The people who are stockholders

The stockholders of an enterprise are the owners of the business. They are the individuals or the groups of individuals who, by investing their money in an enterprise have enabled the enterprise not only to exist, but to grow. Who are these individuals? If an examination is made of the list of a company's stockholders, the people who are the holders of a stake in the company's present and in its future, it will be found that all kinds of people are stockholders.

Some people are stockholders who are ordinarily known as capitalists. They are people who, having invested capital in industry, live upon the capital's return. In the phrase of the late Calvin Coolidge, they have "hired out" their money to enterprise; and, in return, enterprise pays that capital a wage.

Some stockholders are women. In fact, in many big enterprises, most of the stockholders are women. Many of them are the widows of men who, in their estates, left legacies of securities that are administered either by administrators or executors, or by legally-authorized trust companies.

Some stockholders are a company's own employees, employees who, having faith in their company's future, as well as desiring to provide security for their old age, have bought their company's stock on the partial-payment plan.

Finally, some stockholders are institutions which, possessing funds to invest, and having a favorable regard for a company, its management, and its potentialities, have bought the company's securities for their investment portfolios.

Thus, the owners of a company do not consist merely of "capitalists" who live in a world of their own called "finance," but also of many other kinds of people, most of whom are ordinary individuals who may be termed part-time "capitalists."

All people earning a living are capitalists

In a broad sense, everyone who earns his living in the United States and Canada is a capitalist. If every person who has a stake in the nation's economy is considered a shareholder in it, then each of these individuals lives on "dividends." The production worker who earns money in the form of wages draws those wages because, in the tools and equipment and the overhead costs of establishing and maintaining that job, someone has invested capital. For instance, a part of that capital may have come out of the savings of Miss Magnusen, who for years has taught at Roosevelt school just around the corner.

To carry the matter further, it may be assumed that the production worker, whose job Miss Magnusen's capital has helped to finance, carries a life insurance policy to provide for his family. That policy is underwritten by securities held by his insurance company, and some of these securities may bear the name of the company which employs the production worker.
Nevertheless, despite these considerations, successful public-relations work depends on the public-relations worker regarding these individuals and institutions who are stockholders as a distinct class. In other words, they represent a separate public with which the public-relations worker must deal on a different basis than with his other publics.

How to better relations between the stockholders of a company and its management is a problem which seems to deserve more attention than many other public-relations problems. Of all the publics in which management should manifest an interest, the stockholders have always been the most sorely neglected. Not without cause has stockholder turnover run higher than turnover among many a company's employees. Although some stockholder litigations may be inspired by professional hecklers and trouble-makers, not without cause do stockholders bring law suits against managements to demand more adequate accounts, and sometimes more truthful accounts of management's stewardship, or to bring about changes in management personnel or policies.

Stockholders are management's representatives

In addition to owning the business, in a most intimate and peculiar kind of way, a company's stockholders are representatives of the management. In the circles in which they live, they talk about the company, about its policies and progress, and about its products or services. In the case of larger companies, stockholders of a company may rival in number the company's employees. Thus, American, Telephone and Telegraph is owned by stockholders to the number of some 600,000, General Motors by stockholders to the number of some 400,000, and Cities Service by stockholders to the number of more than 350,000.

Obviously, such large bodies of representatives as these wield so tremendous an influence that it would be poor policy on the part of management to neglect them. It is also obvious that, even in a smaller enterprise, the understanding and good-will and the support, moral and otherwise, of the enterprise's owners should not be ignored or taken for granted.

Stockholder research

Paradoxically, although the stockholders of a company own the business, many of them never put into appearance. Accordingly, if a public-relations worker is to ascertain what the stockholders know about the business and how they feel about the management's policies and methods, he may find it feasible to apply to them, as a public, the same techniques that he applies in finding out about attitudes of other publics, namely, the techniques of opinion-research. This has been done by a number of the big companies. General Foods, for example, periodically polls its stockholders' opinions on such matters as the company's labor policy, its advertising, its packaging, its merchandising methods, and the salaries and bonuses paid to its executives.

As the result of these polls, General Foods has learned some interesting facts about the attitude of its stockholders. For example, while most of its stockholders are perfectly willing to serve as advisers on matters of general corporate policy and procedure, few of them seem inclined to take an active hand in merchandising the company's products. They will go so far as to buy the product for themselves, and they will even recommend the products to their friends. Most of them, however, are opposed to playing such an active role as to walk into a grocery store and say, "Will you please feature Maxwell House Coffee?" Their attitude in this respect is based on their belief that it is the job of the employees of the company to do the selling.

Other relevant facts about stockholders –how they think, feel, and can be induced to act–General Foods continues to assemble by means of its program of periodical stockholder-polling. The techniques which this company uses in polling its owners are techniques that will bring worthwhile results to any incorporated enterprise which is trying to improve its relations with its stockholders.

Stockholders are partners

As the public-relations worker will discover, stockholders will often come up with suggestions and ideas that are sound, workable and wise, if they are invited to do so. Furthermore, it helps tremendously in the direction of improving and maintaining wholesome stockholder-relations to ask for advice from stockholders in order to make them feel that they are in fact, as they are in theory, partners in the business.

To develop that relationship, the public-relations worker may find it to the advantage of the company to take even further measures. For instance, he may realize that the stockholders' annual meeting is an inadequate means of contact between management and ownership, and consequently arrange for informal meetings interspersed in between. General Mills has adopted such a policy, while various other companies hold sectional annual meetings across the country so that more stockholders can attend.

The annual financial report

The traditional medium of contact between management and its stockholders is the company's annual financial report. As W. Howard Chase of General Mills has described it, the annual report is "the hard core upon which all other efforts must be made." To put it briefly, the annual report is management's account of what it has done with the stockholders' money.

There was a time, and in some instances there has still been no change, when the annual report served merely to place a company's stockholders, as a lawyer would phrase it, "on notice." In effect, such a report said to the stockholders: "In the year under review, as attested by the certificate of the accounting firm of Price-Waterhouse, we took in such and such an amount of money as proceeds of our sales, expended this much, retired this much in bonds and preferred stock, and added this much to our net worth. If you don't like what we have done, you can fire us."

In recent years, most annual reports have undergone a rather thorough process of humanizing. This change has come from the realization that the typical corporate balance sheet, with its liabilities and assets always neatly adding up to the same ultimate penny, can be deciphered by few people outside of those in the accounting department who drew it up, the certified public accountants who certified it, and those trained in corporate management. Today, the public-relations worker takes his company's balance sheet and translates its columns of figures into terms that an ordinary man or woman can understand. For instance, in order to bring out clearly his company's achievements as reflected by the balance sheet, he presents the information in the form of graphs and tables of figures which are easily understood.

Other visual aids

Entrusted with the task of telling his company's story to the stockholders, the public-relations worker also makes use of photography in preparing the annual report for their use. With half-tones, he pictures the company's progress in plant-development and plant-enlargement, in the improvement of manufacturing methods, and in providing for the welfare of employees. He may also use pictures to illustrate new advertising matter and new types of containers for the company's products.

Interim company reports

Developing the principle that a report to stockholders provides a means of bettering the relations between them and the company and its management, the public-relations worker may consider it feasible to issue reports more often than once a year, and to issue them quarterly or even monthly.

There is substantial precedent for issuing such interim reports. Some corporations now issue reports to stockholders which take the form, and almost follow the pace, of tabloid newspapers. Such reports are customarily printed for distribution to emphasize the stockholders' "partner" relationship with the corporate enterprise.

Corporate literature may even cover more than annual and interim reports to stockholders. Such literature includes anniversary booklets, product descriptive booklets for public and trade, marketing booklets, and publications designed for internal use. This last type of publication is used for the purpose of telling a company's new employees and its branch workers and representatives about the traditions and over-all policies of the organization.

Example of the change in annual reports

The old and new attitudes of corporate approach to its stockholders is brought out clearly by comparing the accompanying illustrations of the Irving Trust Company's annual report for 1933 and that for 1949. It will be seen that the cover of the report for 1933 reflects the dignity and impersonality of "big business" and especially of the financial institutions, which prevailed at that time. In contrast, the cover of the report for 1949 is as attractive as a magazine cover, and, while retaining dignity, indicates the importance of the Irving Trust Company by the illustration of the bank's skyscraper headquarters in lower Manhattan.

The introductory pages of the two reports show a similar marked contrast. The report for 1933 simply states that "the management presents herewith a report of the Company's activities for the year 1933. The report consists of three major sections." The report then lists the contents as follows: Statement of Condition; Summary of Changes; Supplemental Information. The last section covers company policies; receivership activities; stockholders; recent Federal
legislation affecting banks; banking offices; and the Board of Directors.

In contrast to the prosaic introductory remarks in the report for 1933, the report for 1949 opens with an interesting analysis of the year's national business and financial history. This introduction begins by saying, "The year 1949 witnessed a high level of business activity marked by conflicting trends in many lines. During the first half of the year, production declined sharply in a number of industries. The total of consumer buying continued in heavy volume, however, as the income of individuals remained close to peak levels. As a result, consumption soon exceeded production in the aggregate, and inventories began to decline." The introduction then briefly sums up important trends in such a way that they present an interesting picture to all readers, not alone to technically interested bankers.

Further along in the report for 1949, the branch offices are listed, and the bank's "statement of condition" is shown not only in the formal required manner but also in a form which is easily readable and understandable. Telling about the various phases of its business and of plans for a new branch office at 57th Street and Madison Avenue, which it illustrates, the report concludes with a tribute to the staff. This reference to the staff, reflecting present-day efforts to improve public, stockholder, and labor relations, would have been considered a revolutionary step in 1933. The final paragraph in the report which is signed by Richard H. West, President, and by William N. Enstrom, Chairman, tells its own story as follows:

The year 1949 brought to a close a decade which embraced far-reaching political, industrial, and financial changes. For the Irving, in common with other banks, it was a period of material expansion in deposits, loans, and earnings. For the Irving, it was also a period in which banking facilities and services were materially increased, including plans for the expansion of branch offices. Whatever developments may characterize the new decade, this is certain—with an efficient and loyal staff, and an outstanding strong capital position, we will make the most of our opportunity to serve customers and by so doing we will best serve the interests of stockholders.

Significance of the modern annual report

The annual report of the Irving Trust Company for 1949 was prepared by the firm of Draper, Perkins & Associated, Inc., specialists in creating this type of literature, and is as far from the stiff, figure-studded reports of yesteryear as a television set is from the old cylinder phonograph. Commenting on this report, James F. Draper, president of the company bearing his name, said:

Today it is the accepted thing for top executives to look at their stockholders more as partners in the business rather than as distant relatives on the wife's side. With this viewpoint as a foundation, Irving management tries to make their annual report attractive to the eye, interesting and easy to read, and comprehensive in a full and complete disclosure of all pertinent information.

In other words, they recognize that their annual report which is sent not only to their stockholders but also used for solicitation purposes and distribution to customers, the press, suppliers, schools, universities, etc., is one of the best public-relations vehicles.
This basic attitude is the main factor that has transformed an annual obligatory requirement, of interest only to those immediately concerned, into a dynamic activity representing the bank as a whole as an ambassador represents his country.

The annual report is not the only published link which banks maintain with the public. Many financial institutions today issue monthly news letters covering a wide variety of subjects. Some of these news letters are so well prepared and authoritative that they are widely quoted, and serve to show that the sponsors' knowledge of business extends far beyond that of accepting deposits and granting loans and mortgages. Publications of this type thus create prestige which is a particularly valuable asset to an organization in developing good public relations.

Influencing the "financial community"

What is called the "financial community" is composed partly of individual security holders and partly of banks, insurance companies, investment bankers, and other interests that either invest en bloc in securities, or serve as agencies through which those securities are placed in the hands of the investing public. The public-relations worker's most practical medium in reaching the "financial community" is the press. Consequently, as a matter of routine, the public-relations worker sees to it that copies of his company's annual and interim reports, accompanied by releases that interpret them, are placed in the hands of business-page editors and the news editors of such publications as the Wall Street Journal and Financial World.

Building up financial good-will for the future. Through direct and indirect contacts with his company's security-holders and with the "financial community," the public-relations worker can build up for his enterprise a backlog of financial good-will.

The stockholders of his company will come to regard the enterprise as an ably-managed concern that has excellent prospects. In their respective circles, they will talk favorably about the enterprise. They will understand its problems. They will appreciate its intentions and aspirations. Confident of the soundness of its policies and methods, they will look forward to its continuing growth and development. Many of them will convert themselves from in-and-out speculators to long-term investors, with the result that stockholder turnover will drop and the enterprise will stand upon a firmer foundation.

Meanwhile, in the "financial community" the impression will spread that the company is a solid business with an assured future. Consequently, when and if the enterprise needs new funds, that impression will aid materially in facilitating the required new financing.

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