Maunaloa: Bank of Hawaii (Honolulu), branch Paia: Bank of Hawaii (Honolulu ), branch Bishop National Bank of Hawaii (Honolulu), branch Pearl Harbor: Bank of Hawaii (Honolulu), branch Schofield Barracks: Bishop National Bank of Hawaii (Honolulu), branch Tripler Army Hospital: Bishop National Bank of Hawaii (Honolulu), branch Wahiawa : Bank of Hawaii (Honolulu), branch Bishop National Bank of Hawaii (Honolulu), branch Waialua : Bank of Hawaii (Honolulu), branch Bishop National Bank of Hawaii (Honolulu), branch Wailuku: Bank of Hawaii (Honolulu), branch Bishop National Bank of Hawaii (Honolulu), branch Waimea: Bishop National Bank of Hawaii (Honolulu), branch Waipahu: Bank of Hawaii (Honolulu), branch Agana: Bank of America National Trust & Savings Association (San Francisco), branch Anderson Air Force Base: Bank of America National Trust, & Savings Association (San Francisco), branch Saipan Bank of America National Trust & Savings Association (San Francisco), branch Balboa : PANAMA CANAL ZONE Noninsured branches of insured banks The Chase Manhattan Bank (New York), branch The First National City Bank of New York (New York), branch Cristobal: The Chase Manhattan Bank (New York), branch The First National City Bank of New York (New York), branch PUERTO RICO Commercial banks operating under general banking laws Commercial bank, Government owned: San Juan: Government Development Bank for Puerto Rico Commercial banks, branches of foreign banks Fajardo: Bank of Nova Scotia (San Juan), branch Bank of Nova Scotia, head office San Juan (Santurce): VIRGIN ISLANDS Mutual savings bank Christiansted: New St. Croix Savings Bank DENVER, COLO., November 16, 1956. Re cumulative voting, national banks. Hon. A. WILLIS ROBERTSON, United States Senator from Virginia, Senate Office Building, Washington, D. C. DEAR SENATOR ROBERTSON: The Senate Subcommittee on Banking and Currency will soon be again conducting hearings on legislation which would dispense with cumulative voting for national bank directors, except in those cases where shareholders of individual banks specifically vote to retain this method of voting for their particular banks. Similar legislation, in one form or another, has been considered by both Houses of Congress in 1954, 1955, and 1956. I have vigorously opposed these bills because they are inimical to our national interests. A national bank is a quasi-public institution. It is strongly endowed with a public interest. The Federal Reserve Act of 1913 recognized this, but it was not until 1933, when the Glass-Stegall legislation was passed, that Congress took full cognizance of the necessity of protecting minority shareholders, depositors, and the public at large from the evils and abuses which so materially contributed to virtually thousands of bank failures following on the heels of the stock market crash in 1929. Before reporting this legislation out to the floor of the Senate, I respectfully suggest that your committee request the Comptroller of the Currency to submit for the record a detailed report on all bank failures during the period 1929 to 1933, together with the circumstances surrounding each. I think that you will find it both illuminating and frightening to note just how many bank failures, mergers, and reorganizations were directly or indirectly caused or aggravated by one-man domination. The public was shocked by the abuses and irregularities which came to light daily during this very critical period. They were amazed at the number of big names involved, names which had been considered to be above reproach prior to that time. Twenty-three years have elapsed since the passage of the Banking Act of 1933, but human nature remains very much the same. If adopted, the present legislation will again open the door for greedy and self-seeking individuals to manage the banks they control for their own self-enrichment. Needless to say, this should be avoided at all costs. Let us look at a hypothetical case: A national bank has a 15-man board of directors. One of these is a minority director, who owns sufficient stock in the bank to elect himself to the board under the cumulative method of voting. While he votes in accordance with the dictates of his heart and mind, the very last thing that he would want to do would be to hurt his bank in the eyes of the community. After all, he had to own a very sizable block of stock (possibly as much as 6% percent of the bank's capital) in order to secure election to the board. Although he may vote with the management 99 percent of the time, he still is branded as "uncongenial" because he is an uninvited member and because the majority interests know that he is always a potential source of trouble. As long as the management's program is within legal, moral, and ethical bounds, it has no cause for concern. A 14-to-1 vote is just as effective as a unanimous vote. It is only when the board oversteps the bounds of propriety and embarks on an illegal, immoral, or unconscionable project, that its fears are justifiable. In such a case, the minority director could seek a full and adequate remedy in the courts. However, the mere threat is usually sufficient to keep the majority in line. Differences of opinion are aired in the privacy of the directors' room and disputes practically never reach the courts or even come to the attention of the public, and so do not undermine the public's confidence in the bank or its management. Cumulative voting in the election of bank directors is democracy in banking.. It is in accord with American tradition. Minority directors, who come into. existence through cumulative voting, are on the job 12 months of the year, and protect not only their own investment in the bank but the investments of all other shareholders and the interests of the community at large. This is a necessary adjunct to periodic examinations by bank examiners. Let us revert from a hypothetical case to the comparatively recent case involving former Gov. Harold S. Hoffman, of New Jersey, and his South Amboy Trust Co. It is very unlikely that a defalcation of this sort, involving some $300,000 of a relatively small bank's assets, would have gone unnoticed if there had been even one minority director on the bank's board of directors. Kindly have this letter spread on the minutes of your committee, so that each and every member thereof may give it mature consideration in reaching a decision on this very important matter. Respectfully submitted. X FLOYD W. KRAMER. |