Corporate Governance and External and Internal Controls: The Case of the Baltimore and Ohio Railroad, Circa 1831

The massive amount of external investor capital that U.S. railroads raised in the 1800s, capital levels far beyond those of other business enterprises of the era and concentrated in the hands of the corporate officers, gave rise to “agency” and corporate governance problems that are surprisingly modern. These issues were solved in modern ways. This case focuses on the early problems of corporate governance, external controls, internal controls, and the separation of capital ownership from corporate management in a high‐tech, developmental stage, start‐up company. Given the struggles of the Baltimore and Ohio (B&O) corporate venture during its early years, the governance control issues became paramount and allowed the corporation not only to survive, but also ultimately to achieve its objective as well as long‐term success. From this look at an earlier time, the essence of modern corporate issues is distilled. Hence, the case is relevant to today's accounting students.