Management Of Our Industrial Enterprises
( Originally Published Early 1900's )
IN considering the great subject of industrial enterprises, the first thing that naturally strikes the prudent man of general business, is the character of the financial management of these institutions. Usually, the management is most faulty in its failure to make periodical statements of their condition, and the favored few in the inner confidence of the managers have advantages in the general market to which they are not justly entitled. The fact that industrials are possessed of double attributes, of public and private nature combined, opens the way to abuse of official power, which may frequently happen with an honest purpose but with an intense desire to assert private independence against what may be regarded as public intermeddling with private affairs. An inability to perceive fine distinctions between two sets of obligations of this dual character and the natural tendency in human nature to follow the selfish purpose in the first instance, may lead to official delinquency toward the public interests, where the original intention was only a matter of self-assertion or a sensitive desire to stand upon personal dignity and personal rights. But after such a habit of action has been some time indulged, it may assume a grosser aspect in which delicacy of feeling and lofty notions of self-respect play but little part, the change in the man's nature or the management's nature and principles having been wrought through an appeal to his avaricious propensities, and so blunting his perceptions that he becomes incapable of drawing a fine distinction between meum et tuum. Unfortunately, it is such a spirit that pervades the management of many of these industrials, in consequence of which they have been viciously deflected from their true intent and purpose. This deflection has occurred through ignorance of the end in view, or in forgetfulness that to aim at the greatest good is often the best means of attaining one's own individual benefit. In truth, avarice is seldom capable of adopting any broad view, and this vice is one of the worst influences with which the industrials have had to contend, and there seems to be but one power that can prevent its invading both public and private rights. I have no contention with those who hold the doctrine of moral suasion in cases of this kind; I am considering the practical phase of the subject, and I fear that nothing but the strong arm of the law will be found satisfactorily effective. Of course the moral sense is an important factor to cultivate in maintaining the laws of society and business equity, but where this quality becomes atrophied, as in many cases of industrial management, the ends of justice require firmer measures of reform. In plain terms, it is utterly useless to preach the moral law to a man who has an idea that he is doing an able and meritorious act in laying schemes to plunder his neighbor in a way that the latter cannot detect or expose because the methods adopted are such as the public have been taught to think consistent with good business methods. Nor will the doctrine of passive submission help that neighbor to secure his rights. It will only render him more liable to be victimized. The corporation idea when applied to industrial enterprises was, and is, calculated to confer the greatest benefits on humanity that human ingenuity and energy can bestow. Rightly applied, it is the most effective instrument for moving the forces that produce wealth and happiness; and there is no happiness in poverty nor morality in destitution, no matter what theorists may say. The existence of the corporation is absolutely necessary in this age of progress and development, to give inventions a chance of exhibiting their capacity and of conferring their illimitable boons and blessings upon mankind. It enables an aggregate of individuals to put their capital and energy together so as to act as one gigantic individual and to overcome obstacles that can be put aside by no other means. It is the practical faith in our day and generation that removes mountains. But still this naturally benevolent giant is not infrequently possessed by the vile demon of avarice to which I have just referred, and the problem is how to exorcise the demon. Our legislative machinery should, in my opinion, be equal to this task. The periodic examinations of the financial management of all industrial enterprises can readily be made effective to cut off the opportunity for plunder. I admit that this treatment is suggestive of very radical measures; but " desperate cases require desperate remedies" is a medical adage quite applicable to business maladies. Now comes the most delicate part of my task. There is no use in firing bullets in the air and losing ammunition upon game that is beyond our range. We must give cases in point, rather than generalities; we must point out the very concerns in which the faulty secretiveness exists, and without beating about the bush. A few of the most conspicuous of these are briefly termed in the everyday language of the stock exchange: "Tobacco," " Leather," "Whiskey," " Ice," and " Sugar." If these, and others similar to them, had been subjected to the ordeal of a thorough investigation by expert accountants, and their true financial condition laid before the public, an innumerable number of serious losses would have been prevented from falling upon innocent and worthy people, nor would the enterprises in question have been exposed to the reproach now cast upon them by victims and others. Some people draw a distinction between dishonest and unwise methods in the financial management of such properties, and many methods are indeed unwise without being at all dishonest or criminal. Ultimately, however, they wreck the property just the same as in the cases of Cordage, Whiskey, and of numerous railroads, a mere catalogue of which would extend this chapter far beyond the limits of its allotment. There are also many in the railroad list furnishing illustrations of similarly faulty financial methods. Some of these have exhibited peculiar methods, if not delinquencies, in bookkeeping, which should have undergone more rigid investigation than they have received; and the guilty parties should have been held responsible for their acts, which brought about the financial downfall of so many great railway corporations in the memorable panic of I893. The investigation of the refunding committee of the Pacific railroads at Washington brought out most remarkable evidence from one of the principal witnesses, who stated that the books connected with the construction of the road had been burned or destroyed as useless trash involving the superfluous expense of room rent, though they contained the record of transactions involving hundreds of millions of dollars, a record which became absolutely necessary to a fair settlement between the government and its debtors. Also, the fact was put in evidence that a certain party in interest had testified before another committee, on a former occasion, that he was present when $54,000,000 of profits were divided equally among four partners, himself and three others. None of the books of record containing this valuable information escaped from the flames. Now, under a system of public examination as often as once a year at least, by experts trained for that special purpose, no such valuable evidence could be destroyed, and I believe that industrials would be capable of fulfilling the highest aims of their beneficent purpose as originally conceived by their first organizers; that is, to cheapen production, in order that consumers might reap by far the larger portion of the profits derivable from this cause, after a fair remuneration to management and shareholders. Though it would take volumes to ventilate this subject fully, yet I think the matters to which I have referred and the means of reform which I have suggested, strike at the root of some of the worst abuses relating to the speculative management and manipulation of industrial securities. The "scoops" which have become so frequent and so terrible a scandal in speculative circles, and which have brought such unmerited odium on the legitimate business of Wall Street, would be hardly possible under a system of surveillance with a syndicate of expert, honest, responsible accountants as the keystone of its arch, and under government or state supervision. The more attentively and closely this subject is examined, the more clearly does it appear that the place of financial management in the industrial organization largely determines its success or failure. The power and ability of the capital to increase are liable to be crippled in every attempt if the financial management is slow to perceive the requirements for this end. The surplus must be carefully watched, and not wasted in superfluous expenses; for it is through the persistent law of aggregation by means of the surplus that the industrial concern achieves its great development and expansion over other methods of enterprise. Not the least important advantage resulting from prudent, honest, and capable management is in preventing state interference beyond the limits of salutary supervision, as before indicated, and in leaving no excuse for state control, which might prove destructive of the highest aims of the legitimate industrial, and deprive it of its greatest potentialities.