Conclusion

The conflict between Leasco Corporation and Chemical Bank is an example of a corporate crisis based on political rather than economic considerations. Crisis functioned here as a sanctioning mechanism. Chemical not only fended off a hostile takeover but soundly thrashed Leasco for trying it. The most powerful disciplinary weapon was the banks' ability to dispose of stockholdings in their trust accounts. Chemical's many friends among the institutionals unloaded their holdings of Leasco so quickly that the company's stock dropped from $140 to $99 in a few weeks in February 1969 and, because of the herd effect, to $7 by May. The authority to buy and sell stocks for trust fund accounts is a large source of power for banks: "As institutions buy and sell ever larger blocks of stock, they develop greater power in corporate affairs—power they occasionally exercise with the impact of a sledgehammer." The sledgehammer came down hard on Leasco as "bank trust departments and perhaps other institutions dumped their shares [apparently] to protect Chemical" (Business Week, 25 July 1970,

53). Stock dumping by institutionals is so common that Wall Street analysts hold it responsible for any sudden radical drops in stock values (New York Times , 17 Dec. 1976, D2). Banks' concerted activity around similar pension and trust fund investment portfolios enhances their organized power—a power that derives from their ability to collectively dispose of stocks.

This case illustrates that ultimate control over the survival of corporations lies not with individual boards of directors, their shareholders, or even their corporate board interlocks, but rather with those financial institutions that administer massive blocks of stock in pension and trust funds. Whereas the board of directors enjoys day-to-day control over a firm—voting on how to use capital the firm already possesses and in that sense exercising some discretionary power over the firm's operations—financial institutions, as organized controllers of capital flows, possess allocative control of social capital, determining which nonfinancials will receive investment capital and which are unworthy of financial backing in the form of stockholdings (Pahl and Winkler 1974). As a result, the banking community is structurally empowered to generate a corporate crisis in an otherwise healthy firm.

Here, as in the two preceding cases, the power of the banking community derived from its unified control of capital flows: in the Grant and Chrysler cases, from the banks' common presence in large lending consortia; in the Leasco case, from the common profiles of the banks' pension and trust fund portfolios. That commonality empowered the banking community to enforce the definition of Leasco's situation as a crisis despite the firm's obvious good health. The banking community's behavior then created an actual crisis for Leasco. The concerted dumping of Leasco stock permanently damaged the firm's business trajectory. Leasco has never fully recovered from this definitional process and its consequences. Major bank trust departments abandoned their positions in Leasco "all over the United States" (New York Times , 11 July 1972, 44).

Steinberg has attempted to prevent similar definitional processes and consequences in the future. By the end of 1973 Leasco's stock was still struggling to recover, having reached a maximum value that year of $19 1/8 and a low of $8 1/4. Steinberg sought to protect his firm by making it a subsidiary of his Reliance Group, Inc.

(Moody's Bank and Finance Manual , 1982, 2:5909). On the day he did so, Leasco's stock was an anemic 10 7/8 (Barron's , 17 Dec. 1973, 42). He has also been buying up Leasco and Reliance stock in an effort to make his firms private. If he succeeds, "he will no longer be subject to the pressure from Wall Street" (Business Week , 27 July 1981, 79).