For the first time since the meeting began directors exchanged uneasy glances. A policy established long ago by the bank’s founder, Giovanni Rosselli, had First Mercantile American Bank taking the lead in underwriting and selling bond issues of small municipalities in the state. Without such aid from the state’s largest bank, such bond issues—never large, important, or well known—might go unmarketed, leaving financial needs of their communities unmet. The tradition had been faithfully adhered to by Giovanni’s son, Lorenzo, and grandson Ben. The business was not especially profitable, though neither did it represent a loss. But it was a significant public service and also returned to small communities some of the money their own citizenry deposited in FMA.
“Jerome,” Leonard Kingswood suggested, “maybe you should take another look at that situation.”
There were murmurs of assent.
Roscoe Heyward made a swift assessment. “Jerome … if I may.”
The bank president nodded.
“In view of what seems a sentiment of the board,” Heyward offered smoothly, “I’m certain we can make a fresh appraisal and perhaps restore a portion of municipal bond funding without impeding any of the Supranational arrangements. May I suggest that the board, having made its feelings clear, leaves details to the discretion of Jerome and myself.” Notably, he did not include Alex.
Nods and voices signified agreement.
Alex objected, “That’s not a full commitment, nor does it do anything to restore home mortgages and small loans.”
The other board members were pointedly silent.
“I believe we’ve heard all viewpoints,” Jerome Patterton suggested. “Perhaps we can now vote on the proposal as a whole.”
“No,” Alex said, “there’s still one other matter.”
Patterton and Heyward exchanged glances of half-amused resignation.
“I’ve already pointed to a conflict of interest,” Alex stated somberly. “Now I warn the board of an even larger one. Since negotiation of the Supranational loan, and up to yesterday afternoon, our own trust department has bought”—he consulted his notes—”one hundred and twenty-three thousand Supranational shares. In that time, and almost certainly because of the substantial buying with our trust clients’ money, the SuNatCo share price has risen seven and a half points which I’m sure was intended and agreed to as a condition …”
He was drowned out by protesting voices—Roscoe Heyward’s, Jerome Patterton’s, and those of other directors.
Heyward was on his feet again, eyes blazing. “That’s a deliberate distortion!”
Alex slammed back, “The purchasing is no distortion.”
“But your interpretation is. SuNatCo is an excellent investment for our trust accounts.”
“What makes it suddenly so good?”
Patterton protested heatedly, “Alex, specific transactions of the trust department are not a matter for discussion here.”
Philip Johannsen snapped, “I agree with that.”
Harold Austin and several others called out loudly, “So do I!”
“Whether they are or aren’t,” Alex persisted, “I warn you all that what is happening may be in contravention of the Glass-Steagall Act of 1933, and that directors can be held responsible …”
A half dozen more voices erupted angrily at once. Alex knew he had touched a sensitive nerve. While board members were undoubtedly aware that the kind of duplicity he had described went on, they preferred not to know of it specifically. Knowledge implied involvement and responsibility. They wanted neither.
Well, Alex thought, like it or not, they knew now. Above the other voices he continued firmly, “I advise the board that if it ratifies the Supranational loan with all its ramifications, we’ll regret it.” He leaned back in his chair. “That’s all.”
As Jerome Patterton pounded with his gavel, the hubbub quietened.
Patterton, paler than before, announced, “If there is no further discussion we will record a vote.”
Moments later the Supranational proposals were approved, with Alex Vandervoort the sole dissenter.
12
A coolness toward Vandervoort was evident when the directors resumed their meeting after lunch. Normally a two-hour morning session disposed of all board business. Today, however, extra time had been allotted.
Aware of the board’s antagonism, Alex had suggested to Jerome Patterton during lunch that his presentation be deferred until next month’s meeting. But Patterton told him curtly, “Nothing doing. If the directors are in a surly mood, you made them that way and you can damn well take your chances.”
It was an extraordinarily strong statement for the mild-mannered Patterton, but illustrated the tide of disfavor now running against Alex. It also convinced him that the next hour or so would be an exercise in futility. His proposals seemed certain to be rejected out of perversity, if for no other reason.
As directors settled down, Philip Johannsen set the mood by pointedly consulting his watch. “I’ve already had to cancel one appointment this afternoon,” the MidContinent Rubber chief grumbled, “and I’ve other things to do, so let’s keep it short.” Several others nodded agreement.
“I’ll be as brief as possible, gentlemen,” Alex promised when Jerome Patterton had introduced him formally. “My intention is to make four points.” He ticked them off on his fingers as he. spoke.
“One, our bank is losing important, profitable business by failing to make the most of opportunities for savings growth. Two, an expansion of savings deposits will improve the bank’s stability. Third, the longer we delay, the harder it will be to catch up with our many competitors. Fourth, there is scope for leadership—which we and other banks should exercise—in a return to habits of personal, corporate, and national thrift, neglected far too long.”
He described methods by which First Mercantile American could gain an edge over competitors—a higher savings interest rate, to the top legal limit; more attractive terms for one-to-five-year certificates of deposit; checking facilities for savings depositors as far as banking law allowed; gifts for those opening new accounts; a massive advertising campaign embodying the savings program and the nine new branches.
For his presentation Alex had left his usual seat to stand at the head of the boardroom table. Patterton had moved his own chair to one side. Alex had brought in, also, the bank’s chief economist, Tom Straughan, who had prepared charts displayed on easels for the board to view.
Roscoe Heyward had eased forward in his seat and was listening, his face expressionless.
As Alex paused, Floyd LeBerre interjected, “I have one observation right away.”
Patterton, his habit of politeness back in place, inquired, “Do you want to take questions as we go, Alex, or leave them to the end?”
“I’ll take Floyd’s now.”
“This isn’t a question,” the General Cable chairman said unsmilingly. “It’s a matter of record. I’m against a major savings expansion because if we do it we’ll be ripping our own gut. Right now we’ve big deposits from correspondent banks …”
“Eighteen million dollars from the savings and loan institutions,” Alex said. He had expected LeBerre’s objection, and it was valid. Few banks existed alone; most had financial ties with others and First Mercantile American was no exception. Several local savings and loan institutions maintained large deposits with FMA and fear that these sums would be withdrawn had deterred other proposed savings activity in the past.
Alex stated, “I’ve taken that into account.”
LeBerre was unsatisfied. “Have you taken into account that if we compete intensively with our own customers we’ll lose every bit of that business?”
“Some of it. I don’t believe all. In any case, new business we’ll generate should far exceed what’s lost.”
“So you say.”
Alex insisted, “I see it as an acceptable risk.”
Leonard Kingswood said quietly, “You were against any risk with Supranational, Alex.”
&nb
sp; “I’m not against risks. This is a far smaller risk. The two have no relation.”
Faces around the table mirrored skepticism.
LeBerre said, “I’d like to hear Roscoe’s view.”
Two others echoed, “Yes, let’s hear Roscoe.”
Heads turned to Heyward who had been studying his folded hands. He said blandly, “One doesn’t like to torpedo a colleague.”
“Why not?” someone asked. “It’s what he tried to do to you.”
Heyward smiled faintly. “I prefer to rise above that.” His face went serious. “I do, however, agree with Floyd. Intensive savings activity on our part would lose us important correspondent business. I do not believe any theoretical potential gain is worth it.” He pointed to one of Straughan’s charts indicating the geography of proposed new branches. “Board members will observe that five of the suggested branches would be in locations close to savings and loan associations who are large depositors with FMA. We can be sure that that will not escape their attention either.”
“Those locations,” Alex said, “have been carefully chosen as a result of population studies. They’re where the people are. Sure the S&Ls got there first; in many ways they’ve been more farsighted than banks like ours. But it doesn’t mean we should stay away forever.”
Heyward shrugged. “I’ve already given my opinion. I’ll say one thing, though—I dislike the entire idea of storefront branches.”
Alex snapped, ‘They’ll be money shops—the branch banks of the future.” Everything, he realized, was coming out contrary to the way he had intended. The subject of the branches themselves he had planned to get to later. Well, he supposed it made no difference now.
“From their description,” Floyd LeBerre said—he was reading an information sheet Tom Straughan had circulated—“those branches sound like laundromats.”
Heyward, also reading, shook his head. “Not in keeping with our style. No dignity.”
“We’d do better to shed some dignity and add more business,” Alex declared. “Yes, storefront banks resemble laundromats; just the same, they’re the kind of branch banks which are coming in. I’ll make a prediction to the board: Neither we nor our competitors can go on affording the gilded sepulchers we have as branch banks now. The cost of land and construction make it senseless. In ten years, half—at least—of our present branch banks will have ceased to exist as we know them. We’ll retain a few key ones. The rest will be in less expensive premises, totally automated, with machine tellers, TV monitors to answer queries, and all linked to a computer center. In planning new branches—including the nine I’m advocating here—it’s that transition we should be anticipating.”
“Alex is right about automation,” Leonard Kingswood said. “Most of us see it in our own businesses, moving in faster than we ever expected.”
“What’s equally important,” Alex asserted, “is that we’ve a chance to jump ahead profitably—that is, if we do it dramatically, with flair and fanfare. The advertising and promotion campaign would be massive, saturation coverage. Gentlemen, look at the figures. First, our present savings deposits—substantially lower than they should be …”
He moved on, aided by the charts and an occasional amplification by Tom Straughan. Alex knew that the figures and proposals, which he and Straughan had toiled over, were solid and logical. Yet he sensed flat opposition from some board members, a lack of interest by others. Lower down the table a director put a hand over his mouth, stifling a yawn.
Obviously he had lost. The savings and branch expansion plan would be rejected—and would be, in effect, a vote of “no confidence” in him as well. As he had earlier, Alex wondered how long his own tenure with FMA could continue. There seemed little future for him, nor could he see himself as a participant in a Heyward-dominated regime.
He decided not to waste more time. “Okay, I’ll leave it there, gentlemen. Unless there are further questions.”
He had not expected any. Least of all did he anticipate support from the source from which suddenly, amazingly, it came.
“Alex,” Harold Austin said with a smile and friendly tone, “I’d like to say thank you. Frankly, I’m impressed. I hadn’t expected to be, but your presentation was convincing. What’s more, I like the idea of those new branch banks.”
A few seats away Heyward looked startled, then glared at Austin. The Honorable Harold ignored him and appealed to others at the table. “I think we should look at this with an open mind, putting aside our disagreements of this morning.”
Leonard Kingswood nodded, as did several others. Still more directors shed post-lunch drowsiness, their attention returning. Not for nothing was Austin the FMA board member with longest service. His influence was pervasive. He also was adept at swinging others to his points of view.
“Near the beginning of your remarks, Alex,” he said, “you spoke of a return to personal thrift, and leadership which banks like ours might give.”
“Yes, I did.”
“Could you expand that thought?”
Alex hesitated. “I suppose so.”
Should he? Alex weighed choices. He was no longer surprised at the interjection. He knew exactly why Austin had switched sides.
Advertising. Earlier, when Alex had suggested a “massive advertising campaign” with “saturation coverage,” he had seen Austin’s head come up, his interest clearly quicken. From that point it was not hard to see inside that head. The Austin Advertising Agency, by reason of the Honorable Harold’s directorship and influence at FMA, had a monopoly of the bank’s advertising business. A campaign such as Alex envisaged would bring substantial profit to the Austin Agency.
Austin’s action was conflict of interest in its grossest form—the same conflict of interest which Alex had attacked this morning over Roscoe Heyward’s appointment to the board of Supranational. Alex had asked then: Whose interests would Roscoe put first? Supranational’s or those of First Mercantile American shareholders? Now, a parallel question should be asked of Austin.
The answer was obvious. Austin was looking out for his own interests; FMA came second. Never mind that Alex believed in the plan. The support—for selfish reasons—was unethical, an abuse of trust.
Should Alex say so? If he did, it would touch off an uproar even greater than this morning’s, and he would lose again. Directors clung together like lodge brothers. Furthermore, such a confrontation would end, for sure, Alex’s own effectiveness at FMA. So was it worth it? Was it necessary? Did his duties require him to be keeper of the board’s conscience? Alex wasn’t sure. Meanwhile the directors were watching him and waiting.
“Yes,” he said, “I did refer—as Harold has reminded me—to thrift and a need for leadership.” Alex glanced at notes which, a few minutes ago, he had decided to discard.
“It is often said,” he told the listening directors, “that government, industry, and commerce of all kinds are founded upon credit. Without credit, without borrowing, without loans—small, medium, and massive—business would disintegrate and civilization wither. Bankers know this best.
“Yet, increasingly, there are those who believe that borrowing and deficit financing have gone mad, and have eclipsed all reason. Especially is this true of governments. The United States government has amassed an appalling mountain range of debt, far beyond our ability ever to repay. Other governments are in as bad, or worse, condition. This is the real reason for inflation and the undermining of currencies at home and internationally.
“To a remarkable extent,” Alex continued, “overwhelming government debt is matched by gargantuan corporate debt. And, at a lower financial level, millions of people—individuals following examples nationally set—have assumed debt burdens which they cannot pay. Total U.S. indebtedness is two and a half trillion dollars. National consumer debt is now approaching two hundred billion dollars. In the past six years more than a million Americans have gone bankrupt.
“Somewhere along the way—nationally, corporately, individually—we have
lost the ancient verity of thrift and husbandry, of balancing what we spend against what we earn, and of keeping what we owe within honest limitations.”
Suddenly the mood of the board had become sober. Responding to it, Alex said quietly, “I wish I could say there is a trend away from what I have described. I am not convinced there is. But trends begin with resolute action somewhere. Why not here?
“In the nature of our times, savings deposits—more than any other type of monetary activity—represent financial prudence. Nationally and individually we need more prudence. A way to achieve it is through enormous increases in savings.
“There can be tremendous increases—if we commit ourselves, and if we work. And while personal savings alone will not restore fiscal sanity everywhere, it is at least one major move toward that end.
“This is why there is an opportunity for leadership and also why—here and now—I believe this bank should exercise it.”
Alex sat down. Seconds later he realized he had said nothing about his doubts concerning Austin’s intervention.
Leonard Kingswood broke the brief, ensuing silence. “Sense and truth don’t always make palatable listening. But I think we all just heard some.”
Philip Johannsen grunted, then said grudgingly, “I’ll buy part of that.”
“I buy it all,” the Honorable Harold said. “In my opinion the board should approve the savings and branch expansion plan as presented. I intend to vote for it. I urge the rest of you to do the same.”
This time Roscoe Heyward did not display his outrage, though his face was tightly set. Alex figured that Heyward, too, had guessed Harold Austin’s motivation.
For another fifteen minutes discussion swirled until Jerome Patter-ton rapped with his gavel and called for a vote. By an overwhelming majority Alex Vandervoort’s proposals were approved. Floyd LeBerre and Roscoe Heyward were the only dissenters.
On his way out of the boardroom Alex was aware that the earlier hostility had not vanished. Some directors made it plain that they still resented his strong stance of this morning on Supranational. But the latest, unexpected outcome had made him more buoyant, less pessimistic about his continuing role at FMA.
The Moneychangers Page 28
