Evening Republican, Volume 14, Number 296, Rensselaer, Jasper County, 14 December 1910 — NEW ERA IN FINANCE [ARTICLE]

NEW ERA IN FINANCE

ACCURACY AND PUBLICITY PROVES TO BE A POPULAR MOTTO.

Prompt Response to Bold Move of President Vail.—" Accuracy” Reduced Western Union’s Surplus $13,000,000.—“ Publicity” Restored Confidence and Its Stock Went Up. Are the great financiers of the country beginning to see a new light? Time was, until recently in fact, when the men at the head of the big corporations “kept their business to themselves,” as far as the law would allow. Capable men at the head of the big concerns, long realized the weakness of their position, but what was needed obviously, as in all great reforms, was an unmistakable occasion and a courageous man. The occasion arose in the purchase of the Western Union Telegraph company by the American Telephone and Telegraph company, and the man appeared m Theodore N. Vail, President of the purchasing corporation. It was last December when public announcement was made that the Gould holdings of Western Union had been taken over by the Telephone company. On account of the high esteem In which the management of the telephone company is so generally held, great things were predicted as a result of the absorption of Western Union. By the press of the country the “deal” was most favorably commented on, it being widely pointed out that under the direction of such men as Theodore JJ. Vail and his associates, the telegraph company was bound soon to work itself into a position where It could offer the public far more efficient service than it had ever before been able to offer.

But a very few months had elapsed when it, became apparent to the new management that a modern and up-to-date appraisal of the company’s assets would make possible a far greater degree of efficiency of operation. “Here," they said to themselves, “we’ve bought control of this property and we know it’s immensely valuable, but we don’t know just how valuable. These appraisals of real estate and securities owned were made a long time ago. If we have a complete inventory made of every thing we ve got we can announce the facts to the public, start a new set of books, and begin our responsibility to stockholders right there.” How Inventory Was Taken. The most expert accountants and appraisers to be had were put at the task. Their labors lasted over eight months. Their report and its publication by the company marks an epoch in finance. It began by recommending an adjustment of the difference between the appraised and book values by a charge of $5,595,089 against surplus. Book valuer of securities held were reduced to market values, bad and doubtful accounts were “charged off,” an allowance of $2,000,000 was made for “depreciation,” another of $500,000 for “reserve,” and so on, until the old surplus of $18,867,000 came down to $5,136,000. It required courage, the publication of this statement to stockholders, saying in effect: “The property of your company has been revalued: the surplus isn’t nineteen millions, as you have been led to believe, but five millions,” but it was the truth, and President Vail did not flinch. “Accuracy ana publicity,’’ he declared, was essential. “The stockholder has a right to know. The shares of this company are scattered from one end of the Union to the other. This is more than a private corporation. It is a great national enterprise. The public is entitled to the facts.” The report was ordered published forthwith. Financiers of the old school and speculators generally were aghast. What would happen? Would the bottom drop out of Western Union when the shareholders realized that their propetry was worth $13,000,000 less than they had supposed? But the amazing thing happened. The stock went up and stayed up. The public had responded to this remarkable display of frankness and confidence: to the new motto, “Accuracy and Publicity.” The full significance of the action of the new board is stated concisely by Harper’s Weekly in these words: “Is this policy of publicity and of open-handed dealing with shareholders and public the forerunner of a similar movement on the part of other big corporations? Certainly it is to be hoped that it is. In the case of these big companies, dependent upon public patronage and doing business under public franchise, can there be any question of the right of the people to know? “That right is being recognized. It is recognized now in this epochal act on the part of the telephone and telegraph interests. It is the dawn of a new era corporation finance.”