Abstract
The founding of the town of Guelph, Ontario, was uncommon in that the town was established prior to the development of surrounding agricultural lands. This was done through an arrangement between the British government and a private, for-profit company. Grounded in agency theory, this study examines the establishment of the town and the role of accounting in its early development. The results show how the absence of accounting created a space in which the company's agent could operate in a way that promoted the well-being of the local population while adopting a long-term approach to shareholder wealth creation. This study highlights the insights that can be gained by investigating where accounting is absent and the importance of aligning accounting techniques with organisational and social objectives, particularly in the context of private companies acting on behalf of governments.
Introduction
‘The tree fell with a crash of accumulated thunder, as if ancient Nature were alarmed at the entrance of social man into her innocent solitudes with his sorrows, his follies and his crimes’ (Galt, 1833a: 59). 1
There has been a growing interest in the role of accounting within the context of imperialism and colonisation (Annisette and Neu, 2004). Colonialism can be defined as ‘… the implanting of settlements on a distant territory’ (Said, 1993: 8). Researchers have examined the link between accounting and colonisation from a variety of perspectives. Attention has been given to the role of accounting in the colonisation pressures placed upon Indigenous populations (Davie and McLean, 2017; Gallhofer and Chew, 2000; Greer and Neu, 2009; Neu, 2000). These studies consider the imposition of western values-based accounting regimes upon Indigenous populations and the role of accounting as a tool of dispossession and control. There is also a growing body of research on the influence of colonisation on accounting standards and rules (Boolaky, 2004; Boolaky et al., 2018; Sharma and Samkin, 2020). This work emphasises the adoption of accounting standards by one country from another and in the case of Sharma and Samkin (2020), here, too, the presence of accounting is seen as a mechanism of control. Similarly, Lassou et al. (2019) note the role of accounting as a tool of dominance and control exercised from a distance.
The rise of joint stock companies provided multiple investors with the opportunity to pool their funds to engage in business activities that required extensive resources. With the hiring of agents to act on behalf of the investors, a key characteristic of these organisations is the separation of ownership from management. These companies have historically been instrumental in the colonisation process and have been used as a means of addressing unemployment and trade issues in England (Abdullah, 1992; Hoogvelt and Tinker, 1978). They have also been the subject of research in accounting practices. Spraakman (2006) examines the use and development of management accounting practices by the Hudson Bay Company from 1670 to 2005. Also studying the Hudson Bay Company, Grant (1997) examines the company's bookkeeping practices in the eighteenth century. Robertson and Funnell (2012) examine the use of double-entry bookkeeping by the Dutch East India Company in the early seventeenth century. The focus of these studies is the approach to accounting used by these companies. Baladouni (1983) notes the importance placed on accounting practices by the East India Company as early as 1600, but also draws attention to the challenges the company faced with receiving reports from abroad in a timely manner and the method of accounting used at the time in determining profitability.
This literature identifies the use of accounting to exercise control over the activities (and in some cases the population) in a distant land. The influence of accounting techniques on the development of local accounting practices in emerging economies has also been documented. These studies also note, in many cases, the challenges faced in receiving timely information from geographically diverse operations and by the accounting system itself in terms of rendering useful information in an organised manner. These challenges have implications for a principal-agent arrangement and the delegation of authority to agents acting on behalf of an organisation. Given these geographical challenges, what is less understood is the role of accounting, both its presence and its absence, in shaping the actions of an agent operating on behalf of a private, joint stock company engaged in the colonisation process on behalf of a government. Furthermore, attention needs to be drawn to the complexity of the principal-agent relationship in a real world setting where multiple demands of accountability can be placed upon the agent from multiple sources.
This study contributes to the dialogue on accounting and colonisation processes by investigating the role of a private-sector company in furthering the emigration and colony settlement agenda of the British government. It examines the role of accounting in how this agenda was mobilised and how accounting is implicated in the development of an early settlement of a British colony. This single site case study examines the activities of the Canada Company in the Huron Tract in Upper Canada where the town of Guelph was established. It is motivated by the question: what was the role of accounting in the colonisation process leading to the establishment of the community of Guelph?
Browde (2002) compares two nineteenth century land companies operating in Canada: The British American Land Company and the Canada Company. While this study details the Canada Company's beginnings and activities, particularly with respect to its relationships with the British and Upper Canada governments, the tension between the company and its agent(s) arising from the demands from multiple stakeholders and the role of accounting in shaping the activities undertaken in Upper Canada is not directly examined. Beyond the Browde (2002) study, scholarship on the role of the Canada Company in the settlement of Upper Canada is narrow and limited (Scott, 2013).
Adopting an interpretative approach to historical research (Previts et al., 1990) and employing an archival research methodology (Fleischman and Tyson, 2003), this study shows how the method of accounting at the time was unsuited for the colonisation activities, such as social welfare and infrastructure-building, that were undertaken as part of a long-term profitability strategy by the agent of the company. The system of accounting created a conflict between local social and economic welfare and distant shareholder short-term wealth maximisation. The accounting could not represent the long-term approach to the development of the community adopted by the company's agent that required investment and patience. This can be characterised as a reverse time horizon problem between the agent of the company and the company's directors exacerbated by the cash basis of accounting used at the time. Additionally, this narrative describes a complex, non-binary accountability domain where the agent, beholden to the company's directors through a formal employment arrangement, also acted on behalf the British government, the local government, and the inhabitants of the small community he founded.
This study also shows how the absence of timely accounting information in the early years of activity in Canada created a space between the company's directors and its agent. This space temporarily provided the agent with the flexibility to pursue a long-term profit strategy, manage multiple accountability relationships and develop a social agenda aimed at improving the well-being of the community's first residents. The absence of accounting reports offered the agent a flexibility that he would otherwise not have had. It is argued here that this absence was an instance of constructive ambivalence (Choudhury, 1988). The agent's actions appear to have accelerated the development of the community of Guelph, increased land prices, improved the fortunes of the company in the long run and served the British government's objectives of encouraging emigration and settlement. Attention is drawn to the form of accounting used and the effect of the absence of accounting in a principal-agent relationship.
The article is organised as follows: first, the theoretical framing that guided the research is described. The study draws upon agency theory, accountability literature and Choudhury's (1988) examination of the absence of accounting to guide the collection and interpretation of data. Next, the reader is introduced to the main character of this narrative, John Galt, and the formation of the Canada Company is described. This is followed by an account of the activities of Galt, acting as an agent of the company, in Canada. The crisis related to the lack of accounting information is then described along with the method of accounting used by the company. This is followed by a discussion and finally the conclusion.
Theoretical framing
A theoretical position was adopted to guide the research and construct an understanding of the data (Carnegie and Napier, 2012; Napier, 2009). The use of theory to inform accounting history research can occur both prior to and following archival work (Carnegie and Napier, 2012). Early data collection identified a contractual arrangement between an organisation in England and an agent employed to carry out specific tasks in Canada. This organisation also entered a contractual arrangement with the British government. Contracts and the delegation of authority was a prominent characteristic of the context of the study. Agency theory and the principal-agent model can be applied to those situations where owners of resources (the principal) enter a contract with an individual (the agent) to act on their behalf (Ogden, 1993). The agent gains access to the owners’ resources and the arrangement usually includes ‘… delegating some decision-making authority to the agent’ (Jensen and Meckling, 1976: 308).
An underlying assumption of agency theory is that individuals are self-interested utility maximisers – that is, principals and agents act in their own best interests (Watts and Zimmerman, 1978). Costs are incurred by this arrangement because ‘if both parties to the relationship are utility maximisers there is good reason to believe that the agent will not always act in the best interests of the principal’ (Jensen and Meckling, 1976: 308). The principal and agent may have differing time horizons (horizon problem), asynchronous risk tolerances (risk aversion) and differences regarding dividend distribution policies (dividend retention). To mitigate against managers (agents) acting in their own interests to the detriment of the interests of the owners, reliable channels of communication are necessary to enable owners to judge managerial performance (Bricket and Chandar, 1998). Thus, monitoring costs (accounting and auditing) are incurred (Panda and Leepsa, 2017). Costs are also incurred due to bonding (reward systems to promote desired behaviour).
The principal and agent are bound together in a relationship of accountability. With the delegation of responsibility, the principal demands an account of the activities undertaken by the agent (Baker and Schneider, 2015; Gray and Jenkins, 1993; Roberts and Scapens, 1985). The nature of the account often, but not exclusively, takes the form of accounting, ‘… a method of making visible, and therefore governable, individuals, groups and organizations’ (Carnegie and Napier, 1996: 16). Laughlin (1990: 95) has modelled the ‘essence’ of an accountability relationship and identified the ’elements’ that constitute this type of arrangement. In this model, the principal transfers resources/authority to the agent and demands an account of the agent's conduct. An account is provided from the agent to the principal, and it is here that accounting is located and often central to the evaluation of performance (Townley, 1996). Finally, rewards or sanctions (consequences) associated with meeting or not meeting expectations complete the accountability process (Baker et al., 2012; Laughlin, 1990).
The demand and supply of information is where we expect to find accounting. Finding accounting where it should be, however, does not always occur. When this is considered an anomaly that is inconsistent with expectations, an investigation into the absence of accounting is warranted (Choudhury, 1988). Webb and Weick (1979: 653) argue ‘What people don’t do … practices that weren’t made are data and they become data because of the a priori expectancies that existed …’ ‘We learn as much by attempting to answer questions of the type “why is it not” as we do by investigating questions of the type “why is it”?’ (Ballas and Tsoukas, 2004: 664). While this absence may be viewed as a failure on the part of management (Choudhury, 1988), it may also, in some instances, be intentional and beneficial (Jacobs and Kemp, 2002). Choudhury (1988: 533) describes this as ‘absence as virtue’. The lack of accounting where we might expect to find it in an accountability relationship may arise due to the level of trust that has developed between the principal and the agent. Alternatively, this absence may be viewed as constructive ambivalence where agents are required to adapt to changing or new environments. The absence of accounting, therefore, may be necessary for those organisations that adopt innovative strategies and processes that a traditional, expected form of accounting might constrain (Choudhury, 1988). There may be a symbolic significance to the absence of accounting information, as well, where, for example, an organisation or agent may intentionally use absence to communicate dissension or signal their refusal to engage in ceremonial, legitimacy-seeking reporting. As Napier (1989: 241) notes ‘… the absence of certain accounts whose presence seems intuitively obvious to us might suggest different objectives for the accounting records that we are studying’.
John Galt and the Canada company
Canada, called British North America at the time, was comprised of British colonies: the Maritimes (Newfoundland, Prince Edward Island, Nova Scotia and New Brunswick), Upper and Lower Canada,the Northwest and Oregon Territories and Rupert's Land (the latter owned by the Hudson's Bay Company, see Figure 1). Upper and Lower Canada, referred to at the time as ‘the Canadas’, were created in 1791 and lasted until 1841 when they were unified as the Province of Canada (Baker and Rennie, 2013).
Map of British North America circa 1825. Source: Fort Simpson Historical Society.
Upper Canada, located in what is now Southern Ontario, held a population of about 150,000 inhabitants by the early 1820s, comprised mostly of English-speaking immigrants from England and Scotland and United Empire Loyalists from the United States (Coats, 1923; Statistics Canada, 2012). While local governments in Upper and Lower Canada were established through the Constitutional Act of 1791, overall governance (and the financial burden of maintaining the colonies) was under British rule.
From 1763 to 1825, the British government had tried a variety of schemes to encourage the settlement of British North America. The programme of colonial settlement was motivated by at least two factors. One was the growing ‘surplus’ population and the resultant rise in unemployment (Browde, 2002). Emigration was seen as a remedy to the social, political, and economic problems in Great Britain while answering the call from Upper Canadians to settle the territory (Baehre, 1981). Secondly, British North America required funding, which, it was thought, could be generated from the development of the local economy since market tolls were one of the largest sources of local tax revenues (Schrauwers, 2010). Addressing the plight of the poor in Britain was a chief motivation for promoting emigration (Cattermole, 1831: 164); ‘Destitute emigrants were sent by parishes and landlords for various reasons, not the least of which was to stem the tide of pauperism in Britain’ (Baehre, 1981: 364). Early efforts, however, were not particularly effective (Riddell, 1937). With decades of poor results behind them, both the British and Upper Canada governments were, by 1825, receptive to an alternative arrangement for the sale and settlement of land in the colony.
One such arrangement took the form of chartering a private company to purchase land in Upper Canada from the government with the intention of re-selling it to settlers at a profit. Formed in 1826, the Canada Company would make payments to the Upper Canada government in return for land and would take on the responsibility of encouraging emigration to the colony. The company would also agree to undertake the development of the infrastructure required to support the settlement of the lands it sold thereby blurring the lines between private enterprise and government activity. The Canada Company, in effect, became an apparatus of colonisation for the Upper Canada and British governments. This arrangement represents a very early form in Canada of what is today called ‘alternative service delivery’ (Treasury Board of Canada Secretariat, 2002: 2). Alternative service delivery is the ‘… provision of public services through arrangements other than the traditional departmental structure …’ in an effort to ‘… operate flexibly in a more efficient and businesslike manner …’ (Office of the Auditor General of Canada, 2007).
Figure 2 provides a model for this alternative service delivery arrangement and situates the focus of this study, the Canada Company, and its agent, within this domain. On the left side of the model, the British government and its resident citizens are bound together through the delegation of sovereignty by the citizens (through counties and boroughs) to parliamentary representatives, a reciprocal relationship of public accountability (Bovens, 2007). Guelph settlers, too, are bound to the British government but this relationship is mediated through a localised form of government, the Legislative Assembly of the Province of Upper Canada.
Context of the Canada company-British government arrangement.
The right side of the model incorporates the delegation of emigration and the settlement of the Province of Upper Canada outside of the public service to the Canada Company. A further delegation by the Canada Company to an agent follows. The parties in each of these arrangements engaged in a formal accountability arrangement represented by a contract: one contract between the British government and the company and another contract, an employment contract, between the company and the company's agent. While citizens can, in a democratic society with a fourth estate, exert influence on their government (i.e., hold them accountable), the degree to which citizens can directly hold an agent of a private company accountable for the delivery of government services is less clear. Nevertheless, there is a connection between the agent and the citizens of Guelph, a form of informal accountability (Romzek et al., 2009). Similarly, there is an indirect connection demonstrated in this study between the agent and the British government that exists outside the bounds of the formal accountability arrangements. These non-formalised connections are illustrated by the broken lines connecting the agent to the Guelph population and to the British government. Guelph did not follow a path common to rural Upper Canada settlements. Rather than having gradually developed as a population centre due to localised economic activity generated through agriculture, Guelph was first established in 1827 as a town site by the Canada Company with the aim to settle nearby lands.
John Galt, a Scottish novelist, first became involved with Upper Canada in the early 1820s, when he was acting as an agent for Canadian claimants of the 1812–14 war (Coleman, 1978). These claimants were seeking financial restitution from the government for property damages incurred during the conflict. The government, however, had no funds to pay these claims (Browde, 2002). It was Galt who suggested raising private funds to purchase land in Upper Canada that could, in turn, be sold to settlers at a profit. The proceeds from the sale of land could then be used to satisfy the claims against the government for damages caused during the war. A group of interested investors assembled in England in May of 1824, and this meeting was the genesis of what would become the Canada Company.
The company proposed to engage ‘… for a period of fifteen years, to take up annually, not less than 800 lots, or 160,000 acres of the crown, and half of the clergy reserves in Upper Canada only, for which the Government shall be paid £20,000 per annum certain …’ (Galt, 1833b: 297–298). To undertake this, the company intended to raise £1,000,000 through the sale of 10,000 shares. At a meeting held on 30 July 1824 at the London Tavern, the objectives of the Canada Company were identified and formalised in the company's prospectus. These included the aforementioned annual purchase of land as well as preparing the lands for settlement, to promote emigration, provide financing to settlers for their land purchases, and to promote ‘general improvements of the Colony’ (Coleman, 1978: 22). Shareholders would receive a semi-annual interest payment of 4 per cent on advanced capital as well as a share of the profits, an arrangement that would affect the time horizon with respect to the profitability, on a cash basis, of the company. By 12 August of that year, all 10,000 shares issued had been sold, but cash raised amounted to only £35,000 since shares were paid for in instalments. Shareholders would be required … to pay the sum or sums of money…as shall from time to time be called for pursuant to or by virtue of the powers and directions of this our Charter (the company charter) … as shall be ordered and directed by any Court of Directors… (Canada Company, 1826a: 6).
The sale, re-purchase, and re-sale of shares by the company and transfers of shares between individual shareholders was extensive over the following year as indicated by the 11,210 entries recorded in the List of Subscribers ledger (Canada Company, 1825).
With a land purchase agreement in place, a relationship of accountability between the company and the British government was formed. The company could withhold a portion of its payments to the government provided the amount withheld was allocated to public works and improvements to prepare for settlement: ‘partial clearing and improvements usually required under the name ‘Settlement Duties’ (Canada Company, 1826a: 20). This was understood to mean canals, bridges, roads, schools, and churches (Lee, 2004), although the Company Charter only identifies public roads and bridges (Canada Company, 1826a). A penalty clause was included in the agreement to encourage the company to promote emigration and settle the land as quickly as possible: In the event of failure of placing one settler on every 200 acres contained in half the land taken up within the year by the Company from the Government, they were to forfeit to his Majesty twenty-five dollars for each such lot, to be expended by him in improving the land or water communications of one or more of the townships in which the Company holds lands, or if they prefer it, the Company might, at their option, expend within six calendar months after the 31st December in each year, thirty-five dollars, in opening, constructing or improving public roads or bridges in some one or more of the different townships in which the lands purchased by the Company were situated, and such forfeitures or settlements effected, should exonerate the Company from settlement duty on the remaining half of the lands taken up in each year …’ (Smith, 1851: 151–152).
With this arrangement, the Canada Company assumed responsibility for two areas related to the Canadian colony: promoting the settlement of vacant lands in Upper Canada and the undertaking of public works projects.
Figure 3 illustrates the cash flow cycle of the company. Cash inflows came from two sources: the call for funds from shareholders and from the sale of land in Upper Canada. Cash outflows can be broken down into four broad categories. The company's primary demand and obligation was the annual payments to the Upper Canada government for land purchases. The company could, and did, incur expenses for improvements, such as clearing roads. A portion of the land payments due to the government, up to one-third, could be redirected towards these improvements (Coleman, 1978). Thus, these two categories are connected. The company also incurred the usual expenses related to business operations – salaries, the cost of maps and surveys, accounting fees and so on. Finally, shareholders required their semi-annual interest payments. A connection between land improvements and land sales is illustrated as a dashed arrow because, it was believed, incurring costs for the former would result in higher prices charged for the latter.
Canada company cash flow.
Galt in Canada
Galt had been appointed Secretary for the company and in a show of confidence ‘… the Court of Directors to mark with the strongest feeling of approbation their sense of Mr Galt's zealous and judicious conduct …’ he was also appointed to be a commissioner to assess the value of land in the colony (Canada Company, 1826b: 22). He became an agent for the company, reporting to (and being held accountable by) the Court of Directors. At the same time, however, Galt was given considerable latitude which positioned him to make decisions regarding the execution of the contract between the government and the Canada Company: ‘By the 30th article of the first contract with his Majesty's Government, it was determined what should be the commutation for settlement duties, and the application was left in the discretion of the Company's agent’ (Galt, 1833a: 335).
While the formal accountability arrangement with Galt was with the Court of Directors, he also felt accountable to the British government through his discretion in executing the contract with the company. This latitude allowed him to bypass the Court of Directors thereby somewhat complicating the traditional view of a binary principal-agent relationship.
In the autumn of 1826, John Galt sailed from England to Upper Canada via New York. While his primary responsibility was to obtain information regarding the lands, he was advised he had ‘extensive discretionary powers’ (Lee, 2004: 50). Upon reaching New York after the month-long voyage, he visited two large land holding companies where he was shown their method of operation and bookkeeping. Establishing an office in York (Toronto) in early 1827, he identified the Huron Tract as a suitable parcel of land for the Canada Company to purchase and settle (Figure 4).
Illustrated map of Upper Canada circa 1825. Source: Historica Canada.
Within this tract of land, a site for a new town, Guelph, was selected and on 23 April 1827 the first tree was felled: By this time it began to rain, but undeterred by that circumstance, we resumed our journey in the pathless woods. About sunset dripping wet, we arrived near the spot we were in quest of, a shanty, which an Indian who had committed murder, had raised as a refuge for himself. After endeavouring to dry ourselves … I proposed to go to the spot chosen for the town … a large maple tree was chosen; on which, taking an axe from one of the woodmen, I struck the first stroke. To me at least the moment was impressive, and the silence of the woods that echoed to the sound, was as the sigh of the solemn genius of the wilderness departing forever (Galt, 1833a: 57–59).
By that summer, Guelph was bustling with activity. Galt had land set aside for churches, houses were being built and a large log structure, called the Priory, was erected as a residence for Galt and a place for social gathering. His strategy was to attract settlers to the area by building a community first. This would provide agriculturalists with a ready market, schools, and access to local tradespeople, such as blacksmiths. The presence of an advanced agricultural community, it was thought, would drive the price for nearby agricultural land up (Johnson, 1977). He wrote (Galt, 1833a): More than twenty years … I have paid attention to the best mode of settling a country. And my principle was to consider the land as a raw material to be manufactured by an outlay of more capital… (48) and … I pursued my plans, for the benefit, as I thought, of the Company and for the advantage of the province, namely, by opening roads to render remote lands accessible and of course more valuable… (p. 121).
To do so, however, large amounts of capital from the Canada Company needed to be invested up front, with hopes for a return to shareholders to materialise sometime later. This strategy, however, would create a cash flow issue for the company since they sold their shares on an instalment basis and promised bi-annual payouts at 4 per cent per annum to the shareholders. The infrastructure (i.e., the public works) such as roads, a school, and a marketplace were being financed, managed, and governed, by a private, profit-driven, company in distant England, with Galt, assuming the role of a local representative. By the autumn of that year, he wrote ‘In fact, I have the business of a little state upon my hands’ (Galt, 1827a). While Galt felt beholden to the Court of Directors and to the British government, he also, it appears, felt he was serving the interests of the province.
Further insights into how he viewed his role can be gained by his actions. As more settlers were arriving in Guelph in the summer of 1827, he undertook the construction of a shed to be used as a school until a stone schoolhouse could be built. He also hired the teacher. When the government of Upper Canada (and England) refused to help a destitute group of Scottish immigrants that had arrived in Upper Canada, known as the La Guayrans, he allocated land to them without requiring the necessary down payment and provided for their needs using Canada Company funds, withholding land payments to the Government of Upper Canada to compensate the company (Coleman, 1978; Johnson, 1977). I was not provided with money to support pauper immigrants … I considered that as the Company had work, it would be doing a service to Government to employ these people … I was informed that the greatest number of them were women and children, and all weak and many sickly … From motives, however, partly out of humanity and … (since) they were in fact under the protection of the Government, I determined to keep a thousand pounds back of a payment to Government … (Galt, 1833a: 94).
While Galt was concerned with profits, the welfare of the settlers also seemed to occupy him. Galt believed that taking care of Guelph's early population would serve the profit-seeking motives of the shareholders, but not immediately: In this business, I am attempting to carry my colonial system into effect … but I fear the gentry (the directors of the Canada Company) are too impatient for returns. They expect the ship to be earning a freight before she is launched. They have their own business to attend to and not the time to learn mine … (which) is not to be learned by only reading a prospectus calculated for the capacity of the stock exchange (Galt, 1827b: 456).
This statement reflects the tension between the approach adopted by Galt and the approach expected by the Court of Directors. It also gives insight into Galt's view of accounting information, namely it's role and the limitations of the information it can provide. The long-term strategy employed by Galt was not shared by the Court of Directors. At a meeting of the court earlier that spring on 26 April, it was resolved that: it is not expedient to attempt any improvements or to incur any avoidable expense on the detached lots of the Crown Reserves, but that they be offered for sale and disposed of as speedily as it may be practicable to find purchasers for them (Canada Company, 1826b: 87).
At a meeting held on 6 July 1827 the directors instructed Galt to pay only for roads on Canada Company lands (Canada Company, 1826b: 98). Later that summer minutes from Court meetings illustrate that the role assumed by Galt was not the role the directors had envisioned for their company. On 3 August, the directors resolved that ‘the Company cannot undertake to build churches and that a proposal for the company to build and then rent out a grist mill was ‘… entirely inadmissible …’ (Canada Company, 1826b: 103–104). A request for a £4000 loan to build a courthouse was also rejected.
Two tensions appear to have arisen at this time. The first was the conflict between building a community and the role of a private company in this process. Galt appears genuinely concerned with the welfare of its citizens, but this did not, in his opinion, compromise the interests of the company. His notion of community-building extended far beyond roads. The aforementioned undertakings of a church, school, mill and courthouse speak to establishing a community. This led to a second cause of tension: cash flow, and specifically the conflicting strategies adopted by the company and its agent which created a cash flow issue. Galt was seeking profit along a longer time horizon than the company. The company required profit, in cash and in the short-term, to meet its semi-annual payment obligations to shareholders and to make land payments to the government.
The Canada Company identified a specific group of settlers as desirable based on their personal resources, described as ‘valuable settlers’ (Canada Company, 1842: 11). The company resolved to encourage the most eligible class of emigrants … those who possess the means of purchasing lots, and commencing improvement and cultivation of the same, and to such persons it is advisable to offer every facility both in regard to price and to the terms of payments (Canada Company, 1826b: 86).
The company explicitly required potential settlers to have sufficient capital for the 20 per cent down payment required for land purchases. They also must have the means to emigrate. A prospectus from February 1828 warned: ‘The Company will not defray, or contribute towards defraying, the expense of embarking emigrants from the United Kingdom, or of conveying them to their place of location in Canada’ (Johnson, 1977: 29). These conditions would attract, it was hoped, settlers with financial resources as opposed to a strategy of ‘… selling straggling reserves to casual purchasers …’ (Lee, 2004; 39). Those settlers that did have capital would do well: A farmer who commences with some money, say £250, ought, in the course of five or six years, to have all his capital in money, and a good well-cleared and well-stocked farm into the bargain, with the requisite dwelling-house and out-buildings on it, besides having supported his family in the meantime (Johnson, 1977: 42).
Nevertheless, the company allowed that to encourage labourers and mechanics … it is expedient to give possession of small lots of land to persons who have not the means of purchasing the same, and further to afford to such persons the means of subsistence until they can obtain one crop from the land…, as well as some other necessary articles to enable them to commence the cultivation … (Canada Company, 1826b: 86).
Title for land would not be transferred until it was fully paid for. It was also resolved, however, ‘that in receiving and locating such Pauper Settlers minute inquiry be made into the particular habits, circumstances and character of each individual or family …’ and ‘… that the amount of provisions or other supplies which may be advanced to any settler be considered debt …’ (Canada Company, 1826b: 86).
By the end of 1827, however, the directors seemed to have warmed to Galt's strategy, reporting to the General Court (shareholders’ meeting): … it appears that Mr Galt's arrangements for the improvement and settlement of that Block (Guelph), and for enhancing the value of the company's property adjacent to the town plot … have been eminently successful – He (Galt) states the new town called Guelph to have increased and improved with a rapidity unexampled in Upper Canada … (Canada Company, 1826c: 17).
The report to the shareholders goes on to note that prices for lots of land had doubled. Prior to providing this report, however, it was disclosed that ‘… detailed accounts of the season have not been received from Canada … although they are daily expected …’ (Canada Company, 1826c: 16). This comment alluded to a serious problem for the company: a timely rendering of the financial accounts from Guelph was not being received by the directors.
In May of 1828 the following statement appeared in the company's Statement of Receipts and Disbursements of the Canada Company: The accounts of Payments in Canada and of Sales of Land, receipts therefrom Balances due thereon and other particulars connected with the following Accounts in the books have not been received in such a shape as to authorize them to be entered and discharged (Canada Company, 1849).
Some information was available, and it was not positive. The entries that had been made regarding the operations in Canada would draw attention to the significant cash outlays that were occurring. In 1828 ‘Sales in Canada’ were recorded as £2,738 while ‘By Mission to Canada for Expenditures in Canada’ were recorded as £48,861 (Canada Company, 1849).
Public works projects continued in Guelph into 1828 with the construction of a bridge across the Speed River and the clearing of more roads. The result of the employment offered by the company for infrastructure projects, however, was a growing population of settlers without capital – labourers. These individuals did not purchase land immediately nor did they have the means, when they did purchase land, of supporting themselves while their land was being developed. This created a cash flow issue since cash was flowing out for infrastructure projects and the payment of labourers while land sales occurred without cash payments. While this may have been consistent with the objective of alleviating the plight of the pauper population, it exacerbated the cash flow issue faced by the company caused by the heavy investments that had been undertaken. While land sales in 1827 of £19, 264 were reported to the General Court, no cash had been received from these sales (Canada Company 1826b, 1826c).
No accounts from the backwoods, no profit at home
The Court of Directors was not receiving financial reports regularly from Galt and the information they did receive was incomplete. In a statement entitled ‘Guelph Settlement’ included in a letter to Galt dated 3 January 1828, an account is given of the expenditures of an advance from the company of over £8,500, but also includes the note ‘to this is to be added Tools &c from Montreal and York amounting to several hundred pounds but of which no account whatever had been received’ (Guelph Historical Society, 1978: 28). In another example, Galt had been granted £4,000 for the improvements to the Guelph area yet disbursements had been in excess of £6,000 and this amount did not include a variety of other expenses that had been met (Lee, 2004: 75). While information on land sales had been provided, no clear financial statement for these sales was given. Nor was a satisfactory account provided for another £5,600 of disbursements.
The company finally took action. At the 8 March 1828 meeting of the Court of Directors it was resolved that in consideration also of the defective nature of the accounts hitherto received from Mr Galt, and apparent want of any regular system in the management of his financial transactions on the company's behalf, they (the directors) have formed the opinion … to increase the establishment in Upper Canada by approving a cashier and accountant … (Canada Company 1826b: 132).
At a meeting of the General Court, held in June of 1828, the directors reported that ‘regular accounts of the Company's expenditures in Upper Canada had not yet been received’ but that an accountant and cashier had been engaged to travel to Canada to ‘obtain accurate statements of these accounts, and to establish a regular system for the future’ (Canada Company, 1826c: 22). The accountant, Mr Smith, who reported to the Court of Directors became, in effect, an auditor in the arrangement between the agent, Mr Galt, and the company (see Shah and Napier, 2019; Figure 1).
This lack of financial reporting does not appear to be intentional despite Galt's apparent ambivalence towards keeping a proper accounting system and providing the directors with timely information. Galt had requested help with the accounts from the company to remedy what he characterised as ‘… the inconveniency of insufficient clerks …’ (Galt, 1833a: 118). Galt wrote to the Court of Directors of his need for an accountant and ‘… Mr Smith was appointed, but he did not reach Canada till the beginning of July, 1828, ten months after the Court were so sensible that Mr Galt was suffering the greatest inconvenience for the want of an accountant …’ (Galt, 1833a: 304). In an effort to reassure the directors, Galt had requested a review of his work be carried out by Joseph Fellows, an agent with another land company managing the Pulteney and Johnstone Estates in New York. Fellows wrote to the Canada Company Court of Directors on 4 February 1829 that ‘… the books are well adapted to exhibit correct and accurate views of the affairs of the Company’ (Galt, 1833a: 299). He also mentioned in this letter of the necessity for a land company agent to have extensive discretionary powers as was the case in the New York Holland Company, a land company similar to the Canada Company.
Shortly after his arrival in Upper Canada, the accountant, Smith, wrote an optimistic letter to the Court of Directors on 1 August 1828. He had directed the clerks at Guelph to provide him with updated accounts so that he could prepare ‘… a general statement of the Company's transactions in the province …’ and had ‘no doubt’ that the statement would be provided to the Court in time for their meeting in December (Canada Company, 1828). He wrote again, however, on 29 September 1828 that he found it a ‘… harder task than he had even anticipated …’ (Canada Company, 1828). In a letter dated 8 December 1828 he stated ‘… I learned that there was no cash book or ledger for the general business, merely a Register of Sales of Crown Reserves and the money received on account of them’ (Canada Company, 1828). At Guelph, he found only a ‘… Cash Book (was) kept … and a sort of Ledger which was in fact merely an Account Current Book with the Labourers employed …’ (Canada Company, 1828). He spent considerable time attempting to correct this Book ‘… as many of the statements of their (the Labourers’) accounts were challenged and several turned out to be incorrect …’ (Canada Company, 1828). He did, however, provide the Court with a corrected statement of land sales, noting that the accounting for these transactions were the only type of transactions that seemed to have ‘regular arrangements’ (i.e., there was a process in place to account for land sales). He noted that expenditures in Guelph were ‘heavy’ and the accounts were in disarray. For example, ‘The school house is nearly finished but no particular account having been kept its exact cost had not been ascertained’ (Canada Company, 1828). Galt, however, was forging ahead. Clearly acknowledging the responsibility he felt to both the province and the poor, he would later write: Although my condition was none alleviated by the disastrous arrival of the accountant, I pursued my plans for the benefit, as I thought, of the Company and for the advantage of the province, namely, by opening roads to render remote lands accessible and of course more valuable, and to give employment to poor emigrants (Galt, 1833a:121).
Galt clashed with Smith largely (according to Galt) due to conflicts in personalities. But he also lamented Smith's inexperience in the new territory and the management of Guelph's settlers and local economy: It has been a principle with me to pay as little money as possible to the workmen in summer, knowing they would require all their earnings to keep them in winter, while working on their own lands. One of the evils which I am now suffering from Mr Smith's ignorance of the business, and of the mode of managing the sort of people with whom he had to deal, is that some of those who were paid by him in full, having spent their money, are already besetting me for necessaries for their families (Galt, 1833a: 313).
Galt embraced a social duty to help emigrant settlers thereby improving their condition and, he believed, that of the province, at times without the explicit consent of the directors. After requesting approval for over a year to hire a doctor without reply, for example, he went ahead and hired one anyway, listing him as a clerk on the payroll: One morning upwards of forty of the men came in afflicted with the ague; they were of the colour of mummies, and by hardships fright fully emaciated. I had written to the Directors to let me hire a doctor for a year to the settlement, but no attention was paid to the solicitation. However the case by a little address was rendered not desperate; I ordered a surgeon to be engaged as a clerk … (Galt, 1833a: 123).
He would later write in his autobiography ‘… when I am conscious of the rectitude of my intentions, I never scruple: for a great good to do a little wrong’ (Galt, 1833a: 95). While this illustrates an element of subterfuge on the part of Galt, the lack of reply to Galt's request suggests that the directors of the Canada Company may have initially been unsure of their role. Galt, however, did not seem unsure about the social role of community building. He wrote: Education is a consideration so important to a community that it obtained my earliest attention, and accordingly in planning the town, I stipulated that the half of the price of the building sites should be appropriated to endow a school, undertaking that the Company, in the first instance, should sustain the expense of the building, and be gradually repaid by the sale of the town lots. The schoolhouse was thus among the first buildings undertaken to draw settlers (Galt, 1833a: 61).
Back in England a rumour was spreading that the Canada Company was experiencing financial difficulties. This was having a ‘… damaging effect on the stock which was rapidly falling in the market’ (Burrows, 1877: 26). Galt wrote ‘… it was the opinion there, the Company could not go on, and that the stock was falling. I was not a little surprised at hearing this, especially as everything was prosperous with me beyond expectation’ (Galt, 1833a: 117). Shareholders, increasingly concerned about the viability of the company, in a resolution at the general meeting held on 31 March 1828 forced the directors to re-negotiate the company's agreement with the British government. At this meeting, the directors were unable to provide the shareholders with accurate financial statements but could say that they were unable to meet a payment for land purchases due to the government in June (Browde, 2002). While financial information from Canada was unavailable, the effect of the expenditures the company was incurring was reflected in their Fund Balances, which represented money held at financial institutions or owed to the company. The balance was reported at £69,364 in 1827, £36,632 in 1828 and £12,790 in 1829. The arrangement to pay interest to shareholders was not atypical, but it also taxed the company's dwindling resources. Three payments, for example, due to shareholders (July 1826; January 1827; July 1828) amounted to £9,634 (Canada Company, 1849).
By November 1828, a statement of financial affairs was constructed (see Lee, 2004: 97). Using the cash basis of accounting that prevailed at the time, this report would alert the shareholders of the company of a staggering ‘loss’ of £45,000. This method of accounting, however, did not reflect the longer-term time horizon Galt's strategy entailed with respect to upfront investment (in public works) leading to higher land prices and greater profitability in the future.
A letter to Galt from the directors queried: ‘… will the Provincial Government allow these roads as public improvements to be taken out of one-third of the purchase money? Or must they be opened at the Company's expense?’ (Cameron, 1967: 13).
The directors are asking whether they will have to bear the cost of these roads in addition to paying for the land they intend to re-sell or will a portion of the purchase price for land be withheld by the company for use in their construction. Whether for local improvements or for land purchases the costs were considered an expense rather than an investment that would bear fruit in the future in the form of greater profits.
An alternative accounting treatment would be to spread these costs over the estimated life of the capital projects or perhaps more appropriately in this case, over the then estimated 15-year life of the company (as done in accrual accounting). The costs incurred for infrastructure projects would initially be recognised as assets since the roads, for example, would provide a future economic benefit to the company in two ways: promoting future land sales and increased prices per acre of land. As an asset, the cost of each public works project, or ‘improvement’ would then be allocated to future accounting periods, matching these costs against the revenues generated.
Table 1 illustrates the contrasting economic picture of these two accounting treatments. On the left is the statement released by the company in November of 1828. The right side reflects this alternative treatment of infrastructure expenditures and subsequent expensing of them. With respect to Receipts, the Sale of Land would remain, but deposits and instalments received would represent liabilities until these were earned when the land was transferred to the purchaser and would be excluded from this statement. Payments to the Crown represented purchases of land, an asset. This item would not therefore appear on a statement of profit and loss on the understanding that it represented a future economic benefit (presumably from its sale). Furthermore, the portion of expenditures related to local improvements would be capitalised with the cost allocated over numerous accounting periods. Galt intended to spend one-third of expenditures on local improvements (Guelph Historical Society, 1978: 11). Assuming this was indeed the case, 33 per cent of these costs would be capitalised; the remaining expenditures would be expensed. The capitalised infrastructure expenditures would then be expensed over their useful life, the fifteen years remaining in the company's charter (after which it would be dissolved). A very different financial statement would result: a ‘profit’ of £3,190 rather than the ‘loss’ of £45,000 depicted on the original statement. The cash basis accounting method used undermined the long-term approach adopted by Galt by constructing a narrative of financial distress rather than communicating an investment that would lead to increased future profitability and cashflows.
Contrasting accounting methods.
The directors called John Galt back to England where he was subsequently fired and replaced him with two commissioners. Thomas Mercer Jones, one the commissioners, arrived in Upper Canada in April of 1829. He found the accounting to be in disarray causing much ‘confusion in the books’ (Karr, 1966: 150). The Guelph account book (or ‘day book’, as it was called) for the company bears this out. Interspersed amongst the various entries, organised by individual, is evidence of an attempt to clean up the records. Page 41 of the Guelph account book, for example, contains the statement ‘amount of this acct furnished up to July is £7.0.3. Not corresponding with Ledger’ (Guelph Civic Museum, 2010: 41). Another example: ‘Amount furnished £3.15.72 not agreeably with the ledger July 9, 1829′ (Guelph Civic Museum, 2010: 62). The account page for John Galt illustrates some confusion as numerous entry amounts were struck out (Figure 5).
Company Store Day Book 1828. Source: Reproduction from Coleman, 1978, p. 49; original day book entry page viewed by the author July 27, 2012 at the Guelph Civic Museum.
Many of the settlers of Guelph relied on employment by the Canada Company, clearing the land and undertaking building projects, for their livelihood. They used these wages to make payments on their land and for supplies bought from the Canada Company. Galt's community-building undertakings had created a local economy which, in the long run, would become self-sustaining as land was cleared and crops were grown and sold at market. In the short-term however, this economy was propped up by investments made with Canada Company funds. Jones stopped all this work and thus threw many into desperate straits. The local doctor reported that ‘with three exceptions none of his patients had anything wherewith to pay him. Bread … became scarce, potatoes dear’ and that ‘for many months families had nothing to eat but potatoes and turnips’ (Johnson, 1977: 37–38). This dire condition was compounded by a poor crop (Browde, 2002) and during this period many residents left Guelph: ‘… every person that could, left the apparently doomed locality’ (Johnson, 1977: 37). With no income they could no longer afford payments to the Canada Company for their land, which many attempted to sell. The result was the near ‘total collapse of the village's economy’ in 1829 (Johnson, 1977: 42). The Canada Company now faced the prospect of falling, not rising, land prices and, as might be expected, diminishing revenues in the form of land payments. An excess of management expenditures, the costs incurred by Galt in Guelph, diminishing lands sales, and an upcoming payment due to the government put the company in a cash flow crisis. The issue was alleviated by a further call for capital from the shareholders in October of 1829 and operations returned to normal in 1830 (Browde, 2002); the economy in Guelph recovered and soon after, the settlement would be touted as an exemplar for emigration and colonisation (Chattermole, 1831).
Discussion
A tension arose from the outset of the Canada Company enterprise with respect to the time horizon difference between the principal and the agent. This can be characterised as a reverse time-horizon agency problem. The company pursued a strategy of short-term profit-taking through minimising costs and maximising sales revenues. To do so, the focus was on identifying potential emigrants that had the means to purchase land and develop it. The structure of the company was such that this approach was necessary because considerable cash outlays were required not only to pay the government for land purchases (which were required regardless of sales) but also to meet the shareholder interest payments. While capital was raised through the sale of shares, these sales were made on a subscription basis which staggered payments to the company.
Galt, on the other hand, adopted a long-term view to profit-taking, and was motivated in part, it appears, by a sense of responsibility towards the settlers who arrived in Guelph, the objectives of the British government to alleviate the condition of the poor and settling a British colony. Despite the tension that this created with the Court of Directors, he seemed steadfast in his belief that by adopting this approach, he was serving the best interests of the company.
Three inter-related themes emerge from the data that implicate accounting in the development of the settlement of Guelph: the principal-agent relationship, the method of accounting used by the Canada Company, and the absence of accounting reports received from Galt.
Principal-agent relationship
The nature of the agent's accountability relationship to the company's directors is demonstrated here as more complex than the simple, binary arrangement represented by the formal employment contract. As Figure 2 illustrates, the accountability domain contains numerous actors with a variety of interests in the exercise of settling a colony. Galt, is at the centre of the colonisation effort studied here and responds to the demands and expectations of more than one party. There is evidence of a responsibility felt towards the population in Guelph in addition to a responsibility for the success of the Canada Company. Galt also, it appears, felt he was acting in the interests of the British government. Rather than follow the regime of the formal principal-agent arrangement with the directors of the company, Galt adopted the perspective that he was central to serving the interests of multiple stakeholders, sometimes through the formal channels of communication with the company and sometimes not. The binary relationship was further problematised by the nature of the endeavour. Acting on behalf of the British government to settle a colony to alleviate population issues at home, there was a social welfare aspect to the undertakings of the Canada Company to which the agent responded.
Agency theory argues that an agent will, intuitively, act in their own interest. Several mechanisms can be employed to align the actions of the agent with the interests of the principal. A key mechanism of control can be found in the monitoring activities undertaken by the organisation and in the collection and evaluation of accounting information. Accounting provides a representation of activity in unobservable and distant sites and can be used ‘strategically in an attempt to organize a social field …’ (Rahaman et al., 2010: 1097). It constructs a domain and is used as a means to administer it (Miller, 1990). While joint-stock companies entailed joint ownership, they did not entail joint management and the separation of ownership and management required sufficient information to monitor the activities of company agents (Grant, 1997).
The provision of information is a key component of a principal-agent accountability relationship (Sargiacomo and Gomes, 2011; Baker et al., 2012, 2017) and fundamental to the principals’ ability to control the agent's behaviour. The result of the poor accounting system in the colony was the lack of reporting received by the company's directors back in England. Thus, the actions of the agent were not visible from a distance, the situation in Guelph was unknowable and the accountability relationship was compromised. Other factors appear to be at play here as well. Galt was responsive to the contractual obligations of the company to the British government and acted, as he thought, according to that arrangement. This, however, undermines the chain of accountability (Figure 2) as the agent bypassed the principal; in this case, Galt bypassed the Court of Directors. Galt's approach to the settlement appeared more in line with the objectives of the British government which suggests he held a broader view of accountability than the contractual arrangement he entered into entails. Similarly, his commitment to the settlers and the poor also reflect his broader view of accountability. This is consistent with the view that the action of agents does not always reflect self-interest. Self-interest, rather, can be constrained by ethical considerations (Rutledge and Karim, 1999) and notions of fairness (Libby, 2001). If we consider principals to be those individuals or groups to whom the agent internalises a sense of accountability towards, then the agent's behaviour in this study can be characterised as a collective of actions motivated by a responsiveness to multiple principals. The demands felt by the agent were not, in his view, in conflict with one another.
Galt also expressed a lack of respect for the decisions of the Court, whom he felt were not in a position to understand the requirements for establishing a settlement in a far-off colony. It may be that he felt a certain sense of ownership since the whole enterprise was his idea and he played an integral role in the establishment of the Canada Company. Furthermore, initially he was granted a great deal of discretionary power in his capacity as an agent of the company. The accountability relationship, therefore, was more complex than the contract under which it was constructed suggests. While all of these factors contributed to the compromised system of accountability, we return to the lack of reporting as the key factor that resulted in the breakdown in the accountability regime. With distant activities rendered only partially visible, space was created for the agent to exercise his form of accountability and his strategy for the development of Guelph.
The method of accounting
The accounting method used by the company did not represent local improvement expenditures as a capital investment and could not, therefore, effectively communicate a long-term view of the economic benefits behind these expenditures. Instead, accounts were kept on the basis of receipts and disbursements. Since costs incurred for local improvements, such as building roads and bridges, were not capitalised, when accounting information did arrive from Canada, it rendered a story of loss and crisis rather than investment and future profit.
Accounting constructs a domain and creates a representation of the reality within that domain. The method employed significantly alters the reality conveyed in this instance. While accounting information must attend to the cash flow requirements of an organisation, a representation of the economic (and social) benefit that would be realised from the investments undertaken by Galt could simply not be represented by the method of accounting in use at the time. The formalisation of municipal accounting practices in England was still several years away, however, and the introduction of the English Municipal Corporations Act did not come into effect until 1835. The use of depreciation for the treatment of capital assets by municipalities would be many years away (Potts, 1982).
The accounting used did suit the financing structure of the company because the company needed cash flow (cash-basis accounting information) to meet its semi-annual payment obligations to the shareholders. It did not, however, suit the long-term strategy adopted by Galt, reporting, instead, short-term losses that worried investors. Numeracy creates problematisations, shaping the domain to be managed and creating a means of evaluating performance (Rose, 1991). ‘What is accounted for can shape organizational participants’ views of what is important …’ (Burchell et al., 1980: 5): how activities are accounted for constructs the economic narrative that these participants engage with, are affected by, and develop responses to. Undertaking local improvements, physical infrastructure as well as social aspects such as education and healthcare, was having a positive impact on the growth of Guelph and local land prices but realising profits from these investments required a longer-term view than the company was able or willing to accommodate. The accounting method that was in use skewed the company's true financial condition, conveying a message of desperation and insolvency rather than future economic and social benefits.
The absence of accounting
The preceding discussion draws our attention to the complexity of the principal-agent relationship and the shortcomings of the method of accounting with respect to the community-building strategy adopted by Galt. Yet, Galt was able to adopt a humane and, ultimately, profitable approach to developing a settlement in the colony. In doing so, he was responding to the needs of the British and local colonial governments and attending to the welfare of the immigrants and their families while land prices, as a result of his efforts, rose leading to the profitability of the Canada Company. The role of accounting in facilitating this, lay in its absence.
The absence of accounting reports impeded the directors’ view of the activities carried out in Upper Canada and inhibited their ability to manage and hold the company agent accountable. By not having adequate financial accounts or receiving the required reports, monitoring the actions of the company's agent was hindered and concerns arose regarding what was being done in a land so far away with the shareholders’ money. With only a partially visible domain, the capacity of the directors of the Canada Company to administer the new town was compromised. Because of this, a local economy emerged that was quite different than the one envisioned by the original shareholders back at the London Tavern in 1824. The presence of accounting reports could have alerted the shareholders to this unplanned development. Instead, as a means of communication, it failed to ‘… make present what is distant and at the same time render it calculable and gradually manipulable’ (Vollmer, 2003: 363).
Choudhury (1988) notes that not finding accounting where one expects it can be seen as a failure that requires rectification. On the other hand, the absence of accounting could be the result of a conscious decision on the part of management, an absence defined as ‘virtuous’ (Choudhury, 1988: 553). Three examples of this virtuous absence are absence as trust, absence as constructive ambivalence and absence as symbol. Described as an absence of rigid and historical accounting that unshackles managers thereby fostering creativity and responsiveness to a dynamic environment, constructive ambivalence appears to apply to Galt's approach. Evidence of this ambivalence can be found in Galt's assessment, presented earlier in this article, that the directors ‘… have their own business to attend to and not the time to learn mine …(which) is not to be learned by only reading a prospectus calculated for the capacity of the stock exchange’ (Galt, 1827b: 456).
Accounting reports on an agent's activities can restrict those activities and provide a form of control. In the absence of this mechanism of control, space is created for the agent to behave in ways that may not align with the principal's interests (Eisenhardt, 1989; Gwilliam et al., 2000; Watts and Zimmerman, 1978, 1983). But this may not always be the case: Choudhury (1988) argues that this absence may be necessary to free managers to ‘… engage in experimentation and creative efforts that will propel the organisation in ways that are consonant with its dynamic environment’ (p. 554). The absence of accounting reports (information asymmetry) from Guelph created, for a brief time, a space in which the agent could, and did, act in a creative and somewhat independent manner. Within this space Galt was free to respond to the demands from multiple principals and pursue his vision of colonial settlement. There is, however, also reason to believe that Galt was acting in the interests of the shareholders, just not in the way they planned for or expected.
One of the problems that can occur in the shareholder(principal)-manager(agent) relationship is differing time horizons (Rankin et al., 2012). Here is an instance of a reverse time horizon problem whereby the agent is undertaking activities suited to long-term profit rather than short-term profit-taking. These activities included significant investments in physical infrastructure (roads and bridges), community services (education and healthcare) and social well-being (providing employment and means of subsistence to the destitute). The information asymmetry created by the absence of accounting provided the agent with the space to mobilise this strategy. In this regard, Galt was aligned with the British government strategy of providing relief for the poor, employment for the surplus population, and for the settlement of the colony. ‘Accounting … has a powerful liberating influence in absence’ (Choudhury, 1988: 555). There is no indication that this was opportunistic in the sense of manipulating profits or losses (Gwilliam et al., 2000). Instead, activities related to community-building and public welfare were undertaken to both improve the condition of the local population and the long-term wealth of the shareholders. It was the absence of accounting that facilitated the promotion of particular values and priorities (Burchell et al., 1980), and shaped the early development of the Upper Canada settlement.
It wouldn’t take long for Galt's strategy to bear fruit. In May of 1831 a pamphlet was published extolling the benefits of emigration to Upper Canada and of the Canada Company as an investment. The author, William Cattermole (1831) stated: When it is considered that in 1827, Guelph was a forest, and that in 1831, it contains near 800 inhabitants, with about 1600 acres of cultivated land, an excellent mill, … places of worship, and most of the necessary accommodations to be found in an English village, it presents to the future emigrants from Britain, all that rational chance of success and comfort which could hardly have been anticipated (p. 32).
While this pamphlet mentions the opening of roads as an inducement to would-be emigrants, so, too, is the ‘… stone building for a school house … and sites for churches and burying-grounds given gratuitously to congregations…’ (Cattermole, 1831: 30). The Canada Company is described as ideal for those with capital seeking a secure and profitable investment, ‘… so much so, that the government would gladly take the bargain off their hands’ (Cattermole, 1831: 40).
Conclusion
This study examined the role of accounting in the establishment of Guelph in Upper Canada. Three themes emerged from the analysis of the data: the complexity of the principal-agent relationship in the context government programme delivery (colonisation), the appropriateness of the accounting technology for this programme, and the role of accounting's absence. The absence of accounting is highlighted as having a significant impact on the settlement's early development, providing latitude for the agent to navigate the demands of multiple stakeholders, bypass the constraints imposed by the method of accounting and to adopt a long-term, humane business strategy rather than a short-term profit-taking approach. The primary contribution of this study is in highlighting the important effect of accounting's absence in creating space for a company agent to attend to multiple stakeholders and operate in a dynamic environment during the colonisation process. Other findings, such as the shortcomings of the accounting method and the presence of seemingly conflicting demands placed upon the company agent by these multiple stakeholders, were rendered navigable by this absence in the short-term.
This study alerts us to the importance of investigating accounting when it is not found where we expect it to be. Colonial accounting studies often focus on the type and operation of accounting practices; that is, accounting's presence (Grant, 1997; Robertson and Funnel, 2012; Spraakman, 2006). Baladouni (1983) notes the challenges associated with receiving accounting information in a timely manner but does not examine the effect of the space created by the absence of accounting information on the activities of a company's agents. While Neu (2000) and Davie and McLean (2017) show how accounting translates government policy into practice with terrible consequences, this study demonstrates that the absence of a private sector accounting technology facilitated a humane and socially conscious approach to colonisation. This would not have been possible given the constraints that short-term, profit-driven, cash-basis accounting would have imposed on the colonial actor.
Importantly, the principal-agent arrangement as espoused in agency theory is shown here to be complex and multi-faceted. The company's actor felt a sense of accountability to individuals, groups, and indeed, the British government – all of whom occupied a space outside of the formal principal-agent arrangement with the Canada Company. In the context of colonisation, the agent operated in a land far away from the directors of the company and operated in manner that served the interests of a variety of stakeholders associated with the company's activities all the while doing what he believed was in the best interest of that company. This may be the result of the nature of the undertaking, the purpose of which, beyond the interests of the Canada Company's shareholders, was social betterment through alleviating unemployment and overpopulation in the United Kingdom.
Finally, attention is drawn to the suitability of a particular method of accounting for government activities, particularly in the case of alternative service delivery arrangements with private companies. Cash-basis accounting could not have accounted for public works investments in a way that would represent anticipated future returns. As demonstrated here, it failed to recognise the long-term benefits accrued to the company from local improvement expenditures and assuming responsibility for social well-being (the stability, wealth, and contentment of the local population). As such, when the results were finally reported, they were short-sighted and misleading.
The lack of accounting information in the early years of the establishment of Guelph created a space within which the agent could pursue his (to him) complementary objectives of social welfare and profitability. Accounting was only complementary to the settlement's initial success due to its absence.
The results of this study have implications for both accounting researchers and for the use of accounting in alternative service delivery arrangements. With respect to the former, the absence of accounting is highlighted as an important area of investigation. Where accounting is found, is only one side of a two-sided coin. The other side represents where accounting is not found. In the case of the settlement of Guelph, the absence of accounting freed the Canada Company's agent to pursue a long-term approach to wealth creation that ultimately proved to be successful to the benefit of the shareholders. Accounting's absence also allowed the agent to follow a path that included caring for the early settlers of Guelph and establishing social institutions for their benefit, shifting ‘… accounting's discursive formations from the discourse of maximizing shareholder wealth to one of human solidarity and concern for community …’ (Macintosh, 2009: 25). It is unlikely that this would have been possible had the accounting from Guelph been made available to the company's directors in a more timely manner which would have provoked an earlier intervention by them.
The techniques of accounting used in practice for government programmes is important, regardless of how these programmes are being delivered. It is particularly necessary, however, to scrutinize the accounting used by private sector firms to identify the priorities and values that these techniques carry. For the Canada Company, short-term profit-taking was imbedded in the cash-basis accounting used that served the government's objectives imperfectly, at best. In reality, it would have constrained the activities of the agent in Upper Canada to such a degree that the goal of social welfare would not have been achieved as well as it was.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
