This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
Corporations already established and going ahead successfully which require fresh capital from time to time for expansion of their activities, find it highly profitable to spend some thought and energy in cultivating the active good-will of their shareholders. This remark applies especially to companies which have a considerable number of shareholders, most of whom are not in close touch with the management of the business. The man who has invested some of his money in the stock of a corporation is likely to feel a certain personal interest in the continued success and growth of the corporation; he usually likes to be considered, not as a complete outsider, but as a person who is entitled to some special information and some privileges. Having once invested in the corporation and having come to follow its fortunes for that reason with more than usual interest, he is peculiarly approachable, if he is kept in an interested frame of mind, when a proposition to make a further investment is brought before him. In the language of salesmanship, two steps - making a favorable approach and arousing interest - have already been taken. The corporation presumably possesses his confidence. The succeeding steps - creating a desire to invest further and securing his decision to do so - should be comparatively easy if he is in a position to make further investments in anything.
The idea of deliberately setting to work to cultivate the friendship of the body of shareholders not identified with the management, may be regarded as a recent development in busi^ ness finance. Even yet, there are comparatively few corporations which have grasped and consistently apply the idea. The tendency still persists to regard the average stockholder - usually unknown personally - as merely a name which some clerk enters upon the books. We may go a step farther and say that in many corporate offices he appears to be regarded as an unavoidable nuisance who insists on draining away with his dividend checks - if he is fortunate enough to get them - the earnings which the officers and directors would much prefer to retain for themselves. The truth is that the average stockholder is a human being who likes to be treated as such and who will respond, to a reasonable extent, if the corporation's relations with him are handled with fairness, courtesy, and some degree of cordiality.
When the stockholders of the Northern Pacific Railroad Company received their dividend checks in the early part of 1915 from J. P. Morgan and Company, fiscal agents of the company, they were at least mildly surprised to find enclosed an advertising statement as to a trip to the Yellowstone National Park, which the railway company was promoting, and a return post card on which the stockholder could inquire for details as to the trip.
The National Biscuit Company not long ago sent out to their stockholders a "Pandora Box" which contained samples of many of the company's products. The Loose-Wiles Biscuit Company has followed their example. Swift and Company furnish their stockholders, not merely with a formal annual report, but with a "Year Book" which contains a more intimate review of the internal workings of the company and incidentally recommends that the stockholders purchase some of the company's products. The American Tobacco Company requests stockholders not only to call for the company's brands of tobacco, but to recommend their use to others. The United States Rubber Company sends to its stockholders a four-page folder urging them to use United States tires on their automobiles.*
A possible motive for the advertising efforts above noted is to increase the sale of the products of these corporations; but it is probable that a more important motive is to cultivate the good-will of the shareholders and increase their friendly interest in the corporation whose shares they hold. Corporations which work along these lines may safely count on finding their shareholders more responsive the next time a new issue of securities is offered to them.