Social legislation and social activity

by American Academy of Political and Social Science

(m) That the company reserves the right to issue for capital account preferred stock with cumulative dividends, which new issues shall in every particular outrank all issues of deferred stock debentures; it being provided, however (as above set forth), that the holders of these debenture books shall have the prior right to subscribe, pro rata, to fifty (50) per cent of any and all of said new issues of stock.

The amount to be set aside to the contingent fund shall be paid in cash, and may be invested in legal and marketable securities. This fund shall be held in the first place to make good to the company any excessive business losses that cannot be met out of the current profits of the concern. It will also purchase at par the debenture books of deceased employees; and any accumulation of income therein shall be used as a basis for sick benefits, etc., upon such a uniform plan as the amounts thereof will warrant, the disposition of the available income for that purpose to be placed as largely as practicable in the hands of the employees.

The proposition is that the above treatment of profits shall be continued annually from year to year, so that at the end of the second year of its operation—after the payment of the regular cash dividends upon the common (and preferred) stock out of that year’s net profits and the payment into the contingent fund—the dividend on the deferred stock debentures shall be declared and paid upon the amount thereof held by said trustee; and for the remainder of the surplus earnings for the second year another issue of deferred stock debentures shall be made to said trustee, one-half for the use of the common stockholders and the other half as extra wages to be held for the use of the employees, and that the amount thereof to which each employee is entitled to credit shall again be determined as above set forth, and shall be entered in the respective debenture books and added to the amounts of the previous similar credit, and so on from year to year, it being provided as above set forth, that in case the company could not make advantageous use of this increase of capital it shall have the option of disbursing the amount in cash direct to the employee and stockholders.

Could the masters manipulate the bookkeeping so as to fleece the employees of the percentage of profits to which they were actually entitled? The writer believes that this could not be, and for the following reasons:

(a) It will be seen that under the plan as suggested, whatever action the management might take regarding the valuation of the assets and calculation of the annual profits, its decision would bear equally upon the interests of the stockholders and of the employees.

(b) If the management is overly conservative and the actual surplus assets are thereby cut down, the stock dividend to the trustee, representing both the employees and the stockholders, would be for that year unduly diminished; but such action could make little or no difference in the final result, as the actual surplus assets would still be intact, and if not shown in one year would surely appear in another. So that beyond a delay in the division thereof those in control of the bookkeeping would be powerless to discriminate against the employees, and as already shown an unfair settlement would bear equally upon capital and labor. Then, too:

(c) There could be little or no object in such an attempt, as it is not intended that the surplus, whatever the amount may be, shall be withdrawn from the business and distributed, but that the whole of the same shall be retained in the business (so long as it can be used advantageously), and under the plan as outlined all of these surplus earnings shall be capitalized and subordinated to the original investment and thus acting practically as a guarantee fund to protect and secure the same; and, again,

(d) It is a part of the plan that all employees, from the lowest form of unskilled labor to the highest salaried official, shall be sharers in the dividend to wages. Under such an arrangement it would be practically impossible for the owners to equivocate or to treat the question unfairly.

It will be generally conceded that the universal publication of the assets and liabilities of all business enterprises would greatly simplify and proportionately stimulate trade. With the added security against losses that such a system would assure, a liberal extension of credits would be the natural and a safe outcome. It is more difficult, however, to meet the question as to what effect the publication of the earnings, debts and resources would have upon the credit and general business of a single concern when in direct competition with others in the same class which continued to hold to the system of secrecy. It is clearly impossible to make a conclusive statement concerning this question. Whether the publication of accounts by one concern would work to the advantage or disadvantage of its secretive competitors seems wholly problematical. So far as we can see, however, indications point with some confidence to the ultimate success of that concern which does not conceal that of which their creditors of a right should be informed.

Regarding the probable effect upon the general business of the concern, it seems reasonable to claim that the liberal and just treatment of the employees will surely appeal to the public at large and that the advantage gained through the profitable influence that such action will have upon the concern’s constituency, especially among the buying public, would largely overbalance any possible disadvantage that could come as a result of the exposition of figures regarding the condition of its affairs.