[Pen-l] Holding companies

["Charles Brown" <charlesb@xxxxxxxxxxxxxxxxxxxxx>]

Is this sort of like Enron ?

Aesop

^^^^

But the monstrous facts concerning the monstrous rule of the financial
oligarchy are so glaring that in all capitalist countries, in America,
France and Germany, a whole literature has sprung up, written from the
bourgeois point of view, but which, nevertheless, gives a fairly
truthful picture and criticismâpetty-bourgeois, naturallyâof this
oligarchy. 

Paramount importance attaches to the âholding systemâ, already
briefly referred to above. The German economist, Heymann, probably the
first to call attention to this matter, describes the essence of it in
this way: 

âThe head of the concern controls the principal company (literally:
the âmother companyâ); the latter reigns over the subsidiary
companies (âdaughter companiesâ) which in their turn control still
other subsidiaries (âgrandchild companiesâ), etc. In this way, it
is
possible with a comparatively small capital to dominate immense
spheres
of production. Indeed, if holding 50 per cent of the capital is always
sufficient to control a company, the head of the concern needs only
one
million to control eight million in the second subsidiaries. And if
this
âinterlockingâ is extended, it is possible with one million to
control sixteen million, thirty-two million, etc.â[3] 

As a matter of fact, experience shows that it is sufficient to own 40
per cent of the shares of a company in order to direct its affairs,[4]
since in practice a certain number of small, scattered shareholders
find
it impossible to attend general meetings, etc. The
âdemocratisationâ
of the ownership of shares, from which the bourgeois sophists and
opportunist so-called âSocial-Democratsâ expect (or say that they
expect) the âdemocratisation of capitalâ, the strengthening of the
role and significance of small scale production, etc., is, in fact,
one
of the ways of increasing the power of the financial oligarchy.
Incidentally, this is why, in the more advanced, or in the older and
more âexperiencedâ capitalist countries, the law allows the issue
of
shares of smaller denomination. In Germany, the law does not permit
the
issue of shares of less than one thousand marks denomination, and the
magnates of German finance look with an envious eye at Britain, where
the issue of one-pound shares (= 20 marks, about 10 rubles) is
permitted
Siemens, one of the biggest industrialists and âfinancial kingsâ
in
Germany, told the Reiclistag on June 7, 1900, that âthe one-pound
share is the basis of British imperialismâ.[5] This merchant has a
much deeper and more âMarxistâ understanding of imperialism than a
certain disreputable writer who is held to be one of the founders of
Russian Marxism[21] and believes that imperialism is a bad habit of a
certain nation.... 

But the âholding systemâ not only serves enormously to increase
the
power of the monopolists; it also enables them to resort with impunity
to all sorts of shady and dirty tricks to cheat the public, because
formally the directors of the âmother companyâ are not legally
responsible for the âdaughter companyâ, which is supposed to be
âindependentâ, and through the medium of which they can âpull
offâ anything. Here is an example taken from the German review, Die
Bank, for May 1914: 

âThe Spring Steel Company of Kassel was regarded some years ago as
being one of the most profitable enterprises in Germany. Through bad
management its dividends fell from 15 per cent to nil. It appears that
the Board, without consulting the shareholders, had loaned six million
marks to one of its âdaughter companiesâ, the Hassia Company,
which
had a nominal capital of only some hundreds of thousands of marks.
This
commitment, amounting to nearly treble the capital of the âmother
companyâ, was never mentioned in its balance-sheets. This omission
was
quite legal and could be hushed up for two whole years because it did
not violate any point of company law. The chairman of the Supervisory
Board, who as the responsible head had signed the false
balance-sheets,
was, and still is, the president of the Kassel Chamber of Commerce.
The
shareholders only heard of the loan to the Hassia Company long
afterwards, when it had been proved to be a mistakeâ... (the writer
should put this word in inverted commas) ... âand when Spring Steel
shares dropped nearly 100 per cent, because those in the know were
getting rid of them.... 

âThis typical example of balance-sheet jugglery, quite common in
joint-stock companies, explains why their Boards of Directors are
willing to undertake risky transactions with a far lighter heart than
individual businessmen. Modern methods of drawing up balance-sheets
not
only make it possible to conceal doubtful undertakings from the
ordinary
shareholder, but also allow the people most concerned to escape the
consequence of unsuccessful speculation by selling their shares in
time
when the individual businessman risks his own skin in everything he
does.... 

âThe balance-sheets of many joint-stock companies put us in mind of
the palimpsests of the Middle Ages from which the visible inscription
had first to be erased in order to discover beneath it another
inscription giving the real meaning of the document. [Palimpsests are
parchment documents from which the original inscription has been
erased
and another inscription imposed.] 

âThe simplest and, therefore, most common procedure for making
balance-sheets indecipherable is to divide a single business into
several parts by setting up âdaughter companiesââor by annexing
them. The advantages of this system for various purposesâlegal and
illegalâare so evident that big companies which do not employ it are
quite the exception.â[6]


This message has been scanned for malware by SurfControl plc. www.surfcontrol.com
_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l