Exploring the contents of the Baltimore and Ohio railroad annual reports: 1827-1856

Accounting Historians Journal, The, Jun 2000 by Previts, Gary John, Samson, William D

Abstract: In 1995, a nearly complete collection of the annual reports of the earliest interstate and common carrier railroad in the U. S., the Baltimore and Ohio (B&O), was rediscovered in the archival collection at the Bruno Library of the University of Alabama. Dating from the company's inception in 1827 to its acquisition by the Chessie System in 1962, the reports present a unique opportunity for the exploration, study, and analysis of early U.S. corporate disclosure practice. This paper represents a study of the annual report information made publicly available by one of America's first railroads, and one of the first modern U.S. corporations.

In this paper, early annual reports of the B&O which detail its formation, construction, and operation are catalogued as to content and evaluated. Mandated in the corporate charter, the annual "statement of affairs" presented by the management and directors to stockholders is studied as a process and as a product that instigated the institutional corporate practice recognized today as "annual reporting." Using a single company methodology for assessment of reporting follows a pattern developed by Claire [1945] in his analysis of U.S. Steel and utilized by other researchers. This study demonstrates the use of archival information to improve understanding about the origins and contents of early annual reports and, therein, related disclosure forms.

INTRODUCTION

This paper is an original, descriptive, archival study which explores the development of reporting and disclosure practices in a dynamic economic and technological context. The earliest annual reports of the Baltimore and Ohio Railroad (B&O) are catalogued and analyzed as to their content. These reports, from 1827 to 1856, cover the years of formation, construction, and early operations of a leading early American corporation. From the analysis of management's disclosure to outside investors, the evolution in a corporation's reporting is traced. The B&O's 1827 charter which mandated an annual "statement of affairs" be published represents a major historical root of today's practice of corporate annual reports.

HISTORICAL BACKGROUND

Aware of the need for transportation networks to move the new nation westward, George Washington was among the first to propose a national road that would stretch from the East Coast to a connecting point in the West. The high expenditure, in terms of time and money, of moving goods overland was a constraint to expansion and settlement. Existing transport was slow and expensive. Freight charges raised the cost of goods more than sixfold of the value of the merchandise being carried even relatively short distances overland. Washington died before the act passed Congress in 1806 to create the westward road. As such, the National Road was the first federally funded interstate highway, but in an age when five miles per. hour was near to top speed [Snook, 1998, p. 1]. Elsewhere, corporations were chartered by states to build canals and toll roads as part of the transportation infrastructure to afford access to inland destinations. Many of these enterprises were doomed to failure when costs of construction greatly exceeded the limited capital. Ultimately, states took over some of these projects. The National Road (or Great National Pike), begun in 1815, extended due west 800 miles, connecting the eastern seaboard to Vandalia, Illinois near a river port and the portal of St. Louis. Building this westward road took 25 years, a generation of effort to reach the Mississippi from the East Coast starting point.

By the time of its completion in 1840, this "road" had already begun to lose some of its significance as "rail roads" gained in importance for the migration west. Except for the National Road, waterways and canal systems had become the principal means of westward movement of goods and people. Linked to the National Road by the Cumberland Road, Baltimore was seen as a prime port for western commerce. But the opening of the Erie Canal on October 26, 1825 threatened Baltimore's commercial position with its cheaper waterborne transportation linking the port of New York with the west via the Hudson River and Great Lakes. The Erie's success encouraged more canal efforts; the most direct threat to Baltimore was the Chesapeake and Ohio Canal, which began by following the Potomac and which would have made Washington, D.C. a seaport with the potential to supplant Baltimore. The merchants of Baltimore sought alternative transport technology to preserve Baltimore's preeminence as the country's third largest city, placing their support behind the potential of horse-drawn carts and cars moved along a fixed "rail road," leading west to the Ohio River. In this way, the B&O was proposed, promoted, and supported. Horse-drawn vehicles were the expected means of motive power; the steam locomotive would soon, however, transform and assure the B&O's future role.

The evolution of this transportation company, founded in Baltimore, and its progression into a major corporate organization have been studied with particular reference to its innovations in the technology of transportation. However, prior research has not undertaken an extensive assessment of the annual financial reporting archives of the B&O. This paper initiates that potentially significant dimension-the archival study of an early 19th century corporation's published annual reports prepared by the management and board of directors as a communication vehicle to a variety of constituent investor groups, the government, and the public [Fleischman and Tyson, 1998].