The Galaxy, June 1877 Part 16

It is contended by very prominent gentlemen in the life insurance business, that this plan is the only safe one; that interference in the management of the company by uninstructed policy-holders, not versed in the business, would be productive of nothing but evil. They contend that the necessary unity of management required for a business, covering as this does long periods of time, and requiring carefully laid plans extending into the distant future, would be greatly endangered by the existence of a right to partic.i.p.ate in the management by representation on the part of so numerous and so widely scattered a const.i.tuency. In other words, the managers of companies which have retained in the hands of the stock-holders all the powers of the corporation think that those powers are more safely exercised by that small body than they would be if partic.i.p.ated in by all the holders of policies. It may be doubted, however, whether a const.i.tuency small in number and capable of manipulation, and their votes of concentration into the hands of a few men, is the safest body to manage a corporation whose chief business is the care of the acc.u.mulations arising from the trust imposed upon the corporation by the contract of life insurance.

The power of wielding a ma.s.s of capital amounting to many millions of dollars is an enormous power, and it should be reposed only in a body which should be responsible for the careful, honest administration of the trust, at stated intervals, to the persons most interested--that is, to the policy-holders--the owners of the trust fund. One of the chief characteristics of English companies is, that at the annual meeting of the interested persons a full statement of the affairs of the company is laid before the meeting, and an opportunity offered of critical examination and comment. Discontent is thus allowed a safety valve to express itself through, and the managers an opportunity of explaining their action and accounting for their conduct. Public opinion--the public opinion of the persons interested--is allowed a chance of expression, and all misunderstandings and misconceptions an opportunity for examination and refutation. The right to interrogate the managers, and ask and obtain information as to the business at such regularly recurring intervals, is an inestimable one. It can hardly be conceived possible that great abuses could grow up if such a right existed; but at any rate it is apparent that the probability of such abuses is lessened to a great extent.

But this English practice is not known among us. In life insurance affairs we have nothing remotely approaching it. It seems to have been the policy of our companies to restrict partic.i.p.ation in their management to the smallest possible number, to avoid opportunities for questioning or explanation, and to shroud the business in the deepest mystery.

The officers of companies responsible for this policy justify themselves upon the broad ground that they know better what is good for the policy-holders than they do themselves. In the light of the evidence given before the Committee of the a.s.sembly by life insurance officers, and in the light of the affairs of the Continental, Security, and Popular, it may be doubted whether this a.s.sertion proves itself. It has the merit, however, that every honest avowal has, and it is ent.i.tled to examination.

Why should a self-electing, self-perpetuating proprietary board, resting upon a const.i.tuency composed solely of owners of the capital stock, be a safer or better management than one elected by the votes of the policy-holders at large? The only answer you can get to that query is this: The board elected by the stock-holders are sure of their position, and it is not in the power of a few malcontents to get up a secret movement to oust them at the election. The more stable management is to be preferred to one which is dependent on the popularity of the officers with the policy-holders. It is in the nature of things that the officers should become more or less unpopular. The business depends for success upon the enforcement of strict rules in dealing with the policy-holders, and the enforcement of these strict rules, although absolutely necessary for the success of the business, naturally tends to give fancied grievances to the persons against whom they are enforced. If, therefore, the tenure of office of the management depends upon the policy-holders, there is the constant danger of frequent attempts at revolution arising from this cause, and the consequent weakness of the officers in enforcing rules the enforcement of which may tend to shorten their tenure of office.

I think I have fairly stated the argument. Is there anything in it? Is the reason given any reason at all? Is it not rather a positive argument against the system. Perhaps the best government for men and companies is an absolute monarchy, without accountability or restraint; there are large ma.s.ses of the human race who are so governed; and it is an open question yet whether government by the people be or be not the best government. But certainly one thing is a.s.sured. In this day and in this country the monarchical and the oligarchical systems are out of date and out of place; and all attempts to introduce them or the principles which underlie them into our system of free government by the representatives of the governed will be failures. The doctrine of paternal government is "played out" in affairs of nations, and it is not to be supposed that the principle has in it any greater efficacy when applied to the affairs of corporations. The fact is, we have too much of this thing in all our relations political and social. The idea that there is a cla.s.s who are in their own estimation better able to govern than the rest of mankind has been exploded by the experience of the people of this country, and it is intolerable that we should be forced to do homage in our private affairs to a principle which we have, as regards public business, exploded long ago as a traditional fallacy.

Most of the evil practices which have made the whole system of life insurance a by-word and the scorn of the people, have arisen under this irresponsible management. Investments in extravagant buildings, the enormous expenditures for payments of salaries to officers and to agents, are all the result of the secret plan of management. Does any one suppose that if the affairs of the companies were fully and completely exposed to the public, such payments would be permitted or tolerated? Men are ent.i.tled to be paid for services rendered the full equivalent of those services, but they ought not to be allowed to be the sole judges of the value of those services, and they ought to be at all times ready and willing to come before the persons interested, and submit a full, fair, and clear account of their stewardship. Human nature is of the same quality in the managers of life insurance companies as in other men. Responsibility to some power, accountability to some persons or body, is absolutely essential to honest management.

Men who know that they cannot or will not be called to account will fall into loose and unbusinesslike methods and practices. Nothing can be more dangerous to the honesty of a man than to place him in charge of immense interests without a system of periodical accountability. A man may be ever so honest, yet he will, if this accountability be absent, be led to do things which he never would do if he were sure that at a fixed period his doings would become known and he would be required to justify them.

From these considerations and on these grounds, I come to the conclusion that the management of a life insurance company by a board of directors elected solely by the stock-holders is a management which contains within itself the germs of a fatal disease, which will sooner or later develop itself. In this respect legislation is needed. Such a management ought to be forbidden, and a provision made for the election of trustees by the policy-holders as well as the stock-holders, upon a basis as to the vote and the amount of interest it should represent which would be equitable and just.

Complaints have been made against the use of proxies in elections.

Notably these complaints have been made respecting elections in the Mutual Life Insurance Company, a corporation which has no stock-holders, but which consists in a membership of its policy-holders. These policy-holders have the supreme control of the corporation in their own hands. Its government is by them delegated to a board of trustees thirty-six in number, divided into four cla.s.ses of nine in each cla.s.s. The term of office is four years, so that nine trustees go out of office in each year. This cla.s.sification prevents the possibility of any sudden change of management, while it leaves all needed control in the hands of the policy-holders. If, for instance, dissatisfaction with the management exists, and nine new trustees are elected, it is not to be doubted but that the warning would be listened to and the necessary change of policy effected to satisfy the const.i.tuency. On the other hand, should the change of trustees be the result of a combination to seize the management of the company for any improper purpose, the first election would unmask the design and insure its defeat by an appeal to the voters.

The objections to the use of proxies come entirely from those policy-holders who have been defeated by their use, or fear they will be defeated by their use, in an attempt to change the management. Does not this prove that the great body of policy-holders believe in the management and are determined to sustain it. In a free company based upon the liberal principles upon which the Mutual Life is established, any attempt to limit the franchise would be an unparalleled wrong. The policy-holder in Chicago or in San Francisco has the same right to exercise his right to a voice in the election of trustees as the policy-holder who resides in New York, and there can be no reason why he should not cast his vote by proxy, since it would result in his disfranchis.e.m.e.nt to require him to do it in person. Be sure that if real trouble arose, and there was an abuse to rectify, if there were officers unmindful of their duties to rebuke, or trustees regardless of their trust to set aside, the votes cast by proxy would be as intelligently given as those of the residents immediately near the office who could attend in person. Every effort to limit the right to vote by proxy is an attempt to perpetuate power in the hands of the policy-holders resident here, which would be quite as obnoxious to sound principles as the government of companies solely by the stockholders.

It would appear, on every principle of fairness and justice, that the more full and perfect the right of the policy-holder to partic.i.p.ate in the election of trustees, the more stable and conservative will be the management. On the other hand, it is quite as apparent that the limitation of such right is attended with consequences the reverse of those just stated, and those consequences attained in proportion to the limitation of the right.

With the broad superstructure of a body of voting policy-holders, the selling out of the control of a company is impossible, because no one will be willing to pay for the possession which the next election may deprive him of. Of all the mean and contemptible methods of robbery as yet discovered, the selling out of a life insurance company is the meanest and most contemptible. Too cowardly to wreck it themselves and personally rob the widows and orphans, the trustees, who quietly receive a bonus for their stock and retire from the management, sell the opportunity of robbery to others. This they do too in the full knowledge of the purpose for which they are asked to retire. When the crash comes they may say they did not know the purpose of the purchasers, but they did know they were to receive for their stock two or three times its value, and that no man could afford to pay such a price to obtain control of the company except for the purpose of making money by irregular and questionable means. It will not do for men entrusted with positions of a fiduciary character to make the holding of such positions the lever for obtaining a large price for their stock, and then claim exemption from responsibility for the misdeeds of their successors. They were there in charge of a sacred trust, and they have sold and betrayed that trust--for what? Why, for the enhanced price which they got for their stock. This is the great evil of the close corporation system. It enables one or more men to own complete control of a company and to sell it to the highest bidder. Of course the highly respectable gentlemen who sell, and those also who buy, will be shocked at having imputed to them any crime or breach of trust. But how can such sums of money be lawfully made out of life insurance stock as to justify the price the records of the Committee on Insurance show have been paid for it? Life insurance is or ought to be a benevolent inst.i.tution. Its management is or ought to be a trust, and every trustee who makes use of his position to make money for himself is false to his trust, and should never be appointed to another. Life insurance is not to be made the sport of speculators, and the only reliance of the unfortunate made the football of gambling operations.

Most if not all of the troubles which have arisen in the business are to be traced to this attempt to make money out of it, honestly if possible, but to make money at all hazards. The way to end this for ever is to allow the policy-holders to vote, not for a minority of the trustees, but for all of them. Representation should be equal, or it is worthless. The representation which would leave the power to elect a majority still in the hands of the stock-holders is not equal or just.

Money paid for premiums is as good as money paid for stock, and should have equal voice in the management. But when you have given the policy-holders votes, you should also see that the opportunity was afforded to them of voting. Most of the elections are held without any other notice than an advertis.e.m.e.nt in the corner of a crowded column of one or two newspapers. Every policy should have printed on it the date of the annual election, and all the information necessary to enable the holder to be present and vote, or to be represented by proxy. Under the present practice, few holders of policies know whether they have votes or not, and hardly any of them ever heard of the time of holding the election. If the present discussion of life insurance affairs does no other good than to awaken the policy-holders to a sense of their own responsibility for abuses of management, it will not have been in vain.

It is safe to say that watchfulness on their part would have prevented the lavish expenditures, the unwise real estate investments, the enormous salaries, which the investigation of the a.s.sembly committee has discovered. The same conservative power held over managers would be a constant check upon any tendency to depart from the safe and regular open pathway of honorable dealings. Under its influence there would be few if any cases of commissions in addition to salary of officers, less tendency to make loans to the trustees and their friends, and a general adhesion to business rules and traditions. But above and beyond all other reforms, the control of the company by the policy-holders would make it impossible for greedy and scoundrel officers to gather into their hands the entire control of the company, and then sell it out to a rival company for four or five times what the stock cost, and an annuity for life to the traitor who had betrayed his trust. This has been, is now, and will be, if not prevented, the fruitful mother of all the ills of life insurance. Just as soon as any clique get possession of the majority of the stock, there is danger. Nay, there is always danger; any clique may, at any time, get possession of the stock by paying enough for it. If one price will not bring it, another will, and the value to the wrecker depends upon the amount of a.s.sets. It is the a.s.sets which are to pay the profit of the transaction. The money of the policy-holders is what is sold, not the mere pittance which belongs to the stock-holders, and it is the money of the policy-holders which is stolen to pay the purchase money. Honorable gentlemen, prominent in social life, elders, deacons, and vestrymen who in the past few years have quietly pocketed two hundred for your stock and retired from the management of life insurance companies, how are you pleased with your own conduct? In the light of recent disclosures, does not the ill-gotten money burn in your pockets? Truly you would not wreck a company yourselves by transferring it to any man or number of men; but you accomplish the same purpose by retiring. A captain who will not himself surrender to the enemy, but who retires from the command of his fortification knowing that the subaltern who will succeed him intends to strike his flag, may deceive himself, but he does not long succeed in deceiving any one else.

The evidence taken before the referee in the Continental case fully describes and explains the methods of wrecking. A company is sold out or reinsured in another; that is, the stock has been bought up at two or three hundred per centum, the officers have been promised good places, or paid in cash for their silence. Immediately the operations of the wreckers begin. The agents of both companies go into the work with a single aim, and that aim is to obtain the surrender of the policies in the old company in exchange for new policies in the purchasing corporation. The old policies represent an actual liability; the company which has issued them is obliged to hold a certain sum against each of them. The aggregate of these sums makes up the "reserve" or reinsurance fund. As fast as the old policies are cancelled this reserve is released, and when all the policies are cancelled there is no liability at all. The new policies of course have no liability. This is in short the whole operation of wrecking. By such means a million or two of a.s.sets will be distributed, and in the process the policy-holders will receive a little--a very little--and the agents a good deal, and the officers composing the ring all that is left. The arts, the deceptions, the false representations made in the course of the proceeding to induce the policy-holder to give up his policy have been fully disclosed by the evidence in question. Of course it is suggested that the company is in a bad way, and that there is probably no other way of securing anything unless an opportunity now offered of changing is embraced.

Reinsurance was abandoned as a means of wrecking because it was found the policy-holders preferred to keep the old policy and the new guarantee together. So in the later transactions they are told that if they do not change, they will get nothing.

The lesson of all this to the policy-holder may be written in large letters and kept as a maxim:

DO NOT SURRENDER YOUR POLICY.

You will never make a mistake by keeping to this motto. And particularly the more should it be kept to when you are urged by agents to a contrary action. You never get one-third its value even in companies honestly managed; what you get in companies dishonestly managed no one can tell.

FALLEN AMONG THIEVES.

BRUSSELS!

Is it not written that good Americans, when they die, go to Paris? So Elysium to all righteous sons of c.o.c.kayne is Brussels. And yet I was weary of it. No charms for me had the perpetual sabots and blouses, the _braves Belges_ in jaunty uniform, the bejewelled saunterers in the Galerie St. Hubert, the _gauche_ tourists desecrating the sombre stillness of the St. Gudule, _la belle Anglaise_ seeing for the first time the outrageous little manikin, the homely phaeton of good old King Leopold with its pair of very unroyal plugs, the tirailleurs in Lincoln green, the Parc with its music, fountains and maitrank, the Jardin des Plantes, the boulevard, and the Ecole d'Equitation.

All lost on me. I stood at a window of the Hotel de Flandres gazing on the ever-moving panorama of the Grande Place with as little interest as though my eye rested on a vacant lot in Pumpkinville.

Was it bile? No. Was it love? Yes.

Another scene was ever before my eyes: An old red-brick house on the cliffs of Devonshire, half hid by giant oaks and elms, fragrant with honeysuckle and jessamine, stately with avenue, lawn, and rookery; and I saw leaning on the rustic gate beneath the chestnut trees Gwendoline Grey: her straw hat dangling by her side, her fresh young face set in a glory of light brown hair, her---- But it had all pa.s.sed away now. The light was gone out of my life, for but three days ago I had received a letter from her mother deploring my altered prospects, returning my billets and love tokens, and a.s.suring me that Gwendoline acquiesced in this painful decision.

My altered prospects--_hinc illae lacrymae_. Nine months ago I was heir to a wealthy man, and now I was but bear-leader to the son of the Earl of Tottenbridge. Upon the loss of my father's property, which had come like an avalanche on us, I had left college and a.s.sumed the tutorship of the Hon. Nigel Fairleigh, as good a lad as ever handled a cricket bat.

After a brief run through southern Europe, I had just delivered him up to his aunt, my lady Milton, who was to take him to Scotland, while I was free, according to compact, to enjoy a couple of months' vacation.

How I had longed for this vacation--and now, where to go, what to do, I knew not. For three days I had stayed with a dull uncertainty on the spot where the blow had fallen on me.

My meditations were broken by the entrance of a garcon announcing,

"A gentleman for monsieur."

"Ah, M. Danneris, I am glad to see you. Be seated."

To say how I became acquainted with the chatty little Frenchman who sat before me would be a difficult matter. The offer of a cigar, an exchange of newspapers at the reading room, a pa.s.sing _bon jour_ on the stairs, had ripened under his friendly gayety into a familiarity which had extended so far as to my pa.s.sing more than one evening at his snug office in the Rue des Allumettes, where Francois Danneris, advocate, spun toils for litigious Flemish _bourgeoises_.

"My friend," he said, "you look _ennuye_, _triste_, dull; you need change. What do you say to a scamper over the continent?"

"I have done scampering enough lately," I replied, "and moreover my funds----"

"_Tiens, mon ami._ Do not talk of money. It is my great happiness to offer you an opportunity to combine business with pleasure, and take a most delightful trip without the expenditure of a sou."

"You surprise me--and where?"

"To a beautiful manorial residence at the village of Kioske, twenty miles beyond Buda, on the banks of the Danube--one of the most romantic spots of eastern Europe."

"And the object?"

"To take temporary charge of the only son of the wealthy Baron von Dressdorf. Jules von Dressdorf," added the advocate in his bland, pleasant way, "is a boy of fifteen, who, after spending a year in an academy in England, has been placed in a _pension_ in Brussels; but, _helas!_ an hereditary disease, which has developed itself more strongly of late, has determined his father to recall him immediately.

Pericardiac, my dear sir--pericardiac; and it is most important that he should without delay seek the quiet of his native valley."

"The terms?"

"Two hundred and fifty francs a week, and all expenses paid. When could you start?"

"To-morrow--to-day--when you will."

"_Bien!_ There is a little difficulty I would mention; the journey is not without small perils. Hungary, as you are aware, is now under the ban of an Austrian tyranny."

I a.s.sured him of my sympathy.

"Hold," he cried. "It is exactly that you have no sympathy that I select you. The Baron is already _suspect_, and the son, inheriting his father's sentiments, has small discretion of speech. Keep Austria in the background, I implore you."

"And are you sure that the Baron will approve of your choice of an escort?"

"The mere fact, Monsieur Mortimer, that you were in the service--I beg your pardon--in the family of the Earl of Tottenbridge would be sufficient, but I am proud to say that the recommendation of Francois Danneris would be a _carte blanche_ to any one to the confidence of Baron Dressdorf. He is a n.o.ble man," he added with emotion, "and to him I owe all I have in the world."