CHAPTER II

STANDARDS FOR THE APPRAISEMENT OF THE PRESENT CONSTITUTION AND GOVERNMENT

There is one principle that is fundamental to the political thought and action of every democratic commonwealth, namely, that the public business shall be managed as a trust. Representative government is the institutional form in which this principle is expressed-the representative character being adopted for the purpose of assuring the governed that powers shall be exercised and properties and funds shall be used for the common good.

Government Established for the Governed

A written constitution is a sovereign prescription or grant in the nature of charter of incorporation-a body of laws which are accepted as the rules that shall govern the government, and which in terms set forth the delegation of authority to persons who thereby are recognised as official trustees, and describe the conditions or limitations of their stewardship. Like other institutions and instruments, governments get out of adjustment. It has been for the purpose of providing an orderly method of finding out what changes are desired in organization, in personnel, and in institutional relations that "electorates," " representatives" and "constitutional conventions" are provided for. Every consideration involved in the amendment of constitutions has had to do with the better adaptation of institutional means to end-the end being government for the benefit of the governed.

Requirements of a Representative System

The institutional requirements to be conserved by the constitution may be simply stated. With a view to carrying out the principle that “a public office is a public trust," it is commonly accepted (both as a basis for critical review of what is and as a basis for considering the advantage of constructive proposals) that the government must be "responsive" to the will of the governed, and that officers as agents or managers of the public trust shall be held "responsible" for their acts. Nor is the citizenship, to whom proposals for constitutional amendments must be submitted, without ample experience for intelligent judgment as to what expedients are adapted to making government "responsive" and "responsible." Citizens have become familiar with these expedients in their contact with everyday affairs.

Expedients Adopted to Make Private Management "Responsive" and "Responsible"

Like representative government, an ordinary joint stock company is an incorporated trusteeship in which many are interested. The demand made of officers is that the management shall be "responsive" and "responsible." The essentials among all the expedients that have been adopted to make the administration of corporate trusteeships responsive and responsible to the beneficiaries or members are these:

1. The selection of a person or persons as executor of the trust, usually called the "executive," who is charged with the duty of carrying on the business authorized.

2. The selection of "representatives," usually called trustees, who are charged with the duty of meeting as a body or board to review the acts and proposals of the executive" and approve or disapprove of them.

Provision for obtaining reliable information needed to keep the representatives and members advised about what is being done by the "executive."

4. Provision for developing a faithful and efficient personnel with which to carry on the business and for retaining it in the enterprise.

5. Provision for the prompt dismissal of the personnel that is unfaithful and unfit, and for the prompt retirement of the "executive" officers who do not retain the confidence and support of a majority of members as expressed by an "electorate" or through "representatives."

These may be regarded as underlying principles governing all the personal and organic relations of institutions with which citizens are familiar the results of experience gained in efforts to make management of trusts responsible.

The Meaning of Executive Responsibility

The meaning of "executive" responsibility is quite as generally understood as are the requirements of trusteeship. In the common affairs of life, and in private corporate practice, executive responsibility

means:

1. Responsibility for leadership, i. e., for initiative in the preparation and submission of plans for approval by the board and for direction and control over the execution of plans after they have been approved.

3. Responsibility for results, i. e., for efficiency in management and for economy in the use of mere material and funds.

Relation of Executive to Administration

This means that the "executive" is looked to as the one to come before the board or body of "representatives" at stated times, and tell them what has been done since the last meeting, and what is proposed for the future; and, in order that this requirement may be enforced, authority to proceed beyond a fixed date is withheld from the "executive," i. e., action by him is made contingent on approval or affirmative action by the board or "representatives" of the members. The methods of financing are subject to board control, though the execution of authorizations to raise and spend money is left to the "executive." Conditions governing management and employment, such as the organization of departments and divisions of work, salaries to be paid, etc., are made the subject of board action, though responsibility for directing the execution of plans and for the honesty and qualifications of the personnel is left with the executive. To fix responsibility for management and to make it enforceable, the executive is to decide what devices shall be used, who shall be appointed or employed, subject to these conditions. The one who must be held accountable for getting things done the one who must determine fitness and merit-the one who must devise and install methods for bringing acts of disloyalty and personal disqualification to official attention, is the executive. The executive must administer discipline; he must issue orders and provide the means for knowing how orders are carried out; he is the one who is held responsible for results.

Relations of the Board of "Representatives" to Administration

Responsibility for honesty, efficiency and economy is definitely located by holding the "executive" to account for devising and installing tests which will enable him promptly to discover and correct infidelity, inefficiency, and waste, so far as this may be done by the executive alone, and for bringing to the attention of "representatives" and "members" conditions unfavorable to good management over which he has no control. By making the executive responsible for leadership, for the honesty and qualifications of the personnel of administration, and for efficiency and economy as measured by results, each official "representative" in turn is held accountable by members for supporting the executive when he is deemed to be right, or for opposing him when he is deemed to be wrong. In fact, supporting or opposing the executive in all matters that may be proposed by him is the chief function and purpose of "representatives."

Means for Keeping " Representatives" and "Members" Informed

It is essential to responsible administration that some means be devised for keeping "representatives" and beneficiaries informed about

what is proposed, and what is being done. The practice of withholding authority until proposals have been explained by the "executive" and past acts have been reviewed, has already been noted. In aid of this method, definite reporting dates may be prescribed and even the form in which proposals and accounts shall be submitted may be laid down in the charter or otherwise. Other expedients are also provided for supplementing these requirements, such as, the appointment of an independent to auditor; giving to representatives the right of interpellation; giving to members and representatives the right of access to public records; providing for publicity and discussion of all matters bearing on the management.

An Independent Auditor

One of the most effective means devised for keeping "representatives and members informed about the current details of management is the election or appointment of an officer whose duty it is to prepare an independent statement of facts to be laid before both the board and the membership, as a basis for judgment concerning any matters that may be the subject of controversy. Thus the English Corporation Law (The Companies Clauses Act) provides that the shareholders at their annual meeting shall select an auditor who shall have the right of access to all papers, records and vouchers. This "auditor" is required to report independently to representatives and to members on the conditions, transactions and results found, being held civilly and criminally liable for misstatement of fact; and in case the shareholders may neglect to appoint or elect an auditor, the government, through the board of trade in London, may do so on application of members who may constitute the minority. With a view to qualifying the "auditor " for having a detached independent view, it is made a condition precedent that he shall not be a trustee or officer or otherwise officially connected with the administration. This is a democratic method of corporate control. It is also positive in its action, as it is a means for using the existing machine of the corporation to develop the personnel of management and make it more effective. In Germany, France, and the United States, legal provision has been made to prevent fraud, and violations of law. This is autocratic and paternalistic on the part of the government. It is negative in its action, as it employs outside agencies of official " examination" and "regulation." The purpose of both methods, however, is to provide means for exercising control over the management.

Under the English system, and in this country where shareholders have adopted the English method as a matter of self-interest, though not required by law, the independent auditor has had no responsibility for management; his only duty has been that of reporting accurately the

transactions and results of the management. He is constituted a staff agent of the membership, the primary purpose being to establish the fact of honesty and to give the manager the means of having efficiency and economy brought to the attention of members by someone who has no official functions to perform, other than to supply the evidence of dishonesty, inefficiency and waste, if any is found.

The Right of Interpellation and Personal Inquiry

Another effective means for developing information about performances and proposals of the "executive" is to require him personally to appear before the board at its meetings and answer questions. This has the effect of keeping the executive in a condition of preparedness. Knowing that this is a condition to sustain, great care must be taken. at all times to have every proposal fully considered and supported by statements of fact and reasons that are convincing to the beneficiaries of the undertaking as well as to their representatives on the board.

Access of "Representatives" and "Members" to Records

As a matter of common law resting on common experience, provision is made for access to records by beneficiaries, under prescribed. rules and by the regular representatives at all times. Their right of access, together with their right of personal inquiry, criticism and opposition, has been utilized and made effective through the appointment of regular and special committees of the board, whose duty it is to go into designated subjects and to report on conditions and results. They constitute specialized advisory committees who in turn may employ such independent staff agents to assist them as may be desired.

Provisions for Publicity and Discussion

The auditor, the right exercised by "representatives" of interpellating and making inquiry of the "executive" at board meetings, the right of inquiry by committees of shareholders, and the standing and special committees of the board, these are expedients for developing information but not necessarily for publicity. The holding of meetings at which all members are privileged to attend, requirements that minutes of meetings shall be kept and made available to members, regulations calling for the publication of reports by the executive branch, the publication of reports by the auditor certifying to conditions and results, are among the prescriptions that are commonly employed to carry executive responsibility home to those who may exercise powers of control.

Positive Provision for Making Management Effective

From the viewpoint of the manager, however, provisions for a representative" body, for an "auditor," for "committees," for "pub