The Press. WEDNESDAY, APRIL 18, 1900. DIRECTORS AND SPECULATION IN SHARES.

Press, Volume LVII, Issue 10633, 18 April 1900, Page 4

The Press. WEDNESDAY, APRIL 18, 1900. DIRECTORS AND SPECULATION IN SHARES.

The recent little tornado on the Du-edin Stock Exchange haa brought into prominence the question as , to how far directors oi a com*

pany, ar.d others having access to special information regarding its affairs, are justified In speculating in its shares in times of excitement, like that through which the Hartley and Riley Dredging Company has just passed. It has been freely alleged that some at feast of those prominently connected with the Company freely parted with its shares during the recent boom. It was stated, for example, by a correspondent of the Duivedin "Evening Star" that the Chairman of Directors, the Hon. T. Fergus, disposed of seventy shares during tie month oi March, placing them on tbe market in lots of ten at a time. The same authority adds that two ont of five directors appointed at the hurt general meeting, having parted with their shares, have.resigned, and two more are on the point of leaving for England. Mr. Fergus, in reply, admits that seventy shares which had belonged to him were registered by various purchasers during the month of March, but states that ho only sold forty during that- month. Since then he has neither bought nor sold, directly _or indirectly. Further, the latest sale effected by him was long before the big return, and before any rise had taken place. After deducting dividends, the highest price obtained by him does not equal present market quotations, and.he is still one of the largest shareholders in the Company. Mr. Fergus also states that not one director or large original shareholder participated in the higher price. Complaint has also been made in Dunedin not or.ly of directors selling their shares, but of at least one of the men employed on the dredge doing the same thing. This, however, is not the point a| issue. The conduct of the dredge hands in the matter of holding or selling shares can be provided for by the directors. Mr. Fergus, in fact, says that it is true one of the Hartley and Riley dredge hands was seen to be selling, but the directors at their last meeting informed the 'Manager that this mus. cease, and he understands that the man referred to is no longer on the dredge. Aa to who is to control the action of directors in such a case is not so clear. It is evident that it would be very hard to lay down a hard and fast, rule on the subject. If a director of a company wished to increase his holding because of his thorough confidence in the undertaking, no one would say that he ought to be prevented from doing so. •On the other hand, a director might find it r.ecessary to sell some of bis shares—fact because of any want of confidence in the company, but for financial or other reasons personal to himself. Here,' again, it would be a decided' hardship if he were _ot free to consult his own interests in the matter, although the rule which prevails in many companies of providing that a director must continue to hold a certain minimum number of shares orcease to hold office, is no doubt a very salutary provision. To legitimate transactions in shares of the kind we have indicated no serious exception can be taken. It is when a director, makes use of bis special knowledge in times of excitement to traffic in shares for the purpose of making money on the out when prices are high, and buying back in the "slump"—tha:both shareholders and the public have a legitimate cause of complaint. Ostensibly directors are appointed to look after the interests of the shareholders. As soon as they begin to use the k-owledge they gain in their official position for the purpose of making mofc-ey by the buying and selling of the company's shares, tho interests of the shareholders not infrequently fly to the winds, and the speculating director begin?, to look strictly after the interests of "Number One." From this, it is an easy step to the process of "bulling" and "bearing" the j "market, witSu tbe distinct object of making money out of the fluctuations. The operation is perfectly easy to those who know how to do it, particularly in tie case of mining companies, where it is possible to regulate the output with a view to its effect on the market price of shares. So far there is no evidence of any" impropriety of this kind having taken place in connection with the H_rtley ajid Riley Company. The reply of the Chairnra-puta a very different complexidn on the busi_ees from that which it wore when the original letter appeared in the "Evening Star." Now that so many dredging and other comp_nies I are being placed on the market, however, the question is one which the investing j public ought carefully tr> consider. It is difficult to say what remedy should be , adopted. It woufd not be easy to suggest j any alteration in the law which would not inflict unnecessary hardship so far as perfectly honest people are concerned oh, the one hand, or lead to evasion on the part of unscrupulous directors on the other. The present discussion will do good if it serves to show that public opinion is strongly set against directors taking an undue advantage of their position. So long as they are in possession of. information which is not freely communicated to the shareholders they will lay themselves open to strong criticism if they endeavour to make money by the fluctuations of the market in the company's shares. If the shareholders did their duty they would keep such men off the directorates. Unfortunately shareholders as a rule are not much to be relied on tc keep up a high standard of commercial mondity. If dividends are paid they are contented and happy; if the Company comes to grief they shrug their shoulders and say that it is no use crying over spilt milk. We fancy there will be a good deal i f milk spilt, however, during the next year or two, unless they take some little care to assure themselves first as to the nature of the ventures into which they propose to put their money, and, secondly, as to tbe character and integrity of the men whom they cheese to manage their affairs.