Arguments Urged in Favor of Each of the Plans of Control

The control of stock and mutual life-insurance companies has been the subject of as much controversy as was noted to exist with reference to the cost of protection under the two plans, and innumerable instances have been cited pro and con to support one or the other contention. The supporters of the stock plan point especially to the lack of interest which policyholders show in the management of mutual companies, that they rarely vote, and that the existing management may easily obtain a sufficient number of proxies to perpetuate its control. They assert that the difference is in reality only a theoretical one and that the self-interest of stockholders, since their own investment is at stake, is a guaranty that the company will be successfully managed.

While admitting that few votes are cast in most mutual elections, those who favor the mutual plan assert that "life insurance is essentially mutual in principle," and that control by policyholders, although it may not generally be exercised, nevertheless means that the members of the company possess the final power to express their will in the event of a grave crisis arising in the affairs of the company. They also point to the threefold danger: (1) of allowing a stock-controlled company to issue both participating and non-participating policies, a plan which may make possible the fraudulent treatment of participating policyholders to the advantage of the stockholders; (2) of having all the assets of a company., including not merely the capital stock, but the reserve accumulations in which the policyholder is vitally interested, come absolutely under the control of a limited number of stockholders without the possibility of withdrawal by the insured except at a great financial sacrifice or at the risk of being unable to obtain insurance elsewhere; and (3) of possibly placing the assets of the company within the power of unscrupulous financiers who are interested in controlling the company for purposes totally at variance with the best interests of the policyholders. Again, they argue, what assurance is there that a good management for the present will not be replaced in later years by an inefficient or even dishonest one?

When such conditions arise the stock plan, so the supporters of the mutual plan assert, gives the policyholders no opportunity to express their disapproval effectively; nor may even the larger number of stockholders be able to effect a change since the controlling interest in the stock may be lodged in the hands of one or a few individuals whose interests are furthered by the practices to which the policyholders and minority stockholders are opposed. Under the mutual plan, however, if the company's affairs become so bad as to arouse general dissatisfaction, it is possible to oppose the management with independent nominations. To accomplish this purpose various states have enacted laws which aim to give policyholders every possible facility for exercising their voting power if they so desire. The mere knowledge that the body of policyholders possesses this final voting power, it is felt, will restrain a management from going to the extremes that it might have no hesitancy in doing if it were in a position to perpetuate itself by virtue of a majority control of the company's stock.