Maverick Keeps 'em Smiling At Jos A. Bank

The Economy

April 28, 1997|By JAY HANCOCK

BY HIS OWN calculation, Tim Finley is plucking Jos. A. Bank shareholders for $1 million each year by keeping the company's suit factories in Baltimore.

He could have bolted them up, shifted 400 jobs to cheap Indonesian sweatshops and made some money. For a firm that lost $13 million last year and earned only $1.3 million the year before, $1 million in extra expenses is, as the financial officers like to say, "material."

Where are the lawsuits?

As chairman and chief executive, Finley is obviously breaching his duty to maximize Jos. A. Bank's profits. He's violating the sacred rights of shareholders, as explained recently by everybody from Sunbeam's Al Dunlap to columnist George Will.

Somebody like Finley has "a direct responsibility" to promote stock owners' interests, "which generally will be to make as much money as possible." Economist Milton Friedman wrote those words in the 1970s, and they have warmed the hearts and plumped up the portfolios of shareholder-rights activists ever since.

But nobody is suing the suit maker.

Finley's board of directors is being "supportive," he told me. A couple of shareholders even wrote him nice letters.

Why wasn't Bank spanked? Look in the history of corporate law for a case that rebuts Friedman & Co. and cracks the boardroom door for values that don't show up on an accounting spreadsheet.

Like many a good American fable, it's about baseball.

It was 1968. The Chicago Cubs were losing money, but a minority shareholder named Shlensky had the problem licked. If the Cubs would only install lights at Wrigley Field, he argued, the team could hold night games, boost attendance and make money.

Every other major league team had lights, he said. Most games happened at night. Night attendance was higher. Why, across town, the White Sox had lights and were packing them in.

Cubs President Philip K. Wrigley refused.

Baseball was "a daytime sport," he argued. Night games were unnatural. Maximum profits weren't everything. Besides, lights at Wrigley would upset the neighbors.

Shlensky sued and lost.

In rejecting his claim, an Illinois appeals court helped establish a Wyoming-size range for corporate moral judgment. The authority of corporate directors "must be regarded as absolute when they act within the law," the court said, quoting another case -- whether they wrung out the company's the last dime or not.

All directors are free to consider the effects of corporate policies on "employees, the public and the environment," says the American Bar Association's "Corporate Director's Guidebook."

If Wrigley and his board wanted to blow money on baseball's integrity and the neighbors' good will, that was their right.

Wall Street hopes that Finley hasn't gone so soft. He has a briefcase full of good business excuses for keeping Bank's factories in more-expensive Baltimore: a reliable work force, more-flexible production and so forth.

"Finley is a visionary, and he may see something three to five years down the road that all of us have missed," said Kenneth Gassman, who follows Bank for Davenport & Co., a Richmond, Va., investment firm. He hopes that Finley is exaggerating about the $1 million in extra annual costs.

Even so, Finley is walking a maverick path. Bank is one of the last shreds of Baltimore's once-great needle-trade industry. Almost everything else -- London Fog raincoats, most recently -- has gone South or offshore. Bank's labor union was actually surprised by the three-year job guarantee.

What's Finley's real motivation? Perhaps, when he lies down at night, he thinks about those 400 workers and lets his conscience get all squishy and shiny.

That's legal.

The law is "extraordinarily permissive" in allowing corporate leaders to balance the needs of vendors, employees and the community with those of shareholders, said Margaret Blair, a senior fellow at the Brookings Institution who specializes in business governance.

When "Chainsaw Al" Dunlap and his ilk say they have no legal choice but to maximize profits for stock owners, they're wrong. Legally, Blair said, they're more like trustees for a community of diverse interests.

"A lot of people are buying into this shareholder-primacy view, and the law doesn't really support that view of corporations," Blair said.

Then again, International Business Machines is not about to turn into the Salvation Army.

Whatever their authority once they're on the board, corporate directors still get elected by shareholders. Shareholders tend to prefer profits and dividends over good deeds.

Philip Wrigley is dead.

And the Cubs have played under glowing halide arc lights since 1988.

Pub Date: 4/28/97

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