The fall of a railroad empire and its impact on accounting, business, and regulation: 1929-1936

Two brothers from Cleveland Ohio, Oris Paxton (OP) and Mantis James (MJ) Van Sweringen (the Vans) built a railroad empire with its’ centerpiece, the New York, Chicago & St. Louis Railroad Company, which became known as the Nickel Plate Road (NKP).   The Vans created an enhanced management structure and brought forth unprecedented innovation to the railroad industry.  They grew to be the largest railroad in the Country.  Exhibit 1 is a map of NKP’s initial operations, while appendix A shows the railroad holdings of the Vans in the east in 1929.The Vans strategy is an example of Alfred Chandler’s multifaceted management structure, the ‘visible hand’ (Chandler, 1977).  Jon Bernet represented and implemented this modern business strategy of that time (Foltin et al., 2023).  Bernet and the Vans plan included increased maintenance spending, large-scale capital improvements, de-emphasis on passenger traffic, use of accounting analytics, innovation, increase engine power, and economies of scale through other railroad purchases.  This brought forth a virtuous cycle that brought unprecedented growth and profits.  However, the exceptional growth did not continue which is where this research study begins by examining the following phenomena.The first subject of study encompasses the financing and company structure of the NKP.  The great growth of the NKP was built on a fragile and complex plethora of holding companies and a risky leveraging design that went too far. The second area shows that even the best management structures that embodied Chandler’s ‘visible hand,’ can be brought down when Board control and ownership self-interests supersede management of operations.The third phenomenon examines the impact that the NKP had on regulation.  The financing methods of the Vans became public, directly impacted the SEC Acts of 1933 and 1934, and was the impetus for other regulation. Finally, this study highlights the need to balance laissez-faire with government regulation.