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BOOKS FOR COMMERCIAL MEN
AND STUDENTS.



An Introduction to English Economic History and Theory. By

W. J. ASHLEY, M.A., M.Com. Crown 8vo.
Part I. THE MIDDLE AGES. $s.
Part II. THE END OF THE MIDDLE AGES. los. 6d.
The Adjustment of Wages : a Study in the Coal and Iron Industries of

Great Britain and America. By W. J. ASHLEY, M. A., M.Com.

With 4 Maps. 8vo, 12s. 6d. net.
British Industries : a Series of General Reviews for Business Men and

Students. By various Authors. Edited by W. J. ASHLEY, M.A.,

M.Com. Crown 8vo, 5^. 6d. net.
The Trust Movement in British Industry : a Study of Business

Organisation. By HENRY W. MACROSTY, B.A., Lecturer, London

School of Economics. 8vo, gs. net.

Industrial Efficiency : a Comparative Study of Industrial Life in
England, Germany and America. By ARTHUR SHADWELL, M.A.,
M.D. Crown 8vo, 6s. net.

The Industrial System. By JOHN ATKINSON HOBSON, M,A. 8vo,
Js. 6d. net.

Handbook of Commercial Geography. By G. G. CHISHOLM, M.A.,
B.Sc. Seventh Edition, with an Additional Chapter on Trade
Routes. With 31 Maps and 8 Diagrams. 8vo, i$f. net.

A Smaller Commercial Geography. By G. G. CHISHOLM, M.A.,
B.Sc., etc. 3J. 6d.

Longmans' Gazetteer of the World. Edited by G. G. CHISHOLM,
M.A., B.Sc., Fellow of the Royal Geographical and Statistical
Societies. Imperial 8vo, cloth, i&r. net ; half-morocco, 2U. net.

Commercial Correspondence. With numerous Examples. By JOHN
ADAM, M.A., formerly Principal of Pachaiyappa's College and
Fellow of the University, Madras. 8vo, 3^.

A Manual of Commercial Instruction. By ALEXANDER SUTHER-
LAND, M.A. Crown 8vo, 2s. 6d.

French Commercial Correspondence. With Exercises, French-Eng-
lish and English-French t Glossaries, Hints on Letter- Writing, and
Copious Notes. By ELPHEGE JANAU, late Assistant French Master in
Christ's Hospital. Crown 8vo. 2s. 6d.

A Course of Commercial German, comprising Sketch of Grammar,
Systematic Vocabularies, Reading Lessons, Business Dialogues and
Commercial Letters, with Tables and Map. By E. E. WHITFIELD,
M.A., and CARL KAISER. Crown 8vo, $s. 6d.



BOOKS FOR COMMERCIAL MEN STUDENTS. contd.

German Commercial Correspondence. With Exercises, German-
English and English-German Glossaries, Hints on Letter- Writing,
German Idioms, and copious Notes. By JOSEPH T. DANN, Ph.D.
Crown 8vo, 2s. 6d.

Book-keeping for Beginners. By BEATRICE BRACKENBURY, Teacher
of Book-keeping at the South- Western Polytechnic, Chelsea, S.W.
Crown 8vo, is. 6d.

The A B C of Book-keeping. By LAWRENCE R. DICKSEE, M.Com.,
F.C.A., formerly Professor of Accounting at the University of
Birmingham,, now Lecturer at the London School of Economics and
Political Science (University of London). Crown 8vo, 2s.

Self-Instruction in Book-keeping ; a Treatise explaining Fully and
Simply, with numerous Examples, the Principles and Practice of
both Single Entry and Double Entry. By the Rev. JOHN HUNTER,
M.A. I2mo, 2s.
KEY, 2s.

Progressive Exercises in Book-keeping by Double Entry. By

the Rev. JOHN HUNTER, M.A. I2mo, is. 6d.
KEY, 2s. 6d.

School and Examination Book-keeping. Being a Treatise on the
Double-Entry System suitable for Schools, Self-taught Students,
and for Public Examination Preparation ; containing Questions and
Numerous Exercises and Examination Papers with Outline Keys. By
J. LOGAN, Lecturer in Book-keeping, Clark's Civil Service College,
London. Crown 8vo, 2s. 6d.

Longmans' Elementary Book-keeping. By ALFRED NIXON, F.C.A.,
F.S.A.A., Head Master of the Central Commercial Evening School,
Manchester. Crown 8vo. Without Answers, is. With Answers,
is. 6d.

Longmans' Advanced Book-keeping. By ALFRED NIXON, F.C.A.
Crown 8vo, 3-r. 6d.

Longmans' Studies and Questions in Book-keeping and Advanced
Accounts (Banking and Exchange). By ALFRED NIXON, F.C.A.,
F.S.A.A. With Recent Examination Papers. Crown 8vo, $s. 6d.

Longmans' Worked Studies and Questions in the Theory and
Practice of Book-keeping and Advanced Accounts (Banking
and Exchange). By ALFRED NIXON, F.C.A., F.S.A.A. Crown
8vo, 3-j 1 . 6d.

Commercial Arithmetic. By FRANK L. GRANT, M.A., F.R.A.S.,
Master, Mathematical Department, High School of Glasgow, and
ALEXANDER M. HILL, M.A., Master, Mathematical Department,
High School of Glasgow. With Answers, $s. 6d.



LONGMANS, GREEN, AND CO.

39 PATERNOSTER ROW. LONDON
NEW YORK, BOMBAY, AND CALCUTTA



LONGMANS' COMMERCIAL SERIES

EDITED BY ALFRED NIXON, F.C.A.



BUSINESS ORGANISATION



OLoncjmans' Commercial Series,

Edited by ALFRED NIXON, F.C.A.

SECRETARIAL WORK AND PRACTICE. By ALFRED
NIXON, F.C.A., F.S.A.A., F.C.I.S., and GEORGE
H. RICHARDSON, A.S.A.A., F.C.I.S. Also COM-
PANY LAW. By THOMAS PRICE, LL.B., Solicitor.
Crown 8vo, $s.

COMMERCIAL LAW. By ALFRED NIXON, F.C.A.,
F.S.A.A., F.C.I.S., and ROBERT W. HOLLAND,
M.Sc., LL.B. Crown 8vo, 5^.

BANKING LAW. By ROBERT W. HOLLAND, M.Sc.,
LL.B., Barrister-at-Law, and ALFRED NIXON,
F.C.A., F.S.A.A., F.C.I.S. Crown 8vo, y.

ACCOUNTING AND BANKING. By ALFRED NIXON,
F.C.A., F.S.A.A., F.C.I.S., assisted by J. H.
^STAGG, A.C.A. (Honours). Royal 8vo, IQS. 6d.

HANDBOOK OF GERMAN COMMERCIAL CORRE-
SPONDENCE. By J. BITHELL, M.A. Crown 8vo,
3-r. 6d.

BUSINESS ORGANISATION. By LAWRENCE R.
DICKSEE, M.Com., F.C.A. Crown 8vo, 55.



LONGMANS, GREEN, AND CO.,

LONDON, NEW YORK, BOMBAY, AND CALCUTTA



BUSINESS ORGANISATION



BY

LAWRENCE R. DICKSEE

M.COM., F.cX

FORMERLY PROFESSOR OK ACCOUNTING AT THE UNIVERSITY OF BIRMINGHAM

NOW LECTURER AT THE LONDON SCHOOL OF ECONOMICS AND

POLITICAL SCIENCE (UNIVERSITY OF LONDON)



LONGMANS, GREEN, AND CO.

39 PATERNOSTER ROW, LONDON

NEW YORK, BOMBAY, AND CALCUTTA

1910

A II tights resenied



OP



PREFACE

THIS handbook is founded on a course of Lectures on
" Business Organisation," delivered at the London School
of Economics and Political Science in the early part of
1909. Its object is to indicate the connection between
the abstract sciences of economics, of currency, of ac-
counting, and the like, and practical business operations.
Having regard to the magnitude of the task and the
necessary limitations of space, it follows that the treat-
ment of the subject is extremely superficial. It may
be pointed out, however, in extenuation, that it is not
really intended that it should be anything else. The
object of the work is to indicate the points of contact
between academical study and actual business, in the
hope of imparting some reality to the researches of the
theoretical student, and of encouraging the practical
man to believe that the sciences already referred to
may possibly have something to teach him.

It remains, of course and must necessarily remain
for the practical reader to apply the general principles
touched upon in this work to concrete cases, to enable
him to derive any practical profit from their study. The
suggestion put forward is that it may be possible for
him to benefit by acquiring more scientific methods,

215146



vi Preface

which will enable him to apply to his own particular
case the experience of others in the past. In applying
that experience, however, it must be remembered that
in almost all cases it will require to be modified to suit
the altered conditions. It is, no doubt, a perfectly true
saying that history is continually repeating itself; but
it invariably repeats itself with a difference. Precisely
the same thing never happens twice in actual life ; con-
sequently one must not rely too much upon precedent,
or past experience, as a guide to the future. But, if one
has studied the history of the past sufficiently thoroughly
to understand why it came about why it became
history one stands at all events a fair chance of form-
ing an accurate judgment as to how, given different
conditions, the same forces are likely to operate in the
present, or in the future. In that way and, it is sub-
mitted, in that way alone is it possible to be prepared
for events.

It is, of course, not sufficient to foresee what will
happen in the future, for in the course of time almost
everything will happen. To derive any profit from such
calculations it is necessary, at all events within certain
limitations, to be able to perceive when the particular
change that one has in view is likely to come about,
so that one may be thoroughly prepared for the change
when the time comes. All this is obvious enough with
regard to matters of commerce, of labour conditions, of
market prices, and the like ; but the same view, it is
thought, applies equally to all forms of business organi-
sation. In every branch of this subject that may be



Preface vii

considered from time to time, certain opportunities will
occur. The man who is ready for these opportunities
will be in a position to profit by them ; but if he is not
ready, they will in all probability pass him by, and will
not recur. They will become purely wasted oppor-
tunities. But, in another sense, business life is made
up of events for the most part similar to events that
have taken place in the past ; so that, with a certain
amount of knowledge of the past, and a certain amount
of ability in using that knowledge, it is possible to take
advantage of at least some of these fleeting opportunities
and that probably is as much as any one can expect
to do. In the same way that no business can be con-
ducted without some outlay, so, it is submitted, can no
business be conducted without some opportunities being
missed ; without some expenses being incurred, and some
losses sustained, that might have been avoided ; with-
out some failure to secure the benefit of opportunities
that might have been secured. All that one can hope
for in business is, not to avoid all mistakes, but to secure
a somewhat lower percentage of errors of calculation
than one's competitors.

The present handbook puts forward no claim to be
regarded as a guide to success in business ; but it is
hoped that it will be found suggestive, as indicating the
lines upon which further enquiry may be pursued with
advantage. For the reason that it makes some slight
attempt to be practical, it is of necessity inconventional,
regarded from the point of view of the ordinary text-
book ; but should it, in ever so slight a degree, have



viii Preface

the effect of suggesting to the scholar, or to the practical
business man, that they might each have something to
teach the other, if only they would be content to speak
the same language, it is thought that this departure from
precedent will be abundantly justified.

LAWRENCE R. DICKSEE.

48, COPTHALL AVENUE, LONDON, E.G.,
igtk April> 1910.



CONTENTS



I. THE NATURE AND CONSTITUTION OF BUSINESS

HOUSES PARTNERSHIPS BORROWED CAPITAL . . i
II. THE NATURE AND CONSTITUTION OF BUSINESS
HOUSES (continued) LIMITED COMPANIES PUBLIC
AND PRIVATE COMPANIES CO-OPERATIVE SOCIETIES

SECRET ORGANISATIONS 20

III. THE FINANCING OF A NEW BUSINESS 32

IV. THE ORGANISATION OF CONTROL AND RESPONSIBILITY 48
V. THE ORGANISATION OF CONTROL AND RESPONSIBILITY

(continued] 61

VI. THE REMUNERATION OF EMPLOYEES 74

VII. THE REMUNERATION OF WORKMEN 85

VIII. THE "INTELLIGENCE DEPARTMENT" 100

IX. STOCK EXCHANGE PRACTICE 114

X. THE ORGANISATION OF CREDIT INSTRUMENTS OF

CREDIT 130

XL THE ORGANISATION OF CREDIT (continued) FOREIGN

EXCHANGES 150

XII. THE ORGANISATION OF PAYMENTS 160

XIII. THE "CREDIT DEPARTMENT" 173

XIV. INSOLVENT DEBTORS' ACCOUNTS 186

XV. CO-OPERATION AND PROFIT-SHARING 202

XVI. THE ORGANISATION OF FLUCTUATING AND TEMPORARY

BUSINESSES 217



x Contents

CHAPTER

XVII. THE RELATIONS OF SPECULATION TO BUSINESS

INSURANCE 233

XVIII. THE RELATIONS OF SPECULATION TO BUSINESS

(continued) INSURANCE 246

XIX. PUBLIC REGULATION AND CONTROL OF BUSINESS

AFFAIRS 264

INDEX 279



BUSINESS ORGANISATION



CHAPTER I

THE NATURE AND CONSTITUTION OF BUSI-
NESS HOUSES PARTNERSHIPS SORROWED
CAPITAL

IT is proposed, first of all, to consider the question of the
constitution of business houses : how they should be
formed ; how, and for what reasons, we should make a
choice between the various possible forms ; and, generally,
what are the underlying causes for these varieties. We
must necessarily, of course, deal with the matter in quite
general terms, and not as applied to any particular class
of business ; but the term " business " of itself fairly
suggests a form of activity limited in at least one
direction, namely, that it is a form of activity pursued
primarily with the object of earning profit for the benefit
of those on whose behalf the business is conducted.
There are, of course, various other kinds of activity, but
those we can leave out of account as not properly coming
under the heading of " business organisation."

The Importance of Permanent Efficiency. Now, if we



2 Business Organisation

confine ourselves to concerns that are run for profit, we
confine ourselves to concerns in connection with which
the real justification for their existence is financial
success. And in the great majority of cases financial
success means not merely a satisfactory profit made at
the moment a kind of " flash in the pan " but a satis-
factory profit made throughout an extended number of
years ; for it is quite exceptional for a business to be
founded, save with the idea of continuing it for a consider-
able number of years, if not almost indefinitely. At a
later stage we shall have to consider the exceptional class
of business house which from the outset is known to have
only a limited life what we may call a form of temporary
business in connection with which we may apply some
special rules and conditions ; but for ordinary purposes
business houses should be so constituted that they will
be successful, not only at the moment, but also per-
manently.

The Requisites for Success. Now, for that purpose
three distinct requisites are needed. It would be difficult
to place them in any order, because the order of import-
ance will doubtless vary according to circumstances ;
but, in a greater or smaller degree, it is necessaiy that
those who represent the guiding spirits of any business
house should, among them, be possessed of the necessary
skill and energy to enable them properly to carry through
what they undertake, and the necessary capital to tide
them over the period that must necessarily elapse in
most cases before they actually receive a return for their
labours ; and, further, they must be possessed of or
have the means of speedily acquiring what, for want of
a better word, may be called " connection," or reputation.



Nature and Constitution of Business Houses 3

It is of very little use being able to transact business, if
we cannot in one way or another provide that there will
be people coming to us who are willing to do business
with us, so that this question of connection is certainly
one that we cannot afford to leave out of account. If
we are possessed of skill and capital the connection
will doubtless follow in due course, if we can afford to
wait for it ; but it may be a very lengthy process, and
therefore if we have no connection we shall certainly
require a -relatively much larger amount of capital than
would be necessary if we had the connection. So we
may fairly say that connection, as well as skill and
capital, is a requisite on the part of the proprietary of
any business house.

The Need for Combination. Now, although we have
only enumerated three qualities, a great deal is implied
by these three terms ; and if more than a very ordinary
quantity of each is required, it is more than likely that
we shall not be able to find the requisite quantity of each
embodied in any one individual. Therefore, save in
connection with comparatively small concerns, we usually
find that a business house cannot be run successfully
single-handed. In order that the proprietary may among
them be possessed of the three requisites that we want for
success, we have frequently to combine forces, so that the
qualities possessed by several individuals may be made
collectively available for the common purpose. A man
with skill and connection, but without capital, is, as a
rule, very greatly handicapped in consequence, although
he may to some extent perhaps succeed in doing without
a large capital by the aid of the next best thing credit.
If those with whom he has business relations are very



4 Business Organisation

confident of his skill and of his ability eventually to
succeed, they will doubtless be willing to deal with him
upon less onerous financial terms than if they were less
sure of his ability ; but we may be pretty sure that,
even then, they will exact a price for their consideration.
It thus becomes a question of calculation a question of
figures whether it is cheaper, and generally more
advantageous, to borrow money from one's business
connections (for that is what it really amounts to) ; or
to borrow money from a single creditor, to be used as
Capital ; or to join forces with capitalists and give them
an interest, or share, in the undertaking. In one way or
another we must get the capital into the concern, if it is
to stand any reasonable chance of success.

But, of course, it is not always for the sake of
additional capital that we find persons working in com-
bination as a business house, instead of each individual
working upon his own. A combination under which one
party has the skill and the other party has the connection
is very common, and often a very advantageous one ;
and we generally find in any combination that the pre-
ponderating skill is with some of the parties, and the
preponderating amount of connection, or of capital, with
others. Here, as everywhere else in the world, we rarely
find anything approaching an absolute equality at the
start, or for that matter at any other time.

Partnership. The simplest form of combination
and it will be convenient to take the simplest first is a
Partnership. That is to say, a combining together of
two or more individuals agreeing to carry on a business
jointly for their mutual advantage. We will assume, in
the first instance, that each partner takes an active share



Nature and Constitution of Business Houses 5

in the business ; the qualities that we look for in partners
are such that, among them, we may have a satisfactory
combination of the requisites already named : skill (in
connection with which we ought, perhaps, to add energy),
connection, and capital. It is by no means essential
that each partner should be possessed of all these
qualities, but it is essential that, among them, they
should be possessed of a sufficient quantity of each to go
round in a satisfactory way.

Reliance on Employees. Alternatively, of course, in
some cases the qualities in which the proprietor, or pro-
prietors, are deficient may be supplied by employees.
That is a possible alternative, but generally it is not
so entirely satisfactory, because then the combination
is very much more unstable. We may leave out of
account the employee whose sole qualification for his
employment is the possession of capital. It is a quite
unusual condition of affairs, and we may take it that
in almost all cases it is unsatisfactory meaning, as it
generally does, that a relatively high rate of interest
has to be paid for the use of capital, coupled with
inefficient services. The man who is possessed of
capital and either connection, or skill and energy, can
in the majority of cases do better for himself than obtain
a salaried position together with interest on money
lent. It is an arrangement that is likely to prove
only temporarily successful. As a preliminary step
towards a partnership upon a more permanent basis as
a means of taking a partner, so to speak, on trial it
may work very well for a time ; but if the arrangement
is satisfactory from the point of view of the business
house, we may be sure that the employee will not be



6 Business Organisation

content with such a situation for long ; therefore it cannot
be regarded as a permanent solution of the difficulty.
Persons possessed of connection may be, and sometimes
are, mere employees. That is a state of affairs that one
finds much more frequently in connection with persons
possessed of connection than with capitalists. For
instance, all the business houses employing commercial
travellers are employing men who, up to a point, may be
said to commend their services to their employers chiefly
by reason of the fact that, by the aid of the personal
connection of each of these travellers, the firm is able to
extend the market for its goods. The position is one
that may prove quite satisfactory ; but on the other
hand, like every other combination, we must be very
careful to see that it does not get top-heavy. If the
bulk of the connection of a business house were the
personal connection of its employees, that house would
be at the mercy of its employees practically every hour
of its existence. At any time they or an appreciable
number of them might leave it at short notice, and
perhaps set up in competition.

Eestrictive Agreements. This question of competition
may, of course, be avoided : the risk may be eliminated
by entering into an express agreement with each em-
ployee, restraining him from setting up in business, or
joining any other business house carrying on a similar
business, within a specified distance ; but it is probably
questionable whether an employee with a personal con-
nection would submit to such terms at all, and in any
event it is doubtful whether any such conditions as are
capable of being legally enforced would serve any very
useful purpose, as protecting the employer. In general



Nature and Constitution of Business Houses 7

terms the law regards it as against public policy to place
restrictions in the way of any one earning his living
in any legal way ; and therefore an agreement which, in
effect, would prevent a man from earning his living in
the way in which he has hitherto been accustomed to
earn it is generally absolutely void. It is only legally
enforceable when one does not attempt to do what one
would really like to do in an efficient way, but is content
with a limited application of it upon the principle that
"half a loaf is better than no bread." An agreement
that a man shall not enter into the employment of any
one else is an example of the unenforceable agreement.
An agreement that he shall not do so for a limited time,
within a limited distance from the business house of his
late employers, would usually be enforceable; but in
the nature of things, of course, it only partially protects
the business house against the danger mentioned. If the
connection of the business house is to an appreciable
extent the personal connection of the employees, we get
a top-heavy relationship a state of what mechanicians
would call "unstable equilibrium" which may answer
all very well for a time, but is not likely to last as long
as we would wish. But within limits there is certainly
scope for increasing the connection of a business house
by taking on employees, just as much as by assuming
partners.

With regard to skill and energy, here to a very large
extent, of course, it depends upon the precise nature of
the business how far it would be safe to depend on
employees for these most important commodities. As
reinforcing the strength of the proprietary, skilled
employees are unquestionably advantageous ; but if all



8 Business Organisation

the skill is to be in the hands of employees, we have
again a state of unstable equilibrium a state which does
not make for permanent success. And of course the more
a very high order of skill is an essential for the success
of the business we have in hand, the more undesirable
is it that such skill should rest solely, or even substantially,
in the hands of employees. It is for that reason, doubt-
less, that, in connection with those occupations where
skill of a very high order is absolutely essential, one
frequently finds in practice that persons possessed of the
necessary qualities are placed in the position of partners
by the joint proprietors, even although they are able to
bring little or nothing into the business in the way of
either capital or connection.

The Law as to Partnerships. Partners may be of
various kinds ; but under the law of England, in the
absence of any agreement to the contrary, the law
assumes an equality between partners as regards their
shares in the profits of the business as a whole, and as
regards their voice in the management of the business.