The Vote and the Share
Lefty Ruggiero, who was Joe Pistone’s teacher in the Mafia, once came into the club in a foul mood. Together with two friends, Pistone writes, he owned twenty per cent of the shares in some outfit at the Fulton Fish Market and got five thousand dollars a month from the owners. Lefty hadn’t bought the shares. He’d earned them: he helped the owners of the outfit settle a dispute among themselves, and for that they signed a stake over to him.
So why the foul mood? He’d sat down with the other owners and afterwards he complained, as Pistone tells it, about what kind of setup it was when he couldn’t even register the shares in his own name.
Of course he couldn’t. Mafiosi, Pistone explains, hid their income and their property: cars were put in front men’s names, no tax returns were filed, and so the five thousand a month came to Lefty while the shares were listed under somebody else. And that somebody else, if he felt like it, could walk into a shareholders’ meeting, vote and sell the block. All Lefty could do was hope he wouldn’t feel like it.
What a Shareholder Buys
A share is two things at once, and you shouldn’t mix them up. The first is the right to a slice of the profit. The second is the vote: you decide what the company does with that profit, who runs it, and whether to sell the whole thing.
Lefty had the first and not the second, and the money kept coming as long as the owners of the outfit remembered who’d helped them, and as long as they were afraid. When the fear ends, so does the money, and no court will stand up for a stake registered in someone else’s name. If a stake doesn’t vote and isn’t on the register, it isn’t property. It’s a favour.
The legitimate world has built a whole apparatus for this: shareholders are entered on a register, securities are held in a depository, statements are issued, meetings are called, lawsuits are fought. Dull? Dull. But all of it exists precisely so that your stake stays yours even when nobody is afraid of you.
The Vote Is Worth More Than the Money
Sometimes the vote and the money are split apart on purpose. And perfectly legally.
When Ford went public in 1956, the Ford family kept a special class of shares for itself. Today those shares account for about two per cent of the company’s capital, and they carry forty per cent of the votes. The public got a share of the profit. The family kept hold of the wheel. Everyone happy? Almost. In 2004 Google’s founders did the same: their shares voted ten times, the public’s once.
Why does the public go along with it? It wants the profit, and it has no plans to run a car company. But it pays its own price for that. If the family decides to steer the company the wrong way, all the shareholders can do is sell.
The very first shareholders to revolt were in that same Dutch East India Company. In 1622 disgruntled investors accused the board of squandering the capital and rarely paying dividends. Under the new charter of 1623 oversight was tightened, audits became regular, payouts more frequent. The small shareholders’ vote was weak. But loud.
Taking It for Free
And now the opposite extreme: a stake nobody pays for at all.
Saviano tells how the La Torre clan of Mondragone once decided to buy into a private clinic that was being built at the time. A sizeable block belonged to the deputy mayor, Nuñez. The boss, Augusto La Torre, put his own man on the clinic’s board, a man who’d got rich on a rubbish dump. Buying the shares at a good price, Saviano writes, the way any diplomatic boss would have done, was not what he had in mind. He meant to get them for free. In return he promised that his firms would clean, feed, transport and guard the clinic cheaply and well. Nuñez didn’t like the idea. Later he disappeared without trace.
In the legitimate world this has a gentler relative. Its name is dilution. The company issues new shares and hands them to someone at a low price—managers, a new partner, a “strategic investor”. Nobody took your block away, but your share of the company is smaller now. The one difference from Mondragone: to dilute you legally, they have to hold a vote, publish a prospectus and, if you object, win in court. That’s why the vote is no formality.
Selling When You’re Desperate
And one more story about a stake. This time with numbers.
In 1916 the Brooklyn Neapolitans pushed the Morello family out of East Harlem and demanded a monthly tribute from four local bosses of the numbers racket for the right to keep working. The numbers bosses, Critchley writes, were gamblers themselves and hard men. They struck a different deal. They would keep forty per cent of the takings, and the rest would go to Brooklyn. The tribute became a stake.
About three months went by. One of the Brooklyn men was arrested, and they urgently needed bail money. The Brooklyn men handed the game back to its old owners for two hundred dollars: give us two hundred, and the rest you can pay whenever you like. Sixty per cent of a money-making business went for a sum some lotteries take in a single evening.
Whoever needs money today always sells cheap. If you have a stake, keep some money for a rainy day next to it. So you don’t have to sell it just when the need squeezes hardest.
The Don Splits the Vote
When the oil trade became a company, the owner of the Sicilian olive mill got a third of it. He’d put in money and, more to the point, his oil. A year later he wrote the Don a letter. Since he owned a third, he wanted to decide which restaurants to sell to and at what price.
The Don answered in one line, and I remembered it: “You decide about the oil, I decide about the cooks.” The mill got its third of the profit like clockwork. The vote on the oil—what harvest, what pressing, what bottle—the Don handed over to the owner entirely and never once stuck his nose in. The vote on the clients he kept for himself. Each man voted where he knew more. The company lasted twenty years and never once had a quarrel.