The Co-operative and Close Corporation.
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To the Editors of the Crimson:
Since the directors of the Harvard Co-operative Society ask for discussion upon their plan of incorporation, a few words may not be out of place from one who has been almost continuously a member since the foundation of the society, was at one time a director, and has paid attention to its affairs for some years.
Obviously the first question is, what is the purpose of the Harvard Co-operative Society? It was founded not to make or to distribute profits, but to reduce the cost of the necessities of Harvard students, and thereby to make it easier to come to Harvard and to finish one's course. That purpose has been well subserved; the exactions of the regular dealers long since ceased; and both they and the Society furnish good articles at low rates.
The next question is, how the management of the Co-operative enterprise has worked. It has been perhaps the most conspicuous and successful example of distributive co-operation in the United States; it has paid expenses, paid dividends, and accumulated a capital of $30,000, practically out of the subscriptions of former members, by their abnegation in accepting only a part of the annual profits. On the whole it has worked well.
The third question is, how far does the new plan tend to realize the prime object--the saving of expenses to Harvard students? Financially it can do better than the present system only by decreasing the expense ratio, or by increasing the sales. It is not the purpose of the Directors to reduce expenses, but so far as can be inferred, to increase them, and at the same time to increase the sales in proportion. There is no magic in "incorporation" which can avoid this plain issue. The sales now amount to about $250,000 a year; and further increase of business will involve greater responsibilities, and will not reduce the student's expenses, inasmuch as the prices of regular dealers come pretty close to those of the Co-operative, and are kept down by its existence.
Another way in which a close corporation might do better than the present elective directorate is by better management of the business. A letter in the CRIMSON from one of the Directors complains of "unintelligent interference in matters of administrative detail at the hands of the Board of Directors." On that point it is time to say a frank word. The Co-operative Society has twice been in danger of collapse, both times because of lack of good business management by the Superintendent. The first time, the Society was carried through by the personal credit of the then president; in the second case, the directors practically refused to take the business-like precaution of a proper audit of the books, until they were compelled to do so by the insistence of a student director, backed up by members of the Society, who absolutely insisted that an investigation be made. The audit showed such loose methods of business that a change of management immediately followed. Here is a specific case in which the importance of a directorate subject to pressure from members was revealed. The Board at that time, no member of which, I believe, is now a director, erred simply through lack of business judgment; but the episode certainly showed the value of "unintelligent interference" with the management.
The method of a close corporation, therefore, would be deprived of a check which has proved wholesome in the past. It remains to be seen how far its positive and obvious advantages outweigh this defect. In the first place, it is to fill its own vacancies, and therefore to insure higher experience and greater continuity of management. No doubt it is desirable that such an important business should be relieved from the fluctuations of accidental choice of Directors; and though Mr. Meyer assures us that in practice the Board nominates its own successors, there have been cases where that precaution did not prevent a few persons from election by what may be called an extra-directoral party. When the change was proposed last winter, I thought it desirable, expecting that the choice of Directors would be by the Corporation. It appears now that the Corporation declines that function, presumably because it looks on the Co-operative as a kind of business different from the two Dining Halls. The attitude of the Co-operative strives a different light upon the plan unless some means can be found of filling vacancies in the trustees, by election through some representative Harvard bodies.
Another defect of the plan is that a body of trustees responsible only to public opinion is created for a purpose very uncommon in trusteeships: trustees frequently have the care of real estate and sometimes carry on business for a brief period while closing up an estate; but the proposition before us is that a self-perpetuating board of five trustees undertake to carry on a mercantile business, with the details of which none of them can be familiar. No prudent owner of a business fails to give directors to a business manager who has only a salary interest. When we consider the number of commercial failures made by business men who have the most active personal interest in success, this responsibility becomes very serious. It will be observed that while the new scheme provides for a division of profits, it does not contemplate a distribution of losses, and still less that impairment of the whole capital which frequently overwhelms similar businesses, when carried on by their owners.
Not having received the proposed by laws, I am unable to say how far the trustees propose to safeguard their business,--or rather safeguard our business, since the whole capital is derived form the sacrifices of old members. We do not know for instance whether the statements of their accounts which they intend to publish are to be thorough and detailed: in the past there was a period of several years when those accounts were kept secret, to the great detriment of the Society. Again what opportunities will there be for the examination of complaints? The proposed trustees ask us to give up our property in order that it may be made more available: can they not tell us in detail how they mean to administer it?
The present Directors seem to take the embarrassing attitude that a criticism of their plan is a criticism of themselves and the President of the Society rules that in a matter of such great concern to the future of the Society, any alternative plan is "out of order." Hence the members of the Society have not the opportunity of knowing officially the reasons which actuated one member of the Board of Directors in withholding his assent from the plan. There is really no difference of interest between the directors and the members: we all wish the same thing, the perpetuation and success of the Harvard Co-operative Society, and we all respect and confide in the five gentlemen who are willing to accept so laborious and vexatious a task as the management of the Co-operative business; but before putting our property in the hands of a perpetual trust, over which we are to have no other control than through discussion in the columns of the CRIMSON, may we not fairly know what policy the trustees expect to follow--whether one of enlargement or expansion of business, with correspondingly enlarged risk; or a more conservative management on the present basis? With regard to salaried officers, I agree cordially with Mr. Meyer that people who make considerable sacrifices of time for the service of the Society ought to be paid. The Harvard Corporation is an excellent example: the President and Treasurer give their whole time to the service and receive salaries, and the other five members serve gratuitously, although their time and expert counsel are worth many thousands of dollars. Nevertheless of course when the co-operative character of the Society is given up the name "Co-operative" must also be stricken out. A body of trustees which fills its own vacancies, practically administers a charity for the benefit of Harvard students, by means of a capital contributed by Harvard students and that process is mostly co-operative. It seems not unlikely that such an arrangement would arouse antagonism of a kind hitherto little experienced, from other dealers.
Upon so serious a matter might not some steps be taken to ascertain the opinion of representatives of those who have contributed the fund in past years? Is it impossible to arrange for the appointments of trustees for a term of years by some agency which may fairly be considered representative of the owners in equity of the funds of the Co-operative, namely, former members? Until we know more about the whole plan, and until we know why a close corporation is the only possible method, I shall feel constrained to vote against it. ALBERT BUSHNELL HAR