A counter-example in the development of Great Lakes shipping: The case of Kingston Shipping...

Acknowledgements: The author acknowledges with appreciation the comments of the reviewers. She also thanks Stephen Salmon, National Archives of Canada, Maurice Smith, Marine Museum of the Great Lakes, and John MacDiarmid for advice and encouragement during the project's initial stages.

Introduction

The early years of the twentieth century were an era of expansion and significant growth in shipping on the Great Lakes, yet these developments did not translate into profits and high returns for all firms within the industry. Salmon (1998, p.130) describes the period from 1900 to 1914 as a "prosperous season for Canadian Great Lakes shipping". He also points out one counter-example, Kingston Shipping Company Limited (KSCO). Utilising KSCO's business records from 1908 to 1915, this paper examines the development of Great Lakes shipping in the context of this organisation. i As Great Lakes shipping expanded, and its market base switched from forest products to agricultural and manufactured goods, KSCO proved to be a short-lived and non-profitable entity.

The research focusses upon KSCO's evolution, its strategies and the role therein of the accounting system. The accounting system both records organisational operations and influences organisational activities by selective emphasis of events and information. As noted by Dent (1991), accounting is implicated in the perception of organisational possibilities and possesses constitutive potential. In KSCO's case, the accounting system re-inforced owners' strategic actions. Management perceptions, decisions and strategic actions did not exist in a vacuum, but were influenced and re-inforced by the firm's organisational and institutional environment and its accounting system.

While augmenting our general historical understanding of shipping on the Great Lakes, the research also informs methodological debates in accounting history by adopting an organisational-economics framework to guide the analysis and conclusions drawn. The accounting system not only reported upon and accounted for KSCO's operations, but it created the "accounting reality" by its privileging of certain information. Management did not act upon this information at a strategic level to take ready advantage of the opportunities in the emerging shipping industry of the early-twentieth century.

The paper proceeds as follows. The next section outlines the theoretical framework and reviews briefly the prior literature on Great Lakes shipping. Data sources, the research issue and KSCO's chronology are detailed. The subsequent section provides an in-depth analysis of its accounting system. The final section summarises the research findings.

Literature review and data sources

Scant historiography exists that deals specifically with Great Lakes shipping. Williamson (1977) examines Great Lakes shipping during the early-twentieth century, but the focus is upon the US experience. Laurent (1983) investigates the inter-relationship of technology and transport in terms of changes in shipping technology and related changes in navigational projects during the years 1866 to 1910. Like Williamson, Laurent restricts the analysis to the US and does not deal specifically with developments in Canada. Collard (1991) describes this period, but from the perspective of an official history of Canadian Steamship Lines. More recently, the lack of historical research in the Great Lakes shipping industry has been addressed by the work of Salmon (1998), which studies this period in the context of six shipping firms.2 This thorough analysis grounds the comparison of strategic directions and consequences of industry firms.

In contrast, the rise of the large-scale business enterprise has been the subject of much research in organisational economics and accounting (Chandler, 1977; Williamson, 1981; Johnson & Kaplan, 1987). However, the work of Chandler and its adaptation in the accounting literature by Johnson and Kaplan have led to a focus on internal processes to the neglect of external channels of communication. Moreover, the Chandlerian model neglects accounting's political and social aspects (Flamholtz, 1983; Hoskin & Macve, 1986, 1988; Loft, 1986; Miller & O'Leary, 1987,1989).

In contrast to the study of large-scale organisational growth, KSCO is an example of organisational failure within a small firm. Organisational decline and failure are frequent themes in social theory. The issue of organisational performance, embedded within the processes of organisational change and adaptation and the reality of organisational mortality, has led to a rich research literature in a number of cognate disciplines. This literature has become increasingly narrow and "largely the concern of bankruptcy law, operations research, and organizational decision-making models. Moreover, research tends to be strongly firm centered and focused on efficiency and other performance criteria" (Anheier & Moulton, 1999, p.3). Yet organisational failure takes place in a multifaceted context, thus its study needs to consider organisational life cycles, political factors (such as the notion of legitimacy), cognitive aspects (such as organisational decision-making), along with structural concerns with respect to the organisation's social networks. This contextual nature equates with accounting history's focus to examine accounting in its social and institutional context.

The preponderance of research into organisational failure reflects the reality and the frequency of its occurrence. Anheier and Moulton (1999) note that almost 40 per cent of firms started in the US during the period from 1985 to 1995 ended in failure. Besides failures and closures, many firms merge or are bought by other entities. This trend is not limited to recent US experience. While business and accounting history tend to privilege the successful or surviving firms, this focus may be due to the fact that the records of these organisations have proven more accessible. Yet Boswell (1973, p. 107) argues that "exceptions may be instructive", especially in the context of small firms.

KSCO was one such small organisation. Smallness, in itself, does not eliminate the merit of its examination or illustrative potential. Indeed, smallness is a characteristic frequently cited as a contributing factor of organisational decline. Wilson et al. (1999) examine the case of firms which declined as a result of decision overreach. These failures appeared to have four contributing elements: management size, lack of prevoyance, short decision duration and overfamiliarity. Three of these factors tend to work together: "If the organization is small, there is less slack in every sense to enable prevoyance ... less money to pay for research or advice, fewer individuals to prepare financial, capacity, or sales forecasts, and even fewer people or none with the specialist training required for these tasks. It is also likely that there is no one at the top of the organization sufficiently removed from daily operational problems to enable strategic-level assessments to be made free of day-to-day distractions" (Wilson et al., 1999, pp.45-6).

Gamber (1998) contends that the lack of interest in small firms has been due to the influence of the Chandlerian model. Only now are business historians beginning "to emphasize the small as well as the large; just as important, they are increasingly abandoning a perspective that emphasizes a linear development from family firm to corporate enterprise for one that acknowledges continuity as well as change, diversity as well as determinacy" (Gamber, 1998, p. 192).

As an alternative to the Chandlerian model, Boyce (1995a, 1995b) utilises the principal-agent framework and the role of co-operative networks and external communication links to extend the analysis beyond internal patterns of communication. As argued by Boyce, this approach is more suited to the shipping industry whose history "highlights the importance of financial and operating links based on inter-firm communication. Company expansion depended upon local contacts, ties with suppliers and customers, and relationships with other shipowners" (1995a, p.2). Boyce (1995a, p.3) describes the shipping industry in terms of uncertainty and asymmetric information:

Early steam operators reduced the cost of devising contracts by operating within networks, or bands of individuals bound by interpersonal knowledge (knowledge gained through kinship, religious ties or local presence). These groups facilitated risk spreading and sequential decision-making. Repeat contracting based on reciprocity generated trust and co-operation. In shipping, capital requirements were high, and men who possessed information about a trading opportunity, but lacked the means to exploit it independently, contracted through networks to mobilise the required resource set (knowledge, capital and physical assets) (emphases in original).

While Boyce examines the rise of British large-scale shipping enterprises, his framework can be adapted to the Canadian experience. First, Canadian firms were frequently members of the same co-operative networks through ownership, shipping contracts, and so on. Second, the Canadian export trade was geared primarily to the British market. Third, Chandler's model of the US modem business enterprise does not readily fit the Canadian experience, given Canada's smaller population and industrial base, and its predominately resource-based economy.3 The analyses of Canadian business development by Bliss (1987) and McCalla (1984) also underscore the importance of family and social ties and businessgovernment relations in the Canadian context.

The Boyce framework is adopted to analyse KSCO and its operating environment. Three essential elements of the framework are as follows:

Co-operative networks: Individual members co-operated in order to foster long-term relationships. A long-term perspective predominated.

Reputation: The key to co-operation was the reputation of network members. Reputational effects facilitated repeat contracting, decreased contracting costs and reduced opportunism. The asset value of reputation was quickly destroyed through opportunistic behaviour. Reputational effects tended to be shared (not equally) across network members, thus network membership hinged highly on trust and past action.

Social and Cultural Context: The enduring nature of these exchange mechanisms reflected the shared context in which these members operated. The sharing of religious, cultural, social and family ties smoothed network opeartions.

Data sources

The primary archival sources are composed of KSCO's business records contained in the Calvin Company records at Queen's University Archives, Kingston, Ontario. The catalogue of The Calvin Company Papers lists 256 bound volumes and 136 boxes, which include records of the firm's diverse operations, family and personal legal matters. The Calvin Collection, archived at the Marine Museum of the Great Lakes, Kingston, Ontario, contains nine boxes of chronologically ordered records of a personal and business nature, and a large number of bound volumes of company and personal records. The Marine Museum archives contain some additional records of Kingston Shipping Company Limited, eliminating gaps within the Queen's University collection.

Secondary sources consist of published material dealing with the history of KSCO and The Calvin Company (TCC). These materials provide initial indications of critical events in KSCO's history. Much of this has been written by family members and from the corporate viewpoint. Published materials in accounting, economic history and shipping history have been utilised to develop the contextual background of the firm. These sources (listed in the bibliography) potentially contribute to a balanced view of the company's chronology.

Adopting Boyce (1995a, 1995b), the following premise guides the analysis of KSCO, its accounting system and the latter's role in both chronicling and creating organisational reality:

A lack of external co-operative networks, diminished reputational effects and social/family ties, re-inforced by the accounting and reporting system, contributed to KSCO's inability to adopt and implement strategies to compete and take advantage of new market opportunities.

KIngston Shipping Company- an overview

The history of KSCO is tied directly to that of its parent company, TCC, another Canadian firm that operated in the transportation and timber industry.4,5 KSCO consisted of one asset only, the Steamer Prince Rupert, of full Welland-canal size. The Welland Canal allowed larger ships to sail from Lake Erie as far east as Kingston, Ontario on Lake Ontario and Prescott, Ontario on the St. Lawrence River. From these two points, trans-shipment of goods to Montreal, Quebec or other locations further east would take place. After 1903 and improvements to the St. Lawrence waterway, larger ships or "canalers" could navigate the seaway. This change provided new opportunities for firms which previously had been forced to leave the market to American firms due to inadequate infrastructure and insufficient customer demand. Improvements in infrastructure (shipping and the western railways), along with the emergence of the grain trade, offered positive growth opportunities. Salmon (1998, p.107) describes the industry growth as follows:

Shipments of Canadian grain from the twin Lake Superior ports of Fort William and Port Arthur (the Lakehead) increased by a factor of eight between 1896 and 1914. To move this abundant harvest, Canadian investors increased the number of ships in their Great Lakes fleet by four times. The growth in tonnage was even more spectacular: the fleet increased from little more than 31,000 gross tons in 1899 to almost 300,000 by 1914. This expansion generated impressive if at times erratic returns, as firms engaged in the bulk grain trade grew faster and had greater returns than companies that engaged in other Canadian trades on the Great Lakes.

Investment in the grain trade was proving to be both a strategically wise and profitable venture. Investors in rail and shipping were inter-connected networks of customers, financiers and suppliers. These groups operated both competitively and co-operatively across the value chain. This co-operative competition resulted in a network of firms linked together by means of debt and equity holdings, common business interests and family connections. As noted by Salmon (1998, p.112), the Canadian industry "was dominated by" investors from Montreal, Toronto, Hamilton, Sarnia, and the Lakehead and by the Canadian Pacific Railway. Through various mergers, three groups from Montreal, Toronto and Hamilton controlled the market. Competition across groups was rare, as they offered reciprocal services, and each had a near monopoly in certain trades.

The Montreal Transportation Company (MTC), the largest firm, was controlled by the McLennan and Ogilvie families. The latter provided a link to Ogilvie Flour, an inter-firm connection further strengthened by board representation of another Ogilvie executive, F.W. Thompson. Toronto interests controlled the St. Lawrence and Chicago Steam Navigation Company, whose shareholders represented prominent members of the mining and grain industry, stockbroking and legal firms, grain dealers and executives of the Dominion Bank. Hamilton interests were led by the Mackay family whose firm would later merge with others in the industry to become Canada Steamship Lines (CSL). The formation of CSL resulted in a consolidation of Canadian interests, and also exemplified the inter-firm network of Canadian and British interests, most notably the firm of Furness Withy (Boyce, 1995; Salmon, 1998). These firms, amongst others, invested in the shipping trade to ensure that their business interests continued to be served as Canada's westward expansion took hold.

The firms that made the strategic decision to invest in the western wheat economy did better than the shipping companies that did not participate directly in supporting the development of the west. The Montreal Transportation Company, the St. Lawrence and Chicago Steam Navigation Company, and the Farrar Transportation Company were committed to the grain trade ... . The least prosperous of the bulk shipping firms, the Kingston Shipping Company, did not find a profitable niche in the grain trade until 1912 ... . Those companies which made the strategic decision to operate in the grain trade grew faster and produced greater earnings than those firms which engaged in other trades (Salmon, 1998, p.110).

While shipping expanded and shifted direction, KSCO's parent, TCC had begun to sell its vessels, even after signalling in 1902 its ostensible strategy as a timber forwarder by means of the purchase of its competitor, Collins Bay Rafting & Forwarding. TCC and KSCO had continued under the aegis of the founder's son, H.A. Calvin. The Calvin family had a long-standing reputation for fair dealing. Moreover, H.A. Calvin's profile was enhanced by his public service as a member of the federal parliament. This role provided an important information channel with respect to government policy on trade and transport matters.

While the Calvins had operated since the early-nineteenth century, their business acumen had been overly reliant upon and due to its founder, D.D. Calvin, and his long-standing business partner and brother-in-law, Ira Breck. The firm had developed a strong network of agents and brokers in North America and Britain, with a frequent emphasis upon close family and friends in its business relationships. This reduced agency risks, but also the ability to develop managerial expertise as other family members did not possess the same business acumen or interest. The minutes of annual meetings indicate that other family shareholders persisted in their belief that the family firm should continue with what had been its competitive strength in the timber trade. These family members were not supportive of efforts to adapt to new markets and new technologies, such as investment in the Prince Rupert, especially when such endeavours required reinvestment of profits instead of dividend pay-outs.

At the end of 1907, the Prince Rupert was shifted to KSCO, a separate legal entity organised by H.A. Calvin and his brother Sandford in 1906. Based on the interpretation of business correspondence, the transfer of the Prince Rupert to a separate entity was undertaken potentially to resolve two problems: H.A. Calvin (and to a lesser extent his brother) wanted to work without interference and not be accountable to other shareholders. Second, it allowed for a separate entity to take advantage of new business segments not acceptable to other family members who preferred to draw what they perceived to be as stable dividend income.

The Prince Rupert had a net registered tonnage of 1,172 tons, compared to TCC's next largest vessel, The Ceylon, at 908 tons. In 1908, the Prince Rupert was set up in KSCO's accounts at a total capital cost of $140,704.23. This amount included $76,162.73 paid to the builders, A. McMillan & Son of Dumbarton, Scotland. It also included the cost to bring the ship to Canada ($4,818), travelling costs to Glasgow of management and the ship captain ($948), organisation costs ($208), and insurance fees ($2,224).

Despite the legal arrangements, the President and Secretary of KSCO and TCC were the same individuals, and both members of the Calvin family. The capital of KSCO, authorised at $100,000 (1,000 shares) was controlled by TCC. The Richardsons, a reputable Canadian family and business firm whose primary business interests were in the grain trade, controlled 25 per cent of the shares. This holding signalled the perceived potential of the KSCO enterprise and linked customer with supplier, a link that could have been used to KSCO's advantage to secure contracts and market intelligence. As noted by Boyce (1995a, 1995b), shareholder reputation was important for securing both contracts and financing.

The firm capitalised the interest paid to date on the notes payable issued to finance the asset. At this juncture, the interest expense amounted to $3,276.14, and would continue to be an on-going drain on operations. The capital cost also included the face value of the remaining notes payable due to the shipbuilding firm in 1909 for $53,127.81. These notes were burdensome in that they carried an interest rate of 9.5 per cent, significantly higher than the Province of Ontario bond yield of 4.25 per cent, the 6 per cent yield on corporate bonds, and compared to other debt issued by the firm.6 Not only did this vessel represent a large investment relative to TCC's current shareholders' equity of $157,500 and its net assets of $180,089, the financing arrangements through the reliance upon short-term notes was symptomatic of TCC's weak financing methods in general. Short-term financing and high interest rates reflected the bank's evaluation of risk and the potential of the business. Loan terms were determined after evaluating the quality of the firm's fleet, market potential, directors and shareholders, and owners' personal wealth and reputation. Banks offered client privilege, but in return for this privilege and the ability of owners to raise debt versus equity (thereby maintaining control), banks required personal guarantees and dealt with information asymmetry by forging close owner-company ties (Boyce, 1995, p.230). Small firms received less favourable lending arrangements with respect to the credit terms and duration. Short-term loans generally were re-issued on a continuous basis, but the bank retained the ability to alter the arrangements in the short run. Unlike other firms in larger centres, KSCO did not possess the same network linkages to the financial community. Its short-term financing also reflected an ingrained pattern of conduct, long-established by the parent firm. This preference and predilection for short-term financing had endured. Yet in many instances, the terms secured were lower than market rates due to the signatory value (in reputational terms) of H.A. Calvin.

As discussed in more detail in a later section, KSCO's financing costs were a major drain on profits. At liquidation in 1913, the Prince Rupert was sold to the MTC for 750 shares in the latter. These shares had a par value of $100 each, but were recorded at a fair market value of $120,000. Included in this arrangement was the purchase by the MTC of two barges from TCC in exchange for 150 shares valued at $24,000. MTC also purchased from the Calvins two other vessels, the Simla and the India in 1914.7 Interestingly, the sale of the Prince Rupert was approved at a Special Meeting of TCC shareholders held in December 1913. The accumulated profits of the firm amounted to only $22,374.19. This sum included the loss in capital value when the vessel was sold. The write-off indicated that the yearly profits had been overstated, as no amount for depreciation of the Prince Rupert had been charged over the six-year period.

KSCO's ultimate failure parallelled that of its parent, TCC. The firm failed to shift its strategy to meet the changing industrial and economic demands of the early-twentieth century. The waning profitability of the Calvin interests did not correspond to a decline in the shipping and forestry industries themselves. On the contrary, total freight carried through Canadian canals (measured in tons) increased by 411.92 per cent from 1886 to 1913. For the Welland Canal, the comparable figure was 264.39 per cent. Along with the increase in freights, the registered tonnage of vessels was much larger, especially for vessels of American registry.8 Moreover, the design of ships was changing to meet the needs of specialised trade, and the particular shipping conditions of the Great Lakes (Laurent, 1983, p. 13).

While other transportation firms were alert to the need to shift directions and markets, KSCO tended to focus on the shipment of less remunerative commodities. For example, MTC, with which KSCO and TCC were linked via cross shareholdings and "friendly" competition, followed an aggressive growth strategy in both grain and steel shipping, increasing its paid-up capital threefold from 1900 to 1914; thus transforming itself into a diversified shipping firm (Salmon, 1998, p.120). KSCO focussed on less remunerative cargoes, in this sense similar to its parent, which had clung to the timber trade and was hampered by outmoded technology. Neither TCC nor its subsidiary, KSCO, was able to match the competition of the railways, and the shift to coal, agricultural and manufactured goods. KSCO did not seem to utilise its network knowledge especially related to its competitors' conduct and strategies. It certainly did not imitate MTC, perhaps due to limitations of being located in Kingston, a much smaller business centre compared to Toronto and Montreal. Kingston's commercial role was also diminished with the growth of the railways and the decreased need for transshipment of goods.

The railways had become a major source of competition in the shipment of certain goods. A greater proportion of forest production was being loaded at Toronto, Ontario; Toledo, Ohio; and Duluth, Minnesota, after being carried to these locations by means of rail transport. The railways were cheaper; thus it was difficult to remain competitive in the transport of these commodities. Railways also were able to handle a wide variety of cargoes. Switching to the shipment of alternative products could not eliminate this growing competition. Other firms, such as Richelieu and Ontario and the Northern Navigation Company, had forged network links with the railways. Richelieu and Ontario was controlled by the Forget family, prominent in Montreal business and political spheres, and the Grand Trunk Railway. This co-operative network provided a means to negotiate through rates for cargoes transported by both rail and ship. It also permitted these firms both to compete and to co-operate with the railways to allocate shipping resources more effectively. By working together, both sides reaped efficiencies and economies of scale.

KSCO did not do this. First, it only had one ship and less flexibility (although such a strategy could have been pursued in tandem with its parent, TCC). Second, it had no formal ties to the railways. Finally, KSCO had to accept cargo rates that were established to be competitive with rail transport. With no formal links to rail interests, it had little leverage to ensure that these rates were mutually advantageous or that the Prince Rupert (and the vessels in the TCC fleet) was used to best effect.

KSCO had entered the shipping trade when the industry was undergoing a major transformation. The forest industry saw a rapid rise in pulp and paper exports (compared to the much earlier predominance of square-timber exports) after 1900. By 1913, pulp and paper accounted for approximately 21 per cent of forest industry exports.9 However, forestry products were being overtaken by the shipment of other goods. The Welland Canal had seen forest products drop to 9.5 per cent of shipments by 1913 from 25.4 per cent in the late 1880s. Agricultural products and coal had replaced forest products, with approximately 70 per cent of shipments in these categories by 1886, and only slightly less in 1913 at approximately 67 per cent. The shipment of manufactured goods had grown immensely, representing less than two per cent of Welland Canal shipments in 1886, but 22 per cent in 1912.10 KSCO did not diversify into these new areas. The growing orientation to the US market shifted the social and business context for a firm and family with longestablished business and social relations in Great Britain.

KSCO's accounting system, which sought to account for the firm's operations and results, also reflected the organisational reality as perceived by those involved. The internal role of the accounting system paralled the shortcomings of KSCO's external network relations. TCC had been successful over a long period due to its links (knowledge, reputational, social and cultural) across the Atlantic and across North America. Long-standing ties with agents, employees and customers facilitated sequential decision making and strategy implementation. The decline in the timber trade, a shift to new markets and less binding family ties (with the arrival of a new generation) were not matched with successful efforts to renew and foster these network links. The system tended to re-inforce KSCO's short-term situation at the expense of its long-term interests. The following section outlines specifically the role of KSCO's accounting system.

Kingston Shipping Company and its accounting system

KSCO was organised in TCC's later stages. TCC surrendered its corporate charter in the 1920s, but had discontinued most operations by 1915. The emergence of KSCO has been interpreted as a failed attempt by TCC to shift strategic course and direction (Salmon, 1998, p. 123). KSCO's accounting system incorporated many of the reporting features that characterised TCC's later years. These features included the yearly recapitulation of results, the specific, detailed attention to operating costs, and the analysis of the efficiency of its internal processes. Prior to the introduction of this accounting information, a void existed in terms of criteria to assess internal operations. It filled this breach in the wake of alterations in KSCO's operating environment.

Accounting information dealt with both internal and external activities. Internal reports focussed upon the "impact of the organization's separate parts on its total financial performance". External memoranda dealt with market prices and transactions for which "the market price supplied every conceivable bit of information for decision making and control (Johnson & Kaplan, 1987, p.37)".11 While Johnson and Kaplan privilege the role of internal information and examine it in isolation, internal and external events were instead inter-related, mutually influencing environments. Attention to internal processes could compensate for a lesser degree of control with respect to external factors. External factors also affected the accounting for internal operations. For example, KSCO adopted business and reporting methods similar to those of other industry members. Since firms worked together and frequently had ownership links, accounting methods were relatively standardised and similar. Banks required financial reports and firm management frequently hired outside auditors to review these, signalling the firm's credit worthiness (KSCO's terms of incorporation provided for audit reports to be presented at its general meeting of shareholders). In recognition of this internal/external environment, the analysis focusses on KSCO's internal reporting, but includes an evaluation of this information as reflecting effective use of its interfirm network.

Annual operating costs

KSCO tracked in detail its earnings and expenses for each season. First, it calculated its average earnings and expenses per day, based on the number of days in each season that the Prince Rupert was "in commission". Second, it broke these expenses down into a large series of cost accounts, tracking everything from the cost of fuel to the charges for cablegrams into separate cost categories. Two items received special analysis: the cost of fuel, and the cost of boarding crews. These analyses were done for the Prince Rupert, as well as included in the overall analysis made of TCC's fleet operations. 12 While the information outlined in the yearly analyses was thorough (see Figure 2), the business records offer little indication of how it was utilised or acted upon. TCC's records indicate that it used cost analyses for management control. Specifically, management compared the cost efficiency of various vessels and of their respective captains. These calculations also were used to determine profit shares and to analyse the return from various cargoes, taking into account time, vessel size, capital cost, and so on. It also used this information, for example, to assess the return from capital expenditures in terms of increased efficiency as a result of reduced coal consumption.

TCC included the Prince Rupert in its cost analyses of the remunerative return from various cargoes. For example, analyses were made in 1910 to determine the average revenues from shipping both Iron Ore and Pig Iron using different vessels. Management was able to compare revenues, the average amount of time spent to load and unload cargoes and the average number of tons shipped; then it determined which ship was most efficient on a specific route or with a specific cargo. It was clear from these reports that the Prince Rupert was much less efficient relative to the average loading time, but was much more efficient at offloading cargo and could accommodate larger cargoes. For example, the average cargo of iron ore shipped via the Prince Rupert was 2,013 tons compared to 1,359 and 1,560 for the other two vessels used in this trade. The Prince Rupert also was included in reports that detailed the revenues from "Outside Freighting". This term referred to all nontimber freighting activities. The shipment of other types of cargo had become increasingly important and a larger proportion of overall shipments. TCC had always distinguished these revenues separately to assess returns from this area of endeavour relative to its timber activities.

The question of efficiency directed management's attention to the cost of internal operations. The calculation of KSCO's operating ratios provided management the means to assess the Prince Rupert's profit contribution and to evaluate this trend over time. Since KSCO, in substance, was a subsidiary of TCC, the inclusion of its results also enabled TCC's management to assess the contribution of KSCO to overall corporate profits. As KSCO expanded the geographic scope of its operations, management had to deal with a greater number of business activities and transactions. It relied upon agents to carry out operations, although opportunism by its ship captain was mitigated partially through profit sharing. The operating ratio condensed the year-end result into a single figure: the average excess of operating expenses over operating revenues per day. Figures were presented on a comparative basis, as indicated in the cost report for 1912 presented in Figure 2.

The demand for new criteria to account for KSCO's operations parallelled the situation of its rivals in the transportation industry. While shipping firms were affected increasingly by the entry of the railways into their market, the former were adopting methods similar to those used by their competitors. These competitors included railroads based in the United States.13 As noted with respect to the American railroads, "Profit and loss were not enough. Earnings had to be related to the volume of business. A better test was the ratio between a road's operating revenues and its expenditures, or, more precisely, the percentage of gross revenues that had been needed to meet operating costs" (Chandler, 1977, p.110).

These methods were not unique to the US railroads. British shipping firms had developed their own comprehensive reporting practices to deal with diverse international operations. Yet in contrast to US firms, "British shipowners conducted exchanges using co-operative intermediate modes based on a high degree of inter-personal knowledge. Thus, British systems reflected the formative influence of a wider contracting culture based on a high degree of trust" (Boyce, 1995b, p.362). For example, British India calculated "earnings, cargo carried to all ports and the freight rate applied, as well as passage times, victualling, fuel, loading and discharging costs" (Boyce, 1995a, p.206). Combined with incentives, British reporting mechanisms enabled management control, reduced opportunism and facilitated information sharing.

Some UK firms combined US and British methods, including, not surprisingly, those with Canadian operations. For example, management at Furness Withy had personal experience with American methods and organisational forms. It customised the latter to combine centralisation and delegation within a network reliant upon varied contractual arrangements, personal knowledge and information sharing. The objective was to maximise profit through effective allocation of its shipping resources across all sectors. These methods were used in its Canadian offices at Halifax and Montreal. Adaptation and customisation led Furness Withy to replace its system with that of KSCO's competitor, Richelieu and Ontario, when it acquired the Canadian firm in 1911. The Richelieu and Ontario system for costing was declared by the senior associate at Furness Withy to be "the best system of cost accounts I have ever seen" (Boyce, 1995, pp.211-13).

Like its competitors, KSCO also produced detailed operating reports of the Prince Rupert. There were five types of reports produced each year. A Statement of Cargoes outlined each individual cargo. Listed therein were the type of cargo (coal, grain, and so on), the shipping point and destination, the dates of the trip and the number of days in transit, and the total revenues. The statement included a summary of the total number of running days, total revenues and any adjustments for insurance claims and towages. A second statement outlined Earnings for the Season. Each trip entry listed the arrival date at its destination port, the cargo, from/to locations, the quantity of cargo (bushels, tons, and so on), the cargo rate and the overall revenue. Any demurrage revenues also were noted. A third statement was titled "Recapitulation of Expenses" and listed all expense categories charged against earnings, the most significant categories being wages, fuel and insurance. The final statements were a Balance Sheet and Profit and Loss Statement. The focus in this study is KSCO's management reports dealing with operating ratios, the cost of fuel, the cost to board crews, and the evaluation of its operating profit (see Figure 2).

Cost of fuel

From 1908 to 1913, the cost of coal used by KSCO increased from $2.74 per ton to $3.37, or approximately 23 per cent. This increase compares to an increase in the Wholesale Price Index (WPI) for mineral products of 3.05 per cent, and of 12.2 per cent in the WPI overall. Moreover, from 1910 to 1911, KSCO's cost of coal increased by 9.5 per cent. This increase was in line with a growing demand for coal, especially as coal was used for fuel for steam vessels. In this period, tonnage through the Welland Canal (in thousands of short tons) increased from 2,326 in 1910 to 2,538 in 1911, or by 9.1 per cent.14 Thus the growth in shipping activity supports the argument that an increased demand for coal used to fuel steamers would have had a parallel impact on coal prices. While KSCO analysed its coal expenditures, no archival evidence has been uncovered to suggest the specific use of this information in this case to seek ways to reduce or to control them. On average over the period, the cost of fuel represented almost 22 per cent of its operating costs; thus its control had a major impact on the operating margin.

TCC also evaluated coal expenses annually for its fleet operations, and included the Prince Rupert in this analysis. From 1892 to 1912, the average cost of coal did not vary greatly, nor did the firm's total usage. The report did signal that coal used at TCC's head office location (Garden Island, Ontario) was the most expensive. This result was a probable consequence of the shipment of coal to Garden Island by the TCC fleet. In turn, this shipping expense was incorporated into the transfer price used to allocate the cost from the coal account to other service areas. Since the captains of vessels generally were in a profit-sharing arrangement with TCC,15 it was in their self-interest to purchase their coal requirements away from Garden Island. In the case of the Prince Rupert, this rationale is plausible, as its average cost of coal was lower than TCC's overall average in each year of its operation (see Table I for details).

Cost to board crews

KSCO also monitored food costs. As in TCC, a yearly report was prepared outlining the cost of maintaining its crew. The report determined the number of man-days in the season. The total cost of food was divided by the latter to determine the cost of board per man per day. The figures for the Prince Rupert also were included in TCC's analysis of overall fleet costs. Both reports generally provided comparative figures for previous years. For the Prince Rupert, the changes in food costs were more notable compared to those of coal, rising from an average of 44.5 cents per man per day in 1908 to 70 cents in 1913, representing an increase of 57.3 per cent. The corresponding increase in the consumer goods market was approximately four per cent.16 KSCO management had difficulty in controlling this cost centrally and it apparently had some difficulty in keeping this particular cost under control.

Yet on average, food costs absorbed less than six per cent of total operating costs, thus it is noteworthy that KSCO tracked this item so laboriously. Food costs were much less significant than insurance costs or wages, which represented respectively approximately 26 and 22 per cent of operating costs. The attention devoted to this area had the possible effect of giving the impression that the firm was proactive in analysing its costs. Moreover, food costs might have received more attention in that it was more readily influenced internally. The cost of insurance and that of wages were subject to external market conditions. KSCO, like its parent, was a small operation, and did not have the economies of scale available to other firms. This fact reduced its ability to influence wage and insurance expenses.

The Prince Rupert generally operated in the region of the Upper Great Lakes and as far east as Montreal, Quebec and Sydney, Nova Scotia, away from its home base near Kingston, Ontario. Management had less ability to oversee the vessel's cost of provisions, compared to those of vessels that were serviced by TCC's own stores. However, the cost of food could have been artificially high, even for those vessels provisioned by the firm.

From 1908 to 1909, food prices in Canada dropped by more than 21 per cent, compared to the drop in the Consumer Price Index of less than one per cent. However, from 1909 to 1910, KSCO's food costs increased by more than 20 per cent, compared to the rise in the CPI of less than one per cent. Overall, in the period from 1908 to 1913, KSCO's food costs increased by 57.3 per cent versus a fourper cent rise overall in the CPI during the same period. From 1909 to 1913, its food costs doubled. Table 2 summarises the cost to board crews for the Prince Rupert and TCC.

Not only were KSCO's expenditures for both food and coal increasing at a much higher rate compared to price rises in the economy at large, the costs for the Prince Rupert were notably different from the average cost that TCC calculated for its fleet operations overall. The Prince Rupert's cost of coal was less than TCC's average cost in all years from 1908 to 1912. The cost of coal for TCC overall was high, especially for the coal sourced at its head office at Garden Island, near Kingston, used in its facilities there as well as sold (internall transferred to its vessels.

A captain alert to this cost and held accountable for operating the vessel efficiently (and often involved in a profit-sharing arrangement with the firm's management) could reduce this expense by acquiring fuel elsewhere. This possibility was especially apt for the Prince Rupert in that it operated away from Garden Island, and was involved itself in the transport of coal.

Management did "rank" costs from the lowest to the highest. In this period, the Prince Rupert had almost the highest average food cost in 1908 (8 out of 9 vessels), but moved to be the lowest ranked in the following year. In the remaining years, the vessel was ranked much higher, as outlined in Table 2.11 Acting rationally, the captain would be motivated to control costs, as his own profit share and job security were at risk, especially in what seemed to be a declining trade.

However, the significant increase in food costs was indicative of a problem within KSCO and TCC. Rising costs appeared to confirm that the policy to purchase and to allocate provisions by means of a company store was inefficient, thus contributing an overhead cost which was being absorbed unnecessarily by its fleet operations. The report would have drawn attention to this fact, but the firm did not appear to adopt a pro-active strategy to deal with it. Alternatively, the inefficiency of the company store can be analysed as a transfer-pricing issue. To the extent that these allocated costs were inflated to account for corporate overhead, these allocations reduced downstream reported profits (and the profit share of the ship's captain). Yet, they also provided a mechanism to maintain profits within the parent firm. This analysis does not hold to the extent that reported food costs resulted from provisions acquired elsewhere. In the latter case, provisioning the vessel away from the head office, even if more costly, could be a rational policy and in the captain's best interests. Better food could translate into more motivated crews. Such perquisites absorbed little in overall operating costs (compared to items such as fuel), and the cost was shared by both the firm and the captain (the latter having a much smaller percentage at stake).

Profit trends

KSCO tracked the average earnings per day, the average expenses per day, and the excess of this amount (see Table 3 for summary figures). This daily excess increased by 20.5 per cent from 1908 to 1909, but fell again in 1910. The following two years were the most profitable for the firm, with profits dropping by 51.8 per cent in 1913.18 Salmon (1998) examines the profit of KSCO in terms of the percentage of gross earnings derived from the grain trade (see Table 3). An examination of this relationship is informative.

Salmon argues that the rising importance of the grain trade increased KSCO's profitability, for example, in 1912. This trade is part of the answer. A comparison of the excess of average earnings per day to the list of cargoes shipped provides an alternative interpretation. As shown in Table 3, KSCO relied primarily on shipments of wheat and coal in its first year of operations. In the next two years when profits remained low, cargoes consisted mainly of iron ore, pig iron and some shipments of coal. Freight rates and handling efficiency were low.

In 1911, the trend reversed when the firm was more heavily involved in the shipment of pulp-and-paper products. Its best year, profit-wise, was 1912, when KSCO managed to establish viable two-way trade. Not only did it ship significant amounts of wheat, oats and flax, but it also was able to return to its grain-loading port with shipments of steel rails. This policy was pursued in the next year. However, in 1913 profits fell, resulting in part from the lost time and the related expenses of a major collision. The rates had not changed notably for the various cargoes. Thus, it was not only grain shipments that enabled KSCO to be more profitable, but also its ability to secure two-way traffic. MTC had exploited this strategy much earlier as a means to diversify operations and reduce risk, including a long-term contract with Dominion Iron and Steel signed in 1906 (Salmon, 1998, p. 120). KSCO did not follow suit, although it would have been well aware of MTC's operations due to the informal and formal links between these firms. It also had firm-specific information in its own accounts.

The potential gains from the grain trade were important in another respect. Given the shareholding of the Richardson family, the ability to procure grain shipments should have been enhanced by network contacts. KSCO did not exploit the network link with the Richardson interests to its advantage, as its parent had done much more effectively in the timber trade." The accounting records also could have signalled this potential, as each cargo was listed individually in terms of contents, freight rate, time, revenues, expenses, and so on. Such details, coupled with client information, would allow management to determine which clients offered better returns or more stable business. It also was a ready way to see if the relationship with the Richardsons translated into additional contracts. Additionally, this information could have been shared to ensure that each side had knowledge of other clients, rates and cargoes to allocate resources more effectively.

Accounting shortcomings

KSCO's accounting system produced standardised and comprehensive information. The system presented and chronicled these results in a manner that obscured two key operating factors: the depreciating capital cost of the Prince Rupert and financing costs.

Capital cost of assets

When the Prince Rupert was set up in the accounts of KSCO, it was established at a capital cost of $140,704. While its parent company had begun to recognise depreciation as a yearly expense, albeit not completely systematically, KSCO did not record any amounts as charges for wear and tear or depreciation for the Prince Rupert. Thus, the analysis prepared of its operating results and yearly profit did not reflect the consumption of the capital asset. In this way, management appeared to neglect that it would need to replace this asset in time.20

KSCO was not unaware of this limitation in its accounting system, as its auditor had questioned its accounting methods in February 1909. The auditor outlined that the capital cost of the Prince Rupert should be kept at its original value subject to an allowance being made for depreciation.21 According to Boyce (1995b, pp.368-69), British shipowners calculated depreciation based on historical cost and generally deducting a "round sum" "as yearly profits allowed". The targetted industry rate was five per cent per annum, but "shipowners had to tailor their depreciation methods to accommodate swings in demand that they could not influence". Depreciated values also were used to calculate insurance premiums.

In Canada, similar procedures were followed. Firms incorporated in Ontario (which includes KSCO and the competitors mentioned in this study) were subject to the Ontario Companies Act - an act considered one of the most progressive for its time. Firms in the transportation sector also were subject to federal reporting requirements. Depreciation-related adjustments appear to have been industry practice, given the concern to conserve capital. Depreciation (based on historical cost) became the accepted practice for tax purposes with the introduction of profit and income taxes during World War I (McWatters, 1998).22 This procedure was never followed during KSCO's lifetime, thus overstating its real profitability in each year.

Brief (1976, p. 180) provides a number of reasons why firms at this time failed to properly account for capital: "the bias [towards capital] caused by the labor supply, the desire to pay high dividends or to secure new capital, the sanguine temperament of the entrepreneur, and the inherent difficulty involved in calculating the cost of capital consumption ...". These reasons readily translate to KSCO's case. It was attempting to use a new technology to meet the competitive market demands and to reduce costs, its profits flowed primarily to the parent company, and it was part of an entrepreneurial family. Yet, this family did not seem adapted to the business environment of the new century, retaining instead the mentality of the previous era. Many family members were not part of the day-to-day operations, preferring instead to draw dividend income from their holding of TCC shares.

The write-off of $20,704 on the sale of the Prince Rupert also re-inforces Brief's (1976, p.182) conclusion that "[fln the long run the problem of accounting for capital will work itself out". The loss was the result of a drawback in the firm's accounting system. Its capital-asset accounting (and lack of depreciation policy) reinforced a short-term perspective. The latter overlooked the long-term nature of assets, and the need to re-invest capital to provide for future growth. KSCO's treatment of capital assets and its yearly calculation of a profit figure exclusive of depreciation led to difficulties when KSCO needed financial resources to re-invest to remain competitive. Once the Prince Rupert was sold in 1914, the current value was realised, and the reality of a book value in the accounting records that was much greater than the vessel's value-in-use became apparent.

This capital asset policy also reflected KSCO's own apparent view of assets being "disposable". This short-term view did not equate with the changing nature of the business environment in the early-twentieth century. This weakness in KSCO's accounting carried over to the accounting for the financing of its operations.

Interest costs

As in the case of depreciation, KSCO's auditor had noted the problem in KSCO's approach to its financing costs in 1909. At this juncture, the auditor advised that the interest that had been capitalised as part of the cost of the Prince Rupert should not have been, and that future interest costs should be charged as a yearly expense. The reporting procedure was changed in the following years with interest identified as a separate category.23 More problematic in subsequent years was KSCO's policy, as reflected by its profit calculations, to determine the yearly profit of the Prince Rupert, without consideration of these financing costs. Table 4 summarises KSCO's interest expense as a percentage of operating profit. These figures indicate that the debt burden on KSCO was considerable, absorbing an average of 45.82 per cent of KSCO's operating margin.

The accounting treatment tended to camouflage this situation. KSCO's figures for the average earnings in excess of expenses (see Figure 2 and Table 3) were calculated prior to accounting for interest expenses. Its income looked higher and the Prince Rupert more profitable than they were in reality. While the number here is a measure of operating performance, it does not take into account the opportunity cost of the capital investment in terms of its financing. Interest was not indicated as an expense, but treated as a separate category that included various legal and auditing fees.

While separate disclosure of interest expense is informative, KSCO's accounting system tended to mask the fact that the financing of the Prince Rupert was a major drain on profits. The firm needed to be much more efficient elsewhere to overcome this heavy burden. Only in 1912 did the company generate income at a level that provided sufficient means to finance its debt and to generate additional capital with which to reduce its short-term indebtedness. Nonetheless, this one-year window neither made up for the significant costs in prior years, nor was adequate to alleviate the downturn in operations in the next year.

Moreover, management had a short-term financing policy, relying on shortterm notes payable at interest rates from six to more than nine per cent, compared to the average rate in the market for long-term government and corporate bonds of four to six per cent.24 The financing of a long-lived asset with short-term notes was inherently risky in that the life cycles of the two were not synchronised. This feature put the firm at greater risk that interest rates would change.

KSCO had not developed the necessary co-operative networks and alliances with the financial sector as had its competitors. For example, The St. Lawrence and Chicago Steam Navigation Company was publicly traded and its officers and directors were prominent businessmen including, amongst others, the president and vice-president of the Dominion Bank. The Northern Navigation Company had been re-organised in 1904 as a result of a stock-price manipulation scheme. Control had been assumed by three new investors, two of whom were bank presidents. One, the president of Traders' Bank, also served as company president, and the second was president of the Dominion Bank. The firm received significant bank support in both financial and reputational terms. These reputational links proved useful, facilitating Northern Navigation's issuance of long-term bonds to pay for its capital investment. In turn, Traders' Bank accepted the bonds as mortgage security for the same vessels (Salmon, 1998, p.125). This arrangement allowed the controlling shareholders to maintain control and to take advantage of long-term financing. Opportunism was mitigated due to the potential reputational effects if the revitalised firm conducted itself contrary to industry norms, or failed. This evolution of banking arrangements was evident also in the British industry where banks customised banking terms depending upon the strength of the client relationship:

Shipowners forged communication channels to win support from banks. In comparison with small operators, large owners were better credit risks, and they won improved terms over time ... . Banks did not irrationally withhold their trust. Indeed, to make decisions, they mustered a wide range of information: comparative financial data; informally conveyed details, and references about client reputation. Nor was observance of traditional indicators symptomatic of 'bias'. In the midst of asymmetric information, these were socially and culturally important signals that supplemented concrete data by informally transmitting assurances about opportunism (Boyce, 1995, p.231).

Unlike other firms that issued long-term debt, TCC and its subsidiary, KSCO, did not do so and suffered consequently a much higher financing burden. The reluctance to issue long-term debt had become an ingrained pattern of behaviour within the parent company, reflecting its long-standing attitude about self-financing and self-reliance. At KSCO's liquidation, this financing cost came to a head. KSCO was left with $104,000 in stock of MTC, after selling a portion of its shares to settle outstanding claims.

KSCO - a revised profitability analysis

KSCO's profits clearly were overstated. The company failed, but its lack of profitability would have been much more apparent had the accounting reality been a different one. Table 5 provides a revised profit picture, indicating the profit after taking financing costs into account. A yearly depreciation charge is not included. Since KSCO's life cycle was short, the weakness of its capital accounting system came to light in 1914, and is evident in the final profit figures. From 1908 to 1913, the Return on Equity for KSCO ranged from 0.87 per cent to 17.3 per cent, with an average return of 6.55 per cent. Salmon (1988, p.141) calculates the average return on equity for the six firms operating in Great Lakes shipping from 1900 to 1914 as 13.6 per cent. Restricting his calculations to the 1908 to 1913 time period results in an average return on equity of 12.69 per cent. This figure includes KSCO. Excluding KSCO raises this figure to 13.92 per cent.25 Clearly, the Prince Rupert was neither generating a return comparable to the average of competing firms, nor was the return sufficient, given the riskiness of the marketplace. Only in one year did KSCO make a return to rival the roughly fourper cent return provided by passive investment in government bonds.26 Similarly, KSCO's return on assets averaged 3.73 per cent from 1908 to 1913, compared to the average of its five competitors of 9.4 per cent.27 As Salmon noted (1998, p. 124), perhaps the wisest decision made by KSCO's owners was the exchange of the Prince Rupert for shares in its rival, MTC.28 "Equity and a seat on the board of directors of the Montreal-based company certainly appeared to be a much better bargain than the continued prospect of running the Prince Rupert".

Conclusion

Boyce (1995a) has argued that an agency framework is more suited to the shipping industry (compared to the Chandlerian model) and this paper commends its relevance to the Canadian experience. Its key elements provided a plausible means to explain KSCO's decline and eventual wind-up:

Co-operative networks - Unlike its parent, TCC, that had long-established patterns of business dealing, KSCO did not utilise or foster these relations. Part of this inability may have been the result of its operating in a different shipping-industry sector compared to TCC's long-lived business within shipbuilding and the timber trade. Moreover, shipping on the Great Lakes was increasingly in competition (and also co-operation) with the railways. KSCO needed to develop partners within the railway industry, as its competitors had done. For example, competitors such as MTC and St. Lawrence and Chicago and CSL, amongst others, were situated in larger business and financial centres, contributing to their ability to engender such relations. KSCO either did not take advantage of network possibilities, or did not have the skill or interest in doing so. Alternatively, the non-cultivation of this intangible asset by KSCO might have been a plausible exit strategy. While the founder had sought to pass on the firm and wealth to his family, these recipients simply had alternative consumption patterns, more short run in nature.

Thus, a short-term versus a long-term view represented a conflict within the organisation. Non-active family members, who were shareholders of the family firm, perceived longevity differently and had indicated a preference for regular dividend payments, rather than increased capital investment as advocated by H.A. Calvin. The lack of re-investment by both TCC and KSCO reduced the ability to take ready advantage of market opportunities, re-inforcing the season-to-season operating strategy.

Reputation - Reputational effects had been instrumental in facilitating the growth and maintenance of TCC's competitiveness. TCC possessed a strong reputation for fair dealing and solid business acumen, based in large part on the founder's own reputation. The second generation did not possess this same reputational asset value in an altered shipping industry. It also had diverted its interests and linkages to other areas, such as public service and engineering. Finally, KSCO did not foster the reputational asset value of its outside shareholders, primarily the Richardson family, who potentially could have smoothed network operations (for example, to facilitate the acquisition of grain contracts) due to its high profile and place within the grain and shipping sectors, and within the Canadian business elite more generally.

Social and cultural context - Prior to the arrival of the railways as a major competitor, firms within the shipping industry had a shared social and cultural context. These shared ties included links with families and business associates in the United Kingdom. As trade shifted to the US market and with the increased competition from US interests, it became much more difficult for firms like KSCO to rely upon existing social and cultural mechanisms to foster market exchange. Additionally, the need to compete and co-operate with railways changed the nature of competition, since railways generally held the stronger hand due to their larger size, cargo flexibility and network linkages across the railway and shipping sectors.

The dwindling of the family shipping interests could reflect their strategic errors linked to how to channel their organisational knowledge into emerging industry sectors. This failure is in contrast to the experience of its rivals, such as MTC, which utilised its links in the mining, grain and financial sectors to gain access to both markets and investors. Alternatively, it is plausible that it reflects, as noted earlier, different utility functions and consumption patterns of the next generation.

KSCO's internal operations were the basis for its reporting system. This reporting was selective and the manner of presentation influenced its use. Yearly reports, prepared in a rote manner, tended to increase the saliency of the information contained therein. In turn, this emphasis had an impact upon management perceptions with regard to strategic alternatives. The accounting information could direct management's attention, but management did not appear to act upon it to develop alternative strategies to confront altered environmental circumstances. Information focussed on internal processes, overlooking the impact of external factors on internal operations. Specifically, the accounting warning signals (financing and capital asset policies) tended to confirm the past and the finality of its situation. Similar to Mintzberg's (Mintzberg & Waters, 1985, p.268) imposed strategy,29 KSCO management's interpretation of its environmental constraints and what it could feasibly do, coupled with an ineffective co-operative network, made the challenges of the twentieth century too imposing to tackle. Winding-up the firm was less taxing (a strategy also pursued by its parent).30

This paper presents one potential explanation for KSCO's decline and eventual wind-up, while contributing as well to our general historical understanding of Great Lakes shipping. The analysis and interpretation of accounting records provide insights into the actions of individual firms. At this level, choices and decisions were made in terms of the perceived environmental context. KSCO's failure to leverage its co-operative network was not distinct from the accounting system that itself was adapting to altered market realities. Yet the system's rote comprehensiveness, inflexibility and biases towards the short run contributed to KSCO's failure to forge new strategies. The role of accounting in KSCO's case demonstrates again that its operation is not without unanticipated, and perhaps dysfunctional, consequences.