THE UNITED STATES STEEL CORPORATION 141 



management of many of the industrial combinations was ser- 

 iously injured by their failure to redeem their promises of 

 dividends on the common stock. It is not at all to the dis- 

 credit of the steel trusts that they made every effort to treat 

 both classes of stockholders alike. It is true that the pay- 

 ment of large dividends was in line with the advantages which 

 would accrue to promoters and undenATiters from the sale of 

 their stock holdings. It is also true that the pa>Tnent of 

 dividends was a direct appeal to the speculative demand, and 

 was opposed to the permanent interests of the corporations. 

 Considerations such as these have been made the basis of cen- 

 sure of the interests in control of the steel trusts. They have 

 been accused of mismanaging the affairs of the corporations in 

 the attempt to sell their stocks; of unloading their own shares 

 upon a credulous public improperly influenced by their false 

 representations of earning power ; and of draining the resources 

 of their properties in an unsciiipulous attempt to sustain the 

 value of their watered stock. These charges may be well 

 founded in a few cases, such, for example, as that of the 

 management of the American Steel and Wire company; but, 

 in general, there is no basis for them. It might indeed happen 

 that, even if conditions had permitted the accumulation of 

 surplus reserve, stock market considerations would have in- 

 terfered with the adoption of a conservative policy; but, as 

 matters actually stood with the companies, there was little 

 discretion left to the directors. 



Although the policy of dividend payment was necessary 

 in view of the charter provisions of the companies, this neces- 

 sity only throws sharper relief into the unwisdom of those who 

 framed those charters with their separation of stock into 

 two classes and their cumulative reserv^ations, — provisions 

 which were opposed to the accumulation of necessary reserv^es, 

 and which worked, therefore, directly against the permanent 

 interests of the corporations. Cumulative preferred stock is 

 a double faced security. It is in reaUty a bond saiUng under 

 false colors, calhng for an excessive return, and injuring, by 

 its unreasonable claims, the junior security united with it. 

 It is a makeshift, adopted by promoters to make sure of uni- 

 versal assent to their proposals. It has long since been ban- 



