WHY OLIGARCHY FAILS
Banker-management fails, partly because the private interest destroys soundness of judgment and undermines loyalty. It fails partly, also, because banker directors are led by their occupation (and often even by the mere fact of their location remote from the operated properties) to apply a false test in making their decisions. Prominent in the banker-director mind is always this thought: “What will be the probable effect of our action upon the market value of the company’s stock and bonds, or, indeed, generally upon stock exchange values?” The stock market is so much a part of the investment-banker’s life, that he cannot help being affected by this consideration, however disinterested he may be. The stock market is sensitive. Facts are often misinterpreted “by the street” or by investors. And with the best of intentions, directors susceptible to such influences are led to unwise decisions in the effort to prevent misinterpretations. Thus, expenditures necessary for maintenance, or for the ultimate good of a property are often deferred by banker-directors, because of the belief that the making of them now, would (by showing smaller net earnings), create a bad, and even false, impression on the market. Dividends are paid which should not be, because of the effect which it is believed reduction or suspension would have upon the market value of the company’s securities. To exercise a sound judgment in the difficult affairs of business is, at best, a delicate operation. And no man can successfully perform that function whose mind is diverted, however innocently, from the study of, “what is best in the long run for the company of which I am director?” The banker-director is peculiarly liable to such distortion of judgment by reason of his occupation and his environment. But there is a further reason why, ordinarily, banker-management must fail.