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.
The larger corporations in the United States make it their custom to send out notices of annual meetings to all stockholders, and to forward with these notices a printed proxy, which authorizes the secretary or some other officer of the corporation to represent the shareholder at the annual meeting. Most of the corporations supply stamped envelopes and, if they do not hear from the shareholder, forward a second request for his proxy. All that the shareholder is asked to do is to sign his name, enclose the proxy in the envelope and mail it. Nevertheless the interest on the part of the average shareholder is so slight that only a small proportion of these proxies, it is stated, are ordinarily returned. It is easy enough to return the proxy, but it is just a trifle easier to drop it into the waste basket. Probably the average shareholder sees no reason why he should take action one way or the other. He does not know whether the corporation is being well-managed or whether the officers and directors deserve his support or not.. Except in very unusual cases, when there is an opposition and when a campaign to get his support is carried on, he knows that his vote will have not the slightest influence either for or against any man or measure.
Usually the secretary and one or two other officials of the corporation take the proxies to the annual meeting, go through all the formalities of electing a chairman and a secretary, presenting reports and casting votes, and carry out whatever programme has been agreed upon by the officers of the corporation. Every year, for instance, an officer of the Union Pacific Railroad Company takes a satchel full of proxies, makes the trip from New York to Salt Lake City (the Union Pacific Railroad Company being incorporated in Utah) and holds the annual meeting. Even when action out of the ordinary is proposed, very few shareholders ever take the trouble to attend these meetings.
At the annual meeting of the Northern Pacific in 1914, authority was asked for a new issue of $750,000,000 in bonds. Some of the shareholders objected to the looseness of the authority asked, but the plan was carried through without effective opposition by voting the proxies previously collected by the officers. An amusing account of this meeting appeared in the New York Annalist of June 15, 1914, from which the following paragraphs are quoted:
Eighteen shareholders, one for every one thousand stockholders, were on hand to see that justice was done to their interests. Four of these were directors, one was Chairman of the Board, another a former Vice-President; .... but the strength of the meeting was not in the number present. When the Secretary took his place, he brought with him proxies for 1,387,202 shares of stock - nearly 56% of the total outstanding. The stockholders might have talked their heads off, and voted as a unit against the bond issue, and still it would have gone through when the Secretary put down 1,387,202 shares in its favor.
Colonel Clough (the Chairman of the Board) sat in a high-backed chair at the head of a long table, looking an embodiment of the spirit of impartiality.....He had a courteous manner for each speaker, and in the pile of proxies he had a steam roller to run over objections when it came to a vote.
After the reading of the resolution, Christian F. Leng arose to call attention to a small omission in the resolution. Not belligerently, but as one seeking to correct an oversight, he asked the Chair to state the amount of the proposed mortgage. He characterized the resolution as somewhat vague on that, to him, important point.
The Chair was sorry the gentleman did not understand corporation matters better. The amount was to be left to the wisdom of a Board of Directors chosen by the stockholders to safeguard their interests. They would study the matter from every angle, lunch over it, and sleep on it, and in the course of time arrive at the total.
It seemed that Mr. Leng was inclined to be stubborn. He said the Chair evidently had failed to understand his question, which had nothing to do with the province and wisdom of Directors, but concerned the amount of the proposed mortgage. As the owners of the corporation, he thought the shareholders entitled to know from their agents the amount to which they proposed to bond the property. "Is it not a reasonable inquiry to ask how much you propose to make this mortgage?" he concluded.
The Chair again set about the enlightenment of the Philistine. Patiently he explained that were the stockholders to determine the amount of the mortgage they might be kept in session for several days. That was a task for the Directors, a labor which the shareholders should be glad to escape. The Directors were in office solely to look after the interests of the stockholders. They would canvass the situation, look at it by and large, dig into figures, and attempt a forecast of the future. The Chair was a master of circumlocution, and always patient.
Arose Mr. Leng again, to say that when he put a mortgage on his property he did not give a lawyer carte blanche to make it as large as he could. He suspected that the management had already decided on a figure; what he wanted to learn was the figure. To which the Chair replied that the Directors could be trusted to do what was right in the matter.
The meeting having lasted as long as conventional shareholders' gatherings should continue, the steam roller was started gently. A vote on the original resolution was called for. On the proposition to authorize the Directors to proceed with their plan, the Secretary announced: "Against, 400 shares; in favor of, 1,387,700." The meeting was adjourned.