One of the saddest news stories of the financial crisis, “Loyalty Pays a Bitter Dividend,” appears today in The Wall Street Journal – a reminder that a public company is a stewardship, a relationship in which the owners entrust assets to a management team for safekeeping, profitable use and growth.
The piece leads off with a widow in her 70s who owned stock in a Mississippi bank for many years. Through a series of mergers, that stake morphed into shares in the mighty Wachovia Corp. Owning stock in a “local” bank remained a point of pride, and the dividends made a very substantial contribution to this widow’s livelihood. Until 2008.
On Monday, Wachovia fell victim to the Wall Street crisis. A forced sale of its banking assets may leave some financial services in the Wachovia name, but not a bank. (Update: At week’s end, Wells Fargo & Co. offered a sweeter deal for Wachovia than Citigroup, which is part of the would-be forced sale.) At this point, the widow’s stock is worth something – but a shadow of what it was. The dividend? Well …
According to the Journal, “Mrs. Pace said her son recently reassured her that if things get really bad, she can move out of her home and into his basement, which has a window. Then she began to cry again.”
The paper comments:
The faith of long-term holders is now being punished. … Few investors realized the danger that accompanied banking’s heady growth. Once-stodgy institutions were dabbling in exotic new securities based on high-risk mortgages, leaving them exposed when the housing bubble collapsed.
The crisis says something to all executives: Our core mission is to be faithful stewards, actively serving those long-term shareholders. To investor relations professionals, this argues that companies should proactively analyze and clearly disclose risks – and changes in risk.