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Hunting License. Suit-happy stockholders have thus been handed a hunting license. Last month, for example, a Manhattan accountant brought a conflict-of-interest suit naming, among others, Philadelphia Broker Howard Butcher III, senior partner of Butcher & Sherrod. The suit charges that, using "secret information" that he gleaned as a director of the Penn Central Co., Butcher had his brokerage firm sell off Penn Central stock last summer, just before the company announced an earnings decline. "Theoretically," says Butcher, who denies the charges, "anyone who has any business at all is going to have conflicts of interest. The question is: How do you avoid liability?" Butcher's answer: he quit all of his directorships in close to 70 outside firms. His five partners, who held twelve directorships among them, did the same. "The potential liability of being a director," says Butcher, "has become too great for the active, experienced businessman to suffer."
Since one result of the confusion over conflict of interest is the understandable reluctance of first-rate businessmen to accept seats on other companies' boards, the interests of stockholders may ultimately suffer.
As for brokers and bankers who hold directorships, lawyers generally agree that their first legal responsibility in the handling of inside information is to the company and its stockholders—not to the clients of their banks or brokerage houses. Obviously struggling with the problem, the New York Stock Exchange, in a statement in July, found that, "carried to the extreme," the rules seem to say that a company officer or director "should never buy or sell stock in the company he represents." That notion is not likely to make much headway on the Street, where brokers routinely trade in stocks of companies that they serve as directors.
Clamming Up. Until the rules are refined in the courts—and that may take years—businessmen must struggle through what one lawyer calls an "agonizing reappraisal of common practice." As a defense against possible future stockholders' suits, a few companies have all but clammed up on information; other companies are practicing full disclosure, and then some. Texaco Chairman J. Howard Rambin Jr. last week persuaded the Boston Security Analysts Society to drop a ten-year ban on press coverage of meetings by threatening not to show up for an address if newsmen were not present. An executive of the American Cement Corp. recently refused to answer questions put by an analyst from a large Manhattan brokerage house. Result: the brokerage firm removed the company's stock from its "buy" list.
A new Administration might try to take the heat off. Richard Nixon, in his now famous letter to Wall Streeters, promised to do something about "heavyhanded bureaucratic regulatory schemes." But the autonomous SEC cannot be quickly recast. It is now composed of two Republicans and three Democrats, including Chairman Cohen. As President, Nixon could choose a new SEC chairman from present members, and Cohen would revert to being one of the five commissioners. In that case, he would be torn between quitting or staying on in order to prevent Dick Nixon from picking a Republican to fill his place as commissioner.