Agent's Reputation, Accounting and Costing in Organisational Control Structures
McLean, Tom, The Accounting Historians Journal
Abstract: This paper examines the roles of accounting and costing in the management of coal mining during the Industrial Revolution in Britain, and considers the impact of the agent's reputation in the development and use of these systems.
This paper deals with the accounting and costing systems employed during the British Industrial Revolution at Tanfield Moor Colliery in North East England. The paper has three objectives: (1), to add to the body of research [Edwards, 1989; Fleischman and Parker, 1991 ] that questions the view of Pollard [1965, p.248] that "the practice of using accounts as direct aids to management was not one of the achievements of the British Industrial Revolution"; (2), to challenge the expectation of Fleischman and Parker [p.363] that "nascent cost accounting would flourish more notably in a factory environment" than in extractive industries; and (3), to examine the use of accounting and costing information by an absentee owner and his agent, and in doing so, to provide some reflections on principal-agent relationships and organisational control. The paper is organised into three main sections. In the first section, the context is set by means of a review of the relevant literature of the coal industry. In the second section, aspects of agency theory are outlined and a detailed examination is undertaken of the accounting and costing systems employed in the particular context of Tanfield Moor Colliery. Finally, the implications of the current research are considered.
The "Bibliography of the British Coal Industry" [Benson, 1981] indicates a vast literature on the British Coal Industry. However, in setting the context for the current paper, the present author has noted the caveat expressed in the definitive series "The History of the British Coal Industry": coal was a regional industry rather than a national one. Although this caveat was expressed [Hatcher, 1993, p.vi) in relation to the period up to 1700, "intense regional diversity" [Church, 1986, p.2] continued to characterise the industry throughout the eighteenth and nineteenth centuries. Thus the contextual analysis of the current paper is based on North East England in particular, and factors relating to other regional or to national circumstances are drawn into the analysis only if they are directly relevant.
The North East of England is made up of two counties, Northumberland and Durham, and has three major rivers that lead to the sea: the rivers Tyne, Wear and Tees. Access to the sea was crucial to the development of the North East as Britain's premier coal mining region. Coal is an extremely bulky and heavy commodity in relation to its market value, making its overland transport difficult and costly. Water transport was the only cost-effective means of transporting coal over long distances: in 1675 Sir Robert Southwell considered that transporting coal from Newcastle Upon Tyne to London by an overland route was sixty times more expensive than by the sea route [Hatcher, 1993, p.13]. The North East was unique in having ample coal deposits, access to the sea and being within striking distance of the key market of London. Thus the North East was well placed to respond when the demand for coal grew in the London market under the pressures of rising population, increasing industrialisation and the depletion of timber-fuel reserves. Although precise output figures are a matter of great debate there is a consensus [e.g. Blake, 1967; Hatcher, 1993; Nef, 1932], that the late sixteenth century marked the first great expansion of the region's coal industry. Output rose from 90,000 tons in 1560, c. 40 per cent of national output, to 1,250,000 tons in 1700, c.47 per cent of national output [Hatcher, 1993, p.68], to about 3 million tons in 1775, c.34 per cent of national output, and to about 7 million tons in 1830, c.23 per cent of national output. This reduction in national dominance took place as industrial demand for coal grew throughout the country and facilitated supply by other coal fields. …