by John Brooks
While the Iranian project was proceeding, D. & R. was also busy lining up and carrying out its programs for Italy, Colombia, Ghana, the Ivory Coast, and Puerto Rico, as well as programs for private business groups in Chile and the Philippines. A job that D. & R. had just taken on for the United States Army Corps of Engineers excited Lilienthal enormously—an investigation of the economic impact of power from a proposed dam on the Alaskan sector of the Yukon, which he described as “the river with the greatest hydroelectric potential remaining on this continent.” Meanwhile, Lazard Frères retained its financial interest in the firm and now very happily collected its share of a substantial annual profit, and Lilienthal happily took to teasing Meyer about his former skepticism as to D. & R. financial prospects.
Lilienthal’s new career had meant a highly peripatetic life both for him and for Mrs. Lilienthal. He showed me his foreign-travel log for 1960, which he said was a fairly typical year, and it read as follows:
January 23-March 26: Honolulu, Tokyo, Manila; Iligan, Mindanao;
Manila, Bangkok, Siemreap, Bangkok; Tehran, Ahwaz, Andimeshk, Ahwaz, Tehran; Geneva, Brussels, Madrid; home.
October 11–17: Buenos Aires; Patagonia; home.
November 18–December 5: London, Tehran, Rome, Milan, Paris, home.
Then he went and got the volume of his journal that relates to those trips. Turning to the pages on his stay in Iran early last spring, I was particularly struck by a few excerpts:
Ahwaz, March 5: The cry of the Arab women as the Shah’s big black Chrysler passed them, a solid row along the road from the airport, made me think of the rebel yell; then I recognized it: it was the Indian yelp, the kind we used to make as kids, moving our hand over our mouths to give that undulating wail.
Ahwaz, March 11: Our experience in the villagers’ huts on Wednesday threw me into a deep pit. I hovered between despair—which is an emotion I consider a sin—and anger, which doesn’t do much good, I suppose.
Andimeshk, March 9: … We have travelled many miles, through dust, mudholes where we got stuck fast, and some of the roughest “roads” I have ever known—and we also travelled back to the ninth century, and earlier, visiting villages and going into mud “homes” quite unbelievable—and unforgettable forever and ever. As the Biblical oath has it: Let my right hand wither if I ever forget how some of the most attractive of my fellow human beings live—are living tonight, only a few kilometres from here, where we visited them this afternoon.…
And yet I am as sure as I am writing these notes that the Ghebli area, of only 45,000 acres, swallowed in the vastness of the Khuzistan, will become as well known as, say, the community of Tupelo … became, or New Harmony or Salt Lake City when it was founded by a handful of dedicated men in a pass of the great Rockies.
The afternoon shadows were getting long on Battle Road, and it was time for me to be going. Lilienthal walked out to my car with me, and on the way I asked him whether he ever missed the rough-and-tumble, and the limelight, of being perhaps the most controversial man in Washington. He grinned, and said, “Sure.” When we reached the car, he went on, “I never intended to be especially combative, in Washington or in the Tennessee Valley. It was just that people kept disagreeing with me. But, all right, I wouldn’t have put myself in controversial situations so much if I hadn’t wanted to. I guess I was combative. When I was a kid, I was interested in boxing. At high school—in Michigan City, Indiana—I boxed a lot with a cousin of mine, and while I was in college, at DePauw, in central Indiana, I took to boxing during the summers with a man who had been a professional light-heavyweight. The Tacoma Tiger, he’d been called. Working out with him was a challenge. If I made a mistake, I’d be on the floor. I wanted just once to land on him good. It was my ambition. I never did, of course, but I got to be a fairly good boxer. I became boxing coach at DePauw while I was an undergraduate. Later on, at Harvard Law, I didn’t have time to keep it up, and I never boxed seriously again. But I don’t think that for me boxing was an expression of combativeness for its own sake. I think I considered competence at defending yourself a means of preserving your personal independence. I learned that from my father. ‘Be your own man,’ he used to say. He’d come from Austria-Hungary, the part that’s now eastern Czechoslovakia, in the eighteen-eighties, when he was about twenty, and he spent his adult life as a storekeeper in various Middle Western towns: Morton, Illinois, where I was born; Valparaiso, Indiana; Springfield, Missouri; Michigan City and, later, Winamac, Indiana. He had very pale-blue eyes that reflected the insides of him. You could tell by looking at him that he wouldn’t trade independence for security. He didn’t know how to dissemble, and wouldn’t have wanted to if he had known how. Well, to get back to my being controversial, or combative, or whatever you call it, in Washington—yes, there’s something missing when you don’t have a McKellar laying it on the line any more. The moral equivalent of that for me now is taking on challenges, different kinds of McKellars or Tacoma Tigers, maybe—the Minerals & Chemicals thing, the D. & R. thing—and trying to meet them.”
I revisited Lilienthal in early summer, 1968, this time at D. & R.’s third home office, a suite with a splendid harbor view at I Whitehall Street. Both D. & R. and he had moved along in the interim. In Khuzistan, the Dez Dam had been completed on schedule; water impounding had begun in November, 1962, the first power had been delivered in May, 1963, and the region was now not only supplying its own power but producing enough surplus to attract foreign industry. Meanwhile, agriculture in the once-barren region was flourishing as a result of irrigation made possible by the dam, and, as Lilienthal—sixty-eight now, and as combative as ever—put it, “The gloomy economists have to be gloomy about some other underdeveloped country.” D. & R. had just signed a new five-year contract with Iran to carry on the work. Otherwise, the firm had expanded its clientele to include fourteen countries; its most controversial undertaking was in Vietnam, where, under contract with the United States government, it was cooperating with a similar group of South Vietnamese in working up plans for the postwar development of the Mekong Valley. (This assignment had led to criticism of Lilienthal by those who took it to imply that he supported the war; in fact, he told me, he regarded the war as the disastrous outcome of a series of “horrible miscalculations,” and the planning of postwar resources development as a separate matter. It was clear enough, nevertheless, that the criticism hurt. At the same time, D. & R. was widening its horizons by beginning to move, unexpectedly, into domestic urban development, having been engaged by private foundation-sponsored groups in Queens County, New York and Oakland County, Michigan to see whether the T.V.A. approach might have some value in dealing with those modern deserts, the slums. “Just pretend this is Zambia and tell us what you would do,” these groups had said, in effect, to D. & R.—a wildly imaginative idea, surely, the usefulness of which remained to be proved.
As for D. & R. itself and its place in American business, Lilienthal recounted that since I had seen him it had expanded to the extent of opening a second permanent office on the West Coast, had considerably increased its profits, and become essentially employee-owned, with Lazard retaining only a token interest. Most encouraging of all, at a time when old-line business was having serious recruitment problems because its obsession with profit was repelling high-minded youth, D. & R. found that its idealistic objectives made it a magnet for the most promising new graduates. And as a result of all these things, Lillienthal could at last say what he had not been able to say on the earlier occasion—that private enterprise was now affording him more satisfaction than he had ever derived from public service.
Is D. & R., then, a prototype of the free enterprise of the future, accountable half to its stockholders and half to the rest of humanity? If so, then the irony is complete, and Lilienthal, of all people, ends up as the prototypical businessman.
* For a detailed discussion of stock options, see p. 101.
* This part of Lilienthal’s journal was eventually published, in 1966.
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10
Stockholder Season
A FEW YEARS AGO, a European diplomat was quoted in the Times as saying, “The American economy has become so big that it is beyond the imagination to comprehend. But now on top of size you are getting rapid growth as well. It is a situation of fundamental power unequalled in the history of the world.” At about the same time, A. A. Berle wrote, in a study of corporate power, that the five hundred or so corporations that dominate that economy “represent a concentration of power over economics which makes the medieval feudal system look like a Sunday-school party.” As for the power within those corporations, it clearly rests, for all practical purposes, with their directors and their professional managers (often not substantial owners), who, Berle goes on to suggest in the same essay, sometimes constitute a self-perpetuating oligarchy. Most fair-minded observers these days seem to feel that the stewardship of the oligarchs, from a social point of view, isn’t anything like as bad as it might be, and in many cases is pretty good, yet, however that may be, the ultimate power theoretically does not reside in them at all. According to the corporate form of organization, it resides in the stockholders, of whom, in United States business enterprises of all sizes and descriptions, there are more than twenty million. Even though the courts have repeatedly ruled that a director does not have to follow stockholder instructions, any more than a congressman has to follow the instructions of his constituents, stockholders nevertheless do elect directors, on the logical, if not exactly democratic, basis of one share, one vote. The stockholders are deprived of their real power by a number of factors, among which are their indifference to it in times of rising profits and dividends, their ignorance of corporate affairs, and their sheer numbers. One way or another, they vote the management slate, and the results of most director elections have a certain Russian ring—ninety-nine per cent or more of the votes cast in favor. The chief, and in many cases the only, occasion when stockholders make their presence felt by management is at the annual meeting. Company annual meetings are customarily held in the spring, and one spring—it was that of 1966—I made the rounds of a few of them to get a line on what the theoretical holders of all that feudal power had to say for themselves, and also on the state of their relations with their elected directors.
What particularly commended the 1966 season to me was that it promised to be a particularly lively one. Various reports of a new “hard-line approach” by company managements to stockholders had appeared in the press. (I was charmed by the notion of a candidate for office announcing his new hard-line approach to voters right before an election.) The new approach, it was reported, was the upshot of events at the previous year’s meetings, where a new high in stockholder unruliness was reached. The chairman of the Communications Satellite Corporation was forced to call on guards to eject bodily two badgering stockholders at his company’s meeting, in Washington. Harland C. Forbes, who was then the chairman of Consolidated Edison, ordered one heckler off the premises in New York, and, in Philadelphia, American Telephone & Telegraph Chairman Frederick R. Kappel was goaded into announcing abruptly, “This meeting is not being run by Robert’s [Rules of Order]. It’s being run by me.” (The executive director of the American Society of Corporate Secretaries later explained that precise application of Robert’s rules would have had the effect not of increasing the stockholders’ freedom of speech but, rather, of restricting it. Mr. Kappel, the secretary implied, had merely been protecting stockholders from parliamentary tyranny.) In Schenectady, Gerald L. Phillippe, chairman of General Electric, after several hours of fencing with stockholders, summed up his new hard line by saying, “I should like it to be clear that next year, and in the years to come, the chair may well adopt a more rigorous attitude.” According to Business Week, the General Electric management then assigned a special task force to the job of seeing what could be done about cracking down on hecklers by changing the annual-meeting pattern, and early in 1966 the bible of management, the Harvard Business Review, entered the lists with an article by O. Glenn Saxon, Jr., the head of a company specializing in investor services to management, in which he recommended crisply that the chairmen of annual meetings “recognize the authority inherent in the role of the chair, and resolve to use it appropriately.” Apparently, the theoretical holders of fundamental power unequalled in the history of the world were about to be put in their place.
ONE thing I couldn’t help noticing as I went over the schedule of the year’s leading meetings was a trend away from holding them in or near New York. Invariably, the official reason given was that the move would accommodate stockholders from other areas who had seldom, if ever, been able to attend in the past; however, most of the noisiest dissident stockholders seem to be based in the New York area, and the moves were taking place in the year of the new hard line, so I found the likelihood of a relationship between these two facts by no means remote. United States Steel holders, for example, were to meet in Cleveland, making their second foray outside their company’s nominal home state of New Jersey since its formation, in 1901. General Electric was going outside New York State for the third time in recent years—and going all the way to Georgia, a state in which management appeared to have suddenly discovered fifty-six hundred stockholders (or a bit more than one per cent of the firm’s total roll) who were badly in need of a chance to attend an annual meeting. The biggest company of them all, American Telephone & Telegraph, had chosen Detroit, which was its third site outside New York City in its eighty-one-year history, the second having been Philadelphia, where the 1965 session was held.
To open my own meeting-going season, I tracked A.T.& T. to Detroit. Leafing through some papers on the plane going out there, I learned that the number of A.T. & T. stockholders had increased to an all-time record of almost three million, and I fell to wondering what would happen in the unlikely event that all of them, or even half of them, appeared in Detroit and demanded seats at the meeting. At any rate, each one of them had received by mail, a few weeks earlier, a notice of the meeting along with a formal invitation to attend, and it seemed to me almost certain that American industry had achieved another “first”—the first time almost three million individual invitations had ever been mailed out to any event of any kind anywhere. My fears on the first score were put to rest when I got to Cobo Hall, a huge riverfront auditorium, where the meeting was to take place. The hall was far from filled; the Yankees in their better days would have been disgusted with such a turnout on any weekday afternoon. (The papers next day said the attendance was four thousand and sixteen.) Looking around, I noticed in the crowd several families with small children, one woman in a wheelchair, one man with a beard, and just two Negro stockholders—the last observation suggesting that the trumpeters of “people’s capitalism” might well do some coordinating with the civil-rights movement. The announced time of the meeting was one-thirty, and Chairman Kappel entered on the dot and marched to a reading stand on the platform; the eighteen other A.T. & T. directors trooped to a row of seats just behind him, and Mr. Kappel gavelled the meeting to order.
From my reading and from annual meetings that I’d attended in past years, I knew that the meetings of the biggest companies are usually marked by the presence of so-called professional stockholders—persons who make a full-time occupation of buying stock in companies or obtaining the proxies of other stockholders, then informing themselves more or less intimately about the corporations’ affairs and attending annual meetings to raise questions or propose resolutions—and that the most celebrated members of this breed were Mrs. Wilma Soss, of New York, who heads an organization of women stockholders and votes the proxies of its members as well as her own shares, and Lewis D. Gilbert, also of New York, who represents his own holdings and those of his family—a considerable total. Something I did not know, and learned at the A.T. & T. meeting (and at others I attended subsequently), was that, apart from the prepared speeches of management, a good many big-company meetings really consist of a dialogue—in som
e cases it’s more of a duel—between the chairman and the few professional stockholders. The contributions of non-professionals run strongly to ill-informed or tame questions and windy encomiums of management, and thus the task of making cogent criticisms or asking embarrassing questions falls to the professionals. Though largely self-appointed, they become, by default, the sole representatives of a huge constituency that may badly need representing. Some of them are not very good representatives, and a few are so bad that their conduct raises a problem in American manners; these few repeatedly say things at annual meetings—boorish, silly, insulting, or abusive things—that are apparently permissible by corporate rules but are certainly impermissible by drawing-room rules, and sometimes succeed in giving the annual meetings of mighty companies the general air of barnyard squabbles. Mrs. Soss, a former public-relations woman who has been a tireless professional stockholder since 1947, is usually a good many cuts above this level. True, she is not beyond playing to the gallery by wearing bizarre costumes to meetings; she tries, with occasional success, to taunt recalcitrant chairmen into throwing her out; she is often scolding and occasionally abusive; and nobody could accuse her of being unduly concise. I confess that her customary tone and manner set my teeth on edge, but I can’t help recognizing that, because she does her homework, she usually has a point. Mr. Gilbert, who has been at it since 1933 and is the dean of them all, almost invariably has a point, and by comparison with his colleagues he is the soul of brevity and punctilio as well as of dedication and diligence. Despised as professional stockholders are by most company managements, Mrs. Soss and Mr. Gilbert are widely enough recognized to be listed in Who’s Who in America; furthermore, for what satisfaction it may bring them, they are the nameless Agamemnons and Ajaxes, invariably called “individuals,” in some of the prose epics produced by the business Establishment itself. (“The greater portion of the discussion period was taken up by questions and statements of a few individuals on matters that can scarcely be deemed relevant.… Two individuals interrupted the opening statement of the chairman.… The chairman advised the individuals who had interrupted to choose between ceasing their interruption or leaving the meeting.…” So reads, in part, the official report of the 1965 A.T. & T. annual meeting.) And although Mr. Saxon’s piece in the Harvard Business Review was entirely about professional stockholders and how to deal with them, the author’s corporate dignity did not permit him to mention the name of even one of them. Avoiding this was quite a trick, but Mr. Saxon pulled it off.
