Shareholders, Unite

...The geographical estrangement was reinforced by new innovations in finance, new forms of stock and control devices for separating the basic rights of ownership into convenient and specialized packages, new instruments for establishing managerial dynasties and creating classes of corporate nobility...

...This leaves only two other courses open to the shareholder...

...This group should not be anti-management...

...It takes little imagination to appreciate the overpowering financial mismatch...

...This may create a quorum problem for management, but nothing more...

...It is a requirement when the stock is bought "on margin...

...However, the form itself designates representatives of management to cast the vote...

...This practice is a convenience to the customer by making it unnecessary for him to deliver the certificate when the stock is sold...

...In too many cases it protected the shareholder but simultaneously shielded the managerial dynasties from challenge by the shareholders...

...Using the pretext of incentives with minimum taxation, the managerial dynasties began to take a larger and larger slice of the pie...

...The letter was not even acknowledged...

...When one examines the proxy statements and the handsome base salaries that the dynasty receives, one questions whether these salaries are simply compensation for mediocrity...

...Proxies for unlisted as well as listed stock should be sent to the organization...

...It is up to the various units of government to enact legislation for the protection of workers, consumers, and suppliers because only government can encourage and maintain competition among firms and between products...

...So, the incentive compensation for the five years and the base salaries for the year 1973 paid to the managerial dynasty almost equaled the total payments to all the shareholders during the entire five-year period...

...Only by tapping the collective savings of a nation could the needs be met...

...He has no way of knowing when his negative ballot gets lost in the mail or in the tabulating process...

...Inflation and high income tax rates were factors in a climate where minimizing taxes was just as important as maximizing income...

...Far more important in the long run is the extent to which self-perpetuating managerial dynasties will control the economic and political destinies of the nation...

...The trend began when regional markets were replaced by national markets and subsequently international markets...

...It is all too clear that the real action is going on in the board rooms and executive suites...

...The depression slowed down the need for capital and provided the necessary breathing spell for government to assess the nature and causes of the corporate abuses rampant during the first third of the Twentieth Century...

...It cannot permit itself to become involved in women's rights, Chicano rights, Indian rights, black rights, or welfare rights...

...It is important that all proxies be mailed to the organization regardless of whether they are pro-management, anti-management, or discretionary...

...The proxies mailed to the shareholders designate several corporate officials to cast the votes in accordance with the shareholder's instructions...

...It would also minimize the number of proxies "lost" in the tabulating process...

...He could write to the chief executive officer expressing his objections and protesting a continuation of the practices...

...One need only reflect on the fact that on December 31, 1973, the twenty-four directors of General Motors controlled assets in excess of $20 billion, and reported sales in excess of $36 billion and profits of almost $2.4 billion for the calendar year ending on that date, to appreciate the fantastic power one group wields...

...No management could afford to ignore a letter from a shareholders' group...

...All this was in addition to the pension plans in effect...

...It should be committed to reasonable compensation for demonstrated competence in corporate management...

...During this period, when the book value of the company's stock as reported in the annual report ranged from $18.72 to $27.08, the management granted 78,000 stock options to itself at a per-share option price of $14.75...

...Representation on the board would have been more symbolic than effective...

...It should be dedicated to promoting maximum profits and dividends within the framework of existing law and the rules of the free market...

...In fact, a more enlightened management would have welcomed the outsider beC. Hayden Jamison, investment adviser to institutional investors, was formerly executive director of the multi-million dollar state of Wisconsin Investment Board...

...Prices of individual stocks will gyrate to the rhythm of institutional favor or disfavor...

...A significant portion of the outstanding stock is held in a "street name"—the name of the brokerage house purchasing the stock for the customer...

...Investors could simply avoid investing in this company...

...The self-perpetuating nature of corporate management was not all bad...

...Since the end of World War II, the nation has been in a state of constant siege...

...Many small shareholders recognize their helplessness...

...The frustration of corporate shareholders is vividly illustrated by those practices of the managerial dynasties that are aimed at their personal enrichment at the expense of the shareholders...

...What could a shareholder do if he objected to these practices of using his corporation to enrich the managerial dynasty in control...

...The trust departments of commercial banks and trust companies are major holders of common stock, and benefit in many ways from their association with management, such as through deposit balances...

...So long as we cling to the system known as "free enterprise" and the "free market," it cannot become obsessed with the subject of ecology...

...If the shareholder is stout-hearted enough to vote "no" in spite of these overpowering odds, he is still not sure that his vote will be counted...

...It uses the proxy solicitation technique...

...This means there should be incentives...

...In fact, management has been able to denounce government as an obstacle to profits and dividends...

...This feature, in combination with relatively low income tax rates, tended to weld the interests of the shareholders and the management together...

...The company produces beryllium...

...The hopelessness of the situation is compounded by the natural institutional allies which management has among those shareholders whose stake transcends simple corporate profitability...

...If we can make them accountable once again to the interests of those who own the enterprises they control— the shareholders—we can begin to contemplate the next step of holding them accountable to the interests of our whole society...

...In too many cases, the interests of management now carry a higher priority than the interests of the shareholders...

...He can only withhold his vote on the official proxy or prepare his own proxy form nominating his own candidates...

...Or, they have attempted to place a woman or a member of a minority group on the corporate board of directors...

...Even if his ballot is received and tabulated, he has no choice of voting for directors other than those designated by the management...

...Protective legislation was drafted and passed...

...In addition to this structural bias, the insurance company shareholder may benefit by writing various forms of life or casualty insurance for the corporation whose stock it owns...

...In practice, the shareholders generally accept the brokerage house's recommendations...

...Nor was that all...

...It is more the norm than the exception...

...Recent allegations of market allocations by the major oil companies during the "energy crisis" is another illustration...

...This was done by a shareholder of Brush Wellman, Inc...

...Corporate management is not required to have a social conscience...

...It would have to be done through an annual membership fee...

...The form proxy also contains a provision giving the persons named in the proxy the right to vote on "any other matters which may be brought before the shareholders...

...The owners of corporate enterprise were farther and farther removed geographically from the officers and directors of the business they owned...

...Or, he can give up and sell out his stock holdings...

...If an investor had purchased a share of Brush Well-man stock in 1969, he would have paid somewhere between $20.50 and $39.25, the high and low of the year...

...Third, members of the organization of shareholders could use this group to get information from management...

...The brokerage houses are expected to ask the customer for instructions on how to vote the stock...

...One industry with huge capital requirements was the launching pad for another, and the chain reaction intensified...

...With the steady decline in the percentage of shares required to make up a quorum, even the quorum problem is of little consequence...

...Personal enrichment of management should be a function of the extent to which the corporation has added to the personal riches of the shareholders...

...In the past, many dissenting shareholders have played into the hands of the managerial dynasties by using shareholders meetings as a forum for promoting ecology or consumer rights or other worthy causes...

...During the entire period he would have received only eighty cents in dividends, since nothing was paid during 1969, 1970, and 1971, and only forty cents per share in 1972 and 1973...

...There was, perhaps, a second defense...

...All shareholders as a group received dividends of only $1,848,770 during the five-year period, while management received $909,075 under the incentive compensation plan alone, without counting the base salaries which for the year 1973 alone amounted to $516,199, nor the stock option program...

...This is a blank check which could be voted against the collective interests of the shareholders...

...The most obvious reason is that the insurance companies, like banks and mutual funds, are themselves governed by self-perpetuating groups which are both part of and responsible for the line of succession of a managerial dynasty...

...Until the control over investor-owned corporations is returned to the shareholders, the individual investor will not return to the market...

...However, incentives cannot be equated with the current abuses that compromise the rights of the owners of the corporation, the shareholders...

...Moreover, modern managerial dynasties feel threatened by any negative action, including actions by their own shareholders challenging programs designed for management's own personal enrichment...

...many shareholders accept the principle that anything their corporate management does which appears to be pointed in the direction of increased profitability is commendable...

...The consumer needed more protection than the shareholder...

...Here is the way such a shareholders' group would operate: First, it would have to be funded...

...The proxy gives to certain designated officers or directors a revocable power of attorney to vote the shares of stock on each principal issue in accordance with the instructions of the shareholder...

...They elect a third course: They throw the proxy into the wastebasket...

...He could cast his ballot against the proposals on the form provided by the company...

...There was little that an individual shareholder could do to protect himself...

...Certainly not...

...The proxy statement and accompanying annual report recently distributed by one corporation, Brush Wellman, Inc., contained some striking comparisons of how the shareholders and management fared between January 1, 1969, and February 5, 1974—a five-year period during which the corporation was quite profitable, with per-share earnings declining only in fiscal 1970...

...Management began to concentrate as much on its personal enrichment as on corporate profitability...

...AT&T is even larger...

...It was also in the shareholders' interest to protect the control of the corporation from being seized by "raiders...

...This is a rather irrational thing to do, since he is pitting his personal resources against the resources of the corporation he owns...

...If an industry enjoys a monopoly status, it is up to government to regulate its practices...

...Until the individual shareholder returns to the market, the stock market will have no reliable liquidity...

...While these may be noble objectives, they make it easy for management to dismiss these groups as "do-gooders"' or "anti-business...

...Both would benefit...

...If he fails to give voting instructions, the proxy is voted in favor of the management position...

...Modern management has effectively cut off ownership from control and, thereby, has created a real threat to what survives in the free enterprise system...

...The organization safeguarding shareholders' rights should plan to distribute a supply of blank proxies to each member, so that the officers of the shareholder organization rather than the management designee can be named in the proxy to vote the member's shares...

...By sending all proxies to the organization, the possibility of negative proxies being "lost in the mail" would be minimized...

...Second, even if her organization had succeeded in electing a "public interest advocate" to the fourteen-man board of directors of Northern States Power Co., that director could not have changed significantly the policies of the company...

...The stage was set for effective severance of the last vestiges of shareholder control over corporate management...

...Second, members of the organization would develop the habit of sending all proxies to the organization to be summarized and voted in accordance with the instructions given by the member shareholder or at the discretion of the organization...

...It also describes the near-panic which grips corporate management when its self-perpetuating dynasty is threatened...

...He is fed up with the management dynasties running his corporation as their own private fiefdom...

...On the official proxy form the shareholder cannot vote for any director except those nominated by management...

...The stock market crash vividly demonstrated that the interests of management and the shareholders were not nearly so similar as they appeared on the surface...

...Banks and trust companies, for example, are major allies of management...

...The most common of these practices take the form of stock options, savings and investment plans, bonuses, and elaborate pension programs...

...It did not even involve a challenge to the line of succession...

...It is difficult to be anything but sympathetic with management if the trust department is conscious that the bank has a multi-million dollar deposit of the corporation...

...Alpha Smaby's excellent account in this issue of The Progressive of a consumer group challenging a billion dollar utility illustrates several points: First, it proves that a group of consumers, regardless of how dedicated, is no match for a monopoly corporation...

...The futility of the shareholder's position is apparent when one considers that anyone attempting to oppose the recommendations of management must personally finance his own campaign efforts while the campaign costs in connection with the management recommendations can draw on the total resources of the corporation...

...The management of insurance companies also tends to identify with the managerial dynasties...

...Time and events have made the occupants of those suites answerable only to themselves—a dynasty of power which is self-perpetuating and responsible for its line of succession...

...It is also difficult to be negative or hostile if the same trust department has been designated by the corporation as trustee under a pension fund or under a savings and investment program...

...Brokerage and investment banking houses are also aligned with management...

...All of the above practices masquerade under the title of "management incentives...

...They recognize that a challenge to the system poses a challenge to all...

...If he had held the stock for the period through February 5, 1974, the market price of his share would have declined to $24.25 to produce a loss of $5.63...

...Then came the stock market crash, the Great Depression, and World War II...

...cause she could have been used in the "corporate showcase...

...If this were an isolated case, it would not be serious...

...This cannot be accomplished through the sale of stock because the corporate management to be monitored would promptly buy up control of the organization...

...In other words, the shareholders not only did not receive a significant amount of dividends, but they had their retained earnings diluted through the issuance of options...

...In the Alpha Smaby account only the exclusiveness of the royal court was involved...

...Profits are supposed to be the reward for providing society with goods and services at competitive prices...

...the arithmetic mean price was $29.88...

...He can attempt to compete with management in the solicitation of proxies...

...It cannot let itself become a consumer advocate except to the extent that quality products produce profits and dividends...

...Technological progress was accompanied by a need for massive capital commitments...

...But, it is more typical than not...

...The management of investor-owned corporations is required to have only one overpowering objective: to enrich corporate shareholders without violating the laws protecting all other segments of society...

...It is understandable, however, that the shareholders did not cry out about these practices...

...During the early part of the Twentieth Century, management owned a relatively large percentage of the outstanding stock...

...It is returned to the company...

...Mutual funds, company-administered profit sharing funds, and various savings and investment plans are also vehicles to maintain control by the managerial hierarchies...

...Then the World War II period strained the nation's economic muscle to the breaking point and brought with it spectacular increases in personal and corporate taxes...

...It has been plagued by two hot wars, several warm ones, inflation, and a constant Cold War cloud...

...Therefore, it is difficult to know how many negative proxies "get lost in the mail...

...They are returned to an officer of the corporation in a self-addressed envelope...

...He can, of course, appear in person to nominate directors or to vote on any issue...

...In this regard, the interests of the non-management shareholders and management were the same...

...This explains the tolerance of shareholders to actions by management which violate the letter or the spirit of the law or both...

...Such a group cannot permit itself to become identified with social issues, except to the extent that such issues affect profits and dividends...

...The state created the monopoly and only the state can regulate it...

...Management should be looked upon as corporate employes who hold office for the expressed purpose of promoting the interests of the shareholders...

...The effect of this severing of ownership and control has been to create an autonomous managerial class— one which is often completely contemptuous of shareholder rights...

...Such blank proxies would eliminate the risks involved in giving a management designee the blank check of casting the vote at his or her or their discretion on "any other matters which may properly come before the meeting...

...In the first place, it was desirable to achieve some form of continuity...

...He has had too much experience with investments in firms reporting impressive profits in which he did not share...

...Amazing but true—options issued at $3.97 below the lowest book value per share during the entire period and $12.33 below the highest book value...

...It is representative of practices which pose a substantial threat to the concept of investor-owned industry and the free market...

...If the members were unhappy with the way the organization was being run, they could simply drop their membership and cut off the flow of funds...

...The communications between the corporate shareholders and corporate management would be improved...

...By characterizing all opposition as a threat to the basic interests of the shareholders, management has been able to mobilize the sympathy and support of the shareholders in defense of its own selfperpetuating dynasty...

...The solution lies in an organization of shareholders dedicated exclusively to protecting the interests of the shareholders...

...Is the separation of shareholders from control over the corporation they own something new...

...Management maintains control over corporations where, in some cases, all the officers and directors collectively own less than 2 per cent of the outstanding stock...

...The price fixing practiced by some electric equipment manufacturers in the mid-1950s illustrates their willingness to violate the rules of the free market...

...The third point is more ominous because it describes the enormous power of corporate management in an investor-owned corporation...

...Every controversial question would have been resolved by a 13 to 1 vote of the directors...