Reviewed by Robert M. Jennings, Sr. Indiana University Southeast
The pervasive importance of the Royal Mail Shipping Group over almost four decades at the start of this century is thoroughly examined in this business history. The impact of the ultimate dis-solution of the group was far reaching and greatly influenced British accounting, legislation and national economic policy.
The accountant who faces a complex consolidation engagement could only view this entity as a nightmare. Holdings and cross-holdings intertwine to an extraordinary degree, and the preparation of accurate operating results and balance sheet data may have been virtually impossible. The appendix listing the ordinary (common) shares of the eleven principal companies in the group reports thirty cross-held listings. Green and Moss summarize the entire Group in a single sentence, “the Group controlled ninety-two wholly-owned subsidiaries, held majority shareholdings in forty-nine other companies, and was a minority shareholder of a further forty-five companies.” (p 80) By 1930, the total liabilities of the conglomeration were, at least, 120 million pounds. (p. 3)
The national “conspiracy of silence” that kept much of the disastrous news from the general public was apparently quite successful. The international depression and British national policies aimed at maintaining employment levels in the maritime field were very influential in subduing the news releases and encouraging the cooperation of diverse interests.
The liquidity roots of the dissolution are strongly evident. Eventually, however, some shares of the principal companies of the Group were traded at par, or, upon dissolution, returned more than par. For example, the authors cite (p. 177, p. 185, p. 190) the realization of 113% on common shares; a debenture stock return to 97% of par; and a third realization at 133% of par on common shares.
The authors sympathetically portray the behavior and character of the principal defendant who presumably was responsible for the tangle and ultimate dissolution of the Group. Perhaps this is due to Lord Kylsant’s advanced age when he was convicted of fraud (he was nearly seventy years old). Nevertheless, the evidence presented at trial and revealed in the book leads to the conclusion that the conviction may have been a just one.
The authors have conducted exhaustive research on the Royal Mail case. In several places, proof reading errors have occurred that the trained accountant will identify almost immediately because of their jarring nature. One example is a settlement of 75% in cash and 35% (sic) in income bonds (p. 167) which is theoretically possible but seems very unlikely in light of related settlements. A second example (p. 181) has obviously excluded three zeros from the 1,326 shares mentioned. Considering the volume of exchanges and transactions described, it was inevitable that several such errors would creep into the final text. Use of the old British currency makes much of the financial information difficult for nonBritish readers. However, on numerous occasions, the authors have parenthetically inserted pound and decimal pence notations which definitely helps. The complex debt and equity structures frequently found in the Group, together with the unfamiliar pence/shilling/ pound notations require a reader’s careful attention.
The accounting historian should note the profession’s disinterest in those times in any normative attitude towards disclosure. “The Case of the Royal Mail” was reproduced some twenty years ago in Baxter and Davidson’s Studies in Accounting Theory. It was written by the defense counsel for the accountant charged with fraud along with Lord Kylsant, who was the Chairman of the Royal Mall and many of the constituent companies.
This volume is particularly valuable in that it presents an ex-cellent historical perspective of a vital current problem. There exists today the need to recognize that fundamental changes in industrial structure have occurred in the last decade or two. This was exactly the situation the Royal Mail Group faced some six decades ago. But few people, if any, recognized that cash transfers and short term borrowing could not solve the more deeply rooted problems. Then, as now, investors should recognize that short term solutions may no longer be appropriate.
