Evening star., 1926-11-03
MEN AND MONEY
By NJ. S. Rukeyser.
fCopyright. 1926.)

IeSe professors. ITdCticdk w GA SIA Ccs
waits with genuine interest for the
latest blasts of criticism from the
fearless pen Of William z. Ripley, VINO
| occupies the chair Of economics at
| Harvard University.
The next piece Of academic dyna-
mite from the same source has peen
| timed to explode shortly after the
turn OF the new year. 1t Will con-
sist Of a book of financial criticism,
called "Wall Street and Main Street.
in which the David from the colleges
will again sling stones at the Gonatn
Of big business.
Prof. Ripley's latest outburst was
from the spectacular standpoint, an
anti.climax. The undertaking note
was softened by the natural conserva'
tism Of a rock-ribbed New Englanoer.
and yet Prof. Ripley exposed some
loose standards in the operations OF
unregulated holding companies In the
public utility field.
Prof. Ripley Is member OF tns
board Of directors of the Rock lslano
Railroad. When his first attack on
noYf-voting stocks appeared some
|, months ago one Of his business asso-
ciates went up to congratulate Ino
economist for his fearlessness ana 70
express his approval. In DONG 50
reading his attack he decided to
forego a $4,000 fee to do legai JoD
of the type Prof. Ripley crltlclzeo.
Thus practice follows theory.
Growing Pains Of Trade.
The electric power and light indus
try, Of course, is in the mldst Vi a
period Of quickened development, anu
if crudities of practice have crept ~,
they may be looked upon as growing
pains. With the demand lof &c
tricity increasing at the rate OIL a.
least Is per cent a year for the couh-
trv "a whole. the central stations
are hungry for new capital with which
to finance expansion Of plant faculties.
IL. Dame, president of the Nortn
American Co. one of the outstanding
public utility holding companies
which Prof. Ripley, incidentally: eA'
empts from critical mention-beneveS
that the holding company idea Is the
hest assurance that an adequate capl-
tai will flow to local operating COM
pnies. The North American 20. re-
turns cash earnings to the pusiness
and rewards its patient stocknoioers
with stock dividends.
In defending this policy, Mr. Dalne
saws: "The policy of regular quar-
terlv stock dividends inaugurated by
the company in April, 1928, has been
found most satisfactory to both the
Stockholders and the company. A con-
seryatiye stock dividend policy Is ad-
mirably adapted to the electric light
and power business. The operating
companies must keep pace with the
growth of the communities they serve
in order to retain exclusive rights IN
their territories. Past records snow
that the electric light and power pusl-
ness has doubled on the average ap-
proximately in periods OF f1ve years.
see no reason why this should not
continue on account of the many new
q annlications in the use Of electricity
for both domestic and commercial
uses.
Withholding Information.
"In a company such as ours about
so per cent of the financing should be
done by bonds of subsidiaries, perhaps
one-half of the balance by subsidiary
preferred stock sold locally, but, un-
less the holding company makes addi-
tional investments in the common
stocks to keep a balanced capital
structure, the credit of the subsidiary
companies will be impaired. The
North American Company's dividend
policy provides a substantial part OF
the money needed for this purpose. !"
In the current Atlantic Monthly
Prof. Ripley takes some well timed
shots at the tendency. Of some hold
ing companies to withhold essential
financial information from StOckhold-
ers.
The dignifled Harvard sage rips off
his coat and goes after his adverse
ries in his shirt sleeves in this man.
ner: "A further serious defect OF
overdeveloped holding-company or
ganization is the temptation afforded
to prestidigitation, double-shuff1ing.
hornswoggling and skullduggery.
Sound and defensible management
shades off almost imperceptibly under
stress Of self-interest, given concen-
tration of control, into all sorts Of ne
farious dealings Practically all OF
this lies within the domain Of financial
activity. It takes its strength from
domination through common-stock
control Of banking houses which may
or may not have a sufficient actual
investment to hold them to steady
course"
The practical bearing to the in
yestor of the criticism OF certain prac-
tices of holding companies should be
to make him more vigilant in study
ing q public utility corporation and
more critical in reaching an opinion
concerning the intrinsic value Of pub
lie utility shares. 1t may be consider.
able time before the abuses can be cor
rected by legislation or reform from
within, but meantime the investor
should shun as cats in bags shares Of
those holding companies which are
not candid in respect to reporting cur
rent earnings and the nature of the
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