is liable in certification only against forgery and overcertification and does not stand as sponsor for the physical security back of the bond, it is accepted practice to investigate claims and see that all conditions and prospectuses are correct. A recent development which emphasized the protective influence of trust companies was afforded by the dissolution of the Tobacco "Trust." In the distribution of the various classes of bonds and stocks the trust company was the arbiter. All the details of dissolution were attended to by a trust company and its services were of incalculable advantage to holders of Tobacco securities. Another example of the excellent work accomplished by trust companies in protecting investors is the certification of municipal securities. A number of important trust companies of New York, Boston and elsewhere have specially equipped departments which undertake the certification of municipal and public service issues. Such departments examine into the legality of the protected issue, assure themselves of the credit of municipalities and attend to all details of issue. In Massachusetts, for example, a municipality is almost compelled to seek the co-operation of a trust company because of the position taken by investors in municipal securities, requiring trust company certification. It is also shown that municipal issues which are certified by trust companies are more readily salable and command a higher premium than issues which have no such protective provisions. In practice, therefore, the trust company is the one agency which stands between the investor in bonds and securities and the corporation which offers such new obligations. It has also become a fixed policy for a corporation, in the interests of safety, to employ separate trust companies to act as trustee, as registrar and transfer agents. The trust company as trustee, moreover, is concerned in seeing to it that the sinking fund is properly maintained, that funds are provided for the payment of interest or coupons as they become due. There can be no doubt that the necessity of employing trust companies as trustee and in other capacities has the greatest influence in preventing over-issue of stock or inflation of bond obligations. A corporation will not approach the trust company with any proposal for a new bond issue unless such financing is assured of approval. The corporation knows that the trust company examination is searching and that it will not compound with its sense of duty toward stock or bond holders. Another instance of the protective influence of trust companies is the registration of commercial paper. One large corporation in New York has all its commercial paper registered with a leading trust company and every safeguard is taken to prevent undue extension of credit. Such commercial paper is at a premium with investors in this kind of security and eventually all important corporations will come to realize the advantage of having its notes and paper thus registered. The trust company, therefore, is an important factor in bringing about a rational adjustment of the control of corporations and in placing all corporation financing upon a high standard of safety. It will be necessary for legislatures to recognize the functions of trust companies and it will be the part of wisdom to pass laws which shall make it obligatory for all corporations to employ the services of trust companies in escrow capacities. A GROWTH AND METHODS OF TRUST COMPANIES IN SOUTH AFRICA Editor's Note:-This Article is Contributed by Fairbridge, Arderne & Lawton, LTHOUGH in England it is only recently that the idea of a trust corporation or official trustee appears to have been conceived and practically applied, the principle is not new in South Africa. We recollect that in some case, which we cannot call to mind at the present time, an English judge made some remark to the effect: "Can we conceive a man carrying on the trade of an executor or trustee?" In South Africa, on the other hand, the idea was so well established that, under the Dutch East India Company and, subsequently, after the British occupation, there was an official “Orphan Chamber," the predecessor of the present office of the Master of the Supreme Court, the duties of which included, inter alia, the administration of the estates of deceased persons, acting as guardians for minors, and the like. It was not until the passing of Ordinance No. 104 of 1833 that this office was abolished, when it was forbidden to appoint the Master of the Supreme Court as executor, etc. Any such appointment was declared to be of no effect. Thereafter trust companies were established and new ones from time to time sprang up, not only in the Colony of the Cape of Good Hope, but also in the other colonies and provinces of South Africa. It would require a good deal of research to give a list of these, but we may give the following information with regard to some of the principal companies: In Cape Town there are four companies of this nature-The Board of Executors South African Association-General Estate and Orphan Chamber and the Colonial Orphan Chamber and Trust Company. The first three of these are incorporated by statute, the Board of Executors by Act No. 17 of 1859 of the Colony of the Cape of Good Hope, the General Estate and Orphan Chamber by Act No. 31 of 1861. The South African Association was reincorporated by Act No. 21 of 1906. The Colonial Orphan Chamber and Trust Company, which does a very large business and is a very sound institution, is not incorporated by special statute, but is an ordinary company. To illustrate the nature of the business undertaken by these companies, we may quote the objects of the last named body as described by themselves: "The Administration of Estates, Management of the Affairs of Residents and Non-Residents, the Trusteeship under Antenuptial Contracts and Insolvency, Inspectorships. Assignments. Liquidation of Joint Stock Companies and Firms, the Recovery of Bonds, Bills and other Debts. Advancing Money on Approved Security, Investment of Capital, Purchase and Sale of Landed and other Property, and generally every trust and agency, including the guarantee of the Honesty, Integrity and Fidelity of Trustees, Liquidators and Administrators, Executors and Tutors Dative, Curators, Sheriffs, Land Surveyors, Managers and Secretaries of Banks, Lodges, Insurance and other Joint Stock Companies, Divisional and Municipal Councils, School Boards, Messengers of R. M. and Civil Courts, Clerks and other officials in the service of Firms and Public Institutions." The business carried on by the other companies is similar. The statutory provisions of the above named acts do not affect materially the principles on which these bodies are managed. All these bodies occupy a strong position. Besides their capital paid and uncalled, they have established considerable reserve funds; for instance, in the case of the Colonial Orphan Chamber and Trust Company, they advertise their position as follows: Capital Reserve Funds £20,000 150,000 37,503 Actual Funds under administration (exclusive of freehold and entailed landed property), £3,118,788. The Board of Executors advertise their position as follows: Capital-180 Shares at £150 each.. Reserve and Contingent Funds Dividend Protecting Fund Funds under Administration over £27,000 152,170 1,200 2,000,000 In the case of appointments of executors, guardians or tutors to minors, curators, etc., the Master of the Supreme Court, in his control of the estates of deceased persons, or the Court itself, where a special order has to be obtained, will appoint these bodies to act in their corporate capacity. In the case of the Board of Executors and the General Estate and Orphan Chamber, such an appointment is legalized by their Acts of Incorporation. In the case of the other two (and of similar Boards in other parts of the country), the appointment of the Board in its corporate capacity is frequently made. We think it may be said that, by judicial practice and recognition, these Boards are recognized as competent to be appointed, even where there is no statutory provision for that purpose. Of course, a great advantage that is obtained is continuity of management, and also it is not necessary to obtain new appointments upon the death of an individual as would be the case when the latter is appointed. When the Board itself has been granted Letters of Administration or the like by the Master, or when the appointment is in such form as clearly contemplates that the Institution itself is the appointee, as for instance when the "secretary or the secretary for the time being" is the person nominated, the death of the individual secretary or office bearer does not affect the position and no new letters are required. There is, however, one exception at least to this principle. In the case of a trusteeship in insolvency an individual must be appointed. Our law does not recognize a corporation as entitled to hold such an office. These Boards put forward their secretaries or other office bearers as trustees, where creditors are prepared to appoint them, and the Board holds itself responsible for the acts of its representative. Indirectly, therefore, these companies act as trustees in insolvency, though, in the case of the death of such a trustee, the office would be vacant and would not devolve upon his successor under the company. Trust companies do a good deal of business in general agency matters, such as investing moneys, looking after the interest of absentee persons, and matters of similar nature. This does not need any comment, because it is merely a matter of principal and agent. It is often a common course to appoint one of these Boards in conjunction with some other person as executor. A widow, for instance, who is appointed executrix, will be assisted by the judgment of her co-executor, the secretary of the company. The advantage of appointing a Board was illustrated a good many years ago by the case of one of these companies which, having the control of a large estate, was considered to have managed the same more for its own benefit than that of the heirs. It was ordered by the Court to refund very considerable amounts by way of overcharges over a long period. These would, perhaps, have been irrecoverable from many a private executor. The Board was able to pay all claims against it and is in fact at the present time in a flourishing condition. Hitherto we do not think that any bank has entered into this field of operations, until quite recently, when the Standard Bank of South Africa, Limited, obtained an amendment of its memorandum of association, for the purpose of empowering it to act in similar capacities to those of the Boards referred to above. There would not be any difference in principle between the bank and any other corporation in these matters. THE TRUST COMPANY IN TIME OF CALAMITY The Savings Union Bank and Trust Company of San Francisco, Cal., which recently prepared and issued one of the most instructive booklets ever published on "Trust Company Service," also issues a little magazine called "Savings Union Service," which contains much valuable information. An article of particular interest in the issue of August. 1912. is entitled "In Time of Calamity" and presents the following most interesting bit of history: "At the time of the great fire of 1906, the trust companies then in business in San Francisco controlled several millions of trust funds belonging to estates and individuals. Some of these estates had been in course of administration for years and in addition to their assets. possessed voluminous records in the form of probate papers, title documents and accounts. "All of the public probate records and most of the documents in the Recorder's office were destroyed in the fire itself and accordingly the sole records of estates remaining were such papers as happened to be in vaults that escaped the fire. "Very few private individuals engaged in the administration of estates and trusts had adequate facilities for keeping papers. In most cases a safe deposit box was used for the storage of securities only, and as a result, decrees, deeds, copies of wills, court orders. leases, contracts, accounts and important correspondence were burned with no possibility of duplication. Untold loss, expense, labor and embarrassment resulted from the destruction of these records and the effect is still felt in many cases. "A striking contrast was afforded by the estates administered by trust companies as their business was able to continue without interruption or hindrance, as an unbroken record of proceedings and accounts had been preserved for future reference. The value of the records to those interested cannot be estimated in dollars and cents. "The argument in favor of expert trust company service as opposed to haphazard and uncertain individual administration is often lost sight of, but if it is true that the child once burned avoids the fire. San Franciscans particularly should appreciate the assurance of absolute safety to their family records and papers afforded by trust company service." To Subscribers: A number of copies of the report of the New York Stock Transfer Conference, defining uniform rules for transfer of stocks by executors, administrators, trustees, guardians and life tenants, are still available and will be sent free of charge to subscribers upon application. Write to TRUST COMPANIES Magazine. 15 William Street. New York City. THE GENTLE ART OF SELLING BONDS LAWRENCE CHAMBERLAIN Author of "The Principles of Bond Investment" and "The Work of the Bond Houses" Part 1.-Creating a Selling Force OETS are born, not made," goes the saying, and we readily acquiesce, "thinking of Keats, Shelley and Tennyson; but on second thought we reconsider and qualify that half-truth to admit within the pale of poetry the work of Browning who, as a boy, deliberately dedicated his exact, scholarly and critical mind to the profession of poetry, and to include the work of Swinburne, who successfully drew upon mythological and metrical resources to conceal or supply a native deficiency in true poetical genius. We want to believe that genius is not necessarily innate, but acquirable, so as not to be discouraged. We accept, therefore, Carlisle's definition and proceed on the assumption that genius may be merely the capacity for taking infinite pains. Now as to the bond business: it is a profession. I like to emphasize that iact every chance I get. Like every profession it has its long apprenticeship, high standards and superior ethical code. To be sure there are crooks in this profession, as there are quacks in medicine, shysters in law, and hypocrites of the But looking at things in the large, and taking these exceptions as proving the rule, we can truthfully say that the creation and distribution of municipal and secured corporation loans is one of the great modern professions. Particularly as applied to the selling end of the bond business we are prone to assert the half truth about genius: "Salesmen are born, not made." Grant the fact; but don't stop there if you are a salesmanager, or you will not get a tithe of the efficiency out of your force that a more optimistic view and a more determined policy realizes. "Salesmanship," Carlisle would have said if asked on this point, "is the capacity for taking infinite pains." Working on this assumption, and getting my men to work on this assumption, has been the source of whatever success I have had in distributing bonds. The object of these papers, therefore, is to discuss a few of the ordinary details of bond selling, and the preparations for selling, which are necessary to the man who is not a selling genius, details the observance or neglect of which, in the long run, is likely to spell success or failure to the man concerned. Picking the Raw Material. I suppose the proper place to begin is with the raw material: choosing your man. In looking for him—or them-I start with only two fundamental requirements (beyond decent appearance and that sort of thing): namely, that a man should "be a plugger from the word go," and that he have the character to understand and believe in the professional code. Almost any other deficiency can be supplied, but no amount of business training will make a worker out of a sloth or a sincere investment adviser out of an opportunist. |