The result of this vice in the formation of the company is shown in corporations which have amassed a large reserve. There it will be seen that the owners of one hundred thousand dollars of stock absolutely control the entire management and disposition of twenty, thirty, or forty millions of accumulations, as the case may be; and the real owners of this fund—the policy-holders—have no voice in its management and no vote for the body or board which exercises the powers of the corporation.
It is contended by very prominent gentlemen in the life insurance business, that this plan is the only safe one; that interference in the management of the company by uninstructed policy-holders, not versed in the business, would be productive of nothing but evil. They contend that the necessary unity of management required for a business, covering as this does long periods of time, and requiring carefully laid plans extending into the distant future, would be greatly endangered by the existence of a right to participate in the management by representation on the part of so numerous and so widely scattered a constituency. In other words, the managers of companies which have retained in the hands of the stock-holders all the powers of the corporation think that those powers are more safely exercised by that small body than they would be if participated in by all the holders of policies. It may be doubted, however, whether a constituency small in number and capable of manipulation, and their votes of concentration into the hands of a few men, is the safest body to manage a corporation whose chief business is the care of the accumulations arising from the trust imposed upon the corporation by the contract of life insurance. The power of wielding a mass of capital amounting to many millions of dollars is an enormous power, and it should be reposed only in a body which should be responsible for the careful, honest administration of the trust, at stated intervals, to the persons most interested—that is, to the policy-holders—the owners of the trust fund. One of the chief characteristics of English companies is, that at the annual meeting of the interested persons a full statement of the affairs of the company is laid before the meeting, and an opportunity offered of critical examination and comment. Discontent is thus allowed a safety valve to express itself through, and the managers an opportunity of explaining their action and accounting for their conduct. Public opinion—the public opinion of the persons interested—is allowed a chance of expression, and all misunderstandings and misconceptions an opportunity for examination and refutation. The right to interrogate the managers, and ask and obtain information as to the business at such regularly recurring intervals, is an inestimable one. It can hardly be conceived possible that great abuses could grow up if such a right existed; but at any rate it is apparent that the probability of such abuses is lessened to a great extent.
But this English practice is not known among us. In life insurance affairs we have nothing remotely approaching it. It seems to have been the policy of our companies to restrict participation in their management to the smallest possible number, to avoid opportunities for questioning or explanation, and to shroud the business in the deepest mystery.
The officers of companies responsible for this policy justify themselves upon the broad ground that they know better what is good for the policy-holders than they do themselves. In the light of the evidence given before the Committee of the Assembly by life insurance officers, and in the light of the affairs of the Continental, Security, and Popular, it may be doubted whether this assertion proves itself. It has the merit, however, that every honest avowal has, and it is entitled to examination.
Why should a self-electing, self-perpetuating proprietary board, resting upon a constituency composed solely of owners of the capital stock, be a safer or better management than one elected by the votes of the policy-holders at large? The only answer you can get to that query is this: The board elected by the stock-holders are sure of their position, and it is not in the power of a few malcontents to get up a secret movement to oust them at the election. The more stable management is to be preferred to one which is dependent on the popularity of the officers with the policy-holders. It is in the nature of things that the officers should become more or less unpopular. The business depends for success upon the enforcement of strict rules in dealing with the policy-holders, and the enforcement of these strict rules, although absolutely necessary for the success of the business, naturally tends to give fancied grievances to the persons against whom they are enforced. If, therefore, the tenure of office of the management depends upon the policy-holders, there is the constant danger of frequent attempts at revolution arising from this cause, and the consequent weakness of the officers in enforcing rules the enforcement of which may tend to shorten their tenure of office.
I think I have fairly stated the argument. Is there anything in it? Is the reason given any reason at all? Is it not rather a positive argument against the system. Perhaps the best government for men and companies is an absolute monarchy, without accountability or restraint; there are large masses of the human race who are so governed; and it is an open question yet whether government by the people be or be not the best government. But certainly one thing is assured. In this day and in this country the monarchical and the oligarchical systems are out of date and out of place; and all attempts to introduce them or the principles which underlie them into our system of free government by the representatives of the governed will be failures. The doctrine of paternal government is "played out" in affairs of nations, and it is not to be supposed that the principle has in it any greater efficacy when applied to the affairs of corporations. The fact is, we have too much of this thing in all our relations political and social. The idea that there is a class who are in their own estimation better able to govern than the rest of mankind has been exploded by the experience of the people of this country, and it is intolerable that we should be forced to do homage in our private affairs to a principle which we have, as regards public business, exploded long ago as a traditional fallacy.
Most of the evil practices which have made the whole system of life insurance a by-word and the scorn of the people, have arisen under this irresponsible management. Investments in extravagant buildings, the enormous expenditures for payments of salaries to officers and to agents, are all the result of the secret plan of management. Does any one suppose that if the affairs of the companies were fully and completely exposed to the public, such payments would be permitted or tolerated? Men are entitled to be paid for services rendered the full equivalent of those services, but they ought not to be allowed to be the sole judges of the value of those services, and they ought to be at all times ready and willing to come before the persons interested, and submit a full, fair, and clear account of their stewardship. Human nature is of the same quality in the managers of life insurance companies as in other men. Responsibility to some power, accountability to some persons or body, is absolutely essential to honest management. Men who know that they cannot or will not be called to account will fall into loose and unbusinesslike methods and practices. Nothing can be more dangerous to the honesty of a man than to place him in charge of immense interests without a system of periodical accountability. A man may be ever so honest, yet he will, if this accountability be absent, be led to do things which he never would do if he were sure that at a fixed period his doings would become known and he would be required to justify them.
From these considerations and on these grounds, I come to the conclusion that the management of a life insurance company by a board of directors elected solely by the stock-holders is a management which contains within itself the germs of a fatal disease, which will sooner or later develop itself. In this respect legislation is needed. Such a management ought to be forbidden, and a provision made for the election of trustees by the policy-holders as well as the stock-holders, upon a basis as to the vote and the amount of interest it should represent which would be equitable and just.
Complaints have been made against the use of proxies in elections. Notably these complaints have been made respecting elections in the Mutual Life Insurance Company, a corporation which has no stock-holders, but which consists in a membership of its policy-holders. These policy-holders have the supreme control of the corporation in their own hands. Its government is by them delegated to a board of trustees thirty-six in number, divided into four classes of nine in each class. The term of office is four years, so that nine trustees go out of office in each year. This classification prevents the possibility of any sudden change of management, while it leaves all needed control in the hands of the policy-holders. If, for instance, dissatisfaction with the management exists, and nine new trustees are elected, it is not to be doubted but that the warning would be listened to and the necessary change of policy effected to satisfy the constituency. On the other hand, should the change of trustees be the result of a combination to seize the management of the company for any improper purpose, the first election would unmask the design and insure its defeat by an appeal to the voters.
The objections to the use of proxies come entirely from those policy-holders who have been defeated by their use, or fear they will be defeated by their use, in an attempt to change the management. Does not this prove that the great body of policy-holders believe in the management and are determined to sustain it. In a free company based upon the liberal principles upon which the Mutual Life is established, any attempt to limit the franchise would be an unparalleled wrong. The policy-holder in Chicago or in San Francisco has the same right to exercise his right to a voice in the election of trustees as the policy-holder who resides in New York, and there can be no reason why he should not cast his vote by proxy, since it would result in his disfranchisement to require him to do it in person. Be sure that if real trouble arose, and there was an abuse to rectify, if there were officers unmindful of their duties to rebuke, or trustees regardless of their trust to set aside, the votes cast by proxy would be as intelligently given as those of the residents immediately near the office who could attend in person. Every effort to limit the right to vote by proxy is an attempt to perpetuate power in the hands of the policy-holders resident here, which would be quite as obnoxious to sound principles as the government of companies solely by the stockholders.