ACCOUNTANCY

Timaru Herald, Volume CXLVI, Issue 21379, 23 June 1939, Page 10

ACCOUNTANCY

DIRECTORS AND SHAREHOLDERS An article by Mr H. E. Wincott, associate editor of the “Investors’ Chronicle” (London) in “Accountancy”’ (London) raises some points in which New Zealand investors of companies will be interested. “There have been two clear-cut tendencies in the investment world in the last four decades," states Mr Wincott. “First, we have had the growth in the size of the British industrial concern and, secondly, as a result of the re-distribution of the nation’s wealth, a vast increase in the number of investors owning those concerns. The days of the tight little family company, when disclosure in accounts was unnecessary since the facts were already known to the proprietors, have to a large degree departed. And as a result of these changed circumstances, some directors are prone to regard their shareholders as an impersonal mass, changing its make-up frequently, and only too often evincing the minimum interest in the company’s affairs—particularly when things are going well. But the change clearly makes informative accounts more, not less, necessary. The lack of personal contact, the impossibility of accommodating 100,000 shareholders at the annual meeting, makes it essential that directors should give the fullest possible information in their annual report. “And directors should realise that in the ultimate resort it is in the interesis of all concerned—directors, officials, employees and shareholders alike—that the trend of the company’s affairs should be clearly discernible. If the company should come to the Courts for reconstruction, then the co-opera-tion of the shareholders is inevitable. That co-operation is more likely to he obtained if the directors have maintained friendly and open relationships with the shareholders.

“It is, moreover, a safe assumption that the company which makes full disclosure to shareholders is far less likely to reach the Companies’ Court than the company which cloaks the trend of its affairs from shareholders’ eyes. If its affairs are on the downgrade, shareholders will shed their apathy overnight and will co-operate wholeheartedly with the management in an effort to reverse the trend before the avalanche has reached overwhelming proportions. Again, if an obscurantist company requires new capital from its shareholders, can they be blamed for their diffidence in subscribing i; when they have no clear picture cf what has happened to their initial investment?

“Leading members of the accountancy profession, enlightened company chairmen, and investors in general have for years been urging that company balance sheets, and in particular those of holding companies, should give the maximum of information to the shareholder. Opinions may differ on the method of solving the problem but there can hardly be any difference of view on the basic principle.”