formed their own partnership. When they tried to retain the
secretaryship of the Steam Tug Association, their bid was challenged by a faction
of the shareholders led by Captain J. R. Engledue, Calcutta agent for the Peninsular
and Oriental Steam Navigation Company. At a meeting on May I7, I848, Captain
Engledue charged that the Association had been losing money and that dividends
in recent years had been raised by promissory notes. He accused the secretaries of
issuing false statements and charged that the Association was worth 300,000 and not
700,000 rupees as had been reported. Engledue complained that the Association
kept no cash books of its own, but that its accounts had been merged with those of
Carr, Tagore and Company. Most damaging, he alleged that the secretaries used
the Association to profit their other interests, especially the Calcutta Docking Com-
pany2l and the Bengal Coal Company. The majority present at the meeting agreed
with Engledue and voted against retaining Gordon, Stuart and Company as sec-
retaries, but when the proxies were counted Tagore's old partners had won by 47
votes to I2.22 Ten years later the Steam Tug Association was still a going concern
under their management.23
The successors to Carr, Tagore and Company had a similar experience with the
management of the Bengal Coal Company. In I844 Carr, Tagore, which had been
operating the Raniganj mine on their own account, joined interests with the op-
erators of a rival mine in nearby Naraincoory. They formed the Bengal Coal Com-
pany, and Carr, Tagore received 700 of the iioo shares, each of which was valued
at iooo rupees. By a provision in the deed of the company the managing director-
ship was vested for all time in the firm of Carr, Tagore, and in I848 Gordon,
Stuart claimed that as successors they had a perpetual right to the management.
Their claim was hotly disputed, but after they finally agreed to give up the principle
of perpetual management, they were freely elected.24 The mine had been relatively
well run in the eighteen forties and continued to prosper under their management,
the average dividends rising from six percent in the eighteen forties to twelve per-
cent in the eighteen fifties. In spite of this, the directors of the company eventually
grew dissatisfied with the management of Gordon, Stuart, who neglected the mine
in favor of their other commercial interests. In I859 they were limited to clerical
functions, and executive control was turned over to a superintendent stationed in
Calcutta. When Gordon, Stuart retired from business in I867, the proprietors made
20 They were the Hoogly Steam Tug Co., managed by Allan, Deffell and Co., founded in December,
I844, and the Bengal Steam Tug Co., managed by an Armenian firm, Apcar and Co., founded in
March, I846. Calcutta Star, January 9, I845 and Bengal Hurkaru, March 9, I846.
21 Carr, Tagore had a member on the board of directors of the Calcutta Docking Company, but not
enough shares to control the company. Tagore owned his own dockyard adjacent to the Docking Com-
pany which he leased to the Docking Company.
22 Bengal Hurkaru, May I9, I848.
23 New Calcutta Directory for I858, pt. VIII, p. 95.
24 Bengal Hurkaru, April I7, I848.

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 42 BLAIR B. KLING

no attempt to replace them. In I908, however, the Bengal Coal Company returned
to its original form of management and appointed as managing agents Andrew
Yule and Company under whose agency the company remains today.25
While Carr, Tagore retained control of the Steam Tug Association and the
Bengal Coal Company, they lost control of two other joint stock enterprises they
had promoted-the India General Steam Navigation Company and the Bengal Tea
Association. The prospectus of the India General Steam Navigation Company was
first made public on January 26, 1844 at a meeting of the proprietors of the Steam
Tug Association. The directors of the Steam Tug Association suggested that a river
steam navigation company be formed by "engrafting the new company on that al-
ready established." Subscribers to the new company were to receive dividends from
the Steam Tug Association until their own boats should arrive from England. The
purpose of the new company would be to operate six steamboats to carry cargo and
passengers on the Ganges between Calcutta and Allahabad. Though the Govern-
ment already operated steamers on this route, these were considered inefficient, ex-
pensive to hire, and operated in violation of the East India Company charter of
I833.26

From the first meeting of subscribers to the India General Steam Navigation
Company, which took place on February 6, 1844, the shareholders opposed any
union, then or in the future, with the Steam Tug Association. There were legal
arguments for opposing amalgamation, but the actual motive is shown in an edito-
rial in the Bengal Hurkaru, whose publisher, Samuel Smith, was vice chairman of
the India General:

The directors have taken care not to associate themselves with any particular house
of Agency. They have elected one of their own body-a gentleman in no way con-
nected with any mercantile firm, to act as Managing Director. . . . It generally
happens in these Calcutta Companies that there are plenty of Directors but no
managers and no management, beyond that of a house of Agency, at whose mercy
the Shareholders are placed. The Directors of the New Company have determined
to avoid this.27

The managing director appointed by the provisional directors was the railway pro-
moter, Rowland Macdonald Stephenson.28 Carr, Tagore and Company did, how-
ever, get one of their partners, J. Deans Campbell, on the board of directors and
managed to place the superintendent of the Steam Tug Association, A. G. Mac-
kenzie, in the strategic post of provisional secretary.29
When the shareholders met on July 2I to elect a permanent paid managing di-
rector, the two major contenders were R. M. Stephenson and A. G. Mackenzie. It
was clearly to be a battle for control between Carr, Tagore and Company and their
opponents. According to a letter from an anonymous shareholder published in the
Hurka-ru on the day of the meeting:

25 Ms. "History of the Bengal Coal Company," Andrew Yule and Company, Calcutta.
26 Bengal Hutrkart, February 2, I 844.
2r 7Ibid., March i i, i 84 4.
28 For an account of R. M. Stephenson see Daniel Thorner, Investrnent in Enmpire, Philadelphia, I950,
pp. 44-64-
29 Bengal Hurkaru, March I I, I 844.

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THE ORIGIN OF THE MANAGING AGENCY SYSTEM 43

Rumours are afloat of a Coal Coalition having been got up, by means of which
certain parties, whose plans were considerably disarrayed some months back, still
hope to exercise a strong influence in the management and direction of the ...
company.30

The meeting of July 2I was a stormy one. The opposition to the "coal coalition"
was led by James Hume, editor and publisher of the Calcutta Star. In a desperate
attempt to stop Carr, Tagore and Company, Hume proposed that instead of elect-
ing a managing director, the proprietors elect a board of three directors who would
take an active part in managing the company and would each receive about 700
rupees per month for their trouble. This motion was lost. In the election of man-
aging director a large majority of the votes, especially proxy votes sent in by up-
country shareholders, were cast in favor of A. G. Mackenzie.3'
The fears of the opposition soon proved correct. Mackenzie proceeded to man-
age the company for the exclusive benefit of the Steam Tug Association and Carr,
Tagore and Company. The India General leased Tagore's dockyard, where the tugs
were repaired, and expended vast sums to improve it. In spite of this, the tugs were
given priority by Mackenzie. In addition, Mackenzie leased the yard in his own
name-a bit of chicanery that would involve the India General in costly lawsuits
when they later tried to recover the lease. Mackenzie purchased equipment and
stores from the Steam Tug Association and, when pressed by Hume and others,
could show no receipts for the expenditures. Also questionable was the price paid for
coal, purchased from the Bengal Coal Company at a figure that amounted to 39 per-
cent of the total operating expenses of the India General. So closely was the India
General tied to Carr, Tagore that until I900 the steamship company was still popu-
larly known upcountry as "Carr Company."32
At two meetings held in July and September, I847, James Hume, now joined by
a large number of indignant shareholders, returned to the attack. In his claim of
mismanagement Hume all but mentioned Carr, Tagore and Company by name:

Was there anything so very startling in such a complaint of bad management?

Was the ruin of a Company by mismanagement a thing unheard of in Calcutta?
Need he mention the Salt Company, the Ferry Bridge Company [both managed
by Carr, Tagore] whose capitals had been all swept away? 33

The old directors were replaced; Hume was elected chairman and Captain J. R.
Engledue vice chairman. Mackenzie was dismissed, and he returned to the Steam
Tug Association. Hume, now managing the company himself, was faced with a defi-
cit of 72,449 rupees. In i85o Gordon, Stuart and Company made one last attempt to
recapture management of the company. They tried to mobilize the shareholders
in England and up-country, who together accounted for 123 of the I53 proprietors.
But they failed; Hume remained chairman until July, i85I, and gradually, through
good management, the firm was put on its feet. In I873 the shareholders voted to
vest the management of the company in the managing agency firm of Schoene, Kil-

30 Ibid., July 22, I844.

31 Ibid., July 24, I 844-
82 Alfred Brame, The India General Steam Navigation Company, Ltd., London, I900, pp. i6 ff.
83 Bengal Hurkaru, July 2I and September io, I847.

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 44 BLAIR B. KLING

burne and Company, th

agency form, by this tim
Carr, Tagore and Com
flagrant mismanagemen
ation because they coul
tablish the tea industry
ment bad decided to han
William Prinsep called a
Association. The prospec
2000 shares of 500 rupee
or controlled by membe
In the same month, u
group of capitalists me
pany. The London grou
tracts, planned to raise
raised by the Bengal T
Company, one of the C
their io,ooo shares in Ind
ercise supervision over
plied that a local comp
scribed for and that it
over the experimental
ment's tea superintend
wrote, "that we are in
that the Assam Compa
them the shares to be all

At a meeting held at t
the shareholders of th
Company. However, th
held out for "perfect u
direction sharing equal
Assam Company deed t
rules and regulations o
provided with funds f
to raise money except fo
terms the Calcutta propr
the support of British s
capital without retaini
pany almost at once lost
The Assam Company b

34 Brame, pp. I7 ff. and 97.

35 Guildhall ms. 9925, Assam Co., Calcutta Minute Book, I, 9.
36 H. A. Antrobus, A History of the Assam Company, Edinburgh, I957, p. 39. This may have been
the first example of an attempt by a sterling company to employ a local agency house as its managing
agent-a major function of managing agents in later years.
37 Guildhall, Prideaux mss., 8797/2.
38 Calcutta Monthly journal, May, I839, p. 250.
89 Guildhall, Prideaux mss., 8796/2.

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THE ORIGIN OF THE MANAGING AGENCY SYSTEM 45

on a profitable basis. Their principal problem was to find good l

and the early history of the Assam Company illustrates that, ult
seas firm would find the services of a managing agent indispensa
Prinsep, the original secretary of the Calcutta committee, left f
vember, i84i, he chided the other directors for their "lukewarm
mended as his successor someone who would sacrifice his time
venience and "devote his attention to all that passes."40 Not lon
the London secretary admonished the Calcutta committee for vi
ment by spending large sums of money without authorization, b
full number of directors on the committee, and by not calling regul
ings of shareholders. Basically, he wrote, the Calcutta directors w
ness "whose hands are so full of other duties and whose time is
with their own affairs that it is impossible for them to give proper
business of the Company. "41
By 1844 the London committee was seeking legal advice on wh
sible for them to abolish the local board,42 and soon London tighten
directly appointing its own agent to supervise the operations i
long having lost its function, the Calcutta committee was abolish
of their need for a responsible local executive, however, the London
no alternative but to resort to the managing agency system, and
ployed the firm of Schoene, Kilburne and Company as their Ca
Two of the joint stock enterprises promoted by partners of C
notorious failures and brought discredit, perhaps undeserved,
house. The first of these was the Bengal Salt Company founded
Prinsep, the elder brother of William. George had formed his compa
a factory he had built ten years earlier designed to manufacture
entific method called "solar evaporation." When George Prinsep
I839, William assumed the post of provisional secretary of the comp
ing held in May he reported that production was low and that the n
construction were behind schedule. The Government, which by
the wholesale distribution of salt, had been deliberating over a
Prinsep's application to sell salt directly to the public on payment of
the point of manufacture. William Prinsep assessed the sharehold
share to keep the company afloat. He called attention to the pro
good permanent management and, although a partner of Carr,
expressed his hope that the company could avoid falling into t
agency house.44
In the summer of I84I the company passed through a second cr
works were still incomplete and the solar salt process had to be
workable in heavy rains. In July, I84I, the proprietors were as
whether to abandon the project entirely or, as Prinsep recommen
another principle, the gradation process of salt manufacture. Pri
ponent was T. E. M. Turton, an attorney and head of the local

40 Guildhall, mss. 9925, Assam Company, Calcutta Minute Book, II, Novembe
41 Guildhall, Prideaux mss. 8802.
42 Ibid., mss. 8797/2.
43 Antrobus, p. 154.
44 Calcutta Monthly journal, May, i839, p. 239.

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 46 BLAIR B. KLING

steam connection between Calcutta and Europe. Turton implied that Prinsep had
acted fraudulently by switching from his original plan and, in berating his man-
agement, charged that "Carr, Tagore and Company exercised a dictatorial power
over the Salt Company which was not creditable either to the proprietors or the
directors." Turton moved to return the money of any shareholder who refused to
agree to convert to the gradation process. The motion was lost, and the shareholders
decided to continue the company under Prinsep's leadership.45 After Prinsep left for
England in November, I84I, the company, continuing on its desultory course, was
brought under the direct management of Carr, Tagore. In I848 the Bengal Salt
Company was disbanded, and it was not until the eighteen sixties that a new com-
pany to manufacture salt by scientific principles was formed.46
Among the enterprises that James Hume had accused Carr, Tagore of bringing
to ruin was the Calcutta Steam Ferry Bridge Company. The idea for a steam ferry
across the Hughli was first mentioned in an editorial in the Hurkaru in August,
I839, and was immediately taken up by Captain T. J. Taylor of the Madras Army,
who had joined Carr, Tagore five months earlier.47 One month after projecting the
Steam Ferry Bridge Company and drawing up the prospectus, Taylor died, and
William Prinsep replaced him as secretary. Taylor's proposal called for a company
with a capital of 200,000 rupees divided into shares of ioo rupees each,48 and the
company applied to the Government for the exclusive privilege of running steam
ferries across the Hughli for twenty-one years.49

The new company was soon confronted with financial difficulties. The shares
did not sell as well as had been expected, and the expense of equipment was more
than contemplated. One small steamer ordered from London for I2,000 rupees cost
twice that amount by the time it reached Calcutta.50 By June, I843, the company had
failed and was disposing of its assets. Except for a small return from the sale of
equipment, the result was a total loss to the subscribers.51 Although the blame for
failure was placed on incompetency and bad faith of the management-the partners
of Dwarkanath Tagore-many believed that if Captain Taylor had lived the com-
pany would have succeeded.52 In this case the Government was more at fault than
Carr, Tagore. It delayed in giving its permission to the company to put chains across
the Hughli, and though urged to do so, it did not come to the financial aid of the
company whose purpose had been to provide a much needed public service.
The managing agency system, as it emerged in the decade I836 to I846, had yet

45 Ibid., July, 184I, PP. 437-38.

46 India Office Records, Despatches to India and Bengal, Bengal Separate Revenue, April 4 (I), I848
and November 29 (6), I848 and New Calcttta Directory for I863, p. I20.
47 Calcutta Monthly Journal, April, I839, pp. 37-44.
48 The small price of shares indicates that the company was intended to attract a large number of
small public-spirited investors.
49 The ferry was to be a boat of iron go by go foot square pulled back and forth across the Hughli
by means of two giant chains operated by a forty-horsepower steam engine fixed to the Calcutta shore.
It would cross in seven minutes and carry ii no passengers. A second steamer without chains would
cross the river at another point. The small boat and engines were arranged for through Rickards, Little
and Company, London correspondents of Carr, Tagore. Bengal and Agra Annual Guide and Gazetteer,
I841, Pt. III, p. 175 and Calcutta Monthly Journal, June, I84I, p. 369.
50 West Bengal State Archives, Marine Proceedings, August 17 (22), 1842. It was unfortunate, also,
that the project was launched during the commercial slump of I842.
51 Bengal Herald, June 24, I 843.
52 Calcutta Star, July 20, i844.

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THE ORIGIN OF THE MANAGING AGENCY SYSTEM 47

to prove its superiority as a form of business organization. Carr, Tagore and Com-
pany's management, though by no means entirely unsuccessful, exhibited many of
the defects currently associated with the managing agency system. They frequently
operated joint stock enterprises for their own advantage rather than for the benefit
of the shareholders, in particular, by exploiting their control of purchasing for their
own profit.
On the other hand, Carr, Tagore and Company exhibited most of the characteris-
tics of the mature managing agent. They acted as entrepreneurs in promoting joint
stock companies, provided the initial capital, and in some cases supported an enter-
prise for a considerable time before opening its shares to the public. When they con-
verted an enterprise into a public company, they retained control by purchasing as
many shares as necessary, placing their partners on the board of directors, and nego-
tiating a long-term management contract with the company. They integrated their
industries vertically and horizontally, in this way developing their own sources of
raw materials and their own markets, and permitting more efficient utilization of
overhead facilities. They pioneered in steam tugging and river steamboats, tea,
bridging the Hughli, coal mining, and later, it should be mentioned, railway pro-
motion. Three of the companies originally promoted by Carr, Tagore-the coal, the
tea and the steamboat-are still in operation.
Carr, Tagore performed another important managing agency function-that of
encouraging investment and channeling capital into industry. Just as later managing
agents attracted capital by their own reputations for business success, so did Dwark-
anath Tagore. This was especially true in the case of Indian investors who pro-
vided a substantial amount of the capital for Tagore's enterprises. Carr, Tagore's
chief innovation was to harness the commercial experience of the agency house to
the greater financial resources of the joint stock company. Thus they led in the
transition from international trade to the development of domestic industry in
India.
It is ironical that a system whose invention is always attributed to British mer-
cantile houses and associated with colonialism should have begun with an Indian-
owned firm. The character of Dwarkanath Tagore was, in part, responsible for this.
When he was planning to establish Carr, Tagore and Company, he wrote to Lord
William Bentinck that his firm would be among the "first houses in Calcutta" and
that it would use "that position in supporting or unfolding the productive energies
of the country."53 A man of enormous capability, business was only one of his many
activities. These included civic affairs, the moral, material, and educational ad-
vancement of his countrymen, and his own cultural interests. He was a man with
entrepreneurial imagination, business acumen, and capital resources, but with little
inclination to devote all of his time and energy to company management. Instead he
formed an agency house, purchased the coal mine and steamboat in its name, and
then delegated their operation to his partners. He encouraged his partners to form
joint stock companies and to place their management in the hands of his firm. In
this way the "firm" took the place of the "individual" as managing director of joint
stock enterprises. Dwarkanath Tagore's personal style of operation-to remain in the
background and work through others-became institutionalized in the prototype of
the managing agency firm.

53Dwarkanath Tagore to Lord W. Bentinck, August 20, I834 in Bentinck Papers, Portland Collec-
tion, Nottingham University Library, Ref. no. PW JF 209I.

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