COMPANY DIRECTORS

New Zealand Herald, Volume LXXI, Issue 21911, 21 September 1934, Page 15

COMPANY DIRECTORS

Sir, —We have been hearing a good deal about company law lately, };o here is a pertinent poser. Are the directors of a company under a moral obligation to run the company's business in the interests of the shareholders, or is it the duty of the shareholders to finance the company for the benefit of the directors? The theory is that the directors are appointed to look after the interests of shareholders, whose money provides the capital of the business. How does this • work out in practice ? If a private business is run at a loss over a period of years the heads of that business are called upon to show reason why, and if unable to provide a satisfactory reason are expected to step aside for others who may be able to do better. A company may, however, run on year after year, making ruinous blunders and disastrous losses, swallowing up the shareholders' money, but still functioning. For whose benefit? Certainly not the shareholders, for they are the last consideration. The staff must be paid, overhead expenses met, directors must draw their honoraria. If there is anything left over, debenture-holders may get their crumb. The shareholder must wait, too often in vain, under the threat that if they press their claims the company may be forced into liquidation. And of all classes of shareholders the so-called preference shareholder suffers most. Preference in name only, they see everyone preferred before themselves. Years go by during which their delayed dividends are mounting up, that is,, in theory. Actually, when a nice little sum has accumulated there comes a letter from the directors quite cheerfully suggesting that the preference shareholders forgo all accumulated dividends due to them and start again —at a reduced rate of interest. Could anything be more grossly unjust? Directors are usually men of substance and position, the small shareholder more often a struggling wage-earner, yet he is asked to go on for an indefinite time carrying the company and the directors without any return for his money. It is time this matter was amended. The injustice of expecting the shareholders to pay the company's losses and also the fees of the men whose policy is responsible for these losses is obvious. So, too, is the remedy obvious. Any body of directors after a reasonable time of trial who. fail to make a business pay should be required to do one of two things—either resign to make way for better business men, or decline to draw fees until after shareholders receive their dividends. In this way only can they honestly fulfil the function they assumed in becoming directors, that is to safeguard the interests of the shareholders. One of the Victims.