Employee Stock Selling

In order to sell as much stock as possible to customers, utility executives used advertising, but they were not content to wait for customer demand. Instead, executives compelled each employee to peddle stock to the employee’s family, friends, and neighbors. ^{Footnote 36} Since the Bell System alone employed more than 400,000 workers in 1929—the largest employer in America at the time—and the electricity and gas industries employed another 230,000 workers, the relationship network utility executives tapped into was immense. ^{Footnote 37} Additionally, since utilities employed not only managers, accountants, and engineers but also clerks, streetcar conductors, and switchboard operators, utility employees were able to reach thousands of Americans who would not normally have been solicited by securities salesmen or gone into a brokerage firm. ^{Footnote 38} By farming these interstitial regions of America’s financial landscape, utility executives harvested millions of dollars of capital, but more importantly, they tied their customers’ financial future to the utilities’ political future.

Utility employees did not receive a great deal of training for their new job of stock selling. Typically, managers simply offered employees a few pointers on how to sell stock when the customer ownership program was announced at a large company meeting. When knocking on a customer’s door, managers instructed employees to say: “I have come to see you at the company’s request. They want me to tell you of an opportunity the Company is offering to its customers.” People in a rush were not receptive to sales offers, managers told employees, but “after a rest and a supper a man is likely to be in a buying mood.” Employees should therefore visit customers at night. Above all, employees should try to gain access to the customer’s house rather than make the pitch from the doorstep. ^{Footnote 39}

Also during introductory sales meetings, managers asked employees to subscribe to the company’s stock themselves because, according to Samuel Insull, no employee could be a good salesman “unless he takes a dose of his own medicine.” Managers sometimes planted an employee in the audience to be the first to volunteer to buy stock in order to get the other employees to do the same. Regarding these shills, executives cautioned managers to “tell them to say nothing about it.” ^{Footnote 40}

Managers also sought to develop a list of sales contacts at these introductory meetings. A manual written by executives experienced in customer ownership drives advised managers to require each employee:

According to a 1925 American Electric Railway Association (AERA) report, this practice was “often found useful.” ^{Footnote 42}

Though employees received little sales training, they received even less financial education. As a Bell executive admitted at a personnel conference in 1929, “no effort was made to acquaint the rank and file with the details of the financial statement of the Company.” If a potential investor asked a Bell employee whether the company’s stock had any value, the employee was simply instructed to reply, “It had or the company would not be selling it.” ^{Footnote 43} Electricity employees were taught that if a potential shareholder were to ask the likelihood of the company failing, employees should answer: “None. Based upon the history of utility companies in the United States, there is much less chance of failure than in other sound enterprises.” ^{Footnote 44}

To motivate employees to sell stock, officers established quotas and set commissions. ^{Footnote 45} Several companies divided departments into rival sales teams. ^{Footnote 46} Managers at the Southern California Edison Company divided each office into a red team and a blue team, and set them against each other. ^{Footnote 47} “Everything was done to arouse competition,” the company’s president told executives at an industry conference. ^{Footnote 48} It was not surprising that employees at the company soon fell to bickering over who should get credit for stock sales when a customer had spoken with two employees before deciding to buy stock. ^{Footnote 49}

For the winning teams of monthly sales competitions, companies offered trophies and company pennants, while particularly enthusiastic individual employees received flowers, a letter of commendation, or a write-up in the company’s employee magazine (Figure 2). ^{Footnote 50} Despite these inducements, most employees appear not to have been very enthusiastic about stock selling. One manager observed that employees at his office were overjoyed when news arrived that their company would not be assigning quotas that year. ^{Footnote 51} Some managers, however, reported that employee morale increased as workers delivered sales pitches to neighbors. ^{Footnote 52} One Bell employee was recognized for selling more dollars’ worth of stock than the value of the office building in which he worked. ^{Footnote 53}

Figure 2

Employees at the central information office of the Pacific Telephone & Telegraph display banner they received for selling the most stock in their region, November 1926.

Source: “Customer Ownership Helps,” Pacific Telephone Magazine, November 1925, 22, courtesy of AT&T Archives and History Center.

In addition to having employees sell stock to their friends and neighbors, utilities also sold stock directly to customers at local utility offices. As residential electricity and telephone use skyrocketed in the 1920s, utility branch offices received a steady stream of customers coming in to sign up for service, pay their monthly bill, or dispute a charge. This provided office clerks with numerous opportunities to sell stock. While most employees had to sell stock off the clock on their evenings and weekends, customer-service clerks were required to peddle stock to every customer who walked through the door. ^{Footnote 54} To do this, one enterprising worker at the Southern California Edison Company stationed himself between the clerk who took the customers’ bills and the clerk who took the customers’ money in order to glance down at the names on the bills and then launch into a sales pitch before customers could complete their transactions. When that held up the line too much, clerks began intercepting customers as they walked from the front door to the counter in order to strike up a conversation with them about buying stock. ^{Footnote 55} Streetcar station agents and platform attendants distributed pamphlets about stock to passengers while they sat in waiting rooms or stood on platforms, and conductors harangued them about buying stock as they traveled in the cars. In addition, streetcar companies plastered waiting rooms, platforms, and cars—inside and out—with posters and banners advertising stock. ^{Footnote 56}

Streetcar, gas, electricity, and telephone employees also gave speeches about customer ownership at factories, county fairs, civic clubs, high schools, and colleges. ^{Footnote 57} As Julia Ott has shown, many of these sales tactics had been used during World War I to sell government bonds, though utility employees had solicited customers to buy stock at local offices as early as PG&E’s first customer ownership drive. ^{Footnote 58}

Eventually, this constant pressure to buy stock got on customers’ nerves. Managers reported that customers were demanding “peace” on the subject of stock ownership. “I don’t want to talk Edison stock, I want to pay my bill,” fumed one customer at a Southern California Edison office in 1921. ^{Footnote 59}

For Politics or Capital?

The goal of all this stock selling was not to raise capital but to raise political support, as utility executives explicitly stated. The president of the Southern California Edison Company flatly told an audience of electricity executives in 1924: “Our activity has been wholly along the line of securing partners, not of raising money.” David F. Houston, the president of the Bell Telephone Securities Company, made an almost identical statement in 1922, telling Bell managers at a personnel conference: “The central thought in this [customer ownership] plan is not that of raising large sums of money and of raising them quickly. It is rather that of establishing better public relations.” ^{Footnote 60}

These comments were not made for public consumption, but utility executives made no secret of their political designs. If a potential customer-owner asked, “Why do you not go to Wall Street for funds?,” a NELA manual instructed electric company employees to answer: “The company is now offering the citizens of the communities it serves an opportunity to invest … first, to increase public friendship and good-will.” ^{Footnote 61} Customer ownership was clearly a political strategy. It was overwhelmingly about politics.

The Regional Aspect of Customer Stock Ownership

Like most of American politics, the politics of customer ownership had a regional dimension. This was especially true of AT&T’s customer ownership program. One of the main goals of the company’s stock ownership program was to reduce the concentration of AT&T stock in the Northeast and increase it in the South, West, and Midwest; a project AT&T officers called their “redistribution campaigns.” ^{Footnote 62} Regarding this redistributed stock, David F. Houston, the president of the Bell Telephone Securities Company, stated that it was not “necessary or desirable to have it leave the territory. … This would not be consistent with the underlying purpose.” ^{Footnote 63} Ironically, Gardiner Hubbard, the founder of the Bell Telephone Company, promoted decentralized ownership of the company because he hated Western Union’s telegraph monopoly and wanted to prevent a similar monopoly in the telephone industry. By the early 1920s, however, the Bell System was again promoting decentralized ownership, but this time in defense of its monopoly. ^{Footnote 64}

As AT&T and other utilities began selling stock to customers, shareholders began to appear in places far from the traditional centers of banking and finance. By 1927, gas and electric utilities had sold stock in every state (except Nevada, North Dakota, and Wyoming), including tens of thousands of shares in rural states such as Alabama, Kentucky, and West Virginia. ^{Footnote 65} Between 1921 and 1928, AT&T increased the number of its shareholders by between 400 percent and 1,000 percent in California, Idaho, Iowa, Minnesota, Montana, Nevada, North Dakota, Wisconsin, and Wyoming (see Figures 3 and 4). ^{Footnote 66} Considering that public ownership advocate Robert La Follette came in first or second in each of these states during the 1924 presidential election, AT&T’s stock redistribution effort was not an unwise decision from the viewpoint of management. ^{Footnote 67}

Figure 3

Increase in AT&T stockholders from 1921 to 1928. AT&T intentionally increased the percent of shareholders in the South and West.

Source: Annual Report of the Bell Telephone Securities Company, 1928, 7, courtesy of AT&T Archives and History Center.

Figure 4

Map showing towns and cities where utilities operated customer stock ownership campaigns in 1925.

Source: “Customer Ownership Committee,” NELA Proceedings 1926, 324.

AT&T’s impressive stock sales feats demonstrated its organizational capability to supply stock to individual customers in all parts of the counry. Whenever AT&T directors approved new stock issues—which occurred almost every other year in the 1920s—Bell employees fanned out across their territories, soliciting friends and neighbors to buy shares and taking subscriptions from customers at local commercial offices. ^{Footnote 68} The entire program functioned as a giant public education campaign in corporate securities ownership. New stock issues gave existing shareholders warrant rights to purchase new stock, but many customers did not know what warrant rights were, let alone that they possessed them. Bell clerks, therefore, called existing customer-owners to make sure they understood that they could buy one share of new stock for every five to ten shares that they already owned or could sell their warrant rights for cash. Customers who could not be reached by telephone often received personal visits from Bell company managers. One manager doing home visits reported that sixteen of his previous customers had torn up their warrants because they did not understand that they were worth money. ^{Footnote 69} Another manager visited an elderly couple who lacked the finances to subscribe to more stock and had lost their warrant rights. The manager found the rights under a pile of papers and wrote the couple a check for $46.70, the going value of four warrants. ^{Footnote 70} Other customers knew that they wanted stock but could not figure out how much it cost, so they mailed the Bell Securities Company a blank check and asked the company to fill it in, which required a personalized reply from the company. ^{Footnote 71} Through these letters, calls, and visits, thousands of Americans learned to become shareholders in AT&T.

By turning every local office into a brokerage firm and every employee into a stockbroker, utilities supplied vast amounts of stock directly to Americans all over the country. At these offices, customers could buy stock for cash or on the installment plan and sell their shares, or warrant rights in the case of AT&T, for cash. ^{Footnote 72} Considering that the Bell System maintained more than six thousand branch offices across the United States, even in small towns, it almost certainly became the largest U.S. brokerage during the 1920s in terms of geographic reach and possibly also in terms of volume (see Figure 5 and Figure 6). ^{Footnote 73} Thousands of Americans bought AT&T stock in the 1920s, partly because of customer demand, but also because of a highly personalized campaign of corporate supply.

Figure 5

Piles of stock at the Southern California Edison Company in 1922.

Source: SCE 02 10450, Southern California Edison Photographs and Negatives, The Huntington Library, San Marino, California.

Note: The photo’s description reads, “Making out Stock Certificates in the Securities Department.”

Figure 6

Processing stock at the Bell Telephone Securities Company in 1930.

Source: Blair-Smith, “The 1930 Stock Offer of the American Telephone and Telegraph Company,” Bell Telephone Quarterly, October 1930, photo opposite page 253, courtesy of AT&T Archives and History Center.

Note: A security guard stands watch in the back right corner as managers hover over each row of clerks.

The Twenty Percent

The results of these personalized selling techniques in numerical terms proved dramatic. Counting only those stock sales specifically attributed to customer stock ownership campaigns, and not counting sales made to institutional investors or through traditional brokerage firms via stock exchanges, the total number of shareholders obtained through customer ownership plans in the gas, electricity, and telephone industries exceeded two million by the crash of 1929. ^{Footnote 74} If the number of stockholders in the United States by that date was ten million people—a commonly cited number—then utility employees sold stock through customer stock ownership programs to no less than 20 percent of the total number of stockholders in America by the late 1920s. ^{Footnote 75}

Who were the 20 percent? Many of them were first-time shareholders of moderate incomes. Utility executives specifically used their clerks to reach people of modest incomes. The Bell Telephone Securities Company 1923 Annual Report stated that its shareholders were often people of “small means, many of whom apparently are relatively unacquainted with investments.” ^{Footnote 76} Customer-owners also came from a wide range of age groups, ethnic backgrounds, and occupations. According to company lists, shareholders included auto mechanics, bakers, barbers, beauticians, bell hops, boilermakers, bootblacks, brick layers, butchers, carpenters, chauffeurs, clerks, coal dealers, cobblers, contractors, cooks, coroners, druggists, farmers, fruit packers, housewives, janitors, movers, nurses, pawn brokers, porters, preachers, priests, sailors, salesladies, soda dispensers, teachers, telephone operators, stenographers, taxi drivers, and waiters. By far, the largest categories of shareholders were housewives and clerks. ^{Footnote 77}

After executives obtained customer-shareholders, they endeavored to mold their new investors’ political sentiments. Utility executives mailed shareholders the latest issue of their company’s magazine and stuffed dividend envelopes with political tracts about upcoming ballot measures. ^{Footnote 78} The Byllesby Corporation, one of the largest utilities in the country, sent its shareholders a calendar featuring a specially commissioned painting depicting “Dividend Day,” with this new four-times-a-year holiday highlighted for each quarter. ^{Footnote 79} Another company changed its dividend payment schedule from quarterly to monthly so it could have “12 favorable impressions in a year, instead of four.” ^{Footnote 80} This repeated favorable contact between utilities and shareholders was one reason why executives preferred stocks to bonds. Bonds created partners only until the bonds matured, but stocks kept paying dividends year after year. ^{Footnote 81}

Did It Work?

Did customer stock ownership work in its stated goals of thwarting public ownership, obtaining public good will, and securing rate increases? Executives, regulators, and outside observers—even critical ones—agreed that it did. Herbert Pell Jr., a former congressman from New York, considered utility executives to be “utterly irresponsible” but acknowledged in 1925 that “so long as dividends are paid no complaints will come.” Also in 1925, Henry L. Stimson, the once and future secretary of war, stated at an academic conference on customer ownership that “some critics tend to belittle the new [customer ownership] movement. … I think that they underestimate the immense change which is being effected in public opinion and the power of that public opinion. … Upon that public opinion the new proprietorship is producing a most potent change.” ^{Footnote 82}

Many other observers confirmed Stimson’s view of the momentous influence of customer ownership. A 1929 NELA report on customer ownership found that “the effect upon public relations has been profound and far reaching—in fact, it has entirely changed the character of electric light and power companies in the public mind.” ^{Footnote 83} In 1925 the vice president of the San Joaquin Light and Power Corporation observed that when a customer buys stock, “almost invariably, and usually unconsciously, he takes a new interest in the utility and its affairs. His dividend checks come as symbols of his ownership … he learns something of the doctrine of self-interest … ‘you scratch my back and I’ll scratch yours’.” ^{Footnote 84}

Only in the streetcar industry did executives find customer stock ownership less successful, though it was not for lack of trying. Streetcar companies had trouble convincing customers to invest in an industry facing the daunting challenge of jitneys and automobiles. Furthermore, streetcar companies served fewer people. For these reasons, streetcar utilities had difficulty selling stock to customers, and the strategy of customer stock ownership was not as widespread in the streetcar industry as it was in other monopoly utility industries. ^{Footnote 85}

In the gas, electricity, and telephone industries, however, observers believed that local agitation for public ownership and resistance to rate increases diminished as a result of customer ownership. A staffer for the California Railroad Commission observed in 1926 that “the sale of stock to customers has had a most beneficial effect. … As a result of the practice the tears of despair that formerly were shed at rate cases was changed into the radiant smile.” In 1929 an executive at Byllesby Corporation told the Wall Street Journal that, thanks to customer ownership, the company had enjoyed “a remarkable history of rate increases, the majority of which were obtained without controversy by simply showing facts. We hear little or nothing of municipal ownership any more, at properties where we have home-shareholders.” ^{Footnote 86} A stronger endorsement could hardly be made.

Customer ownership even helped convert some former socialists to capitalism, including John Spargo, a founding member of the Socialist Party of America and biographer of Karl Marx. In 1924 Spargo penned a “confession” in Outlook magazine, in which he declared that “governmental ownership and operation of railroads, telegraphs, telephones, and similar public utilities now appears to me to be inherently inferior to the new type of enterprise we are so rapidly developing, characterized by popular ownership.” To call these companies “monopolies” with a “sinister meaning,” Spargo wrote, was “to misuse language.” ^{Footnote 87} Spargo’s antimonopoly sentiment had disappeared, partly due to customer stock ownership. Newspapers also reported that some current socialists appeared on the shareholders rolls of corporate utilities. ^{Footnote 88} Other socialists, however, had no such change of heart. ^{Footnote 89}

Customer-owners also played a role in defeating specific public-ownership referendums. In Radford, Virginia, shareholders of a corporate utility campaigned against a bond measure to build a municipally owned hydroelectric plant, and the bill was defeated. ^{Footnote 90} In California, electricity executives believed that customer owners directly contributed to the defeat of the California Water and Power Act, a 1920s referendum measure that advocated municipal ownership of utilities in the state. Customer-owners could only have played a minor role, however, since the number of utility shareholders to total votes cast was about 12 percent. Many utility executives, nonetheless, believed that customer owners were more influential than their numbers suggested. ^{Footnote 91} Executives argued customer ownership changed the opinions of even those Americans who did not own utilities stock, because corporate utilities could no longer be viewed as representing vast concentrations of individual wealth. ^{Footnote 92} Instead, utilities could only be seen as owned by millions of small investors. ^{Footnote 93}

Because of the voting implications of customer ownership, managers kept careful track of how many customer-owners lived within their service territories. ^{Footnote 94} A reliable study by NELA in 1928 found that 11.8 percent of electricity customers were shareholders. ^{Footnote 95} Some executives even kept track of exactly where each of their shareholders lived. Insull’s Commonwealth Edison Company maintained a giant map of the city of Chicago with the residence of each shareholder literally pinpointed on the map (Figure 7).

Figure 7

Map showing stockholders, Commonwealth Edison Company.

Source: “Sales Manual for Public Utility Employees: Subcommittee for Use in Customer Ownership Campaigns,” NELA Proceedings 1922, 1:71.

Note: The text at the bottom left reads, “Every Dot a Stockholder.” This map of Chicago is orientated with north at the right and Lake Michigan at the bottom.

Crash and Depression

When the stock market crash of 1929 turned into the Depression of the 1930s, all the rhetoric about safe and secure utility stock made during sales pitches was put to the test. Shareholders in AT&T continued to receive their $9 dividends throughout the Depression, even though the company had to dip into its savings for the first time to pay them. ^{Footnote 96} Customer-owners of PG&E, the Southern California Edison Company, and many other electric utilities also continued to receive their dividends. ^{Footnote 97}

Things ended differently for customer-shareholders in some of Samuel Insull’s companies. In the early 1930s, one of Insull’s operating companies and two of his holding companies went bankrupt and their shareholders lost everything. ^{Footnote 98} After fleeing the country, being extradited back to the United States, standing trial, and being acquitted, Insull died in disgrace in 1938. ^{Footnote 99}