Few companies retaining traditional products and methods have prospered. A company must keep abreast in the race of innovation and competition or it will perish. A static, rather than dynamic condition, has a deadening effect on both the company and its people. In terms of human qualities, static security results in atrophy of the human spirit. Only in change, which is the opposite of security, is there opportunity for spiritual, intellectual, and material growth, and only people are inherently capable of creating change and growth. It keeps them growing, it tempers and strengthens them. To keep a company thoroughly alive it must be kept in a state of perpetual ferment. As Napoleon said: "The art of government is not to let men grow stale." People must themselves participate in creating any change. People are guided by established habits and unless they themselves have a say in what they are to change, their security of habit may seem imperiled and they may adjust negatively instead of positively. Instead of direct attack on solving the problem they may attempt to evade it or oppose the change. Every individual has an inherent need for personal growth, for developing his craftsmanship, for working at his peak capacity and so gaining recognition, respect, acceptance, and liking, all basic human needs. Personal development of a high order can be achieved only by establishing tough and realistic standards of performance which are constantly moved slightly ahead of what has already been achieved. PROSPERITY A company must earn a profit to prosper. Profit is vital to business because it provides the means which make continued growth possible. Earning reasonable profit levels is essential to maintaining good credit and financial standings with banks and suppliers. Profit acts as a cushion against inevitable business risks and losses. It serves a a meaure of the effectivenes with which company goals are being met. Profit is not the goal of business but rather it is a means of insuring that business goals can be met. No company is making its maximum contribution to progress or discharging its full moral obligations to the society which supports it unless its operations generate surplus capital to start new enterprises or to expand and improve present ones. One of the functions of profit is to provide "leadtime" to experiment with new products, services and markets from which no immediate return can be realized. Profits not only are essential to technological and cultural advance, but they add stability to a company and sustain it during off seasons, recessions and all kinds of emergencies which may interrupt operation of the business or make it unprofitable for a time. Profit is not just a materialistic goal, rather it is both the key to achieving basic human goals of the company and a measure of company success in approaching these goals. Company leadership in serving its people, including customers, employees, stockholders, suppliers, and the public, is possible only by earning an adequate profit. And an adequate profit can be earned only by the best balance in serving the needs of these people. LEADERSHIP Leadership in all activities is the driving force behind both growth and prosperity. A company with clear-cut leadership goals, (1) has a clear concept of where it is and where it is going, and (2) it has a "habitual vision of greatness" that is "a concept of excellence." Establishing such a climate of high standards and peak performance within a company is a major task of its leaders. Nothing better prepares the ground for overall leadership than a spirit of management which expresses itself in strict principles of conduct and responsibility, high standards of performance, and respect for the individual and his work. Nothing challenges men as effectively to improve their performance as a job which makes high demands on them, nothing gives more pride of workmanship than accomplishment. People have a fundamental desire to gain recognition, to be accepted, to be liked. They want to become members of the team and perform according to its standards. High standards of excellence lift men's visions to higher sights, raise their performance to higher standards, and aid the growth of their personalities beyond normal limitations. Any compromise with high standards lays the foun dation for deterioration of character, it lowers the individual's economic potential and reduces job satisfaction, pride, and self-respect. To develop peak performance from the individual, the work must be such as to utilize individual abilities at their highest level. To do this, the job must challenge the individual to exert and develop these abilities. The individual is the key. Most great advances are started by individuals, although teamwork is needed to follow through to a successful conclusion. The concept of maximum delegation of authority to the lowest possible level in the company is an expression of these principles. If a man knows what results he must accomplish and if he controls the elements making for success and failure, if he has an opportunity to do the job in his own way, his full creative potential is more readily released, he suffers from fewer frustrations than the individual who is not sure of the scope of his job or of his control over it. There should be left to each individual worker the maximum area for decision making, responsibility, and accountabiblity for planning, executing, evaluating results, and resetting goals. The individual can only utilize himself, he can only drive himself, he can only develop himself. All development is self-development. The best way to foster this development is to focus the individual's vision on a high goal, to set demanding standards which "stretch" the individual beyond his normal capacity, and to see that these standards are met. For the individual to rise to demanding tasks he needs guidance and support, inspiration and encouragement, leadership and discipline, recognition and reward. These can come only from management, the key and vital factor balancing the needs of the people connected with a company. MANAGEMENT Management, including its organization approach and attitude of mind, is the most important single element of success in business. In a competitive economy the quality and performance of its managers is the only effective advantage an enterprise can have. In fact, the quality and performance of the manager determine not only the success of the company but even its survival. The manager's job is: (a) To get results. (b) Effectively, on time. (c) Through people. (d) By system and ideas. (e) With money, materials, and machines. The effective manager uses five major tools: 1. Planning. 2. Organization. 3. Coordination. 4. Motivation. 5. Control. In achieving results the manager's basic resources is people. People are the most important part of a business enterprise and the greater part of a manager's effort is in selecting, guiding, and inspiring people. The manager's basic skill in dealing with people is personal power-the impact of his personality and leadership upon the thoughts and actions of other individuals and groups. This skill expresses itself through his abilities to write, speak, listen, inspire, teach, guide, and set an example. To set an example the manager must operate efficiently himself. He must organize his own daily effort, he must discipline himself as well as others. He must have a clear mental picture of what is desired plus the ability to transfer this to the minds of others. "All the world stands aside for the man who knows where he is going." The manager must establish climates of sympathetic understanding and of habitual excellence in achievement. If he is to teach and lead others he needs greater knowledge, skill, and competence than those he teaches. So if the manager is to progress to positions of higher leadership he must unceasingly study, practice, and build habits of increasing effectiveness. In these times of rapid change and growth the manager must be a scholar, a person who constantly learns and inquires, because only so can be hope to keep pace, much less guide others. Vital to effective management is achieving and maintaining the best overall balance between the myriad conflicting factors in complex industrial environ ments. The manager must balance the needs of the various people associated with the enterprise. He must balance system and creativity, he must balance long-range and short-range results. Balancing these factors and so many others comes only through the manager's exercise of judgment of a high order, that is ability to solve problems analytically, ability to study, learn, and profit by mistakes. The manager must wage a systematic and continuing effort to reduce costs. He must personally and frequently inspect those key operations and control points which affect efficiency. Few things are more difficult or more important than reducing cost and increasing efficiency. The manager must consistently improve productivity of company operations-that balance of all factors of production which gives the greatest output with the least effort. Substituting machinery for muscle effort and, better yet, substituing planning, brains, and knowledge for boh muscle and machinery, are the ways to gain that efficiency necessary to adequate profit levels. In the final analysis the manager must always maintain high personal standards of integrity, knowledge, character, dedication, and self-improvement if he is to expect such standards from others. The example a man sets, his philosophy, his actions and thoughts, his way of looking at the world and the men and women around him, his standards and basic character, determine his success as a manager of people and things more than any single factor. The achievement of genuine success, happiness, and contentment comes through not making ourselves, but others with whom we are associated, happy, contented, and successful. So far as both individual and groups are concerned, non-selfdirected goals and activities are those most effective in creating, first the results desired and, as byproducts, achievement of the more direct and personal returns. Most of a man's waking life is spent at work and work is a way of life. The time-tested rules for success and failure apply here as in all human relations. A short rule for success is: "I get up when I fall down," and for failure: "Try to please everybody." THE AMERICAN THERMOS PRODUCTS Co., Hon. HARRY F. BYRD, Washington, D.C. MY DEAR SENATOR BYRD: In connection with the hearings that your committee is holding on various bills to limit the power of States to tax interstate commerce of companies who have no offices within a State, but merely solicit business in that State, I thought you might be interested in a statement I had our treasurer prepare for me as a guide to the problems we may face if some thing is not done. I am sending copies of this report to our Senators from Connecticut also, in the hope that something will be done to correct this situation. Sincerely yours, TREVOR K. CRAMER. THE AMERICAN THERMOS PRODUCTS Co. MEMORANDUM RE STATE INCOME TAXES As a result of recent decisions by the Supreme Court of the United States, State corporate income taxes may now be imposed by States based on the mere solicitation of business by so-called foreign corporations within their borders. In general, this will effect fairly substantial burdens on all corporations operating in the field of interstate commerce. Such burdens will consist not only in additional taxes being paid but also in additional legal, administrative, and accounting work being incurred. The American Thermos Products Co. is operating in interstate commerce and accordingly solicits orders in practically all of the 49 States. It maintains branch offices or plants in only two States excluding the State in which its principal place of doing business is located, namely, Connecticut. A brief study has been made of the State corporate income tax laws of those States which impose a franchise tax based upon net income or which impose a direct income tax likewise measured by net income on out-of-State corporations operating within their borders. It has been assumed that the solicitation of orders by the American Thermos Products Co. will bring it under the corporate tax laws of these States. There are approximately 35 States which would then have the power to subject the company to a tax. Thermos is already paying in four of these States so that it is possible that additional taxes may eventually be assessed against Thermos by another 31 States. Such possible additional taxes payable would amount to approximately $14,560, which is an average of $470 per State. The total estimated cost of preparing the returns would be $3,600 per year or something a little less than $120 per return. These costs could be regarded as direct or prime costs. In addition to these figures, it is possible that it might become necessary to expend moneys for legal fees in connection with possible litigation with the States involved. Extensive records, principally for allocation purposes, must also be maintained in connection with filing the returns. Furthermore, it is highly probable that in future years constantly increasing demands of the States for revenues will cause corresponding increases in the amounts of corporate income taxes. A few further comments on the administrative and legal burdens incident to the preparation of State income tax returns would seem to be in order at this time. While most of the States use allocation formulas, there is no uniformity in their use. For example, 10 States use the factors of property, payroll, and sales and give equal weight to each of these factors. Eight States, however, use only the property and sales as factors, and a separate eight States use only the factor of sales. Differences in formulas are even greater than is suggested since sales have also been variously defined; for example, sales under one definition are all receipts from merchandise delivered within the State, while in another definition, they are defined as receipts resulting from only merchandise billed to within that State. In addition, the definition of net income will vary from State to State, each State having its own State regulations with respect to including or excluding from taxable income, such items as the following: (1) accrual of State franchise or income tax, (2) interest paid, (3) dividends received, (4) interest on Government bonds, etc. From the above, it can easily be seen that the cost of compliance can be both difficult and costly and in many instances will call for the hiring of outside help such as trained tax accountants or tax lawyers. If litigation with the State should arise, there is a possibility of additional legal fees incurred to defend against additional taxes levied or to aid in the filing of tax refund claims. Finally, it should be noted that additional taxation burdens will inevitably result in either higher prices or hamper the free flow of merchandise in interstate commerce. JULY 20, 1959. W. B. CASTENHOLZ, Jr. WASSELL ORGANIZATION, INC., Subject: Taxation of income on interstate business Hon. HARRY FLOOD BYRD, U. S. Senate, Senate Office Building, DEAR SENATOR BYRD: There are bills in both the Senate and the House, the substance of which could be framed into a good uniform bill for immediate passage by both Houses. Attached is a résumé of the chaos that could come about if something is not done immediately in this session. I hope this may clarify the thinking of all concerned. This is not a partisan matter, since it affects the future of every small businessman in the country who desires to grow in your section as well as all others. Sincerely yours, F. LLOYD WASSELL, IMMEDIATE ACTION NECESSARY TAXATION OF INCOME ON INTERSTATE BUSINESS June 22, 1959, relief bill, Senator Bush (S. 2213); June 22, 1959, relief bill, Senator Saltonstall, (S. 2281); June 12, 1959, relief bill, Congressman Frank Kowalski (H.R. 7715); June 16, 1959, relief bill, Congressman William McCulloch (H.R. 7757); June 16, 1959, Miller resolution (H.J. Res. 431) Immediate action is necessary to head off the chaotic condition that will arise in small business countrywide if 50 States are allowed to take advantage of the terrific openings made possible to State taxing authorities by this Supreme Court decision--and they have already started. First, it is necessary to remember that there are 4 million businesses in the United States of which 21,000 exceed $1 million capitalization leaving 3,979,000 small businesses. Even many of these 21,000 would be badly hurt by the implication of taxing power of 50 States. It may be said by those without knowledge that not many would be hurtbut from the angle of the very small business let us look at the facts. Looking at a map of the United States with State and river outlines, many of the State borders are rivers. Our history and growth of cities shows that towns have sprung up along these rivers, and at the juncture of several rivers. Around these towns have sprung smaller towns and marketing areas spreading over two, three, or four States. Add to these the coastline harbors that supply access to many of these marketing areas. The big businesses of today were the small businesses of yesterday. They sprang up in these small towns and spread over the local marketing area and then over the nearest other marketing areas until finally they became national in scope and established branch warehouses and branch factories. This Supreme Court ruling immediately cramps the growth of every small business, since it would load him with another law he would have to watch in the fear that any move to enlarge his marketing area would actually cost him more in accounting and profits than he would gain by doing business in an adjacent State. Every time a small businessman without this decision wishes to enlarge his area, he must hire a man and gamble that it will pay off. How many men will not get a job because small businessmen will not gamble on his salary and expenses, plus the complications of this decision? How many men will lose their present jobs for the same reason? Look at the small businesses that will be affected in the following cities located in several State marketing areas: Providence, R.I.; Bridgeport, Conn.; Newark, N.J.; Camden, N.J.; Philadelphia, Pa.; Baltimore, Md.; Savannah, Ga.; Jacksonville, Fla.; Chattanooga, Tenn.; New Orleans, La.; Tri-cities-Davenport, Moline, and Rock Island; St. Louis and East St. Louis; Memphis Tennessee, Mississippi, Arkansas; Kansas City, Kans.; Kansas City, Mo.; Toledo-South Bend, Fort Wayne. This is only local business, but their areas are over State borders of several States and, therefore, they would have to make an accounting to and payment to each State or else not do business in that State. The more States the more accountings and the more payments. Next, you have the special types of business that are limited in potential and could not exist except by reason of having 50 States in which to operate-but, with the entire country their potential is still a small one. They would still have to account for each State. Now there is still another type of business-one with a number of different lines of products-and a different profit on each product. We will take California as an example: the company has seven products with various percentages of profit. The company's sales in California are practically all of two products and both low profit items. Is California entitled to a tax on the profits according to its U.S. income tax report which naturally bulks the profits on all seven items to arrive at a net income or only on a share of the profits made on the items sold in California? If California is only entitled to a share of the profits on the items sold in California, and the same is true of every other State in which that company |