Transfer Agent Pays An Extra Nickel To Every Shareholder
Transfer Agent Pays An Extra Five-Cents Per Share To Every Stockholder Of A Major Us Company: 158 Million Nickels Too Many!
We are hoping that this headline will grab your attention and impel you to read on, and will maybe give you a jolt of adrenaline, and a feel for the gut-wrenching shock we experienced back in the mid-1970s – when around 8:15 one morning we found out from a brokerage firm that we (the old Manny Hanny transfer agency business) had paid out 37 ½ cents per share instead of the 32 ½ cents per share we should have paid out… to each and every shareholder of American Home Products.
The good news here is that it is indeed ‘ancient history’ – but what happened next still has some important lessons for those of us on the firing line, which all our readers basically are…
AHP was then one of the largest, and most admired, and most widely-held companies in America back then. It was one of our Division’s - and our Bank’s most important clients. And, heaven help us, we had paid out 158 million nickels too many…to 80,000 or so investors – most of them individual investors – for a total overpayment of $7.4 million too much...which, believe it or not, was really big money back in those days…
HOW OL’MANNY HANNY RECOVERED: AN ADDITION TO OUR “HISTORY SECTION” - AND STILL ONE OF THE BEST DISASTER RECOVERY TALES ANYWHERE, WE SAY
Before anyone on Wall Street even opened for business, Ray Riley – who was our IT manager and our number-two operating officer back then – and who is still going strong as your editor’s business partner in our Inspector of Election and Proxy Fight business -- went straight to the bank’s “lockbox” that was specially reserved to receive the checks for DTC. Brilliantly, he brought and substituted a new check - for the correct amount - which immediately recovered roughly 35% of the overpayment before anyone actually got it.
Precisely at 8:50 the most senior officer on the premises placed a call to the AHP CFO and Treasurer to give him the news, and to say that he, and Ray, and Ray’s then boss, Barney O’Rourke would be jumping in a cab immediately, to work out a plan to set things right, asap. “Be sure to bring your legal counsel” the Treasurer grimly advised them. Both our in-house and outside lawyers were within walking distance of the famously Spartan AHP offices, and were pacing nervously outside when the T-A team arrived.
“We need to put out a press release immediately…and we need to call the NYSE too” the Treasurer said first thing, “and, of course, we need to spell out the plan to set things right in the most detailed way we possibly can.”
“If we get moving right away, we can mail a notice to everyone affected by tonight,” Ray volunteered, “along with a letter of apology and a post-paid return envelope. The notice can serve both as a statement of the amount that’s due – and, if shareholders want – instead of sending a check - they can check a box that will authorize us to deduct the amount from their next dividend check.”
What genius! What luck! And what great timing: Ray had designed, and just used a system that was developed for another long-term client, National Fuel Gas – that they used to solicit and collect shareholder contributions to a lobbying effort they were supporting, to end, or to at least reduce the tax bite on corporate dividends.
With that, the press release was drafted, and read to a NYSE official over the phone, and it was decided that the news should also run on the NYSE ticker…as soon as the Manny Hanny guys could inform their own “big boss” – the fearsome Frank W. Kaestner, SVP. And ouch again...He had to be paged at the Greenbrier, where he was attending the annual American Society of Corporate Secretaries Convention. How’s that for another gut-wrenching thing - to hear your name being loudly cried-out in the Greenbrier’s posh public spaces, surrounded by customers, prospective customers… and competitors – and then to get the news that poor FWK got when he called in? The only thing that could be worse - and was - was having to place the call, which, fortunately for him, your editor was way too junior to do, even if he had been in the initial ‘loop”, which he wasn’t.
But, unforgettably, your editor did get to hear the fearsome yelling when a ditsy secretary told the fearsome FWK that she could not accept a collect call…then told him a second time, after he demanded to know why she did not know his name and rank, and obey his orders immediately, as she should – and as his typically terrified minions normally did, no questions asked…“I’m sorry, but my orders are not to accept collect calls”…and she hung up on him. Soon, your editor was treated to hearing even more, and louder yelling over the phone, when FWK eventually got through to ditsy’s boss, who was the most senior officer that could be found in the hubbub.
Then it fell to FWK to call our then Chairman – Gabriel Hauge – a professorial and wonderfully statesmanlike son of a Lutheran minister from the Mid-west – who listened calmly – and was content with the plan of action - but who had two directives of his own: “I do not want to see anyone fired over this” he said; “We all make mistakes. And I insist that every stockholder who takes the trouble to write us a letter will receive an individualized, hand-signed reply from an officer of the bank, that will include the officer’s direct telephone number.” (Your editor was one of the two junior officers – the other being John Stevenson, who later enjoyed a nice and very long career at Georgeson – who got the job of answering the hundreds and hundreds of letters that poured in. And what a lesson about the best and worst of human nature it was!
Meanwhile, the letter and the “statement forms” were already being printed - to be enclosed and mailed with a customized return envelope before the close of business that same day. (Ray used the record-date file to produce a “dummy dividend” of five cents per share – which was printed out as the amount due instead - on a specially designed form that was the same size and shape as our normal dividend checks.)
That afternoon a messenger from AHP arrived with a large box, addressed to the officer who was in charge of the AHP account – whose 2s and 7s were normally printed out by him with Germanic precision – and whose long record for perfectionism in matters big and small probably contributed to the slippage in the usual double-checking procedures – and who was, clearly, the “initiator” of the debacle. The box contained a full year’s supply of one of AHP’s best-selling products…Preparation-H: An unforgettable gift that relieved a huge amount of tension, all around.
By day-two, virtually all of the checks that had been sent to banks and brokers had been replaced with new ones. (Very few of the old ones had been deposited, because internal book keeping systems were typically pre-programmed to anticipate and redistribute the correct amounts.)
By day- three, envelopes began to arrive by the hundreds, and soon by the thousands per day. Many of them enclosed cash – and coins – and a few shareholders enclosed postage stamps for the mostly smallish amounts that were owed. Most shareholders responded within the first ten days, and only about 20% of the shareholders opted to have the overpayment deducted from the next check. Many of the envelopes included little notes, expressing sympathy for our mishap, and understanding, though many frugal small-share-holders expressed frustration that the cost of the round-trip postage was almost as much as the overpayment. As commanded by our Chairman, we individually acknowledged them all, with our thanks. One shareholder enclosed a six-page, handwritten “Ode to O’Rourke” - since it was Bernard J. O’Rourke who had signed the outgoing letter - describing Barney’s imagined shock and dismay in elaborate and highly poetical detail, then going on to extoll his heroically fast action, to sympathize with him over the angry letters he doubtlessly had to cope with from pathetically small-minded people, and imagining his triumph come the end, since good people outnumber the bad ones…And, while of course Barney couldn’t do it all singlehandedly, the shareholder was exactly right about the ending.
We got maybe 40 real nasty-grams – many of them asking about the sex and/or race of the “culprit” – and demanding to know whether he or she had been fired. A bank president, whose bank had been overpaid by a few thousand dollars, wrote to say his bank would not return the money and that it served us damned Yankees right, for hiring so many minorities. The head of our Trust Division was so infuriated he called him on the phone and, at the top of his voice, threatened to file a complaint with the State Banking Commissioner if we did not get our money in five days or less, which we did. A minister wrote on church stationery to say that we should suffer for our mistake, and he was not paying us back…But your editor, assuming that the pious Gabe Hauge would back him up if need be, wrote back politely to ask him to search his conscience again, and suggesting that, in the writer’s humble opinion, it would not be right – especially for a man of God like him – to retain items of value that rightfully belonged to others…and that we were sure he would do the right thing when he thought it through…which he quietly did.
Come the end, virtually all of the money was returned to us…and your editor figured out much later that we probably came close to breaking-even after expenses, thanks to the extra “float” – since so many of the original and largest checks went uncashed for several days…although, for sure, no expense was spared, and no one ever thought about running a P&L on the cleanup effort…because that was then..
An instructive and unforgettable postscript: Two days after the payable date, the fearsome FWK got a call from the equally fearsome CFO and Treasurer of AHP: “I had a visit from the banking officer and the top operating officer in the stock transfer department at one of your competitors today that I thought you should know about.
“I asked them what brought them to my office on such short notice and they said they ‘assumed I would be interested in hearing about their stock transfer services.’ So I asked them, Can I assume that you are here to offer me a written guarantee that if I move our business to you, you will never make a mistake? Of course they said no, but they wanted me to hear all about their ‘very extensive proofs and controls – the best in the business, they said.’”
“What happened next?” our big-boss asked, no doubt with his heart in his throat...
“Well, I told them, I can give you two firm guarantees of my own:” (And, oops, the poor schnooks from the famously- bottom-feeding NY bank had failed to realize that it was the Treasurer’s office that had given us the extra money.)
“First, I can absolutely guarantee that Manny Hanny will make another mistake along the way. But second, I will bet any amount of money you care to name that they will never make that mistake again. So get the _ _ _ _ out of my office, and never come back to waste my time with b---s--- like this, ever again!”