Cynic on Grumpsters

Invited last autumn to speak to the students of brokerage at the New "York Stock Exchange "Institute," SECommis-sioner William Orville ("Bill") Douglas stirred up a teapot tempest in Wall Street by unburdening himself on the "unestablished value" of customers' men, a financial tribe marked for early SEC attention. Referring to the "practice of gentlemen teaching gentlemanly ways of redistributing the wealth of their clients," tart-tongued Bill Douglas went on to observe:

"That which will at times appear to you, either by example or by precedent, as the end of the rainbow will be a carnation in your lapel and the comfortable club life of your city. . . . Your profession has no particular claim to distinction in this respect. . . . Our educational system has been too virile in production of men immunized from a sense of feeling of social responsibility; trained in the art of plunder in gentlemanly ways; imbued with the false ideal that the American way means exploitation. . . ."

When Mr. Douglas ended his address to the undergraduate customers' men. the genteel New York Times reported, "some of his hearers were dismayed by what they regarded as the cynical attitude of the speaker."

Last week Commissioner Douglas again journeyed to Manhattan to make a speech, this time to the well-heeled members of the Bond Club. Again he spoke his mind "unofficially" but with almost savage candor. Because his subject was broader, his suggestions more radical and, more important, because he is a likely candidate for the SEChairmanship after James McCauley Landis retires next summer, his Bond Club speech reverberated in every banking house in the land. For the 38-year-old onetime Yale law professor proposed nothing less than a complete remaking of the country's investment business. Said he: "Today, as you well know, we have a practical usurpation of the rights of the great body of investors, which can be only described as financial royalism. Our pres ent situation is a carryover from a previous age when there were only a small number of security holders. It should not apply when we are today a nation of investors." The problem was, he said, to achieve "democratization in industrial management," to make management responsive to the will of the "real owners of the business." Commissioner Douglas' solution harmonized perfectly with the dominant theme in SEC thinking: segregation and subdivision of the functions of finance to minimize, real or potential conflicts of interest. Among other things he would: 1) Remove bankers from industrial directorates ("The economic utility of continuity of banking relationships is of unestablished value").

2) Require competitive bidding on new corporate issues ("The banker may frequently exact charges from the company with little or no economic justification").

3) Divorce underwriting from security selling so that the underwriter, freed of the urge to manufacture salable merchandise, might act as an independent middle man representing the public ("A type of dynamic salesmanship has taken root with in the securities business, in which it has no proper place").

4) Develop a permanent national organization to speak effectively for the voiceless stockholder with, perhaps, well-paid professional or public directors sitting at the corporate council table ("The investors . . . today are. by & large, orphans of our financial economy").

5) Strike at corporate dictatorship by eliminating voting trusts and non-voting stocks ("The voting trust as currently observed is little more than a vehicle for corporate kidnapping").

When Mr. Douglas was introduced at the Bond Club lunch last week the members to a man rose to give the personable young commissioner a resounding welcome. When he finished talking there was only a sprinkle of clapping. The New York Herald Tribune observed in a notable understatement that the speech left its hearers "grumpy." No public rebuttal developed, the bankers retiring in groups to their offices to sputter such redundant epithets as "inconsistent meddler," "impractical reformer," "theoretical logician."

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