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A third set of evils has reference to the general or public interest in corporations. Individuals in their pursuit of gain are controlled by the moral standards of their business associates. Corporations have no moral standards. Their directors have shown themselves willing to wink at practices on the part of the officials. they appoint to which they would not themselves stoop. Corporation officials, moreover, do not hesitate to do things in the name and under the cover of the corporations which they would be ashamed to perform openly for themselves. In the United States corporations have been guilty of buying legislatures, bribing judges, entering into agreements with political parties insuring them certain privileges in return for campaign contributions, and in fact of every sin in the political calendar. It is largely owing to them that the tone not only of business, but of political morality, is so much below the standards of private life.

94. The Corporation and Personal Efficiency2

BY GEORGE W. PERKINS

Perhaps the most useful achievement of the great corporation has been the saving of waste in its particular line of business. By assembling the best brains, the best genius, the best energy in a given line of trade, and co-ordinating these in work for a common end, great results have been attained in the prevention of waste, the utilizing of by-products, the economizing in the manufacture of the product, the expense of selling, and through better and more uniform service.

This same grouping of men has raised the standard of their efficiency. Nothing develops man like contact with other men. A dozen men working apart and for separate ends do not develop the facility, the ideas, the general effectiveness that will become the qualities of a dozen men working together in one cause. In such work emulation plays a useful part; it does all the good and none of the harm that the old method of restrictive competition did; the old competition was wholly self-seeking and often ruinous, while the new rivalry, within the limits of the same organization, is constructive and uplifting. Thus the great corporation has developed men of a higher order of business ability than ever appeared under the old conditions; and what a value this has for the coming generation!

"Adapted from "The Modern Corporation," 5-8, an address delivered at Columbia University. February 7, 1908.

We have heard many warnings that because of the great corporation we have been robbing the oncoming generation of its opportunities. Nothing is more absurd. The larger the corporation, the more certain is the office boy to reach ultimately a foremost place if he is made of the right stuff, if he keeps everlastingly at it, and if he is determined to become master of each position he occupies.

In the earlier days, the individual in business, as a rule, left his business to his children. Whether or not they were competent did not determine the succession. But the giant corporation cannot act in this way. Its management must have efficiency; and nothing has been more noticeable in the management of corporations in the last few years than that "influence," so-called, as an element in selecting men for responsible posts, has been rapidly on the wane. Everything is giving way and must give way to the one supreme test of fitness.

And is it not possible that the accumulating of large fortunes in the future may be curtailed to a large extent through the very workings of these corporations? Are there not many advantages in having corporations in which there are a large number of positions carrying with them very handsome annual salaries, in place of firms with comparatively few partners-the annual profits of each one of whom were often so large that they amassed fortunes in a few years? A position carrying a salary so large as to represent the interest on a handsome fortune can be permanently filled only by a man of real ability, so that in case a man who is occupying such a position dies, it must, in turn, be filled with another man of the same order-while the fortune might be and most likely would be passed on regardless of the heir's ability. Therefore, the more positions of responsibility, of trust and of honor, that carry large salaries, the more goals we have for young men whose equipment for life consists of integrity, health, ability and energy.

Further, there is opportunity in the corporation for a man not possessed of extraordinary ability; wages are unquestionably higher, and labor is more steadily employed; for, in a given line of trade, handled to a considerable extent by a corporation, there are practically no failures; while, under the old methods of bitter, relentless warfare, failures were frequent, and failure meant paralysis for labor as well as for capital.

The great corporation is increasing opportunities for labor; for it is unquestionably making business conditions sounder. It is making business steadier; because firms inevitably change and dissolve, while a corporation may go on indefinitely; because it is able to sur

vey the field much better than could a large number of firms and individuals and, therefore, vastly better able to measure the demand for its output and, if properly managed, to prevent the accumulation of large stocks of goods that are not needed--a condition which often arose under the old methods when many firms were in ruthless competition with one another in the same line of business, oftentimes producing serious financial difficulties for one and all.

Broadly and generally speaking, the corporation as we know it today, as we see it working and feel its results, is in a formative state. In many cases actual and desperately serious situations caused it to be put together hurriedly. In many cases serious mistakes have been made in the forms of organization, in the methods of management, and in the ends that have been sought. In some instances the necessity for corporations has grown faster than has the ability of men to manage them. Yes, mistakes have been many and serious. But the corporation is with us; it is a condition, not a theory, and there are but two courses open to us-to kill it or to keep it.

95. The Function of the Corporation

BY J. B. CANNING

The function of the modern business corporation, as a form of business organization, is to increase the productivity of invested capital and to facilitate and stimulate saving. The peculiar ability of the corporation to perform this function is due to its unique combination of legal rights and privileges which allows: (1) indefinitely minute division of its certificates of ownership (stocks) and of its certificates of indebtedness (bonds); (2) limitation of liability of its members (stockholders); (3) the distribution of the risks of industry, by means of issues of different classes of stocks and of bonds, among its members and creditors; (4) the delegation by its members of the power to direct and administer its business policy to its responsible agents, the directors and officers; and (5) an easy means for transferring ownership of its securities from one investor to another. None of these rights, by itself, is peculiar to the corporation. Partnerships with limited liability and joint-stock companies possess them in part, but no other form possesses quite so advantageous a combination of them.

To a saver investing his accumulations of capital to secure an income, the value of a nominal income of given amount, rate of flow, and time of accrual, becomes greater as the possibility of loss is minimized or limited and as the probability of gain is increased. In

general, the greatest loss possible to an investor in the stock of a corporation is limited to the sum paid for the issued, and fully paid, stock." For, unlike the condition found in the ordinary partnership, all of whose members are agents of the firm and each of whom is, therefore, unlimitedly liable for any and all obligations incurred in the course of the firm's business by any other member, the corporation is, itself, a legal person and its stockholders are not its agents nor are they bound to it by any legal obligation other than that of paying for the stock its full subscription value. To a stockholder, therefore, the ability and integrity of other stockholders is a matter of no concern save as they possess the right to vote for directors and, indirectly, for officers, both of whom are agents of the corporation. Since the latter are agents of the corporation and not of the stockholders, they cannot incur obligations for which the stockholders are liable.

The fact that a corporation may, and many do, issue bonds in convenient denominations, amply secured, as to their so-called principal, by tangible wealth and, as to their income, by net earnings considerably above the amount required, makes it possible for the small investor with little knowledge of the company's probable total earning capacity to invest his savings in what is, humanly speaking, a certain income. The same corporation may issue another class of security, preferred stock, which generally has a first claim upon assets and upon income after the claims of the bondholders are discharged. Upon these stocks a definite income, usually larger than that paid the bondholders, is promised-an income that may be, and often is, secured by net earnings considerably in excess of the amount necessary for the purpose. Purchase of this stock enables the investor who has a more intimate knowledge of the company's affairs and prospects to secure a larger income without necessarily incurring greater risk. The ability of the corporation to issue still another class of security, common stock, which has a residual claim upon assets and upon income after all claims of the holders of bonds and of preferred stocks have been met, allows still another class of investors who have the most intimate knowledge of the company's affairs, and who are most willing to incur risks, to secure an income objectively less certain but with no maximum limit other than the earning capacity of the company. The ability of the corporation thus to issue any number of classes of securities, each with a different rank as to priority of claims upon assets and upon income,

29 In some states stockholders are liable for twice the par value of the shares held. Holders of the stocks of national banks have a double liability.

allows for any relative distribution of risks and of rewards that promises to please the investing public best.

In addition to the limitation of liability, which, in general, limits possible loss to the amount paid for an issued and fully paid stock, and in addition to the possibility of selecting from a given corporation's securities one carrying little appreciable risk, the investor has another, and very important, means of reducing the risk of large loss, viz., he may distribute his investment among the securities of several corporations engaged in different kinds of enterprise and located in different parts of a country or in different countries. Since stocks may be issued in denominations as small as desired, and since. a stock certificate represents an undivided interest in income and assets, it must be obvious that the total loss of an investment distributed widely over the field of industry and apportioned judiciously among the existing industries and corporations can scarcely occur short of a catastrophe involving the general collapse of economic activities. Furthermore, the simple and direct means of transferring ownership of corporation securities makes it easy for an investor, if he loses faith in a concern in whose securities he has invested, or if he learns of some other concern that promises better returns, to transfer his funds to another enterprise. Incidentally this ease of liquidation makes corporation securities highly acceptable as collateral for loans. Since the minimizing of risk increases the value of a prospective income, all these attributes of the corporation operate to offer the investor a larger reward for saving and, in consequence, tend to increase the amounts saved.

The attributes of the corporation above discussed are economically advantageous whether the scale of industry be large or small, but in the field of large-scale industry the corporation possesses a superiority of another sort. We have said that the investor may distribute his investment over a wide range; the converse of this statement is also true, viz., a new enterprise, however great, may draw funds in small amounts from a great number of investors. This makes it possible to gather together the smallest accumulations as fast as they are made and to put them to immediate use in those new enterprises that promise the greatest gains no matter how great those new enterprises may be. This result is usually accomplished through the agency of savings banks, trust companies, insurance companies, and other financial middlemen, who either advise the individual in his choice of securities or else make the investment in their own names from funds loaned them at interest by the saving public. As a consequence of this aptitude of the corporation for accumulating large amounts from small savings, managerial ability,

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