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Chapter 10 Stockholder Season
A FEW YEARS AGO, a European diplomat was quoted in theTimes as saying, “The American economy has become so bigthat it is beyond the imagination to comprehend. But now ontop of size you are getting rapid growth as well. It is asituation of fundamental power unequalled in the history of theworld.” At about the same time, A. A. Berle wrote, in a studyof corporate power, that the five hundred or so corporationsthat dominate that economy “represent a concentration ofpower over economics which makes the medieval feudal systemlook like a Sunday-school party.” As for the power within thosecorporations, it clearly rests, for all practical purposes, with theirdirectors and their professional managers (often not substantialowners), who, Berle goes on to suggest in the same essay,sometimes constitute a self-perpetuating oligarchy. Mostfair-minded observers these days seem to feel that thestewardship of the oligarchs, from a social point of view, isn’tanything like as bad as it might be, and in many cases ispretty good, yet, however that may be, the ultimate powertheoretically does not reside in them at all. According to thecorporate form of organization, it resides in the stockholders, ofwhom, in United States business enterprises of all sizes anddescriptions, there are more than twenty million. Even thoughthe courts have repeatedly ruled that a director does not haveto follow stockholder instructions, any more than acongressman has to follow the instructions of his constituents,stockholders nevertheless do elect directors, on the logical, if notexactly democratic, basis of one share, one vote. Thestockholders are deprived of their real power by a number offactors, among which are their indifference to it in times ofrising profits and dividends, their ignorance of corporate affairs,and their sheer numbers. One way or another, they vote themanagement slate, and the results of most director electionshave a certain Russian ring—ninety-nine per cent or more ofthe votes cast in favor. The chief, and in many cases the only,occasion when stockholders make their presence felt bymanagement is at the annual meeting. Company annualmeetings are customarily held in the spring, and one spring—itwas that of 1966—I made the rounds of a few of them to geta line on what the theoretical holders of all that feudal powerhad to say for themselves, and also on the state of theirrelations with their elected directors.
What particularly commended the 1966 season to me wasthat it promised to be a particularly lively one. Various reportsof a new “hard-line approach” by company managements tostockholders had appeared in the press. (I was charmed by thenotion of a candidate for office announcing his new hard-lineapproach to voters right before an election.) The newapproach, it was reported, was the upshot of events at theprevious year’s meetings, where a new high in stockholderunruliness was reached. The chairman of the CommunicationsSatellite Corporation was forced to call on guards to eject bodilytwo badgering stockholders at his company’s meeting, inWashington. Harland C. Forbes, who was then the chairman ofConsolidated Edison, ordered one heckler off the premises inNew York, and, in Philadelphia, American Telephone &Telegraph Chairman Frederick R. Kappel was goaded intoannouncing abruptly, “This meeting is not being run byRobert’s [Rules of Order]. It’s being run by me.” (Theexecutive director of the American Society of CorporateSecretaries later explained that precise application of Robert’srules would have had the effect not of increasing thestockholders’ freedom of speech but, rather, of restricting it. Mr.
Kappel, the secretary implied, had merely been protectingstockholders from parliamentary tyranny.) In Schenectady,Gerald L. Phillippe, chairman of General Electric, after severalhours of fencing with stockholders, summed up his new hardline by saying, “I should like it to be clear that next year, andin the years to come, the chair may well adopt a morerigorous attitude.” According to Business Week, the GeneralElectric management then assigned a special task force to thejob of seeing what could be done about cracking down onhecklers by changing the annual-meeting pattern, and early in1966 the bible of management, the Harvard Business Review,entered the lists with an article by O. Glenn Saxon, Jr., thehead of a company specializing in investor services tomanagement, in which he recommended crisply that thechairmen of annual meetings “recognize the authority inherentin the role of the chair, and resolve to use it appropriately.”
Apparently, the theoretical holders of fundamental powerunequalled in the history of the world were about to be put intheir place.
ONE thing I couldn’t help noticing as I went over the scheduleof the year’s leading meetings was a trend away from holdingthem in or near New York. Invariably, the official reason givenwas that the move would accommodate stockholders from otherareas who had seldom, if ever, been able to attend in the past;however, most of the noisiest dissident stockholders seem to bebased in the New York area, and the moves were taking placein the year of the new hard line, so I found the likelihood of arelationship between these two facts by no means remote.
United States Steel holders, for example, were to meet inCleveland, making their second foray outside their company’snominal home state of New Jersey since its formation, in 1901.
General Electric was going outside New York State for the thirdtime in recent years—and going all the way to Georgia, a statein which management appeared to have suddenly discoveredfifty-six hundred stockholders (or a bit more than one per centof the firm’s total roll) who were badly in need of a chance toattend an annual meeting. The biggest company of them all,American Telephone & Telegraph, had chosen Detroit, whichwas its third site outside New York City in its eighty-one-yearhistory, the second having been Philadelphia, where the 1965session was held.
To open my own meeting-going season, I tracked A.T.& T. toDetroit. Leafing through some papers on the plane going outthere, I learned that the number of A.T. & T. stockholders hadincreased to an all-time record of almost three million, and Ifell to wondering what would happen in the unlikely event thatall of them, or even half of them, appeared in Detroit anddemanded seats at the meeting. At any rate, each one of themhad received by mail, a few weeks earlier, a notice of themeeting along with a formal invitation to attend, and it seemedto me almost certain that American industry had achievedanother “first”—the first time almost three million individualinvitations had ever been mailed out to any event of any kindanywhere. My fears on the first score were put to rest when Igot to Cobo Hall, a huge riverfront auditorium, where themeeting was to take place. The hall was far from filled; theYankees in their better days would have been disgusted withsuch a turnout on any weekday afternoon. (The papers nextday said the attendance was four thousand and sixteen.)Looking around, I noticed in the crowd several families withsmall children, one woman in a wheelchair, one man with abeard, and just two Negro stockholders—the last observationsuggesting that the trumpeters of “people’s capitalism” mightwell do some coordinating with the civil-rights movement. Theannounced time of the meeting was one-thirty, and ChairmanKappel entered on the dot and marched to a reading stand onthe platform; the eighteen other A.T. & T. directors trooped toa row of seats just behind him, and Mr. Kappel gavelled themeeting to order.
From my reading and from annual meetings that I’d attendedin past years, I knew that the meetings of the biggestcompanies are usually marked by the presence of so-calledprofessional stockholders—persons who make a full-timeoccupation of buying stock in companies or obtaining theproxies of other stockholders, then informing themselves moreor less intimately about the corporations’ affairs and attendingannual meetings to raise questions or propose resolutions—andthat the most celebrated members of this breed were Mrs.
Wilma Soss, of New York, who heads an organization ofwomen stockholders and votes the proxies of its members aswell as her own shares, and Lewis D. Gilbert, also of NewYork, who represents his own holdings and those of hisfamily—a considerable total. Something I did not know, andlearned at the A.T. & T. meeting (and at others I attendedsubsequently), was that, apart from the prepared speeches ofmanagement, a good many big-company meetings really consistof a dialogue—in some cases it’s more of a duel—between thechairman and the few professional stockholders. Thecontributions of non-professionals run strongly to ill-informed ortame questions and windy encomiums of management, andthus the task of making cogent criticisms or askingembarrassing questions falls to the professionals. Though largelyself-appointed, they become, by default, the sole representativesof a huge constituency that may badly need representing. Someof them are not very good representatives, and a few are sobad that their conduct raises a problem in American manners;these few repeatedly say things at annual meetings—boorish,silly, insulting, or abusive things—that are apparently permissibleby corporate rules but are certainly impermissible bydrawing-room rules, and sometimes succeed in giving theannual meetings of mighty companies the general air ofbarnyard squabbles. Mrs. Soss, a former public-relations womanwho has been a tireless professional stockholder since 1947, isusually a good many cuts above this level. True, she is notbeyond playing to the gallery by wearing bizarre costumes tomeetings; she tries, with occasional success, to taunt recalcitrantchairmen into throwing her out; she is often scolding andoccasionally abusive; and nobody could accuse her of beingunduly concise. I confess that her customary tone and mannerset my teeth on edge, but I can’t help recognizing that,because she does her homework, she usually has a point. Mr.
Gilbert, who has been at it since 1933 and is the dean ofthem all, almost invariably has a point, and by comparison withhis colleagues he is the soul of brevity and punctilio as well asof dedication and diligence. Despised as professionalstockholders are by most company managements, Mrs. Sossand Mr. Gilbert are widely enough recognized to be listed inWho’s Who in America; furthermore, for what satisfaction itmay bring them, they are the nameless Agamemnons andAjaxes, invariably called “individuals,” in some of the prose epicsproduced by the business Establishment itself. (“The greaterportion of the discussion period was taken up by questions andstatements of a few individuals on matters that can scarcely bedeemed relevant.… Two individuals interrupted the openingstatement of the chairman.… The chairman advised theindividuals who had interrupted to choose between ceasing theirinterruption or leaving the meeting.…” So reads, in part, theofficial report of the 1965 A.T. & T. annual meeting.) Andalthough Mr. Saxon’s piece in the Harvard Business Reviewwas entirely about professional stockholders and how to dealwith them, the author’s corporate dignity did not permit him tomention the name of even one of them. Avoiding this wasquite a trick, but Mr. Saxon pulled it off.
Both Mrs. Soss and Mr. Gilbert were present at Cobo Hall.
Indeed, the meeting had barely got under way before Mr.
Gilbert was on his feet complaining that several resolutions hehad asked the company to include in the proxy statement andthe meeting agenda had been omitted from both. Mr. Kappel—astern-looking man with steel-rimmed spectacles, who wasunmistakably cast in the old-fashioned, aloof corporate mold,rather than the new, more permissive one—replied shortly thatthe Gilbert proposals had referred to matters that were notproper for stockholder consideration, and had been submittedtoo late, anyhow. Mr. Kappel then announced that he wasabout to report on company operations, whereupon theeighteen other directors filed off the platform. Evidently, theyhad been there only to be introduced, not to field questionsfrom stockholders. Exactly where they went I don’t know; theyvanished from my field of vision, and I wasn’t enlightenedwhen, later on in the meeting, Mr. Kappel responded to astockholder’s question as to their whereabouts with the laconicstatement “They’re here.” Going it alone, Mr. Kappel said in hisreport that “business is booming, earnings are good, and theprospect ahead is for more of the same,” declared that A.T. &T. was eager for the Federal Communications Commission toget on with its investigation of telephone rates, since thecompany had “no skeletons in the closet,” and then painted apicture of a bright telephonic future in which “picture phones”
will be commonplace and light beams will carry messages.
When Mr. Kappel’s address was over and themanagement-sponsored slate of directors for the coming yearhad been duly nominated, Mrs. Soss rose to make anomination of her own—Dr. Frances Arkin, a psychoanalyst. Inexplanation, Mrs. Soss said that she felt A.T. & T. ought tohave a woman on its board, and that, furthermore, shesometimes felt some of the company’s executives would bebenefited by occasional psychiatric examinations. (This remarkseemed to me gratuitous, but the balance of manners betweenbosses and stockholders was subsequently redressed, at least tomy mind, at another meeting, when the chairman suggestedthat some of his firm’s stockholders ought to see apsychiatrist.) The nomination of Dr. Arkin was seconded by Mr.
Gilbert, although not until Mrs. Soss, who was sitting a coupleof seats from him, had reached over and nudged himvigorously in the ribs. Presently, a professional stockholdernamed Evelyn Y. Davis protested the venue of the meeting,complaining that she had been forced to come all the wayfrom New York by bus. Mrs. Davis, a brunette, was theyoungest and perhaps the best-looking of the professionalstockholders but, on the basis of what I saw at the A.T. & T.
meeting and others, not the best informed or the mosttemperate, serious-minded, or worldly-wise. On this occasion,she was greeted by thunderous boos, and when Mr. Kappelanswered her by saying, “You’re out of order. You’re justtalking to the wind,” he was loudly cheered. It was only thenthat I understood the nature of the advantage that thecompany had gained by moving its meeting away from NewYork: it had not succeeded in shaking off the gadflies, but ithad succeeded in putting them in a climate where they weresubject to the rigors of that great American emotion, regionalpride. A lady in a flowered hat who said she was from DesPlaines, Illinois, emphasized the point by rising to say, “I wishsome of the people here would behave like intelligent adults,rather than two-year-olds.” (Prolonged applause.)Even so, the sniping from the East went on, and bythree-thirty, when the meeting had been in session for twohours, Mr. Kappel was clearly getting testy; he began pacingimpatiently around the platform, and his answers got shorterand shorter. “O.K., O.K.” was all he replied to one complaintthat he was dictatorial. The climax came in a wrangle betweenhim and Mrs. Soss about the fact that A.T. & T., although ithad listed the business affiliations of its nominees for director ina pamphlet that was handed out at the meeting, had failed tolist them in the material mailed out to the stockholders, theoverwhelming majority of whom were not at the meeting andhad done their voting by proxy. Most other big companiesmake such disclosures in their mailed proxy statements, so thestockholders were apparently entitled to a reasonableexplanation of why A.T. & T. had failed to do so, butsomewhere along the way reason was left behind. As theexchange progressed, Mrs. Soss adopted a scolding tone andMr. Kappel an icy one; as for the crowd, it was having a finetime booing the Christian, if that is what Mrs. Soss represented,and cheering the lion, if that is what Mr. Kappel represented.
“I can’t hear you, sir,” Mrs. Soss said at one point. “Well, ifyou’d just listen instead of talking—” Mr. Kappel returned. ThenMrs. Soss said something I didn’t catch, and it must have beena telling bit of chairman-baiting, because Mr. Kappel’s mannerchanged completely, from ice to fire; he began shaking hisfinger and saying he wouldn’t stand for any more abuse, andthe floor microphone that Mrs. Soss had been using wasabruptly turned off. Followed at a distance of ten or fifteen feetby a uniformed security guard, and to the accompaniment ofdeafening booing and stamping, Mrs. Soss marched up the aisleand took a stand in front of the platform, facing Mr. Kappel,who informed her that he knew she wanted him to have herthrown out and that he declined to comply.
Eventually, Mrs. Soss went back to her seat and everybodycalmed down. The rest of the meeting, given over largely toquestions and comments from amateur stockholders, ratherthan professional ones, was certainly less lively than what hadgone before, and not noticeably higher in intellectual content.
Stockholders from Grand Rapids, Detroit, and Ann Arbor allexpressed the view that it would be best to let the directorsrun the company, although the Grand Rapids man objectedmildly that the “Bell Telephone Hour” couldn’t be received ontelevision in his locality anymore. A man from Pleasant Ridge,Michigan, spoke up for retired stockholders who would like A.T.
& T. to plow less of its earnings back into expansion, so that itcould pay higher dividends. A stockholder from rural Louisianastated that when he picked up his telephone lately, the operatordidn’t answer for five or ten minutes. “Ah brang it to yourattention,” the Louisiana man said, and Mr. Kappel promised tohave somebody look into the matter. Mrs. Davis raised acomplaint about A.T. & T.’s contributions to charity, giving Mr.
Kappel the opportunity to reply that he was glad the worldcontained people more charitable than she. (Tax-exemptapplause.) A Detroit man said, “I hope you won’t let the abuseyou’ve been subjected to by a few malcontents keep you frombringing the meeting back to the great Midwest again.” It wasannounced that Dr. Arkin had been defeated for a seat on theboard, since she had received a vote of only 19,106 sharesagainst some four hundred million, proxy votes included, foreach candidate on the management slate. (By approving themanagement slate, a proxy voter can, in effect, oppose a floornomination, even though he knows nothing about it.) And thatwas how the 1966 annual meeting of the world’s largestcompany went—or how it went until five-thirty, when all but afew hundred stockholders had left, and when I headed for theairport to catch a plane back to New York.
THE A.T. & T. meeting left me in a thoughtful mood. Annualmeetings, I reflected, can be times to try the soul of anadmirer of representative democratic government, especiallywhen he finds himself guiltily sympathizing with the chairmanwho is being badgered from the floor. The professionalstockholders, in their wilder moments, are management’s secretweapon; a Mrs. Soss and a Mrs. Davis at their most stridentcould have made Commodore Vanderbilt and Pierpont Morganseem like affable old gentlemen, and they can make a latter-daymagnate like Mr. Kappel seem like a henpecked husband, if notactually a champion of stockholders’ rights. At such moments,the professional stockholders become, from a practicalstandpoint, enemies of intelligent dissent. On the other hand, Ithought, they deserve sympathy, too, whether or not onebelieves they have right on their side, because they are in theposition of representing a constituency that doesn’t want to berepresented. It’s hard to imagine anyone more reluctant toclaim his democratic rights, or more suspicious of anyone whotries to claim them for him, than a dividend-fattenedstockholder—and, of course, most stockholders are thoroughlydividend-fattened these days. Berle speaks of the estate ofstockholding as being by its nature “passive-receptive,” ratherthan “managing and creating;” most of the A.T. & T.
stockholders in Detroit, it seemed to me, were so deeplydevoted to the notion of the company as Santa Claus that theywent beyond passive receptivity to active cupboard love. Andthe professional stockholders, I felt, had taken on anassignment almost as thankless as that of recruiting for theYoung Communist League among the junior executives of theChase Manhattan Bank.
In view of Chairman Phillippe’s warning to General Electricstockholders at Schenectady in 1965, and of the report aboutthe company’s hard-line task force, it was with a sense ofbeing engaged in hot pursuit that I boarded a southboundPullman for the General Electric annual meeting. This one washeld in Atlanta’s Municipal Auditorium, a snappy hall, the rearof which was brightened by an interior garden complete withtrees and a lawn, and in spite of the fact that it was held ona languorous, rainy Southern spring morning, more than athousand G.E. stockholders turned out. As far as I could see,three of them were Negroes, and it was not long before I sawthat another of them was Mrs. Soss.
However exasperated he may have become the previous yearin Schenectady, Mr. Phillippe, who also conducted the 1966meeting, was in perfect control of himself and of the situationthis time around. Whether he was expatiating on the wondersof G.E.’s balance sheet and its laboratory discoveries or sparringwith the professional stockholders, he spoke in the samesingsong way, delicately treading the thin line between patient,careful exposition and irony. Mr. Saxon, in his HarvardBusiness Review article, had written, “Top executives arefinding it necessa............
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