Wednesday, June 20, 2012

June, 1909, McClure's Magazine, Cleveland and the Insurance Crisis, by George F. Parker,

June, 1909, McClure's Magazine, Pages 184-191, [Bound in Vol. 33, 1909 May-Oct.] Cleveland and the Insurance Crisis, by George F. Parker,

NOTHING in his public career gave Mr. Cleveland greater satisfaction than the relation that he bore, in his closing years, to life insurance. He was not astonished at the revelations first made in the Hyde-Alexander quarrel and confirmed and increased by the Armstrong Committee. He looked upon them as natural and to be expected. At the same time, he never exaggerated their extent. He considered these developments the natural result of government favoritism. If he had under-taken to analyze them in their first and last effect, he would have said that they were the outward sign of an inward condition produced by our system of tariff taxes.

When the shock came, there was only one thought in his mind: How shall we get over the effects of this exposure, with the least damage to morals and industry? He did not rush into speech or into print, but when the time and invitation came, was ready to apply himself to the devising of practical methods. He had never so much as thought of having any personal connection with the administration of life insurance companies, in spite of the fact that, among the many ingenious suggestions that were brought forward, was one that he should take the presidency of some one of the three companies involved in the scandal.

On the evening of June 9, 1905, I was called to the telephone by Mr. Thomas F. Ryan, who read to me the following letter which he had written to Mr. Cleveland, inviting him to accept the trusteeship of the controlling stock of the Equitable Life Assurance Society:
38 Nassau Street,
New York, June 9th, 1905.

My dear Mr. Cleveland: You may be aware that a bitter controversy exists regarding the management of the Equitable Life Assurance Society and that public confidence has been shaken in the safety of the fund under the control of a single block of stock left by the late Henry B. Hyde. This loss of confidence affects a great public trust of more than $400,000,000, representing the savings of over 600,000 policy-holders, and the present condition amounts to a public misfortune.

In the hope of putting an end to this condition and in connection with a change of the executive management of the Society, 1 have, together with other policy-holders, purchased this block of stock and propose to put it into the hands of a board of trustees having no connection with Wall Street, with power to vote it for the election of directors — as to twenty-eight of the fifty-two directors in accordance with the instructions of the policy-holders of the Society, and as to the remaining twenty-four directors in accordance with the uncontrolled judgment of the trustees. This division of twenty-eight and twenty-four is in accordance with a plan of giving substantial control to policy-holders already approved by the Superintendent of Insurance.

I beg you to act as one of this board, with other gentlemen, who shall be of a character entirely satisfactory to you.

I would not venture to ask this of you on any personal grounds; but to restore this great trust, affecting so many people of slender means, to soundness and public confidence would certainly be a great public service, and this view emboldens me to make the request.

The duties of the trust would be very light, as, in the nature of things, when a satisfactory board is once constituted there are few changes, and all the clerical and formal work would be done by the office force of the company.

I have written similar letters to Justice Morgan J. O'Brien. Presiding Justice of the Appellate Division of our Supreme Court, and to Mr. George Westinghouse of Pittsburg, two of the largest policy-holders in the Society.

Very truly yours.
(Signed) Thomas F. Ryan.

Hon. Grover Cleveland.
Princeton, New Jersey.
I was asked whether it would be possible for me to go to Princeton by the earliest train next morning. I requested Mr. Cleveland, both by telegraph and telephone, not to see anybody or to read anything on insurance matters until I could see him, and reached Westland, Mr. Cleveland's residence, before ten o'clock the next morning.

Handing him Mr. Ryan's letter, I at once took up with Mr. Cleveland the general situation. He doubted whether he was the man to enter upon so arduous a work and thus practically withdraw from his retirement; and whether he could afford to undertake a task involving so much risk to his reputation. He urged his unfamiliarity with practical business. To this the natural answer was that details were hardly to be considered: the really important matter was the assertion of broad general principles until the public alarm was allayed.

Cleveland Accepts the Trusteeship

All the objections based upon expediency and experience were met and disposed of to his satisfaction. There remained another and final objection — by far the most serious. This was the unlucky precedent set by General Grant, who, long after the expiration of his presidential service, had been drawn into a banking connection that proved fatal to his fortune, and for a brief time involved his good name. I was able from personal knowledge to assure Mr. Cleveland that Mr. Ryan had purchased the Equitable stock out of hand from his own ample resources; that he sought to avert a great public peril, and neither to make a profit nor to exert a financial power; and that these were the dominating reasons for his acts in purchasing and trusteeing the stock.

When convinced of the disinterestedness of all concerned, he consented to accept the trust, and authorized me to telephone his decision to New York. Upon my return to his room the question was raised as to the form that his acceptance should take. He thought nothing more was necessary than a brief, formal note, to be carried back as an immediate reply to a business proposal. It was represented to him that he had here an opportunity to make an appeal to the country, in the form of a letter, which would exercise an influence more extensive than anything else that could be said. He assented, and on the same day wrote as follows:
Princeton, June 10, 1905.
Thomas F. Ryan, Esq.

Dear Sir: I have this morning received your letter asking me to act as one of the three trustees to hold the stock of the Equitable Life Assurance Society which has lately been acquired by you and certain associates, and to use the voting power of such stock in the selection of directors of said Society.

After a little reflection I have determined I ought to accept this service. I assume this duty upon the express condition that, so far as the trustees are to be vested with discretion in the selection of directors, they are to be absolutely free and undisturbed in the exercise of their judgment, and that, so far as they are to act formally in voting for the directors conceded to policy-holders, a fair and undoubted expression of policy-holding choice will be forthcoming.

The very general anxiety aroused by the recent unhappy dissensions in the management of the Equitable Society furnishes proof of the near relationship of our people to life insurance. These dissensions have not only injured the fair fame of the company immediately affected, but have impaired popular faith and confidence in the security of life insurance itself as a provision for those who in thousands of cases would be otherwise helpless against the afflictive visitations of fate.

The character of this business is such that those who manage and direct it are charged with a grave trust for those who, necessarily, must rely upon their fidelity. In those circumstances they have no right to regard the places they hold as ornamental, but rather as positions of work and duty and watchfulness.

Above all things, they have no right to deal with the interests intrusted to them in such a way as to subserve or to become confused or complicated with their personal transactions or ventures.

While the hope that I might aid in improving the plight of the Equitable Society has led me to accept the trusteeship you tender, I cannot rid myself of the belief that what has overtaken this company is liable to happen to other insurance companies and fiduciary organizations as long as lax ideas of responsibility in places of trust are tolerated by our people.

The high pressure of speculation, the madness of inordinate business scheming, and the chances taken in new and uncertain enterprises, are constantly present temptations, too often successful, in leading managers and directors awav from scrupulous loyalty and fidelity to .the interests of others confided to their care.

We can better afford to slacken our pace than to abandon our old, simple, American standards of honesty. and we shall be safer if we regain our old habit of looking at the appropriation to personal uses of property and interests held in trust in the same light as other forms of stealing.

Yours very truly.
Grover Cleveland.
The trustees met within a week and completed their organization, accepted the deed of trust, and proceeded to the work in hand. Within less than two weeks the names of more than two hundred willing candidates for directors had been presented. These were scattered over every State in the Union and drawn from every trade and profession.

Choosing the New Directors

The trustees found a large number of vacancies awaiting their attention, most of them created by the resignation of prominent business men. Among the vacancies to be filled were those made by the resignations of Edward H. Harriman, James J. Hill, August Belmont, Henry C. Frick, A. J. Cassatt, and Jacob H. Schiff, and the spirit that had induced these men to retire also operated to make others apprehensive about filling their places.

Happily, some active associations of policy-holders recommended a few excellent men who were chosen at the earliest meetings, the first being Mr. William Whitman of Boston; but in other cases men were put forward whom Mr. Cleveland refused even to consider. His dogged firmness made it easier for the trustees to resist pressure, the backers of these candidates knowing that when he had once made up his mind, nothing could move him. In one case a Policy-Holders' Association presented the name of an acceptable man, from a distant Southern State, who, however, had no policy—the prime essential for a new director. But so quickly did his friends move, that application for one was made, the examination passed, a policy issued, and a telegram announcing this sent and received between eleven o'clock in the morning and two in the afternoon.

In spite of all the volunteers that were made, it became necessary to seek for men who would be acceptable to the trustees; so from rolls of policy-holders long lists of names were gathered for consideration, and these were supplemented by the names of policy-holders personally known to the members. Here Mr. Cleveland's large knowledge of the country was of great service. Although he had then been out of public life for seven years, it was scarcely possible to mention a man of prominence about whom he did.not remember at least something, and from this recollection he generally was able to judge the real character of the man so far as the important matter in hand was concerned. Speculators, members of stock exchanges, and promoters were soon put into the same category with insurance agents, so that the field from which choice could be made was constantly narrowed, while, owing to new resignations, the number of vacancies increased rather than diminished.

As was usual with Mr. Cleveland, he became thoroughly absorbed in the duty that lay next to his hand. He took the same care in picking out a director for the Equitable that he had formerly shown in filling his Cabinets or in choosing high officials of the Government. He took nothing for granted, was considerate of his colleagues, but as critical of their judgment as of his own. There was no give and take among the trustees, no putting in men as a compliment to each other, no log-rolling. There were no compromises, because there were no differences of opinion: from first to last every act was unanimous.

Some idea of the consistent earnestness shown by Mr. Cleveland in this voluntary and unpaid work may be gained from some extracts from his correspondence, during this first and vital year, with the secretary of the Equitable. At the beginning of the second month's history of the trustees, when the difficulty in filling vacancies with fitting men was causing a good deal of anxiety, he wrote, on July 16, 1905, from Tamworth:
I should be exceedingly pained and disappointed if, with absolute freedom from outside influence and disturbance, we are not able to discharge the duties of our trust in a manner as wise and useful in every direction as the fallibility of human nature will permit.
An Instance of Cleveland's Impartiality

The name of one of Mr. Cleveland's most intimate friends, a successful official in the second administration, had been presented for consideration by one of the trustees, and I had written him something about the matter. In reply, on July 20, he said:
I expect you somewhat misunderstood my feeling in regard to Mr. E . I have the highest admiration for his business ability and his qualities of heart and conscience. I am personally very fond of him and would trust all I have in his hands. He has been concerned in some underwriting operations; and while I have no idea that these have been in the least questionable, measured by accepted standards, I feel that underwriting just at the present time is, or ought to be, a little out of fashion among directors of the Equitable Assurance Society. Solely for this reason, I have been inclined to allow this otherwise good name to drop out of consideration.
Mr. Cleveland was consulted about the general policy of the Society — although that lay entirely outside his duties. In the same letter he expressed an opinion upon what was then, as now, a burning question in insurance circles:
I cannot rid myself of the idea that "agencies" and their relationship to the Society should, in their turn, and in a careful manner, challenge an important amount of Mr. Morton's exceedingly promising and encouraging labor of rehabilitation. I have, however, great confidence in the efficiency of his work, so splendidly begun, and I do not believe he will allow himself to be misled by agency influences.
The sense of responsibility grew upon him as he came into closer touch with the duties of his place. This was shown in the letter next quoted:
I am constantly thinking of the responsibility of my trusteeship, and I have never been more anxious to do exactly the best thing for the interests legitimately involved. I so fully realize the surroundings of these interests and so fully appreciate Mr. Ryan's encouragement that I shall feel almost disgraced if the remainder of the directors chosen by the trustees are not exactly the men needed for the emergency.
Like expressions appeared in most of his letters from this time forward, until the most serious difficulties had been overcome. Some of these follow:
[July 23] Somehow I am impatient to be doing something to help the Equitable conditions, but I suppose there is nothing I can do.

[August 20] At the same time, I regard my trustee duties as of paramount importance, having the first claim upon my time and attention.

[October 1] Somehow it seems I have an unusual number of things on my mind just now which perplex and embarrass me, but, above all others, 1 feel that the duties of my trusteeship demand my first attention.


During the succeeding year the work of the trustees continued to be arduous and difficult. The new administration was getting its hand in most successfully. Among other questions demanding close attention was that known as "mutualization"—the only one upon which Mr. Ryan's attitude in buying the majority stock had bound the trustees. He was determined upon this as the proper policy, and so, against Mr. Cleveland's judgment, action was taken which anticipated the laws passed at the succeeding session of the Legislature, submitting to the policy-holders the election of directors who should represent them in the Board. Accordingly elaborate circulars, very carefully drawn by Mr. Cleveland himself, were sent to more than 350,000 policy-holders of record. These were accompanied by blank ballots and also by proxies of which the trustees were the official committee.

Taking the Vote of the Policy-Holders

The task of communicating with this vast army of persons was, in itself, a difficult one; but it was easy in comparison with that of making them understand what was wanted. When the polls were closed, within a day or so of the annual election in December, returns had been received from 90,000 persons, of whom just over ninety-five per cent had sent proxies and the remainder a jumble of ballots. The trustees were thus given absolute authority to represent and vote for the policy-holders. Some curious results were revealed.

One candidate living in a Southern State, for whom the agents of the Society had canvassed in the preceding year with such success that practically every qualified voter of the Society within this jurisdiction had sent a letter or signed a petition, now received less than fifty votes. The fact that the names of the trustees appeared upon the proxy had convinced practically every interested person that his interests were safe, and hence there was no longer the smallest concern over the matter.

The work of taking the ballot was greatly increased by Mr. Cleveland's determination that no technicalities should count. Rules had been carefully devised, and the clearest of all possible explanations made, but, in spite of these efforts, many persons did not understand. His insistence upon this care rendered it necessary to answer probably from three hundred to five hundred letters a clay by entering more fully into details, so that no excuse would remain for complaint. Many proxies were sent to him in Princeton, and their transmission was generally accompanied by instructions of which the following is a sample:
Princeton. October 23. 1906.

My dear Mr. Parker: I inclose another batch of proxies, etc., for your care and attention. I think the proxies sent to me by policy-holders in the Mutual, or any other company except the Equitable, ought to be returned to the senders with the statement that I cannot act for them.

I am exceedingly anxious, however, that every policy-holder in the Equitable Society who evinces a desire to vote, either by proxy or personally, should be aided in every possible way; and to that end I want the utmost care to be exercised in the correction of their mistakes and misapprehensions. You will notice one case in which a policy-holder fears that a proxy is invalid if not made more than two months prior to the day of election.

This is a curious interpretation of the "directions," but the matter ought to be explained to the writer.

Yours very truly,
Grover Cleveland.

George F. Parker,
120 Broadway, New York.

When the organization work of the trustees was fairly under way, and its effect upon the country and public sentiment could be fairly seen and measured, Mr. Cleveland said to me:
"On the whole, I have never been so well satisfied with any public service that it has fallen to my lot to render as with what I have been able to do as trustee of the Equitable. Its results have more than repaid me for the labor and anxieties. I can now see that the scandals growing out of the insurance irregularities were really a manifestation of popular hysteria. Nothing could have been more fortunate than to have the situation met in the courageous way taken by Mr. Ryan. Looking back it is next to impossible to imagine what harm might have been done to confidence and credit had not some such action been taken in the nick of time."
In 1907, when the panic came in real earnest, he always insisted that if appeal had not been made to conservative and conserving sentiment in good time, the results would have been infinitely more hurtful, for the reason that the public officials who had fanned the flames became in time powerless to extinguish them. At my last interview with him, about a fortnight before his fatal illness, he said:
"When I was first asked to do something to allay the excitement accompanying the insurance scandals, I hesitated to take part in the movement. It interfered with the quiet that I had needed and found. I was fearful lest I might be drawn into something that 1 did not understand and was too old to learn. I had long known Mr. Ryan — always favorably — but the very fact that he was supposed to bear such close relations to great financial ventures made me doubt whether or not I could have the free hand necessary to do good service. 1 finally concluded to accept, without any assurances whatever, and did not see Mr. Ryan until the formal trust deed was signed. From that day to this I have never had from him any request of even the simplest character to do anything in Equitable matters which had the smallest relation to what were supposed to be his interests. I have seen him seldom, at times not for three-month intervals, and I must say that, even when 1 have felt that I needed his advice and assistance, he has generally declined to express an opinion one way or the other. I consider that he has done a great public service and in the most unselfish way."

Cleveland Misrepresented in his Insurance Interview

For some time he had been looking for a favorable opportunity to say these things to the public, and finally, after much solicitation for an interview on politics from a New York paper which as continually pursued him as it persistently misrepresented him, he saw one of its reporters and consented, just before his last birthday, to talk about insurance. When the interview appeared, he had gone to Lakewood, from which he was to return only to die. It was clear to his friends that some opinions never held and never expressed by him had been interpolated in it. Within an hour of reading it I wrote to call his attention to the article, offering to go at once to Lakewood in case he wanted to disavow publicly the sentiments attributed to him. This he seldom did, even in the most flagrant cases, because, as he always insisted, the truth would never overtake a lie of this sort. He was then in a very serious condition, and few of his friends believed that he would ever leave Lakewood alive. Nevertheless one of the last letters he ever wrote, in a trembling, shaky hand which revealed his condition, was the following:
Lakewood, New Jersey,
March 24, 1908.

My dear Mr. Parker: I do not think it would be at all profitable to follow up by formal denial the misrepresentation that has been allowed to appear in good company, so far as what I said concerning from an unusual fit of damfoolishness on my part, Mr. Ryan. It seems to me easy to discover how has expended itself for the year beginning with my much the few words, put in for the purpose of singling them out for editorial use, are at variance with the purpose and intent of the interview. I intended to give evidence of Mr. Ryan's useful and disinterested conduct in affairs with which 1 was familiar — and I certainly had no idea of intimating that in his large affairs he acted without appreciating or caring for the distinction between right and wrong.

Nothing I said to the reporter could, with decency, truth, or fairness, be twisted to have any such meaning.

The reporter took no notes at all. I think my consideration for newspaper reporters, which resulted from an unusual fit of damfoolishness on my part, has expended itself for the year beginning with my 71st birthday.

Yours truly,
Grover Cleveland.
Nothing could have been more fortunate for Mr. Cleveland than this last excursion into public life. He was interested deeply in the work; it pleased him to feel that he was again doing good; he was again drawn into the circle of large influence and association, and found himself discussing and deciding upon questions that were vitally important to the country.


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