Sure, Walter B. Hewlett's battle with Hewlett-Packard Co. over the merger with Compaq Computer Corp. early this year created fireworks and a hostility not normally seen in corporate boardrooms. Still, such bitter animosity over corporate control isn't new, nor is a management facing the fury of shareholders, or even jail. Extensive news coverage of corporate governance issues isn't new either.
The rollicking mergers and acquisitions in the railroad industry of the 1950s and 1960s offer lessons for today that often have been forgotten. Shareholders still face similar difficulties today in electing dissident slates of directors, or protecting corporate assets from fraud, or holding executives to account for lying to investors.
Take Robert R. Young, a corporate raider who sought shareholder support to revitalize the New York Central System. The enormous publicity on his intensive proxy fight in 1954 included a televised debate between him and its president, William H. White, on "Meet the Press." To appeal to stockholders, Mr. Young promised to put an employee and a woman on the board. After two weeks of proxy vote counting, Mr. Young was declared the winner.
Or take Patrick McGinnis. As president of Boston & Maine Railroad, he was convicted of selling company rail equipment and pocketing the proceeds. He was sentenced to 18 months in prison. Yet, his executive committee expressed "deepest respect and confidence in his ability." Stockholders bought none of it, complaining about his excessive compensation and initiating seven lawsuits.
All these and other accounts are told well in "Merging Lines: American Railroads, 1900 to 1970" by Richard Saunders Jr., published by Northern Illinois University Press, DeKalb, Ill. The book might seem an odd place to look for institutional investment inspiration, yet it offers a perspective useful for shareholders today.
The book recounts an era just before the start of the activist involvement of pension funds. The adversaries then tended to be individuals of enormous ambition seeking operational control, often battling bankers and other corporate interests.
In the multisided battle for control of the Baltimore & Ohio Railroad in 1961, newspapers carried full-page advertisements to stockholders by one of the contending interests with a sensational warning of a "merger at midnight."
Deception of executives then enriching themselves and hiding financial maneuvers from shareholders is reminiscent of accusations at Enron Corp. Some companies with few ties to railroads even petitioned for regulation under the Interstate Commerce Commission to avoid full disclosure to shareholders under Securities and Exchange Commission regulations.
It is a sweeping book. The author names names, people and railroads, lots of them, and covers details about finance and accounting and stock prices with lucidity. It is a business book, for sure. Yet Mr. Saunders makes it an engaging read, interspersing his accounts of contentious consolidations with evocative scenes of the railroad landscape of not too many years ago.
The book isn't just about scandal but of the attempts by management and shareholders to adjust to change in the marketplace, the sometimes shortsightedness of regulators, unions and management to protect their interests, and the technological and managerial innovations of individuals.
Mr. Saunders provides an important perspective. Let's hope after this latest round of corporate reform, the lessons are not lost again until the next scandal.