REPORTING TO THE PUBLIC
AN ADDRESS BY JOHN S. COLEMAN, LL.B.
Chairman: The President, Mr. Thos. H. Howse
Thursday, February 10th, 1949
HONOURED GUESTS AND GENTLEMEN
I think we would all agree that this is a machine age and that the vast organizations that have sprung up during the last few decades would not have been possible without amazing developments in machinery.
Most of us think of machinery in terms of mass production in factories, but it is equally true that this is the machine age as far as the white collar workers are concerned. All up-to-date offices are equipped with bookkeeping, calculating and adding machines, which do an amazing job in the simplification of office work and I feel that those of us who are familiar with these machines will agree that the Burroughs Adding Machine Company has made an outstanding contribution to the development of this type of equipment.
Our guest of honour today is Mr. John S. Coleman, President of The Burroughs Adding Machine Company of Detroit, Michigan.
Mr. Coleman was born in Charlestown, West Virginia, where he was educated and graduated from Georgetown University Law School.
He served overseas in France for two years in the First World War and shortly after he was demobilized joined the staff of The Burroughs Adding Machine Com pany as a junior salesman and has been with the Company ever since.
Promotion was very rapid and he finally was elected President in 1946. Some idea of the magnitude of his job call be gathered from the fact that his Company now employ over 20,000 people and their products are sold in all parts of the world.
It now affords me very great pleasure to introduce Mr. John S. Coleman, the title of whose address will be "Reporting to the Public."
It has been announced that my topic today is, "Reporting to the Public." That's a simple enough subject, perhaps, and one which implies nothing very remarkable. After all, there are statutes, as well as the requirements for being listed on stock exchanges which require a corporation to make specified reports to the public. This has been going on for some time, so why should I travel all the way from Detroit to talk to an audience as well informed as this one is on a topic which is as commonplace as this apparently is?
Of course, that is a rhetorical question. But it is remarkable that a subject which appears to be as simple as telling the public about your business should be such
a hot spot in contemporary life. If there is a phase of business activity which gets more attention these days than ways and means of explaining Business, I don't know what it is.
For the purposes of our discussion today, it is not important how this came to be such a problem. We all know something about it; and we and our predecessors, I am sorry to say, have some responsibility for it. What I should like to do in the few minutes I have is to cover the most acute aspects of our problem and to offer one or two courses which may alleviate it.
In Canada and across the border, in the United States--two of the places on this earth which Business: buying, manufacturing and selling, has helped most to build to world leadership--there are a few groups of people who are organized to make business less effective. More important still, there are even greater potential forces, who don't much care how effective Business is. Some statisticians tell us that substantial numbers of our population feel that they would be better off if Business were under some system of greater government control than it is now. Business, and particularly that ogre, Big Business, are too often blamed for much of what is wrong with our two countries. Some of this blame is applied for political reasons, some through honest misunderstanding. Whatever the reason, though, the public at large has many serious misconceptions about Business and Businessmen.
These misconceptions are serious because they are likely to be the basis for action which can do a lot more harm than good to their perpetrators and to everyone else in the long run.
Gentlemen, there is only one way in which these misapprehensions can be corrected, That is for businessmen to correct them.
The job of correcting misapprehensions of Business is primarily one of creating confidence in Business. And this is not a job which can be done by abstract treatment. One of the reasons that we say Business is misunderstood is that the word "Business" itself is an abstraction. What do people mean when they talk about Big Business and its alleged evils? Try to pin them down, and the chances are they don't know what they mean.
Somehow or other, an abstract concept of Business, with a capital "B", has been built up. It is mysterious because no one can see it or identify it. And like many such intangibles, it disturbs people. The mere fact, though, that nothing of the sort exists doesn't mean that it can be laughed off. It's a serious fear of some people, and some others make it their business to see that the Business Bogeyman continues to be a threat.
The way to dispel this ghost is to remove it from the abstract: demonstrate that no conspiracy of corporations or tycoons exist; demonstrate that the collective term "business" simply means around four million separate enterprises in this country and in the United States, all of which are competing with each other for their share of the consumer's dollar.
But even at this point, the concept is something of an abstraction. Very few people have a clear idea of what a million or so enterprises look like. So, in my opinion, we must go much further in our efforts to destroy this bogeyman. Our efforts can be a great deal more effective and the results a great deal more permanent, if rather than talking about our four million businesses, each of the four million of us talks about his own business.
The problem is just that simple. The management of each of the business enterprises in this country and in the United States must tell the story of its own company, not to the whole world, necessarily--that job is too big for one company--but just to the people who have some interest in their company. Each company has its own "public"; its employees, its owners, its customers, its suppliers, and its neighbours. If a management can "sell" most of these people the idea that their company is doing a good job, that management has made a big contribution to restoring confidence in our business system.
If each of these four million managements can sell its public in the same way, the problem is pretty well solved. Remember that these various "publics" overlap to a large extent; so such a sales program would cover very nearly the whole population of our two countries.
Now, the question arises: what is the best way to create confidence in your company among the individual members of your public? Well, I'm reminded of the classic public relations story. A restaurant owner who had been losing money retained a public relations counsel to help him out. At their first meeting, the proprietor said, "My problem is to get people to think that I serve top quality food here. Can you tell me how to go about creating that impression?"
"Sure," said the public relations counsel, "You start by serving top quality food."
And so it is in creating confidence in any business enterprise. The first thing to do is to be sure that one's operating policies and practices are such that they will inspire confidence.
Specifically, that means, first, to be sure that one is giving one's customers or clients the best possible value for their dollar. It means providing goods and services to people who want them at the time they want them, and at a price they are willing to pay. That's elementary, of course.
With respect to stockholders, this endeavor to create confidence means that a management must start by assuring itself that the earning power of the stockholder's dollar is as great as possible; that he gets a fair return on his investment not only today, but next year.
As for the employee, it means that working conditions are as good as can be devised and that a fair wage is paid for a fair day's work, both now and in the future.
With regard to the neighbours, it means that the Company must be a good citizen, in the best sense of the word. Having assured itself that its organization is living up to its responsibilities to all these members of its public, management's next job is to be sure that they understand what the Company is doing. This is where the reporting job arises.
Now, by this time, it is probably evident what I believe the reporting job to be. It is more than merely sending a year-end balance sheet and operating statement to the stockholders--although, of course, that is generally a requirement, too. For the purpose of this discussion, I should like to suggest that we understand "reports" to mean all the communications from a company to its public.
At this point, I might say that it is usually a good idea, before undertaking a broad program of communication with the public, to have a pretty clear idea of policy to be followed. Naturally, efforts to increase confidence among such varied groups as stockholders, customers, employees, and the general public should complement each other. With a good concept of policy in its mind, management can interpret its company consistently to all groups without conflicting actions or statements. And, conversely, of course, one of the surest ways to destroy confidence in a company is for its management to permit inconsistencies in its statements to, or actions with, the various segments of its public.
Now let us look at some of the things which corporate managements have done to foster confidence among the various publics. A particularly strong human urge is a desire to know what's going on. Even when we can't do much to control what is going on around us, we can adapt ourselves to situations with more confidence when we understand them than we can when we are in the dark. The pleasure of being "on the inside" is a similar feeling.
Since these feelings exist, some managements have recognized them and taken action to gratify them. The results have been an increase in confidence and trust on the part of both employees and stockholders.
Frank answers to inquiries, both through written replies to letters and oral replies to spoken questions are important in fostering feelings of confidence. This implies both an informed supervisory force, and a top management which is willing to take the time and trouble to answer questions. The primary potential weakness of any system which does not actively solicit questions, though, is the danger inherent in not always knowing what questions people would like answers to.
There are ways to minimize this danger, though. Opinion surveys, suggestion systems, and, above all, again, a well-trained and informed supervisory force, which is able to recognize questions and keep both employees and top management informed--these are some of the tools which have been used to provide employees with information.
Regional stockholders meetings and written inquiries have achieved similar results for stockholders.
There are certain other somewhat mechanical techniques which have been used successfully to keep employees informed, they are concerned mainly with notifying employees of major personnel changes and new developments in practices, procedures and policies before they read them in the newspapers. Bulletin board notices and letters mailed to employees' homes are particularly useful.
Some managements have prepared booklets describing their companies, which they make available to employees, stockholders and the public. A knowledge of the history, present operations, and future plans of a company is a valuable ingredient of any program for building confidence and understanding.
There are other devices, too: some very elaborate; some quite simple. Some managements have produced motion pictures for employee, stockholder, and public viewings. These films have covered a variety of subjects, all the way from company histories to explanations of practical economics in terms of a company's operations. My own company has undertaken an effort of this kind, with sufficient success to encourage us to consider repeating it.
And there are numerous methods of showing the general public that the company is a desirable citizen of the community. A policy of keeping the press informed is a good one. Some companies make it a practice to send news releases to all local newspapers whenever there are important or news-worthy happenings in a company. Frank answers to questions from reporters are, naturally, very important.
Plant open-houses for members of the community have been used to good effect. Factory tours for local citizens, including school children, are another helpful aid to increased understanding.
Perhaps most important of all, though, as media for interpreting a company. are its financial statements. The annual report which sets forth an account of the year's operations is a natural tool for this purpose. Many, companies feel that the clay has passed when a four-page folder covered with dollar signs and technical accounting language can be expected to tell the public all it needs to--or should--know about a company.
The limitations of the language of accounts and, indeed, of mere balance sheets and operating statements are a. topic which again and again arises to plague managements and baffle the uninitiated.
One of the results of total dependence on little more than such statements to keep the public informed on financial operations is the misunderstanding and even mistrust which we recognize today. Why is it that the average teen-age boy can tell you more about nuclear fission, television, and jet-propulsion, than he can about the way a business enterprise operates? One of the reasons is that in the past, Business has not been too aggressive in telling its story to the public. Another is the limitations of traditional accounting techniques and language as vehicles for the communication of that story.
Consequently, one of the areas in which the public' has least confidence in Business today is its financial operations. If the layman has done any thinking about the financial working of Business, he probably envisions them about this way
"You buy materials, make them into finished products, mark up the price so as to get whatever the consumer will pay, and then sell it to him. Let's say that you started at the beginning of the year with a million dollars and you finish the year with a million, one hundred thousand, You then have a hundred thousand dollars profit."
Now, Gentlemen, if our layman is a stockholder, he may figure something like this
"The company made a profit of $100,000; there are 100.000 shares of stock-that's a dollar a share. Aha! When do I get my cheque?"
Then when he gets his check he sees that he has been paid only fifty cents a share in dividends. His immediate reaction is likely to be, "The management is holding out on me." Then if he isn't already disillusioned about financial statements, he looks at this company's latest report to see if he can find what the management has done with the rest of his money.
Or, let's assume that our hypothetical layman is an employee of the company. He reads headlines in the newspaper that his company's sales hit a new high of two million dollars last year. "Two million-that's a lot of money!" Then he reads a little farther and he sees that profits reached a new high of a hundred thousand dollars. "Hmm! That's still a lot of money to have left over at the end of the year. Why don't I get some of it? The management's holding out on me!"
Then, let's assume that he takes the trouble to try to find in the company's latest financial statement an indication of where the money went. Let's see, if we can, what the stockholder and the employee find.
The first thing they find is two or three pages covered with figures (some of them running into the millions), all with dollar signs in front of them.
"That's pretty impressive-somebody got a lot of money last year."
Then they see that the figures are divided into two categories: One is headed "Balance Sheet" and the other is headed "Statement of Income and Surplus."
"That title, 'balance sheet' doesn't mean very much; but here we are: 'statement of income and surplus.' We're interested in the income-that's the cash the company took in. And here's the surplus-that's what was left over which the company didn't need. Why didn't the management spread a little of that surplus around? That's purchasing power which we didn't get."
Well, if our friends aren't too worked up to drop the whole matter in disgust at this point, they look around a bit further, and they find an item headed "depreciation." What it means isn't very clear, but it is something that the management took out of the income it took in.
"I wonder if that could be a hiding place for some of the money that I didn't get."
"Now here are some things headed 'reserves.' They total up to a good fat amount, too. Wonder what they are being held back for?"
And so it goes. Our investor and our employee deduce from the figures that the report shows that the Company handled a lot of money during the year, and made a bigger profit than ever before. The words in the report don't tell very much except to imply that something has been held out--something which the employee and the investor think they should have shared in.
The next conclusion is that the business is rotten and the people who run it are dishonest.
So, there's our problem. How is it to be solved? There are two possibilities. One of them is to revise the basic accounting principles by which financial facts are developed and presented to the public; the other is to try to explain what the facts mean as they are presented today.
The solution will, ultimately, require both courses of action. However, basic changes in our accounting system, if undertaken too quickly, would result in even more confusion, more misunderstanding, and less confidence in Business than we have today. So this course should be followed more closely.
Since we are badly in need of better understanding at once, though, it is absolutely necessary to explain our accounting system and the vocabulary it employs in terms which are clear to the layman. The area of what the public accountant calls "generally accepted accounting principles" is as unfamiliar and confusing to the untrained mind as the Western Ocean must have been to the sea-captains before Columbus. So, if I may continue this analogy, it seems to me that large-scale charts of the most-commonly traveled routes must be provided for the novice.
Just one or two simple examples can explain the sort of thing I mean. If the untrained critics of our system of business could be made to grasp the concept that a "reserve for depreciation," followed by a dollar sign and some figures in dollars and odd cents do not represent a neat pile of currency and coins being held "in reserve" in the president's safe, we would be making progress. And if the public could understand that a corporation which shows a million dollars in profit at the end of the year may still have no cash in the bank, then we'd really be getting somewhere.
Now, of course, no single annual financial statement can accomplish all that has to be clone. But if each business concern which does issue such a statement can make its operations a little clearer to its public, the aggregate effect will soon begin to be felt in terms of less suspicion and more confidence.
There you have it. I have tried to suggest a few of the reporting techniques which Management can use to lessen the misunderstanding of Business which I believe to be one of the major obstacles in the path of peace and prosperity not only in our countries, but in the world. The people of our two countries: employees, investors, farmers, legislators, yes, and businessmen, must understand that the strength of our nations depends on our business enterprises being healthy and productive. And as long as our nations remain strong, there is hope for a world in which famine, disease, and unrest can be minimized,
It's a challenge, but I am confident the obstacle is surmountable. And I believe that the individual businessman, working in his own bailiwick to show that his business is in the public interest, is the man who will overcome it.