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UBC Theses and Dissertations

An investigation of the ownership and control of American corporations. Plotkins, Robert Jeans 1960

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AN INVESTIGATION OP THE OWNERSHIP AND CONTROL OP AMERICAN CORPORATIONS ROBERT JOHN PLOTKINS B. A. Sc. University of Alberta, 1954 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OP BUSINESS ADMINISTRATION i n the Department of Commerce We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OP BRITISH COLUMBIA August, 1960 In presenting t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree th a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r . agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . I t i s understood tha t copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be allowed without my w r i t t e n permission. Department of Commerce  The U n i v e r s i t y of B r i t i s h Columbia, Vancouver.3, Canada. D a t e August, 1960. ABSTRACT The modern corporation did not reach i t s present p o s i t i o n of importance i n economic and s o c i a l f act without a long struggle marked by an increasing l i b e r a l i z a t i o n of incorporation process and appreciation of i t s merits by businessmen. This l e d to the r i s e of the corporate system and resulted i n the concentration of industry i n t h i s form. The concentration of economic power i n the corporate form was followed by the separation of ownership and management. This process of change lasted several decades and was aided by the increasingly wide dispersion of ownership among thousands upon thousands of scattered shareholders. H i s t o r i c a l l y control was exercised by ownership of a majority of the voting stock. This was a proprietary r i g h t . As corporations grew i n size and economic importance, ownership began to disperse and control through l e s s than majority ownership evolved. This was aided by l e g a l devices and various techniques that made control possible with a minimum of investment. The bulk of the shareholders were slowly l o s i n g t h e i r r i g h t s and voice i n management. The coup was complete with the advent of management control, which stemmed from the wide dispersal of ownership among small scattered stock-holders. The r i s e of the i n s t i t u t i o n a l investors completes the c i r c u i t with the concentration of holdings i n i n s t i t u t i o n a l p o r t f o l i o s . Thus, control may once more be dependent on owner-ship f o r i t s existence. i i i The changes that t h i s evolution has brought about have had t h e i r effect on the system. Management control, the dominant form of control i n industry, at present, has many inherent dangers. P r o f i t i s no longer the only motivating force d r i v i n g the contr o l -l i n g group. The corporation has become a prominent c i t i z e n i n the community i n which i t resides, ruled by men accountable to themselves alone. Gone: are the inherent checks on management and the a b i l i t y to oust them when they become slack or dishonest. Control has become a power position i n the economy with no pro-prietary right to the s i t u a t i o n . Ownership has been reduced to the passive position of receiving dividends. We accept t h i s thesis as conforming to the required standard TABLE OF CONTENTS Page INTRODUCTION 1 The Problem 1 Statement of the Problem 1 Importance of the Study 2 Scope of the Study . . . . 4 Method of Investigation 7 D e f i n i t i o n of Terms Used . 8 Corporation 8 Public. Corporations • 8 Fiduciary I n s t i t u t i o n s 9 Shareholdings 9 Stockholder . . . 9 Control. 9 Ownership 9 Proxy. . . . 9 CHAPTER I. CORPORATE HISTORY 10 I I . THE CHANGING CORPORATE SCENE 15 Overall Picture 16 Analysis of Changes Over the Years 18 Manufacturing. 18 Transportation 20 Public U t i l i t i e s . 21 Summary . 23 v i CHAPTER Page I I I . THE EVOLUTION OP CONTROL 24 Minority Control Aides 30 Management Control 32 Perpetual Management Control 34 Summary. . 37 IV. THE LOCATION OP CONTROL IN THE 200 LARGEST NON-FINANCIAL CORPORATIONS . . . 38 Berle and Means Study 39 The Temporary National Economic Committee Study of the Concentration of Economic Power . . . . . 42 The Location of Control i n the 1937 L i s t 43 Types of Ownership Control. 44 Minority Control . 45 The Postwar Era 51 Summary 52 V. THE CHARACTER OF OWNERSHIP IN THE LARGE CORPORATION 53 The General Picture 54 Holdings of Different Types of Owners .57 Differences Among Industries . . . . . . . . . . . 59 Summary 63 VI. SOME CHARACTERISTICS OF OWNERSHIP IN DOMESTIC •i CORPORATIONS 64 The Present D i s t r i b u t i o n of Ownership 64 Types of Stockholders. 64 Number of Stockholders and Shareholdings . . . . 66 Relation between Income and Shareownership . . . 67 Concentration of Stock Ownership 69 v i i CHAPTER Page Concentration of Stock Ownership i n Individual Corporations •. •. • 74 Trends i n D i s t r i b u t i o n of Ownership . . . . . . . . 75 Types of Stockholders . . . . . . . . . . . . . . 75 Number of Stockholders. 76 Concentration of Ownership. . . . . . . . . . . . . 78 Summary 81 711. INSTITUTIONAL STOCKHOLDINGS 82 The Pattern of Ownership v . 83 The Trends of Individual and I n s t i t u t i o n a l Investments 85 The Growth of I n s t i t u t i o n a l Purchases 86 The Growth of I n s t i t u t i o n a l Stockholdings 88 I n s t i t u t i o n a l Holdings i n Large Corporations. . . . 95 Summary 96 V I I I . THE MEANINGS .OP CONTROL AND OWNERSHIP AND ITS IMPLICATIONS 98 The Securities and Exchange Commission and y F ,? *• the Meaning of Control. . . . . . . . . . . . '. . 100 Control and the Investment Company 104 I n s t i t u t i o n a l Investors . . . . . . 109 IX. SUMMARY '. 111 BIBLIOGRAPHY 115 APPENDIX. 120 v i i i LIST OP TABLES TABLE Page I. D i s t r i b u t i o n of Assets i n 200 Largest Non-Financial Corporations by Industry . . . . . . . . 17 I I . Type of Control by Industry i n the 200 Largest Non-Financial Corporations i n 1930 . . . . . . . . 41 I I I . D i s t r i b u t i o n of the 200 C l a s s i f i e d by Type of Dominant Interest Group and Industry 50 IV. Estimated Holdings of Equity Securities by I n s t i -tutions Market Value on December 31, 1955. . . . . 84 V. Estimated Purchases of Stocks by Class of Holder 1951-54 . . . . . . V 87 VI. Estimated I n s t i t u t i o n a l Holdings of Equity Se c u r i t i e s . 1949-55 . 9 0 VII. Estimated Holdings of New York Stock Exchange Stocks by I n s t i t u t i o n a l Investors 92 V I I I . The 200 Largest Non-Financial Corporations . . . . . 121 IX. D i s t r i b u t i o n of Shareholdings and Shares by Types of Stockholders of Record 130 X. D i s t r i b u t i o n of Dividends Among Various Classes of Recipients. . . . . . . . . . . . .132 XI. D i s t r i b u t i o n of Shareowners by Income 1956 . . . . . 135 XII. Proportion of Dividend Income to Gross Income and Returns i n Each Income Class Reporting Dividends . 136 i x TABLE Page X I I I . Average Dividend Income of Tax Returns P i l e d by Individuals by Adjusted Gross Income Classes . . . . . 137 XIV. Dividends Received by Individuals C l a s s i f i e d by Gross Income Groups . 138 XV. Type and Size of Stockholdings i n Public Corporations within Income Groups. Early 1957 . . . 139 XVI. Proportion of Stockholders to Adult Population i n United States. 1929-1959 140 XVII. Concentrated Holdings of Common Stock of the 200 Largest Non-Financial Corporations as of December 31, 1954 141 XVIII. The 100 Largest I n s t i t u t i o n a l "Big Boards" Common Stockholdings, Approximate Percentage of Outstanding Common Shares Owned ..146 X LIST OF FIGURES FIGURE • . , . P a S e 1. * Per Cent of Aggregate Value of Twenty Largest Shareholdings i n a l l Issues of the 200 Largest Non-Financial Corporations of 1937. C l a s s i f i e d by Industry . 55 2. Per Cent of"Total Value of I d e n t i f i e d Holdings of Twenty Largest Record Shareholdings i n Stock Issues of 200 Largest Non-Financial Corporations of 1937. D i s t r i b u t i o n by Type of Owner 58 3. Proportion of Stock Issues of 200 Largest Non-F i n a n c i a l Corporations of 1937 Included"in I d e n t i f i e d Holdings Among Twenty Largest Record Holdings. C l a s s i f i e d by Major Industry Groups. . . 61 4. Concentration of Gross Income and Dividend Income. 71 5. Annual Net Purchases of Common Stock by F i n a n c i a l I n s t i t u t i o n s 89 INTRODUCTION Since the huge undertaking of the United States Temporary National Economic Committee, the study of Concentration of Economic Power i n American Industry, p r i o r to 1940, there has not been a study of- ownership and control of the modern corpora-t i o n ; ^ This small aspect of the concentration of economic power has been a continual source of investi g a t i o n f o r many years and w i l l remain so as long as the c a p i t a l i s t system i s dynamic and progressive. However, i t i s no longer s o l e l y economic power that corporations wield; t h e i r influence i s economic, p o l i t i c a l and s o c i a l . The r i s e of the corporate system l e d to the concentra-t i o n of industry i n the corporate form and has resulted i n the separation of ownership and management. This process of change took place over many decades. I t caused changes i n the pattern and d i s t r i b u t i o n of ownership, l o c a t i o n form and devices of control, and thus the meaning and implications of control and ownership. J THE PROBLEM Statement of the Problem. The purpose of t h i s study i s to determine 1) the f a c t u a l s i t u a t i o n of control and ownership ^United States Temporary National Economic Committee, Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest Non-Financial Corporat ions, (Washington: Government P r i n t i n g O f f i c e , 1940;. 2 i n the modern corporation that existed i n the past up to the present, and 2) some of the meanings and implications of control and ownership. This involves an answer to the following l i s t of questions. They are considered as a minimum. 1. What i s the dominant form of control? 2. What constitutes e f f e c t i v e control of a corpora-t i o n and how i s i t maintained? 3* What are the c h a r a c t e r i s t i c s of ownership and how have they ehanged over the years? 4. What are the patterns of d i s t r i b u t i o n of ownership and how do they af f e c t control? Importance of the Study. In the past decade a great deal has been written on foreign control of Canadian corporations. For the most part i t represented l i t t l e more than a venting of n a t i o n a l i s t i c emotion without an understanding of what control and ownership was a l l about. These people probably were mainly interested i n arousing public opinion i n hopes the government would adopt a concrete public policy to safeguard the national i n t e r e s t s of Canadians. However, an i n t e l l i g e n t p o l i c y cannot be formulated unless the problem and the various facets are understood. The amount of foreign ownership and control of Canadian industry has increased su b s t a n t i a l l y i n the past decade. The 1957 estimates showed, as i n previous years, the largest propor-t i o n of the increase i n the book values of the dynamic sectors of the economy r e f l e c t e d increased non-resident ownership and control. This, however, represented an understatement, both of the value of ownership and control. F i r s t , book values were 3 based on h i s t o r i c a l costs and not replacement or present value. Secondly, the basis f o r defining control of f i f t y per cent ownership or more of the voting stock also was an h i s t o r i c a l approach. This can no longer be a s a t i s f a c t o r y c r i t e r i o n of measurement. Recently there was an i n d i c a t i o n that t h i s has been r e a l i z e d by the government. Donald Fleming, the M i n i s t e r of Finance, i n h i s 1960 budget speech pointed out that the tax laws were to be changed. This would involve making the existence of control a fact and not, as i n the past, an u n r e a l i s t i c a l l y high percentage of ownership. I t would be pretentious to think that t h i s study based on American corporations would solve the problem of foreign control i n Canada or that they would be even d i r e c t l y related. Nevertheless, i t was f e l t that importance of the study to Canada was that control and ownership would be better under-stood. I t was intended that t h i s enquiry be confined to Canada. Yet, the very s i t u a t i o n that has created the interest i n the subject, non-resident ownership and control, precludes the use of Canadian data. Moreover, there was very l i t t l e available even on Canadian-owned corporations. This stemmed from the lack of disclosure under Canadian laws. Two Ottawa s t a t i s t i c i a n s r e f l e c t e d t h i s s i t u a t i o n best when they stated:^ For the most part control of Canadian industry takes the form of majority holdings by non-resident business concerns of equity s e c u r i t i e s of Canadian subsidiaries. There i s C D . Blyth and E. B. Carty, "Non-Resident Ownership of Canadian Industry," Canadian Journal of Economics and P o l i t i c a l  Science, XXII (November, 1956;, p. 4557 4 thus usually the p o s s i b i l i t y of strong business management through the close l i n k between ownership and management. This large corporate element... contrasts sharply with a well known feature of ownership of corporations i n the United S t a t e s — t h e dispersal of ownership among many thousands of shareholders—a feature which has been very marked i n the larger corporations i n that country for decades. Therefore, as a r e s u l t of t h i s unique s i t u a t i o n , i t i s necessary to examine the American scene. This, however, i s not considered a serious drawback since the situations described i l l u s t r a t e where the bulk of the ultimate control and ownership of the vast majority of Canadian industry r e s t s . Also, as the economies of the two countries are so closely t i e d and the fa c t that Canadian business follows closely the pattern set i n the United States, the inv e s t i g a t i o n may give a look at possible future trends i n Canada. Further, though the ownership and relationships with management d i f f e r s , they are s i m i l a r i n many respects. The bulk of the shareholders are small and scattered with no voice i n management. Also, i f the trend evident i n the United States develops i n Canada, that of control with l e s s and le s s ownership, the inherent dangers would have a much greater significance. F i n a l l y , there i s the p o s s i b i l i t y that Canada may skip t h i s stage of development and pass on to i n s t i t u t i o n a l con-t r o l . Here, even i f the bulk of funds are from non-residents, control could remain i n Canada i f the management and/or trustees are Canadian. SCOPE OF THE STUDY The corporate form of business organization has become so widely accepted by business that an enquiry covering a l l American 5 corporations would be an impossible task. As a r e s u l t , the study of control i s r e s t r i c t e d to the largest non-financial corporations. Following the lead of e a r l i e r studies, a l i s t of the 2GG largest non-financial corporations f o r 1957 i s tabulated to use as a guide. These companies have assets of 193 b i l l i o n d o l l a r s and pay out more than f i f t y per cent of the t o t a l d i v i -dends. This, however, i n no way r e s t r i c t s the findings and the implications to t h i s group of companies alone. The term larger or giant corporations could apply equally w e l l to any company with assets of one hundred m i l l i o n d o l l a r s . The question of control has many facets which could not be covered even though d i r e c t l y related. Though i t i s well known that the control of a corporation extends beyond the assets shown and the persons i n the power pos i t i o n exert influence i n business p o l i t i c s , s o c i a l l y and i n government, these aspects as well as the meaning of control i n law are considered beyond the scope of t h i s examination. Control, which may be defined as the a b i l i t y to select and elect the board of directors i s r e s t r i c t e d to i t s meanings and implications i n carrying out t h i s function. Even among the giant corporations e a r l i e r studies found that many were controlled by other f i n a n c i a l and non-financial corporations. Therefore, the ultimate l o c a t i o n of power was not always indicated. In f a c t , to f i n d t h i s center of control, especially today among manufacturing concerns, would be an almost impossible task. Therefore, i n tracing the evolution of control, these were not included as t y p i c a l of the form of control they were c l a s s i f i e d under, unless the ultimate center was known. For 6 example, American Telephone and Telegraph subsidiaries would be considered as management controlled since the parent corporation was i n t h i s s i t u a t i o n . This was considered a l o g i c a l step as the use of subsidiary companies was a control device. Also, the two major industries that pioneered i n t h i s development, the u t i l i t i e s and the r a i l r o a d s , now f i n d themselves under regulation by government commissions. These bodies r e s t r i c t i t s use and i n the r a i l r o a d industry i n some instances voting stock, which has possible or p o t e n t i a l control, was placed i n the hands of trustees. Only i n manufacturing was there no regulation and although holding companies were prevalent, the use of t h i s device has l o s t much of i t s appeal because of the abuses brought to l i g h t i n the 1930's. Thus, emphasis i n t h i s study was placed on direct control by in d i v i d u a l s or family i n t e r e s t groups and the newly-emerged f i n a n c i a l i n s t i t u t i o n s . The patterns and d i s t r i b u t i o n of ownership are not r e s t r i c t e d s o l e l y to the large corporations. The ch a r a c t e r i s t i c s of ownership are investigated i n a l l public domestic corporations i n the United States. This i s primarily the r e s u l t of lack of postwar data available on the giant corporations and also the fact s t a t i s t i c a l analysis i s considerably s i m p l i f i e d . Further, i t permits the use of S t a t i s t i c s of Income provided by the Bureau of Internal Revenue. This provides a f a i r l y r e l i a b l e comparison of the d i s t r i b u t i o n of income among income groups over the years. Once again not a l l the facets of ownership can be included; therefore, i t i s necessary to exclude c a p i t a l formation, concen-t r a t i o n of industry and the effects of changes i n taxation on the ownership of corporate stock. METHOD OP INVESTIGATION 7 The study was conducted on an h i s t o r i c a l approach and covered the period from the depression to the recent past. Where possible, up-to-date material was included. The prewar l i t e r a -ture on the f a c t u a l s i t u a t i o n of control and ownership i n the large corporation was p l e n t i f u l and thorough. Unfortunately, t h i s was not true of the postwar era and, as a r e s u l t , the scope of ownership had to he broadened to include a l l public corpora-tions and generalizations were resorted to, backed with some s t a t i s t i c a l proof, but primarily r e l y i n g on the authority of noted authors i n the f i e l d . The presentation of the material i n the text begins with a b r i e f h i s t o r y of the corporation which outlined the struggle fo r a l i b e r a l incorporation process, leading to the r i s e of the corporate system and broad management powers. This i n e v i t a b l y r e s u l t s i n the separation of ownership and management. This process of change i s described i n Chapter I I I , The Evolution of Control, preceded by an analysis of the changes i n the 200 largest non-financial corporations over a two-decade period. Chapters IV to VII are mainly of a s t a t i s t i c a l nature which deals with the l o c a t i o n and instruments of control i n the select 200 and the next important area, that of ownership. The d i s t r i -bution of the twenty largest holdings i n the 1937 l i s t of the 200 corporations i s treated i n some d e t a i l and i n an e f f o r t to v e r i f y the trends evident at that time f o r the present leads to a chapter on the c h a r a c t e r i s t i c s of ownership i n public corpora-t i o n s . The concluding chapter of t h i s section outlines the r i s e of the i n s t i t u t i o n a l investors to a position of importance i n 8 the corporate system. I t indicates that once more corporate stock i s becoming concentrated i n the hands of a group who could exercise control over many of the country's largest and most dynamic companies. Thus, the f u l l cycle of ownership importance i n control i s coming to completion. In the early stages of cor-porate development, control was exercised through majority owner-ship, a proprietary r i g h t . With the concentration of industry i n the corporate form came f i r s t working control, then management control, the separation of ownership and control. The completion of i n s t i t u t i o n a l phase w i l l be the end and the beginning of a new era. The changes that have come about during t h i s time changed both the meaning and implications of control and ownership. This forms the topic of the l a s t chapter. DEFINITION OP TERMS USED Corporation. This word i s not used i n an unusual manner, however, as i t i s the subject of enquiry, i t should be, included. A corporation i s an a r t i f i c i a l person e x i s t i n g i n contemplation of the law. I t i t s e l f i s an i n v i s i b l e intangible thing, which has a name and certain l e g a l a t t r i b u t e s but no material existence. The corporation i s usually constituted of a number of shareholders, but something di f f e r e n t from the aggregate members. The elected representatives of the shareholders, the directors, are the corporation, not the members. The property of a corporation i s i t s own.and not the shareholders. Public Corporations. Companies with at lea s t one stock issue trade on a s e c u r i t i e s exchange or otherwise available to the general public and owned by at least 300 shareholders. 9 Fiduciary I n s t i t u t i o n s . Banks, foundations, college and u n i v e r s i t i e s , insurance companies, investment companies, pension funds and a l l other f i n a n c i a l organizations,. Shareholdings. A shareholding i s a block of shares of one issue of stock, which block i s either owned b e n e f i c i a l l y by one person, or registered i n the books of the issuing corporation i n the name of one person. Stockholder. The stockholder, also known as a shareholder, i s a person, including a corporation, who owns shares of one or more issues of stock of one or more corporations. Control. Control may be defined as the capacity to choose directors and thus the a b i l i t y to influence or possibly to dominate the board of dir e c t o r s . Ownership. C o l l e c t i o n of rig h t s to use and enjoy property including the r i g h t to transmit i t to others. The complete dominion, t i t l e , or proprietary r i g h t i n a thing or claim. The entirety of the powers of use and disposal allowed by law. Proxy. An instrument giving authority and i s more properly c a l l e d a power of attorney or voting power. A person who i s substituted by another to represent him and act f o r him i n some meeting or public body. This i s purely a statutory r i g h t . CHAPTER I CORPORATE HISTORY American industry i s , f o r the most part, held i n the corporate form. Probably over two-thirds i s held or operated by not more than 600 corporations. Management are no longer merely stewards f o r t h e i r stockholders, but they also have a responsibi-l i t y to employees, customers, suppliers, and i n p a r t i c u l a r to that section of the community i n which they operate. However, corporations have not always enjoyed the recognition of an i n s t i -t u t i o n of primary s i g n i f i c a n c e . Nor has t h e i r present economic and s o c i a l importance carried the same weight. This dominance and popularity have been achieved only a f t e r a long struggle marked by an increasing appreciation of i t s merits by business-men and the decline of public antipathy toward i t . ^ In Anglo-Saxon c i v i l i z a t i o n s , corporations were known i n the early Norman period and possibly existed at an e a r l i e r date. These were the guilds and boroughs of medieval l i f e . They were then, as now, purely a creation of the state. This was s i g n i f i -cant i n the l i g h t of l e g a l developments that followed i n England 2 and North America. . M a r t i n L . Lindahl & William A. Carter, Corporate Concen- t r a t i o n and Public P o l i c y , pp. 43-45. 2 A. A. Berle, J r . , & Gardiner C. Means, "Corporation," Encyclopaedia of the S o c i a l Sciences, IV t 414-422. 11 From an economic point of view, the corporation can be traced more d i r e c t l y to the development of overseas trade i n the sixteenth and seventeenth centuries. These j o i n t stock associa-tions were nothing more than sprawling partnerships and operated without benefit of Crown or Parliamentary recognition through informal incorporation by charter grant.^ The development entered a new phase with the accession of the Stuart Kings. James I and advisers are thought to have brought into English law the so-called f i a t doctrine, the theory that corporations are f i c t i t i o u s l e g a l persons d i s t i n c t from t h e i r o f f i c e r s or members created by the f i a t of the state. This enabled the Crown to extend control to a l l corporations, including boroughs, guilds and trading companies. Also, i t permitted the Crown to grant monopolies and p r i v i l e g e s to corporations organized by court f a v o r i t e s . To secure such a p r i v i l e g e , direct negotia-tions with the Crown were required, culminating i n a Royal Grant of a charter or patent. The Bubble Act, passed i n 1719, was i n response to public demand f o r the r e s t r a i n t of stock promotional excesses of the times, and to stop the formation of j o i n t stock companies not A possessing a charter from King or Parliament. I t was not repealed u n t i l 1825. Incorporation, however, continued to be a matter of special grant by King or Parliament u n t i l 1844 when %he j o i n t stock devices based on a stock of f r e e l y trans-ferable shares owned by a r e l a t i v e l y large number of people had been transplanted from the Continent to B r i t a i n i n the sixteenth century. See A. B. Dubois, The English Business Company a f t e r the Bubble Act of 1720-1800 (New York, The Commonwealth Fund,1938) p,1. ^The term "bubble" came into use i n the eighteenth century to describe the speculative undertakings of the period. See W i l l a r d T. Thorp, Speculative "Bubbles" Encyclopedia of the S o c i a l Sciences, I I I , pp. 25-26. - -12 associations with more than twenty-five members were permitted to r e g i s t e r as corporations. Limited l i a b i l i t y was not accorded such corporations u n t i l 1855. The laws regulating joint-stock companies with l i m i t e d l i a b i l i t y were consolidated i n 1862 and again i n 1908 and 1929.^ The l a s t r e v i s i o n was i n 194-8. In America the corporation has developed along d i s t i n c t l i n e s and to a more advanced stage than anywhere else. Many of the f i r s t American colonies had t h e i r inception i n a trading grant to c e r t a i n associates; these developed into governmental corpora-tions and ultimately into p o l i t i c a l e n t i t i e s . In spite of the strong prejudice against business corporations, some f i f t e e n or eighteen can be traced p r i o r to 1789. A f t e r the American Revolution the s i t u a t i o n changed; the b a r r i e r s created by the South Sea Bubble Acts gave way, and o l d prejudices went by the boards. The states assumed powers to grant corporate charters but adopted the B r i t i s h l e g a l concep-t i o n that to obtain corporate capacity was a p r i v i l e g e and not a r i g h t . Thus, the business corporations formed, for the most part, were turnpike bridge, canal dock, water, f i r e , banking and insurance companies. As had happened i n England a century e a r l i e r , many unincorporated companies were formed which did not seek charters because of the reluctance of state l e g i s l a -tures to grant the p r i v i l e g e f o r private p r o f i t . Out of t h i s emerged a struggle between business i n t e r e s t s and the state as to whether incorporation was a r i g h t open to a l l who wish to promote legitimate business i n t e r e s t s or a p r i v i l e g e to be Berle and Means, l o c . c i t . 13 granted or withheld by the state.^ Beginning with the New York law of 1811, the state began to substitute general incorporation acts f o r the process of bar-gaining and jockeying with the state l e g i s l a t u r e for a charter. The change was due to the demands of businessmen f o r easier i n -corporation, increasing pressure of other l e g i s l a t i v e business, attendant l e g i s l a t i v e corruption and the inherent danger of the grant of valuable public p r i v i l e g e s to private corporations. The laws permitted organizers of corporations to write out t h e i r own charter i n accordance with statutory requirements and to f i l e t h i s with .the secretary of state. Incorporation followed auto-matically upon f i l i n g of the application. The laws l a i d down r i g i d requirements designed to protect the stockholders. Chief among these were: that a c e r t a i n amount of c a p i t a l should be paid i n before business was started; that stock should have a par value and should not be issued except against f u l l payment of such par values; that c a p i t a l should not be reduced or paid out as d i v i -dends to the prejudice of creditors. The s e c u r i t i e s which could be issued were very l i m i t e d . By 1850 such general incorporation laws were common and by, 1875 provided the usual method of incor-poration. The h i s t o r y of the nineteenth century i s i n f a c t a slow adbication of controls over corporations. Charter l i m i t a t i o n s and the court-made law of u l t r a v i r e s gave way at the same time. S o c i a l control was replaced by economic growth. The process Adolf A. Berle, J r . , " H i s t o r i c a l Inheritance of American Corporations, M The Powers and-Put ies of Corporate Management, Conference on^the S o c i a l Meaning of Legal Concepts (New York University, 1950), pp. 191-199. 14 which l e d to t h i s change of p o l i c y was the competition among the i n d i v i d u a l states granting charters. For most purposes the charter granted i n one state was equally e f f e c t i v e i n carrying out corporate business i n others. Individuals seeking a cor-porate charter went to the state giving the broadest powers. Certain states became known as "charter mongers" and with the r e a l i z a t i o n of t h i s , as an increasing source of income, the competition resulted i n the granting of ever broader powers.to the corporations. The process may be said to have been coiifc-pleted upon the enactment by Delaware, Maryland and Nevada of corporation laws permitting extreme l a t i t u d e to corporate management, an opportunity seized by corporations i n increasing size and number. A corporation no-longer had to have a severely defined single purpose; any number of enterprises could gather under one management. Thus, increasing management power roughly p a r a l l e l e d the increasing si z e of business enterprise, thereby 7 s e t t i n g the stage f o r the modern corporation of to-day. Berle and Means, l o c . c i t . Lindahl and Carter, op. c i t . , pp. 47-56. CHAPTER I I THE CHANGING CORPORATE SCENE The concentration of c a p i t a l resources i n the giant corporations exemplified by t h e i r assets i s one measure of t h e i r concentration of economic power. There are d i f f i c u l t i e s , however, which arise when using a single f i n a n c i a l yardstick f o r the measurement of economic power i n the economy, the main prob-lem being that the volume of assets depends on the industry as to whether i t represents a dominant po s i t i o n i n the system. Yet on the other hand, size of the assets determines the influence of the industry i n the economy. Thus, since the purpose of t h i s chapter i s to study the r e l a t i v e p o s i t i o n of various industry groups and analyze the changes since 1940, these d i f f i c u l t i e s may be overlooked. I t i s recognized that there are a number of other factors which determine the degree to which size i s i n d i -cative of economic power. Moreover, i t must not be overlooked that other groups have arisen which have considerable power i n society. These are the labor unions, farmers and small businessmen. In a sense, t h e i r economic power i s even more formidable than b i g business since i t i s derived from other than f i n a n c i a l resources. The concentration of f i n a n c i a l resources does not mean A. D. Kaplan, Big Enterprise i n a Competitive System, pp. 128-131. 16 entrenchment and r i g i d i t y of "big business but a f l u i d and dynamic s i t u a t i o n with emergence of new firms and growth areas. This implies that the control of these corporations i s not s t a t i c e ither as the continual s h i f t i n g of economic power among various groups within an industry and between industries would cause both a tremendous growth i n investments and a s h i f t i n g of investments. The changing character of American industry may be seen from a comparison of the 200 largest non-financial corporations of 1957 with that"of a s i m i l a r l i s t i n 1937.2 The two l i s t s have been c l a s s i f i e d by industries and presented with t o t a l assets as of the year end. No adjustments have compensated for changes i n d o l l a r values. Overall Picture The t o t a l assets of the two l i s t s of corporations were sixty-nine b i l l i o n and 193 b i l l i o n d o l l a r s , respectively. This represented a three-fold increase i n assets over the two decades. Each industry, however, did not enjoy the same growth. This may be seen from the following tabulation. Manufacturing replaced the public u t i l i t i e s industry as the leading group and increased t h e i r assets four f o l d as compared to two f o l d f o r the u t i l i t i e s . The transportation industry showed the l e a s t growth of a l l four major groups. Thus, i n two decades the makeup of the economy has changed considerably. This was further exemplified by an analysis of the changes of the companies within the various industry groups. 2See Appendix A Table V I I I , p. 1.21. 17 TABLE I DISTRIBUTION OP ASSETS IN 200 LARGEST NON-PINANCIAL CORPORATIONS BY INDUSTRY 1937 1957 Industry Manufacturing Public U t i l i t i e s Transportation Merchandising Number of Companies 107 51 29 13 Assets B i l l i o n s S 26 25 16 2 Number of Companies 106 53 32 9. Assets B i l l i o n s $ 105 56 27 5 Totals $ 69 200 $ 193 18 ANALYSIS GP CHANGES OYER THE YEARS Since 1937 seventy companies have disappeared by reason of merger, consolidation, and dis s o l u t i o n . Of these corpora-tions almost h a l f were manufacturing concerns engaged i n older industries where the rates of growth have slowed down. Mergers and consolidations were almost non-existent. In the public u t i l i t i e s f i e l d eighteen of the twenty companies that disappeared were dissolved under the Public U t i l i t i e s Holding Company Act of 1935. In the transportation industry no one single cause was apparent f o r the disappearance of twelve r a i l r o a d s from the l i s t . Transportations biggest competitor was the evolution of the-modes of t r a v e l and d i s t r i b u t i o n . Manufacturing The more s i g n i f i c a n t changes that have taken place l i e within the various groupings of industry. The petroleum industry maintained i t s leadership i n the i n d u s t r i a l s with twenty-one companies, most of which operate n a t i o n a l l y or i n t e r n a t i o n a l l y and whose assets comprised t h i r t y - f i v e per cent of the manufac-turing group. This was la r g e r than the combined assets of the 200 largest corporations i n 1937. Furthermore, t h i s industry's economic power extended considerably beyond the assets of the in d i v i d u a l firms since they controlled the p o l i c i e s of thousands of small businessmen who sold t h e i r products through service stations. The fastest growing ind u s t r i e s , however, were the elec-t r i c a l , transportation equipment, and the chemicals. In the e l e c t r i c a l group only two new companies were added, but a l l 19 enjoyed phenomenal-growth. International Business Machines exemplified t h i s , expanding from a seventy-five m i l l i o n d o l l a r company i n 1937 to over a b i l l i o n d o l l a r corporation i n 1957. The transportation manufacturing group had by f a r the largest increase i n new firms. This was due l a r g e l y to evolution of the modes i n transportation and d i s t r i b u t i o n . The coming of the a i r age saw the development of the a i r c r a f t industry with seven large firms springing up. In addition, the automobile and truck firms also enjoyed tremendous expansion. This adjustment to the new forms of transportation, however, l e f t the r a i l r o a d equipment companies unable to meet the competition. The chemicals paced by DuPont and Union Carbide grew substa n t i a l l y with the addition of four new firms. The majority of companies i n a l l three industry groups gained an improved p o s i t i o n i n the economy not only through growth i n absolute terms but notably f o r d r a s t i c changes made i n 2 t h e i r product mix. This was true especially of the chemical and e l e c t r i c a l industry. DuPont and General E l e c t r i c are hardly recognizable as the same companies they were i n 1937 except for the name. Other leading industry groups also enjoyed substantial but l e s s spectacular growth. They are s t e e l , non ferrous metals, rubber, lumber and paper, and tobacco. Many industries also suffered declines where the rates of growth had slowed down f o r one reason or another. Among them were coal mining, amusements and food products. The coal mining firms except for one disappeared from the 200 as a result of competition from other products, notably gas and o i l . In the amusement f i e l d , three motion picture firms suffered declines 2 I b i d . , p. 142 20 from unfavourable a n t i - t r u s t decisions i n 1948 and the impact of other entertainment forms, pr i m a r i l y t e l e v i s i o n . As f o r the food products group, rates of growth v a r i e d but the majority could not maintain a consistent growth and dropped from the l i s t . This was prima r i l y the r e s u l t of f i e r c e competition among the firms, a l -though changing buying habits of the public were important.^ B a s i c a l l y , the d i f f i c u l t i e s of firms that disappeared from the l i s t of the 200 largest non-financial corporations was the mob i l i t y to adjust to the changing s i t u a t i o n . Competition among the giants appeared to grow with increase i n s i z e . Those firms that were not prepared to grow not only i n t h e i r own product l i n e s but related ones also were unable to survive. Corporations were c l a s s i f i e d into industry groups and subgroups but t h i s tends to hide the fact that many compete i n many l i n e s . Firestone, f o r example, now produces beside rubber products, chemicals, aluminum and d i s t r i b u t e s thousands of items through r e t a i l o u t l e t s . Transportation The transportation industry has not enjoyed the growth other major industry groups have had. This was not true of the a i r l i n e s and buslines, however they only represent three firms i n the 1957 l i s t of 200 largest non-financial corporations, which was rather i n s i g n i f i c a n t . The main group of companies, the r a i l -roads, have had d i f f i c u l t i e s since the depression which forced many of them into bankruptcy. Present problems of the r a i l r o a d s , however, developed i n times of prosperity rather than" depression. ^Martin L. Idndahl and William A. Carter, Corporate Concentration,and.Public P o l i c y , pp. 85-86. V 21 The important contributing factors have been declining passenger t r a f f i c , and r i s i n g passenger d e f i c i t s , f a i l u r e of expansion i n r a i l r o a d t r a f f i c to keep pace with the economy, and heavy losses of p r o f i t a b l e types of t r a f f i c to truck and more recently a i r 4. f r e i g h t . Thus, since 1937 twelve r a i l r o a d s have l e f t the l i s t to be replaced by t h i r t e e n other roads, two a i r l i n e s and one bus system. The departing corporations resulted from mergers, leased l i n e s and i n a b i l i t y to grow with economy. The remaining railways and companies that joined the l i s t expanded very l i t t l e . Much of the increase i n asset value of the firms can be a t t r i b u t e d l a r g e l y to modernization of equipment. The once proud r a i l r o a d systems of America are a declining industry with a very bleak future. Public U t i l i t i e s Since 1937 the industry which has undergone the most r a d i c a l change was the public u t i l i t i e s , excluding the communi-cations area. This was the r e s u l t of the Public U t i l i t y Holding Company Act of 1935 which caused the d i s s o l u t i o n of eighteen companies on the 1937 l i s t of corporations. Many of the companies were huge holding corporations that controlled the entire gas and e l e c t r i c u t i l i t y systems i n the United States. The Holding Com-pany Act had two important sections which changed the makeup of the entire u t i l i t y industry. The Act administered by the Securities and Exchange Commission required r e g i s t r a t i o n by those companies owning or c o n t r o l l i n g ten per cent of the voting power of r e t a i l gas and e l e c t r i c companies or which otherwise exercised 4-James Q # Nelson, Railroad Transportation and Public  P o l i c y , pp. 412-^413. 22 a c o n t r o l l i n g influence. F i r s t , companies had to l i m i t operations to a single integrated system and to reasonably i n c i d e n t a l or economically necessary a c t i v i t i e s . Since the e f f e c t i v e date of the Act, March 1938, m i l l i o n s of d o l l a r s have been divested 5 that were not geographically integrated. Secondly, the c a p i t a l structures must be s i m p l i f i e d and only three layers of companies were permitted. The Securities and Exchange Commission has issued orders regarding u n f a i r d i s t r i b u t i o n of voting power among security holders, the g i s t of which states that voting power should be related to asset and earning value and that a holding company c a p i t a l i z a t i o n , p a r t i c u l a r l y where geographical s i m p l i -f i c a t i o n required disposing of assets, was complicated i f i t 7 included more than one common stock issue. Furthermore, the holding companies were subject to other regulations which r e s u l -ted i n fewer i n t e r l o c k i n g directorates, l e s s concentration of control, greater s i m p l i f i c a t i o n of corporate structure and 8 reasonable dividend payments. This Act, however, has not destroyed the large public u t i l i t y system, quite the contrary. There now exists systems just as large which are an e f f i c i e n t geographic u n i t , properly c a p i t a l i z e d with voting p r i v i l e g e s evenly d i s t r i b u t e d . The new firms that replaced the dissolved corporations and the many on the 1937 l i s t have prospered and grown. This i s shown by the ^Moody's Public U t i l i t y Manual, 1958, p. a27. 6 A l l e n D. Choka, An Introduction to Securities  Regulation, p. 120. 7 'Op. c i t . , Moody's. 80p. c i t . , Choka, pp. 120-121. 23 fact that t h e i r assets have more than doubled i n value over two decades. SUMMARY I t was evident that the large corporations possessed great importance i n the organization of American industry; and a l l indications point to an even greater r o l e f o r them i n the future. Yet they were f a r from becoming entrenched or r i g i d as evidenced not only bu the continual s h i f t i n g of business leadership within an industry, but also among industry groups. Further, b i g business alone was no guarantee of l a s t i n g success f o r the constant pressure of competition and other forces that came into play kept the giants f l u i d and dynamic. This resulted i n increased investment and s h i f t i n g of investments causing s h i f t s i n control s i t u a t i o n s throughout the system. CHAPTER I I I THE EVOLUTION OP CONTROL The giant corporations, which represent the aggregated wealth of innumerable people, were the r e s u l t of the spectacular r i s e of the corporate system. In the wake of t h i s great trans-formation came the separation of ownership from management due to the concentration of industry i n the corporate form. This was the f i r s t great change of t h i s century and has l e d to the r i s e of autonomous corporation management.^ Control of these companies i s of considerable economic importance. In 1949, 135 corporations owned f o r t y - f i v e per cent of the i n d u s t r i a l assets of the United States. This represented approximately one-fourth of the manufacturing volume of the entire world.^ Thus, i t helps explain why men have gone to great lengths to devise methods whereby t h i s could be achieved. The phenomena of "control" was perhaps the most important single fact i n the American corporate system. As the corporation became recognized as an i n s t i t u t i o n of significance both i n econo-mic and s o c i a l f a c t , the importance of control grew. Many and varied forms have developed throughout the l a s t h a l f century. The 1Adolph A. Berle, J r . , Power Without Property, p. 59 p M. A. Adelman,"The Measurement of I n d u s t r i a l Concentration," The Review of Economics and S t a t i s t i c s . XXXIII (November, 1951), p. 2W. ^Adolph A. Berle, J r . , The 20th Century C a p i t a l i s t  Revolution, pp. 25-26. ^Adolph A. Berle, J r . , '"Control" i n Corporate Law,* Columbia Law Review, LVIII (May, 1958), 1212. 25 devices and techniques used, and i n use, have changed through the pressure of public opinion, through concert action and through changing economic conditions. Control may be defined as the capacity to select the majority of directors, to influence the board of directors and 5 to possibly dominate i t , "Control" i s a function of the ownership of voting stock. There has evolved two d i s t i n c t types, absolute or outright control and working control. Absolute control exists where a majority of such stock i s held by an i n d i v i d u a l stockholder or group of stockholders who, by agreement or t a c i t consent, act together. The same s i t u a t i o n i n fact exists where a large minority i s so held while ownership of the remainder i s widely dispersed among many shareholders. Over f i f t y per cent of the voting stock con-s t i t u t e s absolute control, however as l i t t l e as t h i r t y per cent may be no l e s s absolute providing always the remainder i s not held c l o s e l y , but i s divided amongst many thousands of small 7 stockholders. This phase of control, however, i s not the beginning and end f o r the majority of corporations. A generation or two i s generally i t s normal l i f e span. Absolute stockholder control usually stems from a single investment of the o r i g i n a l founder. However, as the corporation grows i n size to that of a giant, the investment necessary to maintain such a pos i t i o n becomes.; extremely expensive... Furthermore, i n time the m u l t i p l i c a t i o n of family o f f -spring and the inescapable effect of inheritance taxes may be 5 I b i d . 6 I b i d . , p. 1213 7 I b i d . , p. 1213. 26 g counted on to compel eventual dispersion. Among large corporations absolute control was more con-spicuous by i t s absence than by i t s presence. In the 1937 l i s t of the 2G0 largest non-financial corporations t h i r t y - f o u r com-panies were d i r e c t l y controlled i n t h i s manner by family groups 9 but they comprised l e s s than ten per cent of the t o t a l assets. A more recent estimate compiled from public information supplied by the S e c u r i t i e s and Exchange Commission showed that 10 the number has dropped to twenty corporations. Thus, the large corporations are not commonly controlled through majority ownership though there are some s t r i k i n g excep-t i o n s . These, however, are the r e s u l t of the use of various instrumentalities to preserve the control position, many of which divorce ownership from control. The Ford Motor Company i s s t i l l i n the Ford family which retains control through the 11 use of weighted voting stock. The Dupont de Nemours company i s controlled through t r u s t s and a family corporation, 12 C h r i s t i a n i a Securities Corporation, Others are Gulf O i l by the Mellon family d i r e c t l y and through personal t r u s t s , a charitable t r u s t and a s e c u r i t i e s corporation, and i n trade, the Great A t l a n t i c and P a c i f i c Tea Company through a holding company of the same name for the Hartford family. Nevertheless, A. A. Berle, J r . , Power Without Property, p. 71 . ^See Table I I I , page 50. ^ T h i s also excludes companies controlled by other corpora-tions. The t o t a l includes t h i r t e e n corporations included i n the l i s t i n Appendix C Table XVII and s i x others known to be d i r e c t l y controlled. 11 1 p See Footnote 18. Berle, l o c . c i t . 27 these are but a few among a couple of hundred giants i n American industry. The second stage of the evolution of control among the corporate giants was that of working control. This was a more complex s i t u a t i o n , however, as i t involved an additional element, the a b i l i t y to mobilize other shareholders. Working control commonly existed where the holder or holders of a minority i n t e r e s t also had a r e a d i l y available method of obtaining s u f f i -cient a d d i t i o n a l votes so that i n combination they were able to elect a majority of the board of directors. This most often was management, though i t need not b e . ^ To maintain working control, generally i t was necessary to have a close r e l a t i o n with management so that i n preparing f o r any corporate e l e c t i o n , the board would request proxies f o r a s l a t e of directors chosen or approved by the minority group. Thus, since a substantial percentage of stockholders with small holdings p r a c t i c a l l y always followed management and almost auto-matically signed and returned proxies requested, the a b i l i t y to direct the proxy machinery coupled with a minority of ownership meant working control. The size of holdings usually required to maintain t h i s form of control varied with the proportion of small stockholders i n the company. The larger the percentage of scattered stockholders, the smaller the minority i n conjunction 14. with management required. Power i s shared under such an arrangement and thus i t i s •'A. A. Berle, J r . , * "Control" i n Corporate Law,* Columbia Law Review, LVIII (May, 1958), 1213. 14 , \A. A. Berle, J r . , Power Without Property, pp. 71-72. 28 imperative that communication "between the minority i n t e r e s t and management be maintained. Both positions generally are w e l l entrenched. Therefore, should the minority group decide to oust management, the outcome may w e l l be i n doubt, with the deciding basis quite l i k e l y the f i n a n c i a l strength. Proxy ba t t l e s f o r control, however, are rare as the cost i s p r o h i b i t i v e , time con-suming and wasteful. When they occur, the minority usually has accumulated large holdings, but has become d i s s a t i s f i e d with management for one of a number of reasons. The purpose of course i s to elect a slate of directors which w i l l work with the minority. The proxy b a t t l e of the century, as i t has been c a l l e d , between Robert R. Young and the New York Central was one of these rare occasions. This resulted from the r e f u s a l of the Central board to accept Young as t h e i r new chairman. Thus, the b a t t l e began. Young commenced the f i g h t with 200,000 shares or three per cent of the t o t a l outstanding stock. This, however, was more than management owned; His f i r s t task was to obtain the votes of the only b i g block of stock outstanding, that owned by Chesapeake and Ohio. As i t was held i n t r u s t by the Chase National Bank under an Interstate Commerce Commission order, Cyrus Eaton, the chairman, could not favour Young. Furthermore, a representative of the bank was on the board of Central that had voted against Young. He thus set out to obtain those shares. The manner i n which t h i s was done i s a piece of f i n a n c i a l wizardry, l e g a l perhaps but not moral. The transaction which ensued saw the 800,000 shares of Chesapeake and Ohio sold to two Texans who never put up any cash. Young now had control of sixteen per cent of the Central stock and, i n so doing, had 29 convinced many small shareholders of h i s a b i l i t y . Young f i n a l l y obtained s u f f i c i e n t votes to gain control by wooing the largest part of the f o r t y - f i v e per cent of the stock held i n brokers names. The cost of the proxy b a t t l e was at least $1,500,000 cash. This does not include the .cost of the time and energy of the s t a f f devoted to the ba t t l e which could have been spent more p r o f i t a b l y on the management of the r a i l r o a d . This raises several questions. Was the change i n management worth the time, e f f o r t and money? Should management be allowed to spend the corporation*^ money to sustain i t s e l f ? Should the newly elected management be allowed to re-imburse themselves? This example serves to i l l u s t r a t e the cost i n money and time of a proxy b a t t l e i n a giant corporation. I t i s not suggested, however, that they be outlawed, quite the contrary, but the law should be changed to prevent both management and the opposing group from using cor-15 porate funds r e c k l e s s l y . , This second stage of development which has existed f or more than four decades was probably the t y p i c a l s i t u a t i o n i n 16 American,industry from about 1914 to 1928. In l a t e r years i t s t i l l existed as a major factor i n a good many corporations. For example, at the clo s t of 1937 no. l e s s than forty-three companies of the 200 largest non-financial corporations, which aggregated $8.7 b i l l i o n of t o t a l assets were controlled i n t h i s manner. Thus, even though working control i s a continually diminishing 15 For a complete description of t h i s b a t t l e , see J. A. Livingston, The American Stockholder, pp. 129-150. 16 Berle, l o c . c i t . 30 form, i t i s presently a. f a m i l i a r l o c a t i o n of i n d u s t r i a l power, MINORITY CONTROL AIDES 1 7 In addition to the usual conditions conducive to working control, many l e g a l devices have been used by minority interests to obtain and maintain control. One of the instruments used was the manipulation of voting r i g h t s attached to the stock. Stock issues were weighted or had multiple voting r i g h t s while others were completely disfranchised. Thus, only a very small class or a class representing a f r a c t i o n of the t o t a l investment were per-mitted to vote. This meant ownership of just over h a l f of t h i s p r i v i l e g e d class was s u f f i c i e n t to obtain l e g a l control of the corporation. These arrangements permitted a r e l a t i v e l y small stock investment to control c a p i t a l structures of b i l l i o n s of d o l l a r s . The abuses of t h i s method, however, l e d to a r u l i n g by the New York Stock Exchange that a l l common stocks have voting power. Purthermore, the Exchange generally does not l i s t s e c u r i t i e s of a company i n which a class of stock possesses voting power dispro-portionate to i t s equity. There are some exceptions, notably 18 the Pord Motor Company and W. R. Grace. Another device e f f e c t i v e l y used by minorities was the voting t r u s t . E s s e n t i a l l y , t h i s was a stock pooling agreement 'A. A. Berle, J r , , and Gardener C. Means, The Modern Corporation and Private Property, pp. 72-84; Martin L. Lindahl and William A. Carter, Corporate Concentration and Public P o l i c y , pp. 92-102. AO l oThe W. R. Grace preferred stock, owned by the family, has one vote per share. In contrast, A and B preferred shares have one-tenth of a vote per share while the common only has one f o r t i e t h . The Pord plan gives the family-held Class B shares a shereby the stock was transferred to trustees, often part of management, who f o r a p e r i o d — u s u a l l y not exceeding ten y e a r s — were given the power to exercise the voting r i g h t s of the owners. Unless otherwise specified i n the agreement, the trustees had complete control over the a f f a i r s of the corporation, often with l i t t l e or no ownership on t h e i r part. In exchange the stock-holders received voting t r u s t c e r t i f i c a t e s that e n t i t l e d them to obtain dividends i f and when declared by the directors. This was a very e f f e c t i v e method of obtaining control f o r a l i m i t e d number of years. I t s p r i n c i p a l use was i n reorganiza-t i o n , but has been used by promoters and investment bankers f o r new ventures. In recent years the device has found use by large stockholders i n an e f f o r t to maintain control i n the family. This device also l o s t i t s usefulness to control seekers when the New York Stock Exchange refused to l i s t shares i n a voting t r u s t except under court-approved reorganization plans. The most widely used device f o r corporate control p r i o r to the depression was pyramiding. This involved the owning of a majority of stock of one corporation which i n turn holds a majority of stock of another, a process which was repeated many times. This took place by the creation of holding companies who exchanged shares with those of operating or other holding companies. The purpose was to concentrate control of several companies with voting power with a reverse r a t i o . The family shares of stock could r i s e from 1.114 votes per share to 14.86 votes per share. Furthermore, the family could r e t a i n a f o r t y per cent vote with only 5.1 per cent J eof the t o t a l equity and a t h i r t y per cent vote with only 2.8 per cent,of the equity. The Pord family must hold a minimum of 1,500,000 "shares. I f t h e i r holdings drop below t h i s f i g u r e , then the B stock i s automatically reduced to only one vote per share. Livingston, op. c i t . , pp. 166-177 and p. 187. ^ L i v i n g s t o n , op. c i t . , p. 187. 32 only a very small i n t e r e s t . This technique was used very e f f e c t i v e l y i n the decade from 1920 to 1930 by the great public u t i l i t y systems and the ra i l r o a d s . However, passage of r e s t r i c t i v e l e g i s l a t i o n has ended i t s reign. The use of these and other l e g a l devices was an i n i t i a l step i n the separation of ownership and f a c t u a l control. A l -though the majority of these instruments have not been, used f o r a couple of decades by large corporations, the process they commenced has continued. Although the various phases of the changing corporate structure in- the United States have not been the subject of an extensive study, Professor Berle, an eminent corporation lawyer, who has written at great length on the subject of corporate 20 control, stated: The decade of great expansion, the years a f t e r the F i r s t World War and the f a n t a s t i c expansive and speculative years which continued u n t i l 1929 ended the existence of the absolute stockholder control as a norm. I t was succeeded by the working control stage; but by then many of the great corporations had already passed into the t h i r d phase—"management control.^ Management Control This i s simply a form which ex i s t s where there i s no substantial stockholdings and the stock i s widely dispersed among the many thousands of stockholders. Thus, as there i s no group of stockholders working closely with management or i s capable- of challenging i t , the capacity to direct the proxy machinery i s a l l that i s necessary. This s i t u a t i o n i s A. A. Berle, Jr.,- Power Without Property, p. 73* 33 management control. The board of directors, therefore, can almost always expect a majority of shareholders to follow t h e i r lead. I t i s unnecessary f o r them to consult anyone i n drawing up the s l a t e of directors* They merely request the stockholders to sign and return proxies selecting themselves as successors. Under such an arrangement, upsetting management becomes very nearly only a t h e o r e t i c a l p o s s i b i l i t y . The Temporary National Economic Committee study of the largest non-financial corporations revealed that p r i o r to 1940, f i f t y - s e v e n corporations had a: s u f f i c i e n t l y wide dispersion of stock ownership that no one group was able to exercise control by v i r t u e of voting strength. With possibly a few exceptions, control was i n the hands of the board of directors and p r i n c i p a l o f f i c e r s of these corporations. Furthermore, t h i s group of t h i r t y - f o u r manufacturing, f i f t e e n r a i l r o a d s , four u t i l i t i e s and 21 others made up over f o r t y per cent of the t o t a l assets. A more recent estimate stated that approximately one-third of the 200 largest corporations with about f i f t y per cent of the t o t a l manufacturing assets had no stockholders large enough to 22 influence management. Among these companies with no d e f i n i t e ownership control are many of the leading corporations i n t h e i r f i e l d . In manu-facturing there are General Motors, United States Steel, General E l e c t r i c , Eastman Kodak, Goodyear Tire and Rubber, International Business Machines, and Radio Corporation of America; i n d i s t r i -bution Montgomery Ward and Company Inc. In the r a i l r o a d industry, 2 1See Appendix A, Table V I I I , p. 121. op - • - - - - - -Paul T. Howell, "Common Stocks and Pension Fund Investing" Harvard Business Review, XXXVI (November, December, 1958) p. 93. 34 notably Pennsylvania, Southern P a c i f i c , Union P a c i f i c and the Atchison Topeka and the Santa Fe. Furthermore, there i s the largest corporation i n the United States, the American Telephone and Telegraph Company representing the communications sector of the public u t i l i t y f i e l d i n t h i s s i t u a t i o n . Thus, " t h i s i s the locus of power over and the norm of control of the bulk of American industry now.". -* Under management control the coup i s almost complete. Stockholders no longer e f f e c t i v e l y have a right to select mana-gement. In law and i n fact they cannot i n t e r f e r e i n management. In short, ownership has become almost meaningless. Shareholders are almost s o l e l y recipients.of dividends. Moreover, t h i s has disturbed a customary arrangement i n management. Formerly the board of dire c t o r s , who were elected by the stockholders, examined the r e s u l t s of the administration on behalf of the stockholders. Now they have become accountable only unto them-selves. The management revolution i s complete and a new e l i t e has arisen. PERPETUAL MANAGEMENT CONTROL24 Several basic factors are responsible f o r the perpetuation of management control. Chief among them are the following: 1) the wide dispersion of stock ownership; 2) the expense involved i n any attempt to overthrow management; 3) the strate g i c p o s i t i o n of management i n i t s control over the proxy machinery, and 4) adminis-t r a t i o n of the a n t i t r u s t laws. 2^ -'Berle, op. c i t . , . p. 74* 24 ^Tiindahl and Carter, op. c i t . , . pp. 103-107. At the turn of the century when corporations were much smaller and t h e i r c a p i t a l structures were l e s s complex, stock-holders had a genuine interest i n the a f f a i r s of t h e i r company. They participated i n the d i r e c t i o n of a f f a i r s through the hoard of directors and f o r many by direct representation i n management. The stockholder was able to maintain h i s pro rata share i n the corporation through the doctrine of preemptive r i g h t s . As a r e s u l t , h i s interest demanded that management maximizes p r o f i t s to the extent of t h e i r a b i l i t y and d i s t r i b u t e p r o f i t s accordingly. The sums retained i n the business were only s u f f i c i e n t to meet necessary contingencies and maintain adequate reserves to keep the corporation sound. Any expansion was voted on by share-holders through the medium of the c a p i t a l market. Furthermore, shareholders demanded the stock be kept salable at a price commensurate with earning power and future expectations. Presently, shareholders r e t a i n only token r i g h t s i n t h e i r corporation. As corporations grew i n size and stature, ownership became comparatively more widespread. The significance of these owners has dwindled to a mere shadow of i t s former s e l f . Further-more, even those who may l i k e to exercise t h e i r fundamental ri g h t s to b a t t l e management f i n d i t i s f a r beyond t h e i r f i n a n c i a l means unless they are a Wolfson or a Robert Young. Management's po s i t i o n i s further strengthened by t h e i r s t r a t e g i c p o s i t i o n of control over the proxy machinery. Through t h i s medium the board appoints a proxy committee who prepare a proxy statement that i s sent to shareholders with voting r i g h t s , at company expense. Many stock owners sign these statements almost b l i n d l y and return them giving voting r i g h t s to the committee. Others completely disregard them. Thus, re e l e c t i o n 36 of management i s always assured. More recently a n t i t r u s t laws and s p e c i f i c a l l y the Clayton Act have further entrenched the management e l i t e . The decision i n the General Motors and du Pont case which prevented du Pont from voting t h e i r shares i n General Motors denied the r i g h t to exercise control over management. In t h i s case, the shareholder d i r e c t l y was a corporation, nevertheless the ultimate owners, the du Pont family and the chemical corporation, have been r e -duced to the status of mere receivers. Once again the l i n e between ownership and control has been severed, leaving manage-ment supreme. Since the early 1950*s a fourth stage has appeared. This was the emergence of the f i n a n c i a l and f i d u c i a r y i n s t i t u t i o n s , through which once more stockholdings capable of control were becoming concentrated. Admittedly, the b e n e f i c i a r i e s of these i n s t i t u t i o n s number among the tens of m i l l i o n s and are increasing yearly. Nevertheless, t h i s only serves to further concentrate the voting power i n the hands of the trustees. Thus, the outlines of the future course of the corporate 25 system are drawn and as Berle states; So we discern the l a t e s t and apparently inescapable future norm i n our chase of property and power. Economic benefits by way of dividend or other d i s t r i b u t i o n s accruing to the shares of stock are received by these impersonal i n s t i t u -tions to be r e d i s t r i b u t e d to t h e i r policyholders or to t h e i r pension b e n e f i c i a r i e s — b u t wholly without direct r e l a t i o n s h i p between the recipients and the stock, l e t alone the corpora-t i o n . .....He would not know—and i t would be immaterial i f he did know—what voting power hi s insurance company or h i s pension t r u s t held with respect to the management of Union P a c i f i c or United States Steel. He could not influence the s i t u a t i o n i n any case. He i s , i f possible, more passive Berle, op. c i t . , . pp. 75-76. 37 receptive than ever. His r e l a t i o n to the "things" that make up American industry has- simply ceased. Therefore, the divorce i s complete. Ownership, i f i t may be c a l l e d that, has passed to an impersonal body c a l l e d a corporation control to a group of men who command the f i n a n c i a l resources of the nation. SUMMARY The great growth of the modern corporation has s h i f t e d control from the shareholders to management and possibly i n the not too distant future to a new owner group, the i n s t i t u t i o n a l investors. This development over the years has seen the use of many and varied devices and techniques used i n an e f f o r t to maintain control. But time, taxes and l e g i s l a t i o n has reduced t h e i r effectiveness except i n a few, instances. Presently, autonomous management control i s the norm. Therefore, with the review of the various stages of development of control and forms i n use, there remains but to discover the l o c a t i o n of control i n the largest non-financial corporations. c CHAPTER IV THE LOCATION OF CONTROL IN THE 200 LARGEST NON-FINANCIAL CORPORATIONS The development of the forms of control discussed i n the previous chapter were based on studies done i n the past on the l o c a t i o n of control i n i n d i v i d u a l corporations. However, no attempt was made to show d i r e c t l y the d i s t r i b u t i o n of types i n each phase, or the dominant form among various industries. Moreover, very l i t t l e was said about the factors that determine various control s i t u a t i o n s . Thus, t h i s step i n the analysis w i l l trace the l o c a t i o n of control i n i n d i v i d u a l corporations from the depression days up to the mid f i f t i e s . Also, i t w i l l be the f i r s t introduction to the d i s t r i b u t i o n of ownership i n in d i v i d u a l corporations; f o r , as was mentioned previously, control i s a function of the ownership of voting stock, and, therefore, depends on the d i s t r i b u t i o n among various groups. Since the Second World War no exhaustive study has been made on the l o c a t i o n of control. Therefore, t h i s phase must be discussed i n more general terms based on information made available by the Securities and Exchange Commission. Control i s not an easy concept to discuss f o r i t s existence i s a question of f a c t . The term as used here means the a b i l i t y to elect a majority of the board of directors and determine the f i n a n c i a l p o l i c i e s of the corporation. As such i t i s not concerned with the day to day management. I t s l o c a t i o n may or may not be determined through ownership or the l e g a l r i g h t s of directors, o f f i c e r s and shareholders. BERLE AND MEANS STUDY P r i o r to 1940 two f a c t u a l studies had been completed describing the control s i t u a t i o n s that existed i n the 200 largest non-financial corporations. The f i r s t by Berle and Means was published i n 1931 and presumably r e f l e c t e d the s i t u a t i o n that existed i n 1931. At t h i s time i t was found that these 200 corporations controlled nearly f i f t y per cent of the corporate wealth and about twenty-two per cent of the t o t a l 1 wealth. These companies also received approximately f i f t y p per cent of the t o t a l corporate net income. Moreover, i t appeared from the data on hand that the rate of growth of t h i s group would within twenty years concentrate from seventy to eighty-five per cent of the corporate wealth i n the hands of t h i s small number of firms.^ The now famous 200 corporations were comprised of 106 i n d u s t r i a l s , forty-two r a i l r o a d s and fi f t y - t w o u t i l i t i e s c l a s -s i f i e d according to types of control. Such a task was not easy f o r i n many cases accurate information as to where control was centered could not be uncovered!! Nevertheless, i n two-thirds of the companies s u f f i c i e n t r e l i a b l e data was obtained which made a c l a s s i f i c a t i o n possible. Adolf A. Berle, J r . , and Gardiner C. Means, The Modem  Corporation and Private Property« p. 32. 2 I b i d . , p. 30. Ib i d . , pp. 33-41. 40 In these companies ultimate control appeared as shown i n Table I I . These control situations were derived wholly or i n part on ownership forms which depended on a l e g a l base and those which rested on a f a c t u a l base. 4 The l a t t e r were minority con-t r o l and management control whereas the former included private ownership, majority ownership, and l e g a l devices. The data shown leaves no doubt that management control was predominant i n a l l industry groups, both i n terms of number of companies and proportion of wealth. Thus, i t was c l e a r l y evident that the separation of ownership and control was w e l l advanced. In the various industry groups the extent of manage-ment control varied considerably. The railroads had progressed the farthest both i n terms of percentage of companies controlled, sixty-two per cent, and i n terms of wealth, seventy-five per cent. Public u t i l i t i e s were next i n l i n e by proportion of wealth. Some th i r t y - e i g h t per cent of the companies controlled f i f t y - f i v e per cent of the wealth i n t h i s form. Legal devices also were an important form of control f o r u t i l i t i e s , especially the pyrami-ding of corporate structures through the use of holding com-panies. These devices accounted f o r t h i r t y - s i x per cent of the companies having the same proportion of wealth. Only i n the i n d u s t r i a l companies was i t found that control based on owner-ship remained to any substantial degree. In t h i s group some si x t y per cent of the companies s t i l l controlled forty-three per cent of the wealth i n other forms. Nevertheless, the largest - proportion was controlled through minority ownership, thirty-one per cent which follows the trend shown i n the other I b i d . , p. 70. TABLE I I TYPE OF CONTROL BY INDUSTRY IN THE 200 LARGEST NON-FINANCIAL CORPORATIONS IN 1930 i Proportion of Companies by Proportion of Wealth by In d u s t r i a l Groups I n d u s t r i a l Groups Type of Control R a i l -Roads Public U t i l i t i e s I n d u s t r i a l Total R a i l -Roads Public U t i l i t i e s I n d u s t r i a l Tots I . Private Ownership 5$ 4$ 8$ 6$ 1$ 1$ 9$ 4$ I I . Majority Ownership 2 6 6 5 1 2 3 2 I I I . Minority Control 11 14 32 23 3 5 31 14 IV. Legal Devices 18 36 14 21 15 37 14 . 22 v. Management Control 62 38 40 44 79 55 43 58 In Receivership 2 2 — 1 1 — — — Total 100$ 100$ 100$ 100$ 100$ 100$ 100$ 100$ IV Management Control & or Legal Devices. V. involving a small amount of ownership 80$ 74$ 54$ 65$ 94$ 92$ 57$ 80$ Source: Berle and Means, The Modern Corporation and Private Property, p. 115. 42 industries toward the divorce of ownership and control. This was further exemplified by f o r t y per cent of the companies with greater than h a l f of the wealth under management control. Combining the two forms of control i n which ownership was at a minimum, i t was found that s i x t y - f i v e per cent of the 200 largest corporations made up eighty per cent of the wealth. Once again r a i l r o a d s and u t i l i t i e s l e d with ninety-four per cent and ninety-two per cent by wealth, respectively. THE TEMPORARY NATIONAL ECONOMIC COMMITTEE STUDY OP CONCENTRATION OP ECONOMIC POWER The second study prepared by the Securities and Exchange 5 Commission was published i n 1940. Although based primarily on the d i s t r i b u t i o n of ownership of a 1937-39 l i s t of 200 non-f i n a n c i a l corporations, i t gave s t a t i s t i c a l data that showed the rate of growth and concentration predicted i n 1930 did not materialize. In f a c t , the asset value of the 200 declined from 49.5 per cent to f o r t y - f i v e per cent of the corporate wealth. This was not surprising though, considering the economy had suffered a severe set-back i n the depression and was only beginning to recover. A comparison of the two l i s t s of corporations revealed that only 139 of the 1930 l i s t remained i n the b i g 200. The biggest change appeared i n the transportation industry where the inter-urban companies a l l but disappeared and ra i l r o a d s United States Temporary National Economic Committee, Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest  Non-Pinancial Corporations, pp.^>9-114. 6 I b i d . , p. .19. 43 decreased from forty-two to twenty-seven. Thus, the era of the great r a i l r o a d systems wielding considerable economic power was on the wane. The Public U t i l i t y Holding Company Act of 1935 spelled death to many of the pyramided corporate structures. As a group the u t i l i t i e s s t i l l loom very large and represent one-quarter of the large corporations; however, t h e i r corporate structures were s i m p l i f i e d and thus the h a l f dozen groups that controlled the bulk of the companies began to lose importance. In manufacturing, numerous changes were taking place. The o i l industry was beginning i t s climb to the top replacing the s t e e l group. The coal companies were on the decline. Many new industries were on the r i s e to a place of power. Of the 106 i n d u s t r i a l s i n the i n i t i a l 200, only eighty-five remained and many were i n a stage of decline. THE LOCATION OP CONTROL IN THE 1937 LIST Unlike the e a r l i e r study, the 1937 group of 200 corpora-tions was c l a s s i f i e d by type of control through ownership. Other relevant factors were taken into account as w e l l , p a r t i c u l a r l y the d i s t r i b u t i o n of outstanding voting stock and representation i n the management. The different c l a s s i f i c a t i o n of control situations was primarily terminological, although i n a number of cases the two d i f f e r e d i n a l l o c a t i o n of c o n t r o l . 7 This was pa r t l y due to the change i n control s i t u a t i o n s and p a r t l y because more detailed information was avail a b l e . 7 The 1930 study subdivided majority ownership into "majority ownership control" and "private ownership." Further-more, minority control was not divided into three groups, but distinguished between "minority control" and "management control." I b i d . , p. 100. 44 Types of Ownership Control Two main types of control through ownership existed, majority and minority eontrol. Majority control was the most e a s i l y distinguished since i t involved the ownership of f i f t y per cent or more of the outstanding voting stock. In such si t u a t i o n s , control f o r a l l p r a c t i c a l purposes was absolute. In f a c t , majority ownership i n large corporations was not very common. Moreover, such a dominant po s i t i o n i n large corporations was seldom held by a single i n d i v i d u a l or corporation. Generally, there existed a number of separate holdings which were closely connected i n one manner or another and which were voted as a block. These holdings may have been b e n e f i c i a l owned by one person or held through various instrumentalities and thus not b e n e f i c i a l owned. The devices used were t r u s t funds, estates, personal holding companies and endowed foundations. Majority control was found to ex i s t i n forty-two com-panies of the 200. Of these over h a l f were controlled by a single corporation, predominately public u t i l i t i e s . This r e -f l e c t e d the large pyramided holding corporation systems with complex c a p i t a l structures which characterized the corporation of the public u t i l i t y industry. Only f i v e companies were owned j o i n t l y by one or more corporations. In the remaining companies, the dominant c o n t r o l l i n g group was the family. These large family holdings were the out-growth of a single investment made by the founder. Ordinarily, the i n d i v i d u a l or h i s family sought to perpetuate t h i s control p o s i t i o n of the holdings and used personal holding companies and t r u s t s for doing so. A t r u s t permitted the separation of owner-45 ship, control and the r i g h t to receive income. In t h i s way, the income was divided among various members of the family, with control r i g h t s , primarily voting p r i v i l e g e s , l e f t i n t r u s t . Thus, the trustees could vote the stock as a single block. S i m i l a r l y , a d i v i s i o n of function was obtained through organization of a personal holding company. Included i n the above group were a h a l f dozen companies where control was shared among several f a m i l i e s . This associa-t i o n may have been the outgrowth of a j o i n t l y founded company or merger of corporations controlled by one family. Control was maintained through j o i n t representation i n management and the fact the stockholdings as a group were necessary f o r t h i s dominant p o s i t i o n . Minority Control This form of control was subdivided into three major groups based on ownership. F i r s t was "predominate minority control" where t h i r t y to f i f t y per cent of the voting stock was held. Secondly, "substantial minority" which consisted of owner-ship of from ten to t h i r t y per cent of the voting stock and, 8 f i n a l l y , "small minority" l e s s than ten per cent. These, of course, were a r b i t r a r y d i v i s i o n s but very useful as they presen-ted a more r e a l i s t i c picture. In the 1937 l i s t of corporations, ninety-seven were con-t r o l l e d through minority ownership. Of these, i n over h a l f the cases control was exercised by ten to t h i r t y per cent of the voting stock. Predominate minority existed i n thirty-seven cases 8 United States Temporary National Economic Committee, Monograph 29, op. c i t . , p. 103. 46 and less than ten per cent controlled t h i r t e e n companies. These were f o r the most part i n manufacturing in d u s t r i e s . Unlike majority control, family interest groups, i n c l u -ding single and multiple f a m i l i e s , dominated the scene. They were i n control i n eighty-three of the ninety-seven corporations or over two-thirds of the group, with single f a m i l i e s c o n t r o l l i n g t h i r t y - f o u r . In twenty of the cases, control was exercised through greater than t h i r t y per cent ownership and, fo r a l l p r a c t i c a l purposes, t h i s amounted to absolute control where no other substantial blocks existed. This included such w e l l known companies as E. I. du Pont de Nemours i n which ownership was forty-four per cent of the voting stock, the Aluminum Company of America controlled by the Mellon family with t h i r t y - t h r e e per cent ownership, and Weyerhauser Timber Company j o i n t l y controlled by three f a m i l i e s , Clapp, B e l l and McKnight. In these companies as i n a l l minority controlled corporations, the cooperation of management was important. Nevertheless, i t was inconceivable that management's pos i t i o n would be strong enough to challenge the family or, f o r that matter, any other group. More numerous than predominate minority control were companies, almost a l l i n manufacturing or merchandising, con-t r o l l e d through ownership of a substantial minority. These t h i r t y - f i v e companies were apparently i n no danger of being upset so long as cooperation existed among the dominant f a m i l i e s and/or management. This p o s i t i o n was f o r t i f i e d by the fact the minority were generally well represented i n management. In t h i s group, single family control existed i n the Colgate Pamolive Peet Company, the Firestone Tire and Rubber Company and the International Harvester Company. Several f a m i l i e s were i n active control of such 47 firms as General Foods Corporation, Inland Steel and Phelps Dodge Corporation. The t h i r d group of companies, th i r t e e n i n a l l , where family holdings constituted l e s s than ten per cent, appeared to be under t h e i r control because of the heavy representation i n management and the absence of other large blocks. This, however, was an extremely untenable p o s i t i o n . I t included such firms as P h i l l i p s Petroleum Corporation and Crown Zellerbach. In t h i s study of 200 largest non-financial corporations s i x t y companies were found to have no " v i s i b l e center of control," based on ownership. This only indicated, according to the Securities and Exchange Commission, that study of the twenty largest stockholders of record f a i l e d to disclose where control lay. Many of these corporations, however, were undoubtedly management controlled, that i s to say with ownership widely held, control rested with those who had dominion over the proxy machinery. The other p o s s i b i l i t y rested with f i n a n c i a l i n s t i t u -t i o n s . These, however, have been considered only as a device and not as a c o n t r o l l i n g group. Of these s i x t y corporations over h a l f were manufacturing companies with r a i l r o a d s next i n importance. This group, however, included some of the largest corporations of the 200. Examples were American Telephone and Telegraph, United States Steel, Anaconda Copper Mining Corporation and General E l e c t r i c Company. As mentioned previously, management was taken into con-sideration i n determining where control of a corporation l a y . Since mere ownership i n i t s e l f was not found to be the sole measurement of dominance, consideration of representation or management was therefore e s s e n t i a l . Only r a r e l y i n large 48 corporations was i t found that ownership and management were one and the same. (Phis, of course, required majority ownership by a single i n t e r e s t and existed p r i m a r i l y i n f i r s t generation enterprises. Here the dominant interest was the o r i g i n a l founder and the family had taken an active part i n management. Much more common was the situations where representation i n management was le s s than ownership i n t e r e s t and where management representation exceeded ownership considerably. This was the outgrowth of the "managerial revolution" prominent i n the decade p r i o r to 1940. I t was the r i s e of a professional management group which began to replace owner-managers. The former was most prevalent i n corporations where absolute control existed either through majority ownership or a predominate minority ownership of the outstanding voting stock. Here professional men also made up a large number of the directors. Their views, of course, coincided with that of the dominant owner. An example of such a case was the Aluminum Company of America where only two of the ten directors were from the Mellon family. The l a t t e r s i t u a t i o n , i n which holders of small blocks of stock were heavily represented i n the board of directors and management, was predominant i n minority control situations with l e s s than t h i r t y per cent ownership. The necessity of such a course of action was rather imperative to s t a b i l i t y of control. This s i t u a t i o n appeared to be due to two possible developments. F i r s t , the o r i g i n a l dominant interest groups have maintained t h e i r representation in' management through wide dispersion of the remainder of the stock i n t e r e s t . Thus, new issues of stock were sold to an ever increasing number of stockholders which was quite possible i n successful companies. This r e f l e c t e d the 49 advantage of the o r i g i n a l entrenchment and the apathy of the mass of stockholders. The second p o s s i b i l i t y was that key executives, who were professional managers, acquired stock ownership over a period of years i n t h e i r corporation. The general s i t u a t i o n developed i n the 1937 study i s summarized i n Table I I I . One major change i s incorporated. This i s the regrouping of majority ownership and predominate minority under the heading of absolute control. This i t was f e l t i s more i n l i n e with the present concept of control. The Table gives the d i s t r i b u t i o n of the corporations c l a s s i f i e d by dominant interest groups and industry. I t shows once again that the norm i s management control. True, the number of firms represents l e s s than one-third of the t o t a l companies; however, they comprised the largest percentage of assets. Furthermore, absolute control, which i s next i n importance, has the majority of groups controlled by corporations. Therefore, p r a c t i c a l l y speaking, these also are ruled by manage-ment. Among the major industry d i v i s i o n s , management control was predominate i n manufacturing, r a i l r o a d s and others by per-centage of assets. In u t i l i t i e s , which excludes the communica-tions area, absolute control was the norm. This was the re s u l t of pyramided c a p i t a l structures through the use of many t i e r e d holding companies. In f a c t , these also could be considered management controlled. Working control, to use the more modem phraseology, was evident i n a l l industries but the r a i l r o a d s . Manufacturing and u t i l i t i e s were of p a r t i c u l a r significance with assets t o t a l -l i n g eight b i l l i o n d o l l a r s and s i x b i l l i o n d o l l a r s , respectively. TABLE I I I DISTRIBUTION OP THE 200 CLASSIFIED BY TYPE OP DOMINANT INTEREST GROUP AND INDUSTRY C l a s s i f i c a t i o n MANUFACTURING RAILROADS UTILITIES OTHER -TOTAL Number Number Number . Number Number of com- Assets of com- Assets of com- Assets of com- Assets of com- Assets panies M i l l i o n s panies M i l l i o n s panies M i l l i o n s panies M i l l i o n s panies M i l l i o n s I . Absolute Control: . Single Family Multiple Family Corporations TOTAL -I I . Minority Control: A. Substantial Owner-ship: Single Family Multiple Family Corporations TOTAL B. Small Ownership: Single Family Multiple Family Corporations TOTAL I I I . Management Control GRAND TOTAL 13 8 6 27 10 11 5 5 4 9 34 3,676 1,014 2,387 $ 4,926 1,412 1,413 26 $ 7,751 826 731 1,557 8,815 96 $25,199 1 1 11 114 154 3,740 340 15 $11,668 2 1 24 1 2 9 2 4 334 131 9,275 $ 7,077 13 $ 4,008 27 $ 9,740 $ 795 495 4,899 1 $ 340 12 $ 6,189 - $ — 2 $ 1,229 1,229 1,938 29 116,017 45 119,095 6 $ 963 22 $ 5,087 2 175 12 1,474 4 831 45 16.253 12 $ 1,969 79 $22,814 2 3 3 8 1 1 2 8 $ 367 13 $ 6,088 398 17 2,645 235 17 6,547 $ 1,000 47 $15,280 $ 178 8 $ 2,233 81 5 812 $ 259 13 $ 3,045 $ 5,463 61 $27,884 $ 8,691 200 $69,003 Source: Temporary National Economic Committee, Monograph 29, The D i s t r i b u t i o n of  Ownership i n the 200 Largest Non-Financial Corporations, Appendix XI. 51 Only i n manufacturing was working control by a family or group of f a m i l i e s evident to any degree. THE POSTWAR ERA The separation of ownership and control as evidenced by management dominance i n many of the giant corporations has pro-gressed much further since prewar days. This was the opinion of q several authors who have written on the subject.* Professor Berle who has spent the greater part of h i s l i f e studying the corporations wrote "Management Control"...is the locus of power over and norm of control of the bulk of American industry now. Probably the 50,000 largest holders of stocks could s t i l l exercise a powerful force i f they worked together—which they do not and probably cannot. Included i n t h i s top stratum are surviving i n d i v i d u a l holders of "working control" of which there remain a good many; most of t h i s second stage group are also apparently outward bound f o r elimination. Several factors have contributed to t h i s ever changing pattern of control: increasing income and estate taxes which were higher than any other period i n h i s t o r y ; the m u l t i p l i c a t i o n of offspring i n f a m i l i e s , many of whom do not and probably can-not follow i n t h e i r fathers footsteps; the changing pattern of finance over the past decade with over s i x t y per cent of the funds coming from i n t e r n a l sources and the bulk of the external 11 funds from i n s t i t u t i o n s rather than i n d i v i d u a l s ; also, there 3A. A. Berle, Jr.,. Power Without Property, pp. 60-76; Ernest Dale, "Management Must be Held Accountable," Harvard  Business Review, XXXVIII (March-April, 1960), pp. 49-51; J . A. Livingston, The American Stockholder, pp. 13-21. 1 0 I b i d . , Berle, p. 74. 1 1 I b i d . , . Berle, pp. 38-46. 52 was the continued dispersion of s e c u r i t i e s and r e s t r i c t i v e l e g i s l a t i o n . The regulations of the Securities and Exchange Commission required companies whose s e c u r i t i e s were l i s t e d on exchanges to report the amounts of t h e i r stocks which were owned b e n e f i c i a l l y by t h e i r o f f i c e r s and directors and by any stockholders who own b e n e f i c i a l l y ten per cent or more of any class of a company's stock. Appendix C contains a tabulation dated December 1954, prepared by Hemphill, Noyes and Company of reported stock holdings of 181 of the 2GG largest non-financial corporations which have common shares l i s t e d on the New York Stock Exchange. This i n f o r -mation was taken from public records and proxy statements and reports of the Securities and Exchange Commission. I t would be presumptious to analyze these holdings and t r y to determine the l o c a t i o n of control. Nevertheless, the tabulation showed the r e l a t i v e absence of large stockholdings held by both directors and other i n d i v i d u a l s . SUMMARY This chapter has dealt with the f a c t u a l l o c a t i o n of con-t r o l i n i n d i v i d u a l corporations. I t indicated that management control has predominated since 1930 and was growing i n impor-tance. This was true of a l l major industry groups, manufacturing, transportation and public u t i l i t i e s . Also, t h i s served as an introduction to the analysis of ownership i n larger corporations. CHAPTER V THE CHARACTER OP OWNERSHIP IN THE LARGE CORPORATION Since the depression two somewhat contradictory develop-ments have been revealed. On the one hand, a great many small investors were found to have contributed c a p i t a l so that owner-ship was widespread. On the other hand, a few large investors held sizeable blocks of shares i n some large corporations. How-ever, p r i o r to the Temporary National Economic Committee study of 1937, very l i t t l e information was available on the d i s t r i -bution of stock ownership i n i n d i v i d u a l corporations. In the previous chapter, family and other i n t e r e s t groups were shown to have been associated with the ownership of p a r t i c u l a r corporations, but l i t t l e was said about the patterns of such ownership and mechanisms employed f o r maintaining and perpetuating i t . This chapter i s primarily directed toward the analysis of the twenty largest shareholders of record and, i n p a r t i c u l a r , toward the l e g a l instruments of ownership i n the 1937 l i s t of 200 largest non-financial corporations. Later evidence of a si m i l a r nature was not available, therefore i t w i l l not be possible to check d i r e c t l y the s i t u a t i o n at the present. However, i United States Temporary National Economic Committee, Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest Non-Pinancial Corporations, CEap. V. 54 some information concerning the concentrated holdings of the large corporations was obtained. This can be found i n Appendix C, Table XVII. An attempt was made to trace the d i s t r i b u t i o n of shareholdings i n a l l domestic corporations but was reserved f o r a l a t e r chapter. THE GENERAL PICTURE At the end of 1937 the twenty largest shareholdings i n each of the equity issues of the 200 largest non-financial corporations held i n aggregate an amount equivalent to nearly 2 thirty-one per cent of the t o t a l value of a l l issues. This was made up of 208 common stock issues which amounted to nearly thirty-two per cent of the t o t a l value of these issues and 196 preferred stock issues equivalent to t h i r t y per cent of t h e i r t o t a l value. Variations i n the proportions of i n d i v i d u a l issues held by the group were, of course, very large. This may be seen from examination of variations noted between issues of industry groups shown i n Pig. 1. In the common stoek issues of u t i l i t i e s , the twenty largest shareholders of record t o t a l l e d over forty-nine per cent of t h e i r combined value. This compared to only twenty per cent of the t o t a l value that was represented i n the other industries group dominated by American Telephone and Telegraph The thirty-one per cent figure included blocks of stock of one of the 200 corporations owned by another corporation i n the group. I f adjusted f o r the duplication, the percentage declined to twenty-five per cent. I b i d . , p. 70. A shareholding i s a block of shares of one issue of stock which block i s either owned b e n e f i c i a l l y by one person or registered i n the books of the issuing corporation i n the name of one person. 55 Manufacturing Railroads U t i l i t i e s Other Total FIGURE 1 PER CENT OF AGGREGATE VALUE OF TWENTY LARGEST SHAREHOLDINGS IN ALL,ISSUES OF THE 200 LARGEST NON-FINANCIAL CORPORATIONS OF 1937. CLASSIFIED BY INDUSTRY. Source: Temporary National Economic Committee Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest Non-Financial  Corporations, p. 7T. 56 and i t s two p r i n c i p a l s u b s i d i a r i e s . ^ As f o r the r a i l r o a d s and manufacturing companies issues, the twenty largest shareholdings aggregated the same percentage as the o v e r a l l average of a l l common stock i s s u e s . 4 Marked differences also showed up i n the subgroups of the manufacturing industry. The automobile manu-facturers showed the .highest percentage of t o t a l value of a l l issues represented by the twenty largest shareholders of record; i t was f i f t y - f o u r per cent. This was due l a r g e l y to the close ownership of the Ford Motor Company; Petroleum, rubber and the chemical industries also showed high percentages represented by 5 the group. Although the o v e r a l l averages of the common and preferred stock issues held by the twenty largest shareholders of record were very nearly equal, considerable v a r i a t i o n was noted among the major industry c l a s s i f i c a t i o n s . Here by f a r the largest percentage of the t o t a l value of issues represented by the twenty largest shareholdings was i n the preferred stock issues of the other industries group, which amounted to better than s i x t y - f i v e per cent of the t o t a l value. Railroads were next i n l i n e with forty-one per cent of the t o t a l value of these issues held by the largest shareholding group. U t i l i t i e s and manufacturing were less than the average of a l l 196 preferred stock issues, which was 30.5 per cent. JThe "other" industries i n communications, extractive, a g r i c u l t u r a l implements f i e l d s group was made up of companies merchandising, amusements and 4 I b i d . , pp. 70-73 Ib i d . , pp. 603-606. 57 HOLDINGS OP DIFFERENT TYPES OF OWNERS The holdings of the different types of owners were divided into three groups. These were ind i v i d u a l s (which i n -cludes personal and family holding companies and tr u s t s and estates), non-financial corporations and other holders. The other holders consisted primarily of f i n a n c i a l , eleemosynary, and educational i n s t i t u t i o n s . The o v e r a l l picture as shown i n F i g . 2 indicated that approximately forty-seven per cent of the i d e n t i f i e d holdings among the twenty largest shareholders of record were accounted c f o r by in d i v i d u a l s . This meant that l e s s than one-twentieth of one per cent accounted for 12-| per cent of the t o t a l value of a l l equity s e c u r i t i e s of the 200 largest non-financial corporations. These were found primarily i n common stock issues which p a r t i c i -pated f u l l y i n p r o f i t s and carried possible voting control. Of t h i s amount held by t h i s group, s i x t y per cent was owned d i r e c t l y by i n d i v i d u a l s , twenty-one per cent by personal and family holding companies, and t r u s t s and estates the remainder with nineteen per cent. Thus, these two instrumentalities were of considerable importance i n consolidating and perpetuating the ownership of indi v i d u a l s and represented f i v e per cent of the t o t a l value of the outstanding stock of the 200 corporations. I t was inter e s -t i n g to note that personal and family holding companies consisted almost exclusively of common stock, whereas the estates and tru s t s 7 included a considerable proportion of preferred stock.' c. The discussion up to t h i s point included a l l holdings of the twenty largest shareholders of record. This included uniden-t i f i e d holdings of bankers and brokers where the ben e f i c i a r i e s remained undisclosed. The remainder of the text w i l l deal primarily with i d e n t i f i e d holdings. I b i d . , pp. 72-73. 7 I b i d . , pp. 73-74. 58 100 90 80' 70 60 50 40 -30 -20 -10 _ 0 0-th«rS )hw«st«v«KbC»'s N»«'financi«J Common Stock Total Preferred Stock FIGURE 2 PER CENT OF TOTAL VALUE OF IDENTIFIED HOLDINGS OF TWENTY LARGEST RECORD SHAREHOLDINGS IN STOCK ISSUES OF 200 LARGEST NON-FINANCIAL CORPORATIONS OF 1937. DISTRIBUTION BY TYPE OF OWNER. * Includes personal holding, companies, and trusts and estates. Source: U. S. Temporary National Economic Committee Monograph 29, The D i s t r i b u t i o n of Ownershin i n the 200 Largest Non- Financial Corporations f pp. 601-602. 59 Non-financial corporations were also large holders among the twenty largest shareholders of record. They accounted f o r 3.1.5 per cent of the t o t a l value of a l l the shareholdings i n the group. Thus, they were nearly as important as individuals as holders of both common and preferred stock issues. In t o t a l , non-financial corporations accounted f o r 8.3 per cent of a l l equity s e c u r i t i e s of the twenty largest shareholdings i n the 2GG largest non-financial corporations. The t h i r d group c l a s s i f i e d as other holders among the twenty largest shareholders of record made up 21.1 per cent of the t o t a l value of i d e n t i f i e d holdings. This represented almost s i x per cent of the t o t a l value of a l l shareholdings i n the 2G0 largest non-financial corporations. A further breakdown of t h i s group into investment companies, insurance companies and eleemo-synary i n s t i t u t i o n s revealed some i n t e r e s t i n g f a c t s . Investment companies which represented nine per cent of the t o t a l value of i d e n t i f i e d holdings held predominately common stock issues, whereas insurance companies were a large holder of preferred stock issues, representing l e s s than two per cent of t o t a l value of common stock issues. This was to be expected, however, as insurance companies by law were only allowed a small percentage of t h e i r p o r t f o l i o i n common stock. Charitable i n s t i t u t i o n s also had a larger proportion of holdings i n preferred stock than i n common stock. The difference, however, was not as marked as i n insurance companies. DIFFERENCES AMONG INDUSTRIES The d i s t r i b u t i o n of the i d e n t i f i e d holdings among the twenty largest record shareholders by types of owners shows considerable differences between ind u s t r i e s . Considering the major i n d u s t r i a l groups, there appears a s t r i k i n g difference evident from inspection of F i g . 3 i n the per-centage of stock held by indi v i d u a l s (including personal and family holding companies and tru s t s and estates). Shareholdings of i n d i -viduals accounted f o r almost seventeen per cent of the value of a l l equity issues i n manufacturing compared to less than 3i per cent of e l e c t r i c , gas and water u t i l i t i e s and approximately three per cent of the r a i l r o a d issues. This difference was primarily a r e f l e c t i o n of the methods of growth of enterprises i n these indus-t r i e s . In manufacturing, many of the large concerns now i n e x i s -tence are the outgrowth of the o r i g i n a l small private enterprises which have made comparatively few offerings of equity s e c u r i t i e s , Q p a r t i c u l a r l y common stock to the investing public. Furthermore, the c a p i t a l structures of these companies consisted mainly of equity s e c u r i t i e s . Railroads and u t i l i t i e s on the other hand, as a general r u l e , were p u b l i c l y financed from the beginning and continued to appeal to the open c a p i t a l market as they grew. Similar s t r i k i n g differences were apparent i n the propor-t i o n of issues held by other types of owners. Non-financial' corporations accounted f o r t h i r t y per cent of the issues of e l e c t r i c , gas and water u t i l i t i e s and f i f t e e n per cent of the r a i l r o a d equities as compared to l e s s than four per cent of the manufacturing s e c u r i t i e s . This was the r e s u l t of pyramiding of holding companies of the great u t i l i t y systems and heavy invest-ments by the major r a i l r o a d s i n connecting and subsidiary roads whereas manufacturing companies had not quite reached t h i s stage 8 I b i d . , pp. 78-79. 61 5Q Manufacturing Railroads U t i l i t i e s Other Total FIGURE 3 PROPORTION OF STOCK ISSUES OF THE 200 LARGEST NON-FINANCIAL CORPORATIONS OF 1937 INCLUDED IN IDENTIFIED HOLDINGS AMONG TWENTY LARGEST RECORD HOLDINGS. CLASSIFIED BY MAJOR INDUSTRY GROUPS. Source: U. S. Temporary National Economic Committee Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest Non- Financial Corporations, pp. 601-602. 62 of growth. The f i n a n c i a l i n s t i t u t i o n s (investment and insurance companies) were the most heavily invested i n the rail r o a d s and public u t i l i t i e s . They accounted f o r 8.7 per cent and f i v e per cent, respectively, of these two indu s t r i e s . Foundations and other charitable i n s t i t u t i o n s accounted f o r only a very small proportion of the s e c u r i t i e s i n a l l four major industries and preferred manufacturing issues the most. Thus f a r the discussion has been confined to aggregates fo r groups of corporations among the 200 companies covered i n the study prepared by the Securities and Exchange Commission. A more detailed picture was obtained by u t i l i z i n g data of in d i v i d u a l companies. The d i s t r i b u t i o n of the r a t i o s of the twenty largest h o l -dings expressed as a percentage of the aggregate value of issues not only indicated the degree of concentration that existed, but also indicated the p o s s i b i l i t y f o r control i n t h i s group of share-holders. Thus, i t was found i n fi f t y - s e v e n or over one-fourth of the 200 common stock issues, the twenty largest shareholdings com-prised the majority of the issue. This, however, varied consider-ably among industries. In manufacturing, only f i f t e e n per eent as compared to twenty-seven per cent i n ra i l r o a d s and f i f t y - t h r e e per cent i n the u t i l i t i e s did the owners of the twenty largest share-holdings comprise the majority of the common stock issues. Non-f i n a n c i a l corporations were the most important type of owner. In seventeen per eent of a l l cases the shares comprised within the twenty largest record holdings constituted t h i r t y to f i f t y per cent of the value of the issues and one-third i n the ten to t h i r t y per cent value range. In the former, the proportion of issues did not vary a great deal among industries but i n the 63 l a t t e r the twenty largest owners constituted forty-one per cent of the cases i n the manufacturing industries whereas i n the other three major industry groups the percentage ranged from twenty-one to thirty-two. There were only f i v e issues i n which the top twenty share-Q holders did not comprise at least ten per cent of the issue. As for the differences among industries, the percentage varied only s l i g h t l y except i n the u t i l i t i e s where only s i x per cent of the 10 issues were i n the under the ten per cent value range. SUMMARY This discussion of the twenty largest shareholdings has revealed the importance of such instrumentalities as tru s t s and personal holding companies i n perpetuating ownership of a block of stock. Half of the indi v i d u a l s shareholdings were i n these forms. Further, i t has indicated the absolute and r e l a t i v e magnitude of the twenty largest shareholdings f o r i n d u s t r i a l and size groups among the 200 corporations. Of p a r t i c u l a r significance was the fact that i n only f i v e issues did the top twenty shareholders f a i l to comprise at least ten per cent of the issue. This, however, was the s i t u a t i o n p r i o r to 1940. Since that time several forces have been operating i n the economy which caused t h i s concentration to decline. Since i t was not possible to trace t h i s change i n the large corporations, the next step i n the analysis pertains to domestic corporations i n general. q JThis includes the un i d e n t i f i e d holdings of bankers and brokers. For the other value groups i n c l u s i o n or exclusion changes the picture very l i t t l e . I b i d . , pp. 80-93. CHAPTER VI SOME CHARACTERISTICS OF OWNERSHIP IN DOMESTIC CORPORATIONS The data on d i s t r i b u t i o n of ownership dealt with i n previous chapters concerned only the large corporation. In t h i s chapter the analysis goes one step further and covers a l l public corporations. The main purpose i s two-fold. F i r s t to determine i f the equity s e c u r i t i e s of corporations are widely dispersed or highly concentrated i n the hands of a small group. Second to make comparisons with s i m i l a r surveys i n the past to determine what trends, i f any, are evident. The importance of t h i s area i s to t r y and f i n d reasons why control i s no longer dependent on ownership. In the past t h i s was true despite the r i s e of l e g a l devices which have separated direct ownership, control and management. For many of these devices are merely a n c i l l a r y or dependent on ownership f o r t h e i r e f f e c t i v e working. Furthermore, i t i s hoped that a study of ownership c h a r a c t e r i s t i c s w i l l provide clues to forms of control that may e x i s t . THE PRESENT DISTRIBUTION OF OWNERSHIP1  Types of Stockholders In 1956 indi v i d u a l s owned outright 56.9 per cent of the stock of public corporations. An additional four per cent was See Appendix B, Tables IX and X, pp. 129-134 65 held "by f i d u c i a r y i n d i v i d u a l s . Thus, somewhat over s i x t y per cent of the equity s e c u r i t i e s were b e n e f i c i a l l y owned by domestic i n d i v i d u a l s . Corporations ranked next i n importance and as a group they owned approximately sixteen per cent of the t o t a l shares outstanding. Other sizeable holdings were i n the names of brokers and dealers, and nominees. They held 9.3 and 10.1 per cent of the shares, respectively. These groups, how-ever, were not b e n e f i c i a l l y owned to that extent for they held the majority of the stock f o r undisclosed in d i v i d u a l s and i n s t i -t utions. Nevertheless, as registered owners they have the voting r i g h t s and, thus, cannot be overlooked. A more r e a l i s t i c picture of the types of holders was ob-tained by an analysis of the d i s t r i b u t i o n of dividends among 2 the various classes of r e c i p i e n t s . Approximately nineteen per cent of the stock of American corporations was owned by other domestic corporations, nine per cent by non-profit i n s t i t u t i o n s and pension t r u s t s , and about 1.5 per cent by foreigners. The remainder, somewhat over sixty-nine per cent was owned by domestic i n d i v i d u a l s , estates and t r u s t s , the l a t t e r accounting f o r nearly f i f t e e n per cent of the outstanding stock. I t was not possible to ascertain the amount of stock owned by i n d i -viduals registered i n the names of brokers and nominees. Combining the two c l a s s i f i c a t i o n s indicates the r e l a t i v e importance of the various types of stockholders i n terms of value of holdings. Thus, Individuals who held d i r e c t l y and The data used was from the S t a t i s t i c s of Income f o r 1955. This makes i t comparable with the data from the 1956 Census of Ownership compiled by the New York Stock Exchange. S t a t i s t i c s of Income include private and public corporations. 66 i n d i r e c t l y through f i d u c i a r i e s , brokers, and nominees, nearly eighty per cent of shares outstanding owned i n terms of value approximately seventy per eent of the stock i n corporations. Corporations which held better than sixteen per cent of the shares owned approximately nineteen per cent by value. Fiduciary i n s t i t u t i o n s that held only 3.4 per cent of the shares comprised nine per cent of the stock i n terms of value. Number of Stockholders and Shareholdings The number of stockholders that i s individuals owning stock i n at leas t one public corporation was 8.6 m i l l i o n i n early 1956. This meant one out of every twenty persons i n con-t i n e n t a l United States owned some s e c u r i t i e s and, i n terms of adults, one out of every twelve were share owners.^ Furthermore, one out of f i v e owners f i r s t acquired stock through employee 4 stock purchase plans. The number of shareholders alone, however, was not a complete picture as i n a great number of eases ind i v i d u a l s own stock i n more than one corporation. A measure of t h i s was the number of shareholdings or stockholders of record on the books of corporations. In 1956 i t was found that of the 4,600 public corporations with a t o t a l of 6,679 stock issues outstanding there were 31,200,000 shareholdings. Therefore, the average shareowner °New York Stock Exchange, Who Owns American Business, 1956 Census of Shareowners, p. 5. 4 I n 1959 the number of shareowners had increased to 12.5 m i l l i o n and, therefore, one i n every eight adults owned shares i n at least one public corporation. See New York Stock Exchange, Factbook, 1960, pp. 26-27. ^A shareholding i s a block of shares of one issue of 67 held stock i n 4.25 issues.^ This average, however, was of r e s t r i c t e d significance i n view of the great v a r i a b i l i t y i n the number of stocks owned by i n d i v i d u a l investors. Relation Between Income and Share Ownership 7 The great majority of the 8.6 m i l l i o n shareholders had small incomes with over sixty-four per cent reporting incomes of les s than $7,500 i n 1956. Their average dividend income, however, varied*from $516 f o r married people to $660 f o r single i n d i v i d u a l s . The prevalence and importance of stock ownership varied greatly among households of different economic,levels. The proportion^of stockholders was lowest among the people of small means and increased with t o t a l income, however, the bulk of owners received incomes i n the $3,000 to $7 t500 range. The same general trend was evident i n the proportion of adult population i n each group that owned shares. I t was lowest i n the small income brac-kets but steadily increased with increasing income. Thus, those people with incomes of l e s s than $3,000 numbered 960,000 share owners and comprised 11.6 per cent of the t o t a l , but only 2.8 per cent of the adult population i n t h e i r income l e v e l . In the upper income l e v e l s of $7,500 and over, equity holders represented both the largest proportion of the adult population f o r t h e i r group and the largest number of owners. Better than one i n four adults stock, registered i n the books of the issuing corporation i n the name of one person. %ew York Stock Exchange, Who Owns American Business. 1956 Census of Shareowners, p. 23 . 7See Appendix B, Tables XI, XII and X I I I , pp. 135-137. 68 reporting incomes greater than $7,500 were shareholders and they represented over one-third of the t o t a l number. The importance of dividends as a source"of income increased sharply with t o t a l income. For a l l i n d i v i d u a l s f i l i n g income tax returns i n 1955, dividends constituted only s l i g h t l y more than three per cent of the t o t a l income. The percentage rose from l e s s than one per cent of gross income f o r taxpayers with income bet-ween $3,000 and $5,000 to more than f o r t y per cent for individuals with incomes of $200,000 or more. Furthermore, the percentage of returns reporting dividends i n each income class was very low i n the under $7,500 but r a p i d l y rose to seventy per cent f o r incomes of $25,000 and over. Moreover, the importance of dividends as a source of ineome increases with t o t a l income even among dividend r e c i p i e n t s . The proportion of dividends to t o t a l income was probably as low as eleven per cent f o r dividend recipients with net incomes of l e s s than $7,500 while i t was better than f i f t y - f i v e per cent f o r Q dividend recipients with a net income of $50,000 or more. This was further i l l u s t r a t e d by the average dividend income of each gross income class. For married people who f i l e d j o i n t returns, t h e i r average dividend income went from $450 for incomes of les s than $3,000 to $15,000 f o r those with incomes of $50,000 or more. For single persons, the average was somewhat higher ranging from $565 to $40,000 for the same income groups. These fac t s indicate the r e l a t i v e l y small importance of dividend income to stockholders ®This i s the r a t i o of dividend income to gross income of dividend r e c i p i e n t s . I t was calculated by multiplying number of recipients times maximum gross of the group and di v i d i n g into dividend income. with small and moderate means who form the largest bulk of the shareowning population. CONCENTRATION OP STOCK OWNERSHIP The previous discussion has shown that the large numbers of shareholders with incomes of less than $7,500 have very small investments i n corporate stock. These numerous stockholders received small amounts of dividends which accounted f o r only a minor portion of a l l dividends received by i n d i v i d u a l s . This was shown quite convincingly by the dividends received by each income q class as reported i n the S t a t i s t i c s of Income f o r 1955. The proportion of dividends received by people of small means was low, increasing s l i g h t l y with higher incomes up to $10,000. Beyond t h i s l e v e l , dividends increased r a p i d l y with increasing income. Those households which had gross incomes of les s than $7,500 received 17.5 per cent of dividends whereas those with incomes above $7,500 reported 88.3 per cent of the t o t a l dividends. The proportion of dividends reported by income l e v e l s under $10,000 amounted to l e s s than twenty-four per cent, yet the number of returns f i l e d by t h i s group were over eighty-two per cent of the t o t a l returns reporting dividends. Furthermore l e s s than one per cent of the t o t a l returns which represented those with incomes of a $100,000 and over received better than twenty-one per cent of the t o t a l dividends. Combining t h i s data with that presented above on page 67 ySee Appendix B, Table XIV, p. 138. The data reported include foreign and domestic dividends received d i r e c t l y and those of partnerships and f i d u c i a r i e s e l i g i b l e f o r exclusion. • •• _ 70 reported by the New York Stock Exchange, a more r e a l i s t i c p i c -ture of the d i s t r i b u t i o n of ownership was obtained. The over f i f t y per cent of the t o t a l shareholders that had incomes between $3,000 and $7,500 received only 1-2.1 per cent of the dividends. This compares with the t h i r t y - s i x per cent who had incomes of $7,500 and over who received 83.1 per cent of the t o t a l dividends, a t t e s t i n g to the ownership of by f a r the largest proportion of shares outstanding. These fi g u r e s , therefore.; suggest that not-withstanding the wide dispersion of ownership indicated by the large number of shareholders, ownership of corporate stock was also highly concentrated i n the hands of r e l a t i v e l y few persons. Moreover, the m i l l i o n s of small shareholders were not a factor to be considered i n the corporate sector as t h e i r influence was limited* despite t h e i r number. One further i l l u s t r a t i o n of the concentration of owner-ship among the wealthy was depicted i n F i g . 4 which presents the concentration of gross income and dividend income among income tax returns f o r 1955. 1 0 Thus, the 20,000 returns with the highest dividend income, comprising one-half of one per cent, of the t o t a l number of dividend returns and about one twenty-fifth of one per cent of the t o t a l tax returns, received nearly twenty per cent of a l l dividends paid to i n d i v i d u a l s . 1 1 Therefore, i t may be e s t i -mated that these people owned d i r e c t l y or i n d i r e c t l y about one-1 G In Chart 1 three Lorenz curves depict the r e l a t i v e con-centration of adjusted gross income as reported i n the S t a t i s t i c s of Income f o r 1955. In general the larger the area between the Lorens curves and the l i n e of equal d i s t r i b u t i o n , the greater the concentration. 1^Approximately sixty-one per cent of a l l tax returns f i l e d i n 1955 were j o i n t returns. I t was not possible to estimate, how (many of these included more than one dividend r e c i p i e n t . 71 FIGURE 4 CONCENTRATION OF GROSS INCOME AND DIVIDEND INCOME Di s t r i b u t i o n of gross income as a percentage of a l l tax returns. D i s t r i b u t i o n of dividend income as a percentage of a l l returns. D i s t r i b u t i o n of dividend income as a percentage of dividend returns. 72 f i f t h , of a l l the outstanding stock i n domestic corporations. Only 300,000 returns were necessary to account for one-half of a l l the dividend returns received by i n d i v i d u a l s . This c e r t a i n l y represented an impressive degree of concentration of ownership. Purthermore, P i g . 4 shows that dividend income was even more highly concentrated than gross income. The evidence presented thus f a r was primarily from Federal tax returns and t h i s included private corporations. Therefore, the concentration of ownership as evidenced may be open to c r i t i -cism on t h i s basis. Thus, a survey conducted by the Michigan Research Bureau for the Board of Governors of the Federal Reserve System was investigated. This study, known as the Survey of Con-sumer Finance which has been conducted f o r a number of years, was 1 2 considered r e l i a b l e . The data reported here was from the 1957 survey conducted i n the f a l l of 1956 and early 1957. The composition of f i n a n c i a l holdings showed that eleven' per cent of a l l spending units owned corporate stocks i n public corporations. 1 -^ The percentage went from as low as seven per cent f o r f i n a n c i a l assets of under $1,000 r i s i n g to seventy-five per cent f o r assets of $25,000 and over. Thus, corporate stocks which were infrequent i n holdings of f i n a n c i a l assets of l e s s than $5,000 were found i n almost eighty per cent of a l l holdings over $25,000 or more and accounted f o r s i x t y per cent of the t o t a l "1957 Survey of Consumer Finances," Federal Reserve  B u l l e t i n (August, 1957), pp. 880-894. 1^A spending unit i s defined as a l l persons l i v i n g i n the same dwelling and related by blood, marriage or adoption, who pool t h e i r incomes to meet t h e i r major expenses. 73 f i n a n c i a l assets i n about one-half of the cases. Moreover, the d i s t r i b u t i o n among income groups indicated that spending units of $10,000 incomes or more had about one-half that owned some stock and one-sixth held s i x t y per cent or more of t h e i r f i n a n c i a l assets i n t h i s form. The extent and concentration of ownership was best i l l u s -t r a t e d by the type and size of holdings within income groups. 1 4 Among a l l spending units eighty-nine per cent had no holdings and only three per cent held stock worth $10,000 or more. The same general pattern prevailed within income groups. Zero holdings were reported among ninety-five per cent of spending units with incomes l e s s than $3,000 compared to f i f t y - s e v e n per cent f o r the $10,000 and over incomes. Small holdings were evidenced by a l l income l e v e l s under $10,000 with the size and percentage increas-ing s l i g h t l y with higher incomes. For the lower income groups under $7,500 the method of presenting data did not allow a more detailed analysis. The upper economic l e v e l s , however, indicated that the majority of owners had f a i r l y large holdings. Eleven per cent of a l l spending units or better than one-fourth that owned shares, with incomes over $10,000 or more, had holdings of between $2,000 and $10,000, and more than one-half of the stock-holders i n t h i s group had holdings greater than $10,000. These people would, therefore, hold the largest percentage of the t o t a l stock outstanding. Thus, once again the picture was one of con-centration of ownership among the wealthy. Indeed i t appeared more impressive when the t o t a l population was considered. See Appendix B, Table XV, p. 139. 74 CONCENTRATION OP STOCK OWNERSHIP IN INDIVIDUAL CORPORATIONS The concentration of corporate ownership i n the aggregate for a l l domestic corporations, which has been described, does not necessarily r e f l e c t a s i m i l a r concentration of stock ownership i n in d i v i d u a l corporations or single issues. The concentration of stock i n the hands of the wealthy may r e s u l t from either large shareholdings i n single issues or a wide d i v e r s i f i c a t i o n of holdings i n many corporations. In the past i t has been shown that the number of shareholdings t y p i c a l l y held by individuals i n 1 5 d i f f e r e n t corporations was r e l a t i v e l y few. y This was despite the fac t the number of differ e n t stocks held increased with higher 1 6 t o t a l or dividend income. No comparable data was available to determine to what extent t h i s was s t i l l true i n the m i d - f i f t i e s . However, i n the lower income groups t h i s s t i l l must hold as the average dividend income has remained p r a c t i c a l l y the same and dividend income was only a very small percentage of gross income. Furthermore, twenty per cent of the stock owners f i r s t acquired stock through employee stock purchase plans, therefore, i t can be assumed the majority of these owners held stock i n only one or two corporations. In the past the other aspect of the d i s t r i b u t i o n of owner-ship, involving the size d i s t r i b u t i o n of shareholdings, showed <A stockholder i s considered to have as many shareholdings as the dif f e r e n t number of issues i n which he holds shares. ^ U n i t e d States Temporary National Economic Committee, Monograph 29,: The D i s t r i b u t i o n of Ownership i n the 200 Largest  Non-Financial Corporations, pp. 14-15. 75 that shareholdings with an average value of over $10,000 each constituted more than s i x t y per cent of the t o t a l market value 17 of a l l shares outstanding. This, too, i t was not possible to determine f o r the present, however, two trends appeared evident. The number of individuals within the larger income groups has increased and also the number of large holdings. TRENDS IN THE DISTRIBUTION OP OWNERSHIP In the l a t t e r h a l f of the present century the concentra-t i o n of stock ownership i s s t i l l evident. A small percentage of the population who enjoy the highest income l e v e l s s t i l l r e t a i n ownership of the largest proportion of the t o t a l shares outstanding. This section deals with a comparison of the past twenty.years to determine what trends, i f any, are present. Types of Stockholders Since the end of 1937 important changes have taken place i n the manner i n which shares were held by various types of stockholders. At that time t h i r t y - s i x per cent of the shares of corporations were owned by domestic corporations and about one 18 per cent by non-profit i n s t i t u t i o n s . Thus, i n the twenty year period ownership by corporations has declined to nineteen per cent, and i n s t i t u t i o n s and pension t r u s t s have increased t h e i r share to over nine per eent. Although exact figures were not avai l a b l e , the non-financial sector suffered the largest decline, predominately as a r e s u l t of the Public U t i l i t y Holding Act of Ib i d . , pp. 149-150. 1 7 I b i d . 76 1935. The f i n a n c i a l sector, on the other hand, has expanded considerably, especially investment companies since the passage of the Investment Act of 1940. In 1937 somewhat over s i x t y per cent of the t o t a l stock outstanding was owned by i n d i v i d u a l s , and t r u s t s and estates, the l a t t e r accounting f o r a l i t t l e over ten per cent of the out-19 standing stock. ^ Therefore, in d i v i d u a l s have increased t h e i r share of ownership d i r e c t l y and- i n d i r e c t l y through f i d u c i a r i e s to seventy per cent. The increased use of personal t r u s t s was s i g n i f i c a n t f o r i t possibly indicated continuing e f f o r t to main-t a i n holdings i n t a c t and thus the retention of control. Thus, contrary to popular opinion, i n d i v i d u a l s had not decreased t h e i r holdings of stock d i r e c t l y or through t r u s t s but have along with f i n a n c i a l i n s t i t u t i o n s increased t h e i r share at the expense of the non-financial group of corporations. Number of Stockholders Since the f i r s t reasonable accurate estimate of share owners made i n 1927, the number as a proportion of adult popula-t i o n has not materially changed except i n the past few years. This may be seen from the estimates of selected years from 1927 20 to 1959. The prewar years were not d i r e c t l y comparable with postwar estimates f o r they contain equity owners of private cor-porations. Thus, the Temporary National Economic Committee i n Monograph 29 suggests that the 1937 figure might have been lower 1 9 I b i d . 2 0See,Appendix B, Table XVI, p. 140.. 77 by one and a h a l f to two m i l l i o n i f p r i v a t e l y held corporate shareholders had been omitted. The census prepared by the New York Stock Exchange i n 1956 indicated there were an a d d i t i o n a l 1.4 m i l l i o n shareowners of private corporations. With these q u a l i f i c a t i o n s i n mind, an analysis of the trends can be con-sidered. Throughout the three decade period no discernible trend was evident i n the number of shareholders i n corporations, i n f a c t , the numbers varied considerably. As a percentage of adult population the fluctuations were not as great. There was, how-ever, a c y c l i c a l movement of ownership. S t a r t i n g with the boom period of the l a t e twenties, ownership approximately doubled by 1932. This tremendous rate of growth, however, was halted by the prolonged depression and then the coming of the war. Thus, from the depths of the depression to shortly a f t e r the war the number of stockholders decreased to approximately the number of owners there were i n 1927. Since the war the trend has been reversed with a steady growth i n the number of stockholders. Prom 1952 to 1959 the number of shareowners has nearly doubled with the greatest growth occurring i n the l a s t few years which was only s l i g h t l y l e s s than a m i l l i o n per annum. Moreover, the largest proportion of shareowners since 1956 f i r s t acquired stock through 21 employee stock purchase plans. The incidence of stockholders as a proportion of adult population has gone from an average of one i n twelve i n 1927 to one i n eight i n 1958. Therefore, i t was concluded that only recently was there an i n d i c a t i o n of wider spread ownership of New York Stock Exchange, 1960 Pact Book, pp. 26-27 78 stock i n corporations than i n any previous period i n the past t h i r t y - f i v e years. Concentration of Ownership There was evidence of a wider d i f f u s i o n of ownership i n 1956 than at the end of 1937 i n the number of shareholders and the proportion of shareholders i n each income group. Nevertheless, i t was d i f f i c u l t to determine the extent to which t h i s reduced the concentration of ownership. For example, i t was shown that the number of shareholders had increased but as a percentage of population the change was not material. Furthermore, the i n -creased standard of l i v i n g , increased r e a l incomes of a l l i n d i -viduals, and the larger number of persons i n each income l e v e l cannot be discounted when attempting to uncover discernible trends over a long period of years., Therefore, these q u a l i f i -cations must be kept i n view i n t h i s section. There was some evidence of a smaller degree of concentra-t i o n of stock ownership at the end of the period than at the beginning. The d i s t r i b u t i o n of dividend income among dividend recipients i n 1937 showed only two per cent of a l l dividend re c i p i e n t s received s i x t y per cent of the t o t a l dividend income and f i f t y per cent of the r e c i p i e n t s received nearly ninety-seven 22 per cent of the t o t a l . In 1955 twelve per cent of dividend returns were required to make up s i x t y per cent of a l l dividend income and eighty-four per cent f o r ninety-seven per cent of the t o t a l income. However, i n terms of a l l income recipients the changes were not as impressive. Approximately 1£ per cent of United States Temporary National Economic Committee, op. c i t . , p. 13. 79 a l l income recipients i n 1937 received seventy per cent of the t o t a l dividend income compared to three per cent i n 1955. How-ever, the importance of dividends as a source of income had also changed over the years. In 1937 dividend income constituted sixteen per cent of t o t a l income whereas the percentage had f a l l e n to three per cent i n 1955. Furthermore, although the concentration of ownership has been reduced, other surveys have shown that the wealthy people s t i l l hold by f a r the largest proportion of corporate stock. The Survey of Consumer Finance conducted i n 1949 pointed out that only a small percentage of the population owned business equities. Of those that did, the large majority were found to hold only small amounts. Nearly f i f t y - f i v e per cent of a l l spending units who reported that they owned marketable stock valued t h e i r holdings at l e s s than $1,000, and more than .three-fourths valued them at le s s than $5,000. In contrast, only s i x per cent reported that they owned as much as $25,000 marketable stock and only one per cent as much as $100,000.2^ Another independent survey showed s i m i l a r r e s u l t s . Spending units, with net worths i n excess of a quarter of a m i l l i o n d o l l a r s held a minimum of f i f t y - f i v e to s i x t y per cent of a l l marketable stock owned by private i n d i v i d u a l s . The same analysis showed that as at the end of 1949: i 1. Spending units with incomes of $25,000 and o v e r — i n general order of one-half of one per cent of the population—held s l i g h t l y over h a l f of a l l the p r i v a t e l y owned marketable stock. -O"1949 survey of Consumer Finances, Part VI," Federal  Re serve B u l l e t i n , (October, 1949), p. 1191. 80 2. Spending units with incomes of $10,000 and o v e r — approximately the top three per cent of the population—held about seventy-five per cent of 2 A a l l marketable stock owned by private investors. This study then concluded: These figures would a l l be several percentage points ?'. higher i f stock managed by.o corporate trustees f o r i n d i v i -dual b e n e f i c i a r i e s were included i n the t o t a l . There i s no evidence of any marked change i n the concen-t r a t i o n of marketable stockholdings by income groups between 1949 and 1952.2? These facts have c l e a r l y demonstrated the concentration of ownership that existed i n the early f i f t i e s . Further evidence indicated that the accumulation of investable funds by the upper income classes has been consistently large during postwar years, despite the e x i s t i n g tax structure and that i n d i v i d u a l s with large incomes and substantial wealth continue as a group to hold and i n -vest a large proportion of t h e i r funds i n equity-type investments. Thus, though the degree of concentration that existed i n prewar years has been somewhat reduced, i t s t i l l remained i n the hands of the wealthy few. This group, however, has increased i n number, as have a l l other income groups and p a r t l y accounts f o r the reduced concentration. This trend w i l l undoubtedly continue but the lower l i m i t should be the concentration of t o t a l income. This, as may be seen from F i g . 4 on page 71, s t i l l remains f a i r l y high. 2 4 E e i t h Butters, Lawrence E. Thompson, and Lynn L. B a l l i n g e r , E f f e c t s of Taxation: Investments by Individuals, p. 25. 2 5 I b i d . , p. 440. 81 SUMMARY The apparently contradictory phenomenon of widespread ownership and yet a high degree of ownership i n the hands of the wealthy s t i l l continues i n the corporate system, though somewhat diminished. Yet the dispersion of ownership of corporate stock among the adult population has not increased s i g n i f i c a n t l y with the biggest change occurring only i n recent years. Contrary to what might be expected, ownership by i n d i v i -duals as a group has increased and also the use of such i n s t r u -ments as t r u s t s and estates. The holdings of the corporate sector has been reduced s l i g h t l y , however, not the f i n a n c i a l i n s t i t u t i o n s which have arisen as a major holder of equities. Although the exact size of i n d i v i d u a l holdings was not traced, a comparison of the concentration of dividend income f o r the years 1937 and 1955 revealed that r e l a t i v e size of holdings has decreased considerably and that the number of individuals neces-sary to account f o r s i x t y per cent of a l l dividend income i n -creased s i x - f o l d . Therefore, i t may be concluded that the p o t e n t i a l f o r control of t h i s group has been reduced somewhat. CHAPTER VII INSTITUTIONAL STOCKHOLDINGS The preceding chapters on ownership of corporate stock have emphasized primarily holdings of in d i v i d u a l s . This was because h i s t o r i c a l l y and even today they as a group are the largest holders of equities. However, as noted e a r l i e r , a portion of these holdings were i n the form of personal t r u s t s . These -combined with other i n s t i t u t i o n a l holdings represented between twenty-three and twenty-seven per cent of the t o t a l value of outstanding stock at the end of 1955. Furthermore, t h i s segment was now of f a r greater importance because of the pot e n t i a l f o r control that l i e s with t h i s group. Of t h i s Professor Berle i n h i s l a t e s t book has t h i s to say: As of to-day, four or f i v e pension t r u s t s or mutual fund managers, i f they get together, are quite able to ignore the "management sl a t e s " f o r directors get up slates of t h e i r own and vote i n t h e i r candidates. In place of the unorganized stockholders, non of whom has the energy or money to mobilize h i s fellows, there are new centers of power already capable of carrying out such mobilization. Tomorrow these centers w i l l be able without having to ask assistance from i n d i v i d u a l stockholders to del i v e r a c o n t r o l l i n g vote at w i l l . ' This chapter develops the l a s t step i n the analysis of ownership of corporate stock. The purpose i s to show the increasing importance of i n s t i t u t i o n a l investors and indicate A. A. Berle, J r . , Power Without Property, p. 53. 83 the concentration of holdings that t h i s group i s bui l d i n g up. To t h i s end the shareholdings of pension t r u s t s , mutual funds, eleemosynary i n s t i t u t i o n s and bank administered personal t r u s t s are traced from shortly a f t e r the Second World War up to the present. THE PATTERN OP OWNERSHIP Table IY shows estimated holdings of the various types of i n s t i t u t i o n s as at December 31» 1955. Despite the spectacular increase i n i n s t i t u t i o n a l purchases, they s t i l l only represent approximately twenty-five per cent of the t o t a l value of a l l corporate stock outstanding. Nevertheless, t h i s represents a regrouping of stock i n the hands of a few which contrasts with the ever increasing dispersion of ownership of stock among in d i v i d u a l s . I t was estimated by the New York Stock Exchange that as at the end of 1955 approximately 365 b i l l i o n d o l l a r s of corporate stock was outstanding. However, t h i s included some s i x t y b i l l i o n d o l l a r s of intercorporate stockholdings and thus represented a cert a i n amount of double counting. Of t h i s amount 84.1 b i l l i o n d o l l a r s was held by i n s t i t u t i o n a l investors. Their holdings comprised roughly eighty-nine per cent common stock and the 2 remainder i n preferred stock. This was based on the proportion of common and preferred held by i n s t i t u t i o n s i n 1954. See United States Senate, Pactors Aff e c t i n g .the Stock Market f Report of the Committee on Banking and Currency, pp. 88-89. 84 TABLE IV ESTIMATED HOLDINGS OP EQUITY SECURITIES BY INSTITUTIONS MARKET VALUE ON DECEMBER 31, 1955 I n s t i t u t i o n a l Type Total Equity Securities Common Issues Preferred Issues Investment Companies: Open End Closed End Insurance Companies: F i r e , Marine and Casualty L i f e Non-Profit Organizations: Foundations College Endowment Funds Other Non-Insured Pension Funds Mutual Savings Banks Bank Administered Personal Trust Funds B i l l i o n s of Dollars $ 7.6 5.6 7.0 3.7 4.6 3.6 3.3 4.2 0.7 43.8 7.1 5.5 6.1, 1.7 4.4 3.3 n. a. 3.7 n.a. n.a. $0.5 0.1 0.9 2.0 0.2 0.3 n. a. 0.5 n.a. n. a. TOTAL .1 Source: New York Stock Exchange, 1956 Fact Book, pp. 27-28. 85 THE TBENDS OP INDIVIDUAL AND INSTITUTIONAL INVESTMENT The Survey He search. Center which conducts the Surveys of Consumer Finances f o r the Federal Reserve Board measured con-sumer opinion as to t h e i r investment preference of excess money over and above l i v i n g expenses. The questionnaire asked whether to put t h i s money i n savings account, buy Government Saving Bonds, invest i n r e a l estate, buy common stock or other invest-ments. Results showed that since 1949 an increasing percentage of consumers favored common stocks u n t i l 1954 when the trend appeared to change. However, again i n 1957 preference f o r common stock increased. In f a c t , i t showed investment preferences cor-responded closely with the types of assets held and changes noted i n the 1956 holdings. The r e s u l t s of these surveys are summarized as follows:^ Per Cent Per Cent 1949... 2 1953 .9 1951 6 1954 7 1952.... 8 '1957 : 10 The New York Stock Exchange i n the 1959 survey indicated the number of i n d i v i d u a l s owning stocks of public corporations had increased over 100 per cent from the e a r l i e r estimate of 1952 of s i x and a h a l f m i l l i o n . Furthermore, the largest percentage increase came from employees p a r t i c i p a t i n g i n employee stock stock option plans. 4 However, the Increased number of share-^Includes only spending units with incomes of over $3,000. "1954 Survey of Consumer Finances." Federal Reserve B u l l e t i n , XL (March, 1954) p. 479; "1957 Survey of Consumer Finances." Federal  Reserve "Bulletin, XLIII (August, 1957), p. 887. 4New York Stock Exchange, I960 Fact Book, p. 29. 86 holders was f a r greater than the increase i n d o l l a r volume of purchases. The annual rate of net purchases of stocks shown i n Table V indicated in d i v i d u a l s share has declined since 1952. More recent data on the net purchases of stocks by individuals and i n s t i t u t i o n s was not available. However, as 1954 was a recession year, i t was expected that future purchases of stocks by in d i v i d u a l s increased during the upswing of the next business cycle. Nevertheless, i t did not seem l i k e l y that they would surpass the volume of i n s t i t u t i o n s . During the same period, 1951 to 1954, i n s t i t u t i o n s increased t h e i r net purchases some 700 m i l l i o n d o l l a r s . Other estimates of the d i s t r i b u t i o n of ownership of common and preferred indicated that i n s t i t u t i o n a l stock holdings increased more than those of ind i v i d u a l s between 1952 and 1954. The percentage increase f o r i n s t i t u t i o n s was forty-four per cent as compared to twenty-eight per cent f o r i n d i v i d u a l s . This thus supports the contention that there has been an increasing tendency since the early f i f t i e s f o r 5 investments i n corporate stock to become i n s t i t u t i o n a l i z e d . THE GROWTH OF INSTITUTIONAL PURCHASES Since 1940 there has been a pronounced upward trend i n purchases of common stock by i n s t i t u t i o n a l investors. The rate has increased s u b s t a n t i a l l y since 1950 when state laws were amended to permit trustees, l i f e insurance companies, l e g a l t r u s t s and others to purchase stocks under either the prudent man rule or other l i m i t a t i o n s . ^United States Senate, Factors A f f e c t i n g the Stock Market, Report of the Committee of Banking and Currency, p. 87 TABLE V ESTIMATED PURCHASES OP STOCKS BY CLASS OP HOLDER. 1951-1954 Class of Holder Net Purchases "by: I n s t i t u t i o n s Foreign Interests Individuals Total additions to outstanding stock 1951 1952 1953 1954 B i l l i o n s of Dollars $1.15 .12 1.43 $1.69 1.30 $1.61 .06 .69 $2.70 $2.99 $2.36 $1.83 .13 .43 $2.39 Source: United States Senate, Factors Affecting the Stock Market, Report of the Committee on Banking and Currency, (Washington: Government P r i n t i n g O f f i c e , 1955), pp. 90-91. 88 The two most important sources of increased investment funds have come from the pension funds and mutual investment companies. The annual net purchases of common stock together with projections through to 1955 are shown i n P i g . 5. The estimates of annual net purchases of common stock for the years 3940 through 1952 were based on a survey conducted by Fortune i n 1952. The aggregate volume of common stock pur-chased by f i n a n c i a l i n s t i t u t i o n s increased from an annual rate of about 100 m i l l i o n d o l l a r s a year i n 1940 to around 1.1 b i l l i o n i n 1952. Projections through to 1955 made at the same time brought the l e v e l of net purchases to more than 1.4 b i l l i o n d o l l a r s . A l a t e r estimate by Fortune, prepared by Irwin Friend, indicated that i n s t i t u t i o n s had reached the 1.5 b i l l i o n d o l l a r l e v e l of g annual net purchases of common stock i n 1954. From estimates made by the Securities and Exchange Commission, Table V, page 87, i t appeared that net purchases of t o t a l equities by i n s t i t u t i o n a l investors t o t a l l e d 1.83 b i l l i o n d o l l a r s i n 1954. THE GROWTH OF INSTITUTIONAL STOCKHOLDINGS The New York Stock Exchange has traced the growth of stockholdings of i n s t i t u t i o n s since 1900. In Table VI there appears the holdings of f i n a n c i a l i n s t i t u t i o n s f or selected years from 1949 to 1955. These r e f l e c t both r i s i n g share prices and increased rate of purchases which began i n 1950. The holdings b"Wall Street Notes," Fortune Magazine, LI (March, 1955), p. 77. 89 Open-End Investment Companies Pension Funds L i f e Insurance Companies Other I n s t i t u t i o n s 1940 1948 1949 1950 1951 1952 1955 FIGURE 5 ANNUAL NET PURCHASES OF COMMON STOCK BY FINANCIAL INSTITUTIONS Source: U. S. Senate, Factors Affecting The Stock Market, Report of the Committee on Banking and Currency, p. 94. 90 TABLE VI ESTIMATED INSTITUTIONAL HOLDINGS OP EQUITY SECURITIES3, Year-end Market Values Type of I n s t i t u t i o n 1949 1952 1953 1954 1955 M i l l i o n s of Dollars Insurance Companies: L i f e F i r e , Marine and Casualty $1,718 2,985 $2,446 4,366 $2,573 4,501 $3,400 6,460 $3,700 7,000 Investment Companies: Open-end Closed-end 1,800 840 3,700 1,090 3,900 1,030 5,840 1,450 7,600 5,600 Mutual Savings Banks 157 336 431 620 700 Bank Administered Personal Trust Funds 20,000 25,900 26,700 37,800 43,800 Pension Funds (Non-insured) 800 1,700 2,000 3,100 4,200 College Endowment Funds 1,100 1,650 1,750 2,500 3,600 Foundations, etc. 2,900 3,500 3,600 5,100 7,900 TOTAL $32,300 $44,688 $46,485 $66,270 $84,100 a. Includes u n l i s t e d stock as well as those l i s t e d on the New York and other exchanges. Source: 1949-1954: United States Senate, Factors Affecting the  Stock Market, Report of the Committee on Banking and Currency, ^Washington: Government P r i n t i n g O f f i c e , 1955), p. 96? 1955: New York Stock Exchange, I960 Fact Book, p. 27. 91 of i n s t i t u t i o n s which are carried at market values have grown two and one-half times since 1949. They amounted to 80.4 b i l l i o n d o l l a r s as of December 31, 1955, compared with thirty-two b i l l i o n f o r 1949. The Exchange estimated that approximately eighty per cent of the apparent increase i n holdings were att r i b u t e d to market appreciation and that the balance of twenty per cent represented net additions to stock holdings through purchases of shares and the acquisitions of newly invested funds. The Senate Committee on Banking and Currency, however, f e l t that the twenty 7 per cent f o r net additions was probably on the low side. In 1956 the New York Stock Exchange began to compile s o l e l y the i n s t i t u t i o n a l stockholdings l i s t e d on t h e i r exchange. This data appears i n Table VII f o r the years 1956 to 1959 i n c l u s i v e , and also f o r the year 1949 to enable a comparison to be made. Unfortunately, one important segment was not covered, that i s the bank administered personal t r u s t funds. A small proportion of t h i s group, however, was l i s t e d under common t r u s t funds. The holdings shown at market value contain over ninety-f i v e per cent of the issues of the 200 largest non-financial corporations. Since 1949 they have increased over f i v e - f o l d o from 9.5 b i l l i o n d o l l a r s to f i f t y - o n e b i l l i o n d o l l a r s i n 1959. Furthermore, the percentage of the t o t a l market value held by i n s t i t u t i o n s has increased from 12.4 per cent i n 1949 to 16.6 per cent i n 1959. Moreover, the market value of a l l New York Stock 7 'United States Senate, op. c i t . , p. 96. 8 This i s a preliminary estimate f o r 1959. 92 TABLE VII ESTIMATED HOLDINGS OP NEW YORK STOCK EXCHANGE LISTED STOCKS BY INSTITUTIONAL INVESTORS Year-end Market Values Type of I n s t i t u t i o n 1949 1956 1957 1958 1959* B i l l i o n s of Dollars Insurance Companies: L i f e Non-Life $1.1 1.7 $2.3 4.5 $2.2 4.1 $2.8 5.6 $3.1 6.0 Investment Companies: Open-end Closed-end 1.4 1.6 7.1 4.0 6.6 3.5 10.3 4.4 12.8 5.2 Non-Profit I n s t i t u t i o n s : College and University Endowments Foundations Other 1.1 1.1 1.0 2.5 3.3 3.1 2.1 2.7 2.8 2.9 3.7 4.0 3.1 3.9 4.4 Non-Insured Corporate Pension Funds 0.5 5.3 5.6 8.8 10.8 Common Trust Funds 1.0 1.0 1.3 1.4 Mutual Savings Banks 0.2 0.3 0.3 TOTAL $9.5 $33.2 $30.9 $44.1 $51.0 Estimated Per Cent Held "by I n s t i t u t i o n s 12.4# 15.1# 15.8? i 16.0# 16.6# * Preliminary Estimates Source: New York Stock Exchange. 1960 Pact Book, p. 29. 93 Exchange l i s t e d stock has only increased f o u r - f o l d from 76 b i l l i o n d o l l a r s to 308 b i l l i o n d o l l a r s over the decade. This was a further i n d i c a t i o n that i n s t i t u t i o n a l holdings were expanding more r a p i d l y than other holdings. The i n s t i t u t i o n s primarily responsible f o r t h i s tremendous growth were investment companies, pension funds, bank administered personal t r u s t s and insurance companies. The bank administered personal t r u s t s , the largest holder of equities of any of the f i n a n c i a l i n s t i t u t i o n s , was also the group f o r which the l e a s t information was available. Prom 1949 to 1955 (Table VI) the holdings of personal t r u s t s more than doubled i n value. These were administered by 1,480 national banks which had f i d u c i a r y -powers. However, over ninety-five per cent of these investments were handled by only 444 of the largest banks. They represented accounts f o r 112,073 l i v i n g trusts,, an increase of approximately Q twelve per cent over 1953* Since 1955 information on these t r u s t s was very scanty. The New York Stock Exchange estimated that i n 1957 bank administered personal t r u s t s had a market value i n of forty-one b i l l i o n d o l l a r s . A more recent estimate placed 11 the common stock holdings at thirty-one b i l l i o n d o l l a r s i n 1959. Commencing i n 1955 common tr u s t funds have held an i n -creasing proportion of investments handled by t r u s t departments of banks. Common Trust Funds are an investment ,pool operated by a bank or t r u s t company exclusively f o r the c o l l e c t i v e investment q -'Annual Report of the Comptroller of Currency: 1955, pp. 129-135. 'New York Stock Exchange, 1958 Pact Book, pp. 34-35. 1 1"Bank Trustees Stick to Stocks," Business Week, (Pebruary-20, 1960), p. 165. 94 of moneys contributed to the hank i n i t s capacity as trustee or administrator. These funds come under the j u r i s d i c t i o n of the Federal Reserve Board which surveys them annually. In 1958 the Board revealed that stockholdings had r i s e n to 1.5 b i l l i o n d o l l a r s from 1.1 i n 1955, Furthermore, the number of funds operated by 1 2 banks had increased from 232 to 322 over the same period. In the short span of time of one decade, pension funds have become a new f i n a n c i a l giant. In 1957 these funds grew at an annual rate of 4.3 b i l l i o n d o l l a r s and aggregated fourteen b i l l i o n d o l l a r s f o r insured plans handled by insurance companies, and almost twenty b i l l i o n d o l l a r s f o r corporate trustee plans handled by banks. 1^ Since 1949 corporate trustee funds have quadrupled t h e i r holdings from 800 m i l l i o n d o l l a r s to 4,2 b i l l i o n d o l l a r s . Common stock investment has grown from an annual rate of 291 m i l l i o n . d o l l a r s i n 1951 to 978 m i l l i o n i n 1957. 1 4 Further-more, the holdings of New.York Stock Exchange l i s t e d stock has ri s e n from 500 m i l l i o n . d o l l a r s i n 1949 to almost eleven b i l l i o n d o l l a r s i n 1959. Moreover, these funds are not expected to l e v e l o f f f o r at lea s t another decade. Thus, t h i s giant has the poten-t i a l f o r control of many of the large corporations within i t s grasp. I t i s even more evident when i t i s r e a l i z e d that the majority of these funds are handled by the same bank trustees that hold the investments of personal t r u s t s . Latest holdings 1 2 " 1958 Survey of Common Trust Funds," Federal Reserve  B u l l e t i n , XLV, (May, 1959), p. 478. ' 1 3 . P a u l L. Howell, "Common Stocks and Pension Fund Inves-t i n g , " Harvard Bjo^iness Review, XXVI, (November-December, 1958), p. 92. 1 4"The Pension Fund: The Assets Keep on Climbing," Business Week, (June 21, 1958), pp. 97-100. 95 •under bank trusteeship show they control thirty-one b i l l i o n s i n common stock f o r personal t r u s t s and ten b i l l i o n d o l l a r s i n 1 5 eommon stock f o r pension funds. Another i n s t i t u t i o n a l giant that has had a phenomenal rate of growth was the mutual funds. At the close of 1959 investment companies had t o t a l net assets of over seventeen b i l l i o n d o l l a r s and 4.3 m i l l i o n shareholder accounts up from 1.7 m i l l i o n i n 1954. New funds f o r investment were flowing i n at the rate of 2.3 1 6 b i l l i o n d o l l a r s annually. The equity holdings of t h i s group rose from 2.6 b i l l i o n d o l l a r s i n 1949 to 13.2 b i l l i o n d o l l a r s i n 1955. Holdings of New York Stock Exchange l i s t e d stock have increased from an estimated 3.0 b i l l i o n d o l l a r s i n 1949 to approximately f i f t e e n b i l l i o n d o l l a r s i n 1958. INSTITUTIONAL HOLDINGS IN LARGE CORPORATIONS The previous discussion has dealt with aggregate holdings of various types of f i n a n c i a l i n s t i t u t i o n s i n domestic corpora-t i o n s i n general. In two tables i n Appendix G appear the common stock holdings of these i n s t i t u t i o n s as a group i n p a r t i c u l a r corporations. The f i r s t table contains the common stock holdings of i n s t i t u t i o n s i n the 1957 l i s t of the 200 largest non-financial corporations. They exclude holdings of bank administered per-sonal t r u s t s and holdings of o f f i c e r s and directors i n t r u s t s and i n s t i t u t i o n s which could be construed as b e n e f i c i a l . The ^"Bank Trustees S t i c k to Stocks," Business Week, (February 21, 1958), pp. 97-100. 1^"Funds Take a Cautious View," Business Week, (February 6, 1960), pp. 110-111. 96 tabulation by Hemphill Noyes and Company was dated December 1954. These companies had 1.66 b i l l i o n of common shares outstanding, of which 131 m i l l i o n or eight per cent was held by i n s t i t u t i o n a l i n -vestors. Public u t i l i t y stocks were the largest proportion of holdings, comprising over twenty-five per cent of the t o t a l . They represented over ten per cent of the t o t a l common outstanding i n t h i s industry. Since 1954 i n s t i t u t i o n a l holdings have grown sub-s t a n t i a l l y . Table VI, page 91, indicated they were 16.6 per cent of a l l issues l i s t e d on the Hew York Stock Exchange i n 1959. The second table contains a l i s t of the 100 largest i n s t i -t u t i o n a l common stock holdings of issues on the New York Stock Exchange i n terms of the approximate percentage owned. The table was dated 1953* Twenty-eight of these companies were public u t i l i t i e s where the percentage ranged from two per cent i n American Telephone and Telegraph to twenty-seven per cent i n New York State E l e c t r i c . Among manufacturing companies the largest percentage was i n Amerada Petroleum, twenty-two per cent to a low of over two per cent i n United States Steel. As would be expected, only four r a i l r o a d s were represented, however the per-centage only varied from a low of over eight per cent i n Southern P a c i f i c to a high of twenty-four per cent i n Seaboard A i r l i n e Railroads. SUMMARY The ownership of equities, and common stocks i n p a r t i c u l a r , by i n s t i t u t i o n a l investors have increased s u b s t a n t i a l l y i n the space of one decade from 1949. According to estimates made by the New York Stock Exchange, the i n s t i t u t i o n a l holdings of a l l equity 97 s e c u r i t i e s have increased i n value approximately two and one-h a l f times from 1949 to 1955. Furthermore, about o n e - f i f t h was the r e s u l t of increased net purchases of stock. For the l a t t e r portion of the decade, estimates of holdings (excluding bank administered personal t r u s t s ) were available only f o r stocks l i s t e d on the New York Stock Exchange. These holdings since 1949 rose to more than f i v e times t h e i r value. The i n s t i t u t i o n s p r i m a r i l y responsible f o r the tremendous increases were pension funds, bank administered personal t r u s t s and mutual funds. Although t h i s segment holds only approximately one-quarter of a l l equities outstanding, t h e i r influence on the corporate sector of the economy f a r outweighs t h e i r ownership. They have within t h e i r grasp potential control of the majority of the large corporations. CHAPTER VI I I THE MEANING OP CONTROL AND OWNERSHIP AND ITS IMPLICATIONS Control and ownership were terms that have been used consistently throughout t h i s study, often with descriptive adjectives. The former word was usually defined i n context so that the meaning was clear but precise. However, such d e f i n i -t ions were too narrow, too confining and too r i g i d . Ownership, on the other hand, i s a word generally understood. In law, i t has been defined as the c o l l e c t i o n of ri g h t s to use and enjoy property, including the r i g h t to transmit i t to others or the complete dominion, t i t l e or proprietary r i g h t i n a thing or claim. However, i n the growth of the corporate system, many of the r i g h t s and p r i v i l e g e s of ownership have become meaningless. The significance of control can no longer be expressed by a few descriptive phrases. I t implies f a r more than they can impart. The purpose of t h i s chapter i s to explore some of the' meanings and implications of these words brought about by the r i s e of the corporate system. The evolution of control has been traced i n a previous chapter. There i t was noted that i t began with the majority owner who undoubtedly exercised h i s r i g h t s of ownership to the f u l l e s t . Then came the second stage where the norm was working control. A minority group or groups of shareholders working 99 together or with management ruled. Here once again these share-holders exercised t h e i r r i g h t s of ownership, but now the majority could not, unless a f i g h t f o r control developed. In t h i s era there arose a class of men known as managers who were destined to take over which, i n f a c t , they had already i n many corporations. Thus, the t h i r d stage, management control where the shareholder or owner was l e f t with nothing more tangible than a few pieces of paper and a few r i g h t s that meant very l i t t l e . The r i g h t s and p r i v i l e g e s enjoyed by the shareholders were extremely valuable p r i v i l e g e s i n the early stages of corporate development. They had the right to share i n the company's p r o f i t s provided the directors saw f i t to disclose dividends. As they were often part of management, t h i s meant they participated i n the direct benefits of ownership. They were more than b e n e f i c i a l owners. They had the r i g h t to vote i n the e l e c t i o n of directors. I f they held or were able to muster s u f f i c i e n t votes, they could elect the majority of the directors and control, and i f the shareholders were d i s s a t i s f i e d , they could refuse to re-elect the directors. This was a proprietary r i g h t as an owner. They also had the r i g h t to hold directors responsible f o r t h e i r acts. Furthermore, they had the r i g h t to inspect the books of the corporation, to vote on mergers and consolidations, changes i n the charter and bylaws. These r i g h t s and p r i v i l e g e s were what ownership of stock i n a corporation meant. With the advent of management control these r i g h t s and p r i v i l e g e s have been dil u t e d almost to a ceremonial status. True, the largest group of owners, the small shareholders, had been dispossessed several decades ago. Nevertheless, the large 100 shareholders (save i n cases of dishonesty) presumably wanted the corporation to make as much money as possible. In t h i s respect, t h e i r aim was the same as that of t h e i r small f e l l o w stockholders. The majority holders having the largest interest at stake i n the p r o f i t s would have the most powerful motivation i n the d i r e c t i o n of sound profit-making poliey. This, a f t e r a l l , was what control through ownership was a l l about. 1 Furthermore, the government through l e g i s l a t i o n helped correct many of the e a r l i e r abuses of co n t r o l l i n g stockholders. THE SECURITIES AND EXCHANGE COMMISSION AND V THE MEANING OP CONTROL With the crash of the stock market i n 1929 came the exposure of innumerable corporate practices which were employed to deceive and discriminate against the small shareholder. These were l a r g e l y responsible f o r the mass f i n a n c i a l r u i n which ensued. Por years, companies had f l o a t e d large quantities of unsound stocks to eager stockholders without revealing the nature of t h e i r assets and earning power or the i d e n t i t y of t h e i r pro-2 motors, managers and chief stockholders. In an e f f o r t to c u r t a i l these and other practices, the United States Congress passed several statutes; the Securities Act of 1933, the Public U t i l i t y Holding Company Act of 1935 and the Investment Company Act of 1940. A l l three had one thing i n i A. A. Berle, J r . , •"Control" i n Corporate Law," Columbia  Law Review, LVIII (May, 1958), pp. 1213-14. 2 •The Meaning of "Control" i n the Protection of Investors,* The Yale Law Journal, LX (February, 1951), pp. 311-336. 101 common; v i t a l to t h e i r success was the proper in t e r p r e t a t i o n and a p p l i c a t i o n of terms "control" and " c o n t r o l l i n g influence." The r e s p o n s i b i l i t y of giving meaning to these terms i n a l l instances , was delegated to the Securities and Exchange Commission, The Securities Act of 1933 l a i d the ground rules which were to be followed—"the t r u t h , the whole t r u t h and nothing but the t r u t h , even i f i t might discourage investors."^ I t required a l l issuers of new s e c u r i t i e s to f i l e r e g i s t r a t i o n statements with the S e c u r i t i e s and Exchange Commission and to d i s t r i b u t e prospec-tuses to the public. I t ruled a l l r e g i s t r a t i o n statements must i d e n t i f y the " c o n t r o l l i n g " persons i n the issuing corporations. Thus, the words "that won't get by the SEC are s i x words of singular potency." 4 Expressly repudiating the j u d i c i a l c r i t e r i a of control which i n c l i n e d toward a f i f t y per cent stock ownership f i g u r e , the Commission defined control "as the possession d i r e c t l y or i n d i r e c t l y of the power to direct management or p o l i c i e s of a corporation through the ownership of voting s e c u r i t i e s or other-wise." With t h i s as c r i t e r i a , the Commission passed judgement on a number of situations that came before i t judging each on i t s merits. A shareholder owning eighteen per cent of a voting stock, but consistently holding a s u f f i c i e n t number of proxies to elect a majority of the directors was held to control. His control was perpetuating: he could r e l y on the.directors f o r access to the proxy machinery i n every e l e c t i o n . S i m i l a r l y , several minority «T. A. Livingston, The American Stockholder, p. 198. 4 I b i d . , p. 197. 102 shareholders, who voted t h e i r stock together over a period of time, elected a s l a t e of harmonious directors and frequently consulted together, were considered to have j o i n t control. Moreover, the Securities and Exchange Commission found that control could be wielded i n more subtle ways. In corpora-tions where the board of directors was nothing more than a rubber stamp, the man who selects the executive committee was the c o n t r o l -l i n g person. The underwriter who demands the undated resignation of a majority of directors as a price of h i s underwriting contract was i n control. Further, even a major c r e d i t o r who shares i n p r o f i t s and losses and maintains an option to exchange h i s loan f o r equity i n the f i r m could be classed as a c o n t r o l l i n g person. In no case did the Commission look to actual use of power to direct p o l i c y . Power alone s u f f i c e d . The Public U t i l i t y Holding Company Act of 1935 subjected gas and e l e c t r i c u t i l i t y holding companies and t h e i r subsidiaries to Commission supervision over security issues and a c q u i s i t i o n s , proxy and dividend p o l i c i e s and c a p i t a l structures. In addition, i t required p r i o r S ecurities and Exchange Commission approval of a l l loans and s e r v i c i n g or construction contracts between u t i l i -t i e s and s e r v i c i n g a f f i l i a t e s i n a holding company system. The Act i t s e l f defined a holding company as one which owned at l e a s t ten per cent of the voting stock of a u t i l i t y of another holding company. However, i t s p e c i f i c a l l y excluded from regulation any company meeting the ten per cent requirement pro-vided the company could prove to the s a t i s f a c t i o n of the Commis-sion that i t did not exercise a c o n t r o l l i n g influence over i t s Op. c i t . , p. 311-336. 103 immediate subsidiary. In t h e i r administration of the Holding Company Act, the S e c u r i t i e s and Exchange Commission l e t i t be known.that "control-l i n g influence 1* required l e s s than "control" under the Securities Aet.^ Companies owning neither a majority of subsidiary stock nor access to i t s proxy machinery under the S e c u r i t i e s Act probably would not have been considered to possess the power to direct management or p o l i c i e s of a subsidiary, but they could possess a " c o n t r o l l i n g influence" under the U t i l i t y Act. For example, i f the only influence over a subsidiary was ownership of s u f f i c i e n t stock to veto corporate actions requiring a two-thirds vote, the company would have " c o n t r o l l i n g influence." To prove that they exercised no " c o n t r o l l i n g influence," parent companies had to demonstrate that t h e i r subsidiaries were not "susceptible to t h e i r control." This might stem from several sources. I t might r e s u l t from a few holding company representa-t i v e s among the u t i l i t y ' s directors or o f f i c e r s working with the dominant f a c t i o n i n the u t i l i t y ' s management. I t might r e s u l t from large purchases of the u t i l i t y ' s energy output by the holding company. I t could even emerge from a long established voluntary practice of confirming or advising the u t i l i t y on production or f i n a n c i a l matters. Avoidance of regulation could only be shown by being a v i r t u a l outcast i n the u t i l i t y ' s management; had been denied proportionate representation among i t s o f f i c e r s and d i r e c -tors or had been soundly defeated on important corporate issues. Thus, " c o n t r o l l i n g influence" was easier to come by than A l l words and phrases i n quotation marks are direct quotes from the various Acts. "The Meaning of Control i n the Protection of Investors," The Yale -Law Journal, LX (February, 1951), pp. 311-326. 104 be r i d of i t . Creation of voting t r u s t s by holding companies to hold t h e i r investments f a i l e d because the trustees were seldom independent of a f f i l i a t i o n with management. Delegation of proxies to the dominant factor i n the u t i l i t y was not s u f f i c i e n t unless these proxies were i n d e f i n i t e and irrevocable. Very often the only e f f e c t i v e way to escape regulation was f o r the holding company to reduce i t s investment below ten per cent and lose the power of control. Control and the Investment Company The Investment Company Act of 1940 was designed primarily to avoid the p i t f a l l s of empire bu i l d i n g managements who aspired to control a few large i n d u s t r i a l firms. Too often the concen-t r a t i o n of investment endangered the security holders of both the investment and c o n t r o l l i n g companies. Under the Act, investment companies were given a choice of declaring themselves as d i v e r s i f i e d or non-diversified funds. The investments of "non-diversified" companies were unrestricted. But where a fund controlled an operating company, i t s control became subject to Securities and Exchange Commission supervision. D i v e r s i f i e d companies were only permitted to invest twenty-five per cent of t h e i r assets as they pleased. Of the remainder none could be invested i n more than ten per cent of a firm's voting stock. Moreover, no more than f i v e per cent of the investment companies assets could be invested i n one company. In the Act, control was broadly defined as the "power to exercise a c o n t r o l l i n g influence," and ownership of twenty-five per cent of an operating company's voting stock was established 105 as a "rebuttable presumption of control." Thus, the Securities and Exchange Commission was l e f t with merely defining " c o n t r o l -l i n g influence." For t h i s i t r e l i e d on the experience gained under the Holding Company Act. Therefore, the meaning of control and c o n t r o l l i n g influence under different statutory contexts was shown to d i f f e r < i n each case. This was as i t should be and serves to exemplify the broad in t e r p r e t a t i o n the word connotates. However, even the broad i n -terpretation of control used i n the l e g i s l a t i o n f a i l e d to cover the s i t u a t i o n known as management control. In h i s book "The American Stockholder," J . A. Livingston 7 summed up the essence of management control. He stated: The managers of corporations control the proxy machinery, the b a l l o t , even as a p o l i t i c i a n dominates a ward, a county, or a c i t y . Stockholders p l i a n t l y return the directors and presidents to o f f i c e year a f t e r year f o r t h e i r good deed—the payment of dividends. These managers m o l l i f y t h e i r personal and psychic needs with excellent s a l a r i e s , nice bonuses, stock options and l i b e r a l expense accounts. They have per-fected the f i n a n c i a l devices to defeat graduated income taxes, as b e f i t s the corporate e l i t e , a managerial class . Further, through t h e i r control of men, materials and machinery, these managers exert great power i n American a f f a i r s — p o l i t i c s , society and business. Twentieth century dispersion of stock and i t s voting r i g h t s among many hundreds of thousands of stockholders has made t h i s possible. P r o f i t motivation, although s t i l l an economic goal, was not possibly only of secondary i n t e r e s t . Whereas f o r c o n t r o l l i n g shareholders the economic motivation was p r o f i t s accruing through dividends, the economic motivationsof management are d i f f e r e n t . They r e l y on s a l a r i e s , pensions, and fringe Livingston, op. c i t . , p. 15. 1G6 benefits which, are substantial and although ultimately dependent on p r o f i t s , they are not necessarily d i r e c t l y r e l a t e d to them. In the current American economy, the community now has a v i t a l i n t e r e s t i n the p o l i c i e s of the giant corporations. They not only administer the e s s e n t i a l services of supply but they also provide employment fo r a large segment of the population. Thus, f a i l u r e to perform wel l i n many situations could bring disaster or hardship to substantial sectors of the community. This i s very true, e s p e c i a l l y with primary products as i n the case of the cor-r porations dominant i n such industries as s t e e l , o i l , copper and aluminum. Thus, i n these s i t u a t i o n s , control i s 1 n o t merely the capacity to select the board of directors of a corporation,it i s the a b i l i t y to administer substantial and c r u c i a l sectors of the economy. Therefore, control no longer i s s o l e l y an a t t r i b u t e of stock ownership or a larger portion of the r i g h t s of stockholders, i t i s f a r more. Control i s a function of the corporate system which enables the holder to occupy a power p o s i t i o n i n the 9 economy.J Furthermore, t h i s function i s necessary and e s s e n t i a l . Someone must choose the board of directors and mobilize the shareholders to perform t h i s duty when they are scattered. Management must be made accountable when they become slack, d i s -honest or incompetent. This tends to prevent absolute power from becoming abused. However, under the present normal s i t u a t i o n , these checks and balances are absent. Management becomes Berle, l o c . c i t . ' i b i d . , pp. 1215-1216. 107 accountable s o l e l y to themselves. This could very well lead to the abuses of power or more government control. In a recent a r t i c l e i n the Harvard Business Review some of the possible consequences were reviewed. 1^ The fundamental ques-t i o n was the p o t e n t i a l abuse of power. Men i n management no doubt have a high e t h i c a l standard, but as a group they were considered as susceptible as any other i n the population. For example, what of the high s a l a r i e s and bonuses and other benefits paid to management, possibly to the detriment of stockholders income and equity. There i s much t r u t h i n saying "power corrupts and absolute power corrupts absolutely.". Ernest Dale, the author of the a r t i c l e , made a study of p r o f i t s as a percentage of investment. This revealed independent companies did not fare as well as those where shareholders res-t r a i n t existed. Some of the reasons c i t e d were: 1) The chief executive i s more apt to make better business decisions i f he has men who can state t h e i r minds f r e e l y . Also, there i s the fact he i s being reviewed by men not dependent on him f o r t h e i r p o s i t i o n . 2) The danger that personal goals w i l l be at variance with company common goals i s great. There are a number of instances i n recent years where companies have apparently expanded f o r expansions sake alone. 3) The increasing administrative expenses incurred often are not j u s t i f i e d . Much has been spent f o r services as yet so new or intangible that t h e i r contribution Ernest Dale, "Management Must be Held Accountable," Harvard Business Review, XXXVIII (March-April, i960), pp. 4-9-59. 108 i s almost impossible to measure. These circumstances i t was f e l t were more l i k e l y to appear i n corporations where management was i n power. Furthermore, the absence of checks made i t possible f or the shareholders and the general public to be kept uninformed longer. Increasing s o c i a l r e s p o n s i b i l i t y has often been c i t e d as an inherent check on management. This, however, was of ques-tionable v a l i d i t y . Management were no longer merely stewards f o r t h e i r stock-holders. They also had a r e s p o n s i b i l i t y to the employees, to the customers and suppliers and to the section of the community affected by t h e i r operations. Their job was to reconcile the c o n f l i c t i n g i n t e r e s t s of these diffe r e n t groups. These were the accepted r e s p o n s i b i l i t i e s of management i n large corporations. However, considering the power over the economy that these men wield, was i t tenable that they should be both judge and jury? In the a l l o c a t i o n of the returns to various i n t e r e s t groups, they reserve a portion f o r themselves. Furthermore, no c r i t e r i a e x i s t s as to what constitutes an equitable salary or f a i r return on investment. Moreover, management caters to labor unions, customers, suppliers and the community since they can exert some influence d i r e c t l y or i n d i r e c t l y . Shareholders who no longer have a voice i n many managements come l a s t . As Peter Drucker stated: "In s o c i a l r e a l i t y the corporation i s permanent, the 11 shareholder i s t r a n s i t o r y . " Peter Drucker, Concept of a Corporation, p. 32. 109 I n s t i t u t i o n a l Investors As stated i n an e a r l i e r chapter, the fourth stage of the development of the corporate system has evolved. Pension t r u s t s , mutual funds, bank administered personal t r u s t s and insurance companies have once again concentrated the ownership of corporate stock i n the hands of a few. They now possess the power to con-t r o l and/or exert considerable influence on management. I n s t i t u t i o n a l investors function pr i m a r i l y as an investor. They invest i n management and support management i f i t i s sound. When they are d i s s a t i s f i e d with them, they s i g n i f y t h e i r disap-proval by s e l l i n g the stock. They do not l i k e to get embroiled i n proxy b a t t l e s or o f f e r proposals on pol i c y matters. They are not i n any way interested i n campaigning f o r the r i g h t s of stdek-12 holders or of assuming leadership and control of corporations.. Thus, i n s t i t u t i o n s f l a t l y deny the use of power that i s within t h e i r grasp. In f a c t , i n many pension funds the problem Of control i s avoided, they say, by l i m i t a t i o n s placed on pension trustees such as not permitting the fund to hold more than f i v e per eent of the stock of one company.1^ Nevertheless, while i t i s true they do not wish to gain control, i n s t i t u t i o n s cannot help but exert considerably influence. They are often the only major shareholder and the size of t h e i r holdings does not permit management to ignore them. Furthermore, i n s t i t u t i o n s are i n very close contact with managements i n which 1 2 J . A. Livingston, The American Stockholder, pp. 156-165. 1^"How Should Pension Funds Wield Their Power?" Business  Week, (May 23, 1959), p. 98. 110 they are heavily invested. This i s f o r t h e i r ovm protection and guidance. Nevertheless, i n the normal course of business, large corporations continuously seek the reaction of the major stock-holders to a future company p o l i c y . Moreover, abstaining from voting on a proxy issue or s e l l i n g out the stock of a corporation i s i n no sense an abdication of the use of power. Thus, i n s t i -tutions do exert influence and through many other ways as w e l l , though they do not control d i r e c t l y . However, there i s l i t t l e doubt that under the Securities Act and the Public U t i l i t y Holding Act they would be held to have c o n t r o l l i n g influence and probably i n some instances control. J . A. Livingston sums up the position of the f i n a n c i a l i n s t i t u t i o n s when he says; They are the permanent shareholders: as permanent as the corporations they invest i n and t h e i r t e r r a i n i s the entire s o c i a l structure of the United States.'* Livingston, op. e i t . , p. 248 CHAPTER IX SUMMARY The corporation today enjoys a prominent p o s i t i o n i n the free enterprise system. I t did not, however, achieve i t s present importance, both i n economic and s o c i a l f a c t , without a long struggle marked by an increasing l i b e r a l i z a t i o n of incorporation process and the decline i n public antipathy toward i t . The concentration of c a p i t a l resources i n the corporate form soon l e d to the existence of large corporations. By 1937 there were 20G non-financial corporations with assets of approximately seventy b i l l i o n d o l l a r s . These possessed great importance i n the organization of American industry and continued to grow and assume a greater r o l e . In 1957 the 200 had increased t h e i r assets three-fold i n the period of two decades. These companies were i n no way entrenched as the continual s h i f t i n g of business leadership showed. I t follows that because of t h e i r economic importance, control of these corporations was a prized asset. Thus, many forms, techniques and l e g a l devices developed and were used to obtain and maintain t h i s p o s i t i o n . In the early stages of the corporate system absolute stockholder control was the norm. This involved owning a majority of the voting shares. I t was followed by the working control stage. The usual conditions were where a minority i n t e r e s t was able to mobilize s u f f i c i e n t votes to elect 112 a majority of the hoard of directors. The percentage of stock required varied from l e s s than ten per cent to t h i r t y or f o r t y per cent, depending on the d i s t r i b u t i o n of the remainder of the shares. Often the minority resorted to using devices such as weighted or disfranchised voting stock, voting t r u s t s and pyramiding through the use of holding companies to gain and keep control with a minimum of investment. Many corporations went d i r e c t l y from the f i r s t stage to that of management control. This was simply control by reason of access to the proxy machinery. I t was the r e s u l t of the wide dispersion of ownership which began i n the expansion period of the nineteen twenties. The r i s e of autonomous management i n l e s s than three decades l e d to the separation of ownership and manage-ment. A second change, which w i l l make the divorce complete, has already begun. This pooling of corporate stock i n the hands of fi d u c i a r y i n s t i t u t i o n s w i l l i n effect remove the selecting or voting f o r management from b e n e f i c i a l owners and these managements themselves. The emerging i n s t i t u t i o n s were the pension funds, mutual funds and, to a le s s e r extent, insurance companies. The spectacular r i s e i n the holdings of i n s t i t u t i o n s only eame about i n the l a s t decade. Pension funds held assets t o t a l -l i n g t h i r t y - t h r e e b i l l i o n d o l l a r s i n 1957. Insurance companies handled fourteen b i l l i o n d o l l a r s and the remainder was under bank trusteeship and were growing at an annual rate of 4.3 b i l l i o n d o l l a r s . Something over f o r t y per cent or ten b i l l i o n was inves-ted i n common stock. Mutual funds, also, had a phenomenal growth. By 1958 they had f i f t e e n b i l l i o n d o l l a r s invested i n the common stock of corporations l i s t e d on the New York Stock Exchange. 113 Individuals, however, were s t i l l by f a r the largest holders of equity s e c u r i t i e s i n corporations. In 1955 they had an estimated seventy per cent of the t o t a l value of a l l stock outstanding. Moreover, f i f t e e n per cent of the t o t a l value of a l l outstanding stock was i n the form of t r u s t s and estates, a t t e s t i n g to t h e i r continued importance as an instrument of owner-ship. Two contradictory developments brought to l i g h t a f t e r the depression continued. This was, on the one hand, m i l l i o n s of small stockholders with incomes of 7,500 do l l a r s owned shares i n corporations so that wide dispersion was evident. Yet, on the other hand, the majority of the stock held by i n d i v i d u a l s was i n the hands of the wealthy. An estimated one per cent of the popu-l a t i o n owned f i f t y per cent of the marketable stock. Nonetheless, the control p o s i t i o n which many of these " large shareholders held was no longer evident. This was p a r t l y the r e s u l t of the large investment required to maintain such a po s i t i o n , inheritance taxes and m u l t i p l i c a t i o n of offspring. P r i o r to 1940 the s i t u a t i o n was considerably d i f f e r e n t . Family interest groups controlled d i r e c t l y seventy-seven of the 200 largest non-financial corporations. Working control was the dominant form. Other indications which pointed to eventual reduction was that these firms were the smallest, averaging le s s than 250 m i l l i o n d o l l a r s each and they were predominantly i n manufacturing which was yet to have i t s biggest boom. Management control, the norm i n industry today, had a l -ready reached t h i s p o s i t i o n of dominance as f a r back as 1930, At that time i n only one industry, the public u t i l i t i e s excluding communications, was t h i s not true. However, the passage of the 114 Public U t i l i t y Holding Company Act, s t r i c t regulation by the Securities and Exchange Commission and the tremendoub expansion i n investment required i n the l a s t decade undoubtedly has also l e d t h i s industry into the f o l d . This means i n the hands of some seventy-five thousand directors and executives l i e great power i n p o l i t i c s , society and business. This has disturbed the customary arrangement i n business and the meaning of control and ownership. Control i s no longer an a t t r i b u t e of ownership or a portion of r i g h t s of an owner. I t i s now primarily a power po s i t i o n . The function of control i s nonetheless necessary. Some-one must choose the directors and secure the consensus of scattered stockholders. When management becomes slack or d i s -honest, the control holder could throw them out. In t h i s way, management was held accountable. Under the present setup they are both judge and jury, and thus susceptible to the many dangers of any group or i n d i v i d u a l i n an absolute power p o s i t i o n . 115 BIBLIOGRAPHY 116 BIBLIOGRAPHY Adleman, M. A. "The Measurement of I n d u s t r i a l Concentration," The Review of Economics and S t a t i s t i c s . XXXIII (November, PP. 25s=ZW. . "Is Big Business Getting Bigger," Readings i n Economics from Fortune. New York: Henry Holt andUompany, 1954, pp. 5F56: Annual Report of the Comptroller of Currency: 1955. Washington: G^overnment"~Printing O f f i c e , 1<J56• "Bank Trustees Stick to Stocks," Business Week, (February 20, 1960), 165. Berle, J r . , Adolf A. The 20th Century C a p i t a l i s t Revolution. 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Moody's Public U t i l i t y Manual. New York: Moody's Investors Service, 1958. "Mutuals Cling to Their Charms," Business Week, (November 2'3, 1957), pp. 155-156. . - .. Nelson, James C. Railroad Transport at i on and Public P o l i c y. Menosha, Wisconsin: George Banta Company Inc., 1959. 118 New York Stock Exchange. Who Owns American Business. 1956  Census of Shareowners. New York Stock Exchange. Fact Book: 1956. New York Stock Exchange. Fact Book: 1960. Perlo, V i c t o r . The Empire of High Finance. New York: Inter-national Publishers, 19"5T. . 1"People's Capitalism" and Stock Ownership,' The  American Economic Review. XLVIII (June, 1958), pp. 315-347. "1949 Survey of Consumer Finances, Part VI," Federal Reserve  B u l l e t i n , XXXV (October, 1949), pp. 1182-1197. "1951 Survey of Consumer Finances," Federal Reserve B u l l e t i n , XXXVII (August, 1951), pp. 880-8U4"T ''1954 Survey of Consumer Finances," Federal Reserve B u l l e t i n , XL (March, 1954), pp. 146-149. "1957 Survey of Consumer Finances," Federal Reserve B u l l e t i n , XLIII (August, 1957), pp. 878-90TI ! ''1958 Survey of Common Trust Funds," Federal Reserve B u l l e t i n , - XLV (May, 1959), pp. 477-482. . "The Fortune Directory, Part I I , " Fortune Magazine, LVII, (August, 1958), pp. 115-124. "The Meaning of Control i n the Protection of Investors," The  Yale Law Journal, LX (February, 1951), pp. 311-326. "The Pension Fund: The Assets Keep Climbing," Business Week, (June 21, 1958), pp. 97-100. ' The Security Markets. New York: Twentieth Century Fund Inc., United States Bureau of Census. S t a t i s t i c a l Abstract of the United States: 1959. Eighteenth E d i t i o n . Washington: Government P r i n t i n g Office, 1959. United States Bureau of Internal Revenue. S t a t i s t i c s of Income: 1955. Corporation Income Tax Returns. Washington: Govern-ment P r i n t i n g Office, 1958. United States Bureau of Internal Revenue. S t a t i s t i c s of Income: 1954. Fiduciary Income Tax Returns. Washington: Txovernment ^ r l E t i n g Office, TWT. United States Bureau of Internal Revenue. S t a t i s t i c s of Income: 1955. Individual Income Tax Returns. Washington:~"Grovern-ment P r i n t i n g O f f i c e , 195B7" 119 United States Senate. Factors Af f e c t i n g the Stock Market. Report of the Committee on Banking and Currency' Washington: Government P r i n t i n g O f f i c e , 1955. United States Temporary National Economic Committee, Monograph 29. The D i s t r i b u t i o n of Ownership Among the 200 Largest  Non-Financial Corporations; Washington: "Government P r i n t i n g O f f i c e , 1940. W a l l Street Notes," Fortune Magazine, LI (March, 1955), p. 77. 120 APPENDIX 121 APPENDIX A TABLE VIII THE 200 LARGEST NON-FINANCIAL CORPORATIONS .a Industry and Company Total Assets* M i l l i o n s of Dollars 1937 1957 MANUFACTURING Petroleum: Standard O i l (N.J..) $ 2,061 560 $ 8,712 Gulf O i l 3,241 Socony Mobil O i l 905 3,105 Standard O i l of C a l i f o r n i a 596 2,746 The Texas Company, 615 2,729 Standard O i l (Indiana) 735 2,535 P h i l l i p s Petroleum 213 1,520 S i n c l a i r O i l 352 1,481 Sh e l l O i l Company 380 1,385 C i t i e s Service 414 1,279 Tidewater O i l 204 797 A t l a n t i c Refining 186 751 Union O i l of C a l i f o r n i a 165 673 Sun O i l 128 653 Continental O i l ^ 104 604 Sunray-Mid-Continent O i l 538 The Pure O i l Company 178 523 The Ohio O i l Company 139 394 Standard O i l (Ohio) —. 386 R i c h f i e l d O i l 87 358 Skel l y O i l 367 Mid-Continent Petroleum 65 Transportation Equipment & Parts Manufacturing: General Motors Ford Motor Company Chrysler International Harvester General Dynamics Boeing Airplane 1,227 705 189 427 6,826 3,114 1,497 1,021 571 491 122 TABLE VIII (Continued) W. S. Grace $ $ 470 United A i r c r a f t 451 Lockheed A i r c r a f t — - 419 Borg Warner 416 Bouglas A i r c r a f t 407 Bendix Aviation — • 370 North American Aviation 350 General American Transportation 104 341 Curtiss Wright 319 Kaiser Industries 316 Mack Trucks 292 Pullman Inc. 264 American Machinery and Foundry 92 Iron and S t e e l : U. S. Steel 1,919 4^074 Bethlehem Steel 716 2,260 Republic Steel 365 930 Jones and Laughlin Steel 220 799 Armco Steel 146 723 National Steel 204 671 Inland"Steel 158 663 Youngstown Sheet and Tube 221 636 Kaiser Steel — - 449 Wheeling Steel 124 Chemicals: E.I. du Pont de Nemours 699 2,519 Union Carbide 293 1,456 Dow Chemical 875 O l i n Mathieson Chemical 792 A l l i e d Chemical 233 757 Eastman Kodak 179 710 Proctor and Gamble 144 688 Monsanto Chemical 631 American Cyanide 70 587 Celanese Corporation of Ameriea — • 342 Colgate Pamolive Peet 69 319 Non-Ferrous Metals: Aluminum Company of America 237 1,316 Anaconda 593 1,030 Kehnicott Copper 355 807 Kaiser Aluminum and Chemical 742 Reynold Metals ... 733 Phelps Dodge 196 424 American Smelting and Refining 152 414 National Lead 99 358 The American Metal Climax 68 The New Jersey Zinc 89 123 TABLE VIII (Continued) Climax Molybdenum0 . $ 81 $ — U. S. Smelting and Refining 72 E l e c t r i o a l and Electronics Machinery and Equipment: General E l e c t r i c 423 2,361 Westinghouse E l e c t r i c 228 1,401 Western E l e c t r i c 1,329 International Business Machines 74 1,087 International Telephone and Telegraphs 514 800 Sperry Rand — - 743 Radio Corporation of America 89 721 Food Products: Swift 320 545 National Dairy Products 203 535 Armour d 443 Armour and Company of Delaware 210 ' Armour and Company of I l l i n o i s 330 General Foods 76 404 Borden 122 336 Campbell Soup 292 C a l i f o r n i a Packing 65 Coca-Cola 76 Standard Brands 78 Com Products Refining 111 National B i s c u i t 124 American Sugar Refining 118 Cudahy Packing £61 Wilson 90 Rubber: Goodyear Tyre and Rubber 195 913 Firestone Tyre and Rubber 166 772 U. S. Rubber 179 530 B. F. Goodrich 135 527 Tobacco Products: American Tobacco 274 815 R. J . Reynolds Tobacco 181 713 Liggett and Meyers Tobacco 184 456 P h i l i p Morris 299 B u i l d i n g Materials and Equipment: Pittsburg Plate Glass Company 118 575 Owens-Illinois Glass Company 88 418 United States Gypsum Company 65 American Radiator Company Ltd. 166 Sanitary Corporation Crane Company 109 TABLE VIII (Continued) Lumber and Paper: International Paper Company Crown Zellerbach Corporation Weyerhauser Timber Company St. Regis Paper Company Scott Paper Company Tex t i l e M i l l Products: Burlington Industries J . P. Stevens Company American Woolen Products Textron (formerly American Woolen) D i s t i l l i n g : D i s t i l l e r s Seagrams Corporation National D i s t i l l e r y Corporation Schenley Industries Containers: American Can Continental Can Miscellaneous: C a t e r p i l l a r Tractor Deere and Company A l l i s Chalmers Singer National Supply United Shoe Machinery Hearst Consolidated Publications Texas Gulf Sulphur International Shoe Coal: Pittsburg Consolidation Coal Glen Alden Philadelphia and Reading Lehigh Coal and Navigation 125 TABLE VIII (Continued) Amusements; Loew's Inc. $ 143 $ Paramount Pictures 120 Warner Bros. Pictures 178 TOTAL MANUFACTURING $26,519 $104,656 MERCHANDISING Sears Roebuck and Company 284 1,578 Montgomery Ward 213 729 Great A t l a n t i c and P a c i f i c Tea 185 545 F. W. Woolworth 222 534 Anderson, Clayton 91 470 J. C. Penny 81 416 United F r u i t 187 404 Safeway Stores 72 398 May Department Stores 334 S. S. Kresge 124 S. H. Kress: 76 Gimbel Bros. 83 R.:'H. Macy 96 Marshall F i e l d 84 TOTAL MERCHANDISING $ 1,797 $ 5,408 TRANSPORTATION Pennsylvania Railroad 2,012 2,991 New"York Central Railroad 1,639 2,626 Southern P a c i f i c System 581 2j177 Atchison, Topeka and Santa Fe 1,104 1,548 Union P a c i f i c Railroad 1,095 1,497 Baltimore and Ohio Railroad 1,114 1,293 Chesapeake and Ohio Railway 674 1,087 Northern P a c i f i c Railway 785 972 Great Northern Railway 761 950 Missouri P a c i f i c Railway — — 898 Chicago, Burlington and Quincy Railroad 827 Southern Railway 820 I l l i n o i s 1 Central Railroad 644 704 L o u i s v i l l e and Nashville Railroad 448 700 Norfolk and Western Railway' 480 698 Chicago, Milwaukee, St. Paul and P a c i f i c Railroad 674 Chicago and Northwestern Railway —— 55^ A t l a n t i c Coast Line Railroad 529 New York, New Haven and Hartford Railroad 449 126 TABLE VIII (Continued) Chicago, Rock Island and P a c i f i c $ — - $ New York, Chicago and St. Louis Railroad 274 464 Erie Railroad 444 Reading Company 386 441 St. Louis, San Francisco 399 Seaboard A i r l i n e Railroad — - 366 Delaware, Lockawana and Western 174 314 Wabash Railroad 312 Pan American Airways 296 Boston and Maine Railroad 296 Missouri-Kansas-Texas Railroad 291 Greyhound 289 United A i r l i n e s 286 Boston and Albany Railroad 68 Carolina, C l i n c h f i e l d and Ohio Railway 68 Central Railroad Company of New Jersey 171 — -Delaware and Hudson 225 Kansas C i t y Southern Railway 134 Lehigh Valley Railroad f 209 Morris and Essex Railroad 90 Pere Marquette Railway 5 156 The V i r g i n i a Railway 154 Western Maryland Railway 167 Western P a c i f i c Railroad 114 Hudson and Manhattan Railroad 122 TOTAL TRANSPORTATION $ 16,140 $ 26,663 PUBLIC UTILITIES Communications: American Telephone and Telegraph 3,859 11^816 The P a c i f i c Telephone and Telegraph Co. 369 2,396 General Telephone Corporation 72 1,105 New England Telephone and Telegraph Co. .254 778 Western Union Telegraph 304 313 E l e c t r i c and Gas; P a c i f i c Gas and E l e c t r i c Company 641 2,146 Consolidated Edison Company of New York 1,-2-65 1,829 Commonwealth Edison Company 682 1460 E l Paso Natural Gas Company 1,324 American E l e c t r i c Power Company 441 1,283 Tennessee Gas'Transport —— 1,097 Southern C a l i f o r n i a Edison Company 357 1,064 Public Service E l e c t r i c and Gas Company 1,061 Southern Company --- 1,037 American and Foreign Power Company 700 957 Detroit Edison'Company ' 304 912 127 TABLE VIII (Continued). Niagara Mohawk Power Corporation $ 560 $ :• 882 Philadelphia E l e c t r i c Company 39-1- 869 Columbia Gas System 596 852 Consumer Power Company 235 805 General Public U t i l i t i e s Corporation 789 Texas Eastern Transmission Corp. ——— 767 People's Gas, Light and Coke 171 711 American Natural Gas Company 690 United Gas Corporation 266 678 Middle South U t i l i t i e s — 669 Texas U t i l i t i e s _— 654 P a c i f i c Lighting 153 625 Consolidated Natural Gas —- 614 Central and Southwest 189 585 New England E l e c t r i c System 362 576 V i r g i n i a E l e c t r i c and Power 541 Ohio Edison Company 533 Pennsylvania Power and Light _— 531 Union E l e c t r i c 524 West Pennsylvania E l e c t r i c Company 247 520 Northern States Power 265 506 Duke Power 158 477 Transcontinental Gas Pipeline 452 Long Island Lighting 131 438 Northern Natural Gas — 433 Baltimore Gas and E l e c t r i c 152 420 Lone Star Gas 129 408 F l o r i d a Power and Light 396 Public Service of Indiana —— 389 Duquesne Light 198 389 Wisconsin E l e c t r i c Power 377 Cleveland E l e c t r i c Illuminating 126 376 Cincinnati Gas and E l e c t r i c 128 375 I l l i n o i s Power — ' 358 Houston Lighting and Power 354 Boston Edison Company 164 328 New York State E l e c t r i c and Gas 324 American Power and Light Company 769 h American Waterworks Company 358 —— C i t i e s Service Company 1,099 h Commonwealth and" Southern 1,132 h E l e c t r i c Power and Light 682 h Engineers Public Service 341 h Federal Water Service' 176 h International Hydro-Electric 517 h Middle West U t i l i t i e s 408 h National Power and Light 548 h New England Gas and E l e c t r i c . 94 North American Company 795 h Philadelphia Gas and E l e c t r i c 336 h Public Service Corporation of New York 557 h 128 TABLE. VIII (Continued) Standard Gas and E l e c t r i c $ 811 $ h United Gas Improvement 765. — United Light and Power 507 h Kansas City Light and Power 76- h Koppers 343 — Brooklyn Union Gas « 111 h TOTAL PUBLIC UTILITIES $ 24,546 $ 56,152 GRAND TOTALS I 69,003 $192,879 a Total assets le s s depreciation. b Merger of Sunray O i l Company and Mid-Continent Petroleum Corp. c Merger with American Metal. d Merger of two companies September 1943 to form Armour a nd Co. e Leased l i n e s . f Acquired by Delaware, Lockawana and Western Railroad Company i n 1945. g Acquired by Chesapeake and Ohio i n 1947. h Dissolved under Public U t i l i t y Holding Company Act of 1935. Sources: United States Temporary National Economic Committee, Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest  Non-Pinancial Corporations, pp. 339-354 provides the 1937 figur e s : 19*57 data are taken from Moody's Investment Manuals; Lindahl and Carter, Corporate Concentration and Public P o l i c y, pp. 79-85, and "Directory of the 500 Largest I n d u s t r i a l I n d u s t r i a l Corporations, "Fortune Magazine, LVIII (July, 1958), pp. 131-150; "The Fortune Directory, Part I I , " Fortune Magazine, LVIII (August, 1958), pp. 115-124. 129 APPENDIX B This appendix discusses i n some d e t a i l the d i s t r i b u t i o n of ownership i n American corporations summarized i n Chapter VI of t h i s report. The picture i s one of wide public interest i n the equity s e c u r i t i e s of these corporations contrasted with, a high concentration of stock ownership i n the hands of a r e l a t i v e l y few persons. IMPORTANCE OF VARIOUS TYPES OF STOCKHOLDERS IN 1955-56 The importance of various types of stockholders such as corporations,' i n s t i t u t i o n s and domestic individuals i s shown i n the following two tables. The f i r s t , Table IX, depicts the types of holders as given by the stockholder of record data. The two basic data shareholdings and shares held by the stock-holder are presented as a percentage of t o t a l number outstan-ding. There i s one d i f f i c u l t y , however, with such a method; that i s , a l l shares tend to be considered of equal value. This i s not true. Therefore, to get a more r e a l i s t i c picture of the importance of the various types of holders, Table X presents a d i s t r i b u t i o n based on dividend payment. This admittedly i s only a rough approximation but i s the only p r a c t i c a l method available to obtain.a breakdown of ownership as a percentage of value. The t o t a l dividend payments made by American corporations i n 1955 was 15,588 m i l l i o n d o l l a r s of which approximately 13,468 130 TABLE IX DISTRIBUTION OP SHAREHOLDINGS AND SHARES BY TYPES OF STOCKHOLDERS OF RECORD. 1956 A l l Issues Type of Holder Shareholdings Shares Thousands M i l l i o n s Total Domestic 3 , 30,425 7,632 100$ 100$ Individuals (Non-Fiduciary) 27,782 4,343 91.3 56.9 Fiduc i a r i e s 1,457 568: 4.8 7.4 Individuals 959. 305 3.2 4.0 I n s t i t u t i o n s 497 263 1.6 3.4 Brokers and Dealers 1 3 355. ' 708. 1.2 9.3 Nomineesb 256 772 0.8 1Q.1 In s t i t u t i o n s and others 576 1,241 1.9 16.3 a Total shareholdings were 31,237,000 of which 812,000 were foreign-owned. b Includes shares owned by in d i v i d u a l s , f i d u c i a r i e s , and other types of stockholders whose shares were held i n the name of stock brokers and bank and trust company nominees. Source: New York Stock Exchange, Who Owns American Business, 1956 Census of Shareowners, pp. 23-28. 131 was taxable. 1 Of t h i s amount nineteen per cent v/as paid by domestic corporations to other corporations f i l i n g income tax returns, while the remaining amount was paid to domestic non-corporate and foreign stockholders. I t was estimated from data given i n the S t a t i s t i c a l Abstract on Investment Ineome and Receipts that roughly 191 thousand dollar s i n dividends was received by foreign stockholders. This represented approximately 1.5 per cent of the dividends. The remainder of the dividends, approximately eighty per cent were received by domestic non-corporate stockholders. Individuals received d i r e c t l y f i f t y - f i v e per cent, through f i d u c i a r i e s (trusts and estates) an ad d i t i o n a l f i f t e e n per cent, and eleemosynary, educational and pension t r u s t s 9>2 per cent. A further breakdown of the amounts received by corpora-tions shows some i n t e r e s t i n g f a c t s . Of the 2,54-6 m i l l i o n d o l l a r s nearly h a l f , or 1,168*millions, were reported by f i n a n c i a l com-panies. Investment corporations received the largest share, approximately s i x t y per cent, followed by Insurance companies with 373 m i l l i o n s . The data from dividend returns, though admittedly only a rough approximation of the value of stock held by various types of holders, was found to compare favorably with p a breakdown reported by the New York Stock Exchange. They found at the end of 1955 stock of American corporations, both p u b l i c l y and p r i v a t e l y owned, had an estimated market value of 350 to 380 m i l l i o n d o l l a r s . Individuals held d i r e c t l y s i x t y per cent of the ^United States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1955. Corporation Income Tax Returns. (Washington: Government P r i n t i n g O f f i c e , 1958;, p. JT. CTose to two b i l l i o n d o l l a r s was stock dividends. 2New York Stock Exchange, Fact Book: 1956, p. 27. 132 TABLE X DISTRIBUTION OF DIVIDENDS AMONG VARIOUS CLASSES OP RECIPIENTS 1955 Taxable dividends paid by domestic corporations Dividends from domestic corporations received by domestic corporations 8 . Dividends from domestic corporations received by domestic non-corporate and foreign stockholders Dividends from domestic corporations received by foreign stockholders' 3 Dividends reported by in d i v i d u a l s f i l i n g income tax r e t u r n s 0 Income from estates and t r u s t s received by in d i v i d u a l s but not reported as dividend income Dividends received by Fid u c i a r i e s and not di s t r i b u t e d to beneficiaries' 1 Dividends received by others, which includes pension t r u s t s , non-profit i n s t i t u t i o n s , etc. M i l l i o n s of Dollars 13,468 2,546 10,922 191 10,731 517 847 1,237 Sources: U n i t e d States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1955« Corporation income Tax Returns, (Washington: GovernmenOrinting Office, 1958;, p. TH b United States Bureau of Census, S t a t i s t i c a l Abstract of the United States: 1958, Seventy-ninth E d i t i o n , (Washington, D7C\, T558J, p. 8W. cUnited States Bureau of Internal Revenue, S t a t i s t i c s of Income: 1955. Individual Income Tax Returns, (Washington: Govern-ment P r i n t i n g O f f i c e , 1958J, pp. 6 and 26. ^United States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1954. Fiduciary Income Tax Returns, (Washington: Govern-ment PrinHng Office, 1957;, pp.HPS. 133 stock and an additional twelve per eent through hank administered personal t r u s t funds. F i n a n c i a l i n s t i t u t i o n s held an estimated eleven per cent of the stock with the remainder owned by non-f i n a n c i a l corporations. The differences between the above c l a s -s i f i c a t i o n and the one based on dividend receipts are primarily d e f i n i t i o n a l . Thus, the corporate sector used i n the dividend c l a s s i f i c a t i o n includes some f i n a n c i a l i n s t i t u t i o n s , insurance and investment companies but not charitable i n s t i t u t i o n s , pension t r u s t s , etc., whereas the New York Stock Exchange grouping of f i n a n c i a l i n s t i t u t i o n s lumps them a l l together. The corporate sector combined (including non-financial and f i n a n c i a l corpora-tions) i n both c l a s s i f i c a t i o n s was almost i d e n t i c a l , twenty-seven per cent of the t o t a l value as estimated by the New York Stock Exchange and twenty-eight per cent f o r the S t a t i s t i c s of Income, A further breakdown of t h i s sector, however, did not reveal the same agreement. The New York Stock Exchange c l a s s i f i c a t i o n showed f i n a n c i a l i n s t i t u t i o n s holding eleven per cent and non-financial corporations sixteen per cent of the value, whereas dividend receipts showed f i n a n c i a l i n s t i t u t i o n s with almost eighteen per cent and non-financial corporations a l i t t l e better than ten per eent. Part of the discrepancy can be explained by the fact that some of the dividend receipts may have not been disclosed through consolidated returns. Agreement was also quite good i n the two c l a s s i f i c a t i o n s f o r the i n d i v i d u a l sector. Individuals, t r u s t s and estates made up seventy per cent using dividend receipts and seventy-two per cent as reported by the New York Stock Exchange estimates. The dividend c l a s s i f i c a t i o n was used i n the main body of 134 the thesis primarily because i t conformed closer to the 1956 New York Stock Exchange survey c l a s s i f i c a t i o n and also permitted comparison with e a r l i e r r e s u l t s using the same method. 135 TABLE XI DISTRIBUTION OP SHAREOWNERS BY INCOME CLASSES 1956 Reported Household Income a Under $3,000 $3,000 to $5,000 $5,000 to $7,500 $7,500 and over Adult Population Per Cent Number Thousands 34,020 36,400 18,940 10,370 2.8 5.9 11.6 28.6 Shareowners Per Cent Number Thousands 960 2,176 2.190 2.970 11.6 26.1 26.4 35.0 99,800 8.3 8,280J 100 ^ a s e d on 1955 income before taxes. ^350,000 shareowners not c l a s s i f i e d by income were members of United States Armed Forces, United States c i t i z e n s r e s i d i n g abroad, transients, and people i n i n s t i t u t i o n s . Source: New York Stock Exchange, Who Owns American Business. 1956 Census of Shareowners, p. 15. 136 TABLE XII PROPORTION OP DIVIDEND INCOME TO GROSS INCOME AND PROPORTION OP RETURNS IN EACH INCOME CLASS REPORTING DIVIDENDS Adjusted Gross Income Classes Under Percentage of Dividend Adjusted Dividends Returns repor- I m Gross as a per-t i n g Dividends l n c o m e { j V 0 S 8 centage of i n each, class M i l l i o n s Income gross income $ 1,000 under • % 2,000 2,000 a 3,000 3,000 M 5,000 5,000 W 7,500 7,500 M 10,000 10,000 n 15,000 15,000 w 25,000 25,000 n 50,000 50,000 n 100,000 100,000 n 200,000 200,000 II 500,000 500,000 w 1,000,000 or TOTAL 2.2 "$ 48 $ 3,828 1.3 5.5 161 12,828 1.3 3.9 205 21,133 1.0 3.9 444 66,251 .67 6.3 ' 499 66,027 .76 12.8 452 29,305 1.5 32.5 744 17,924 4.2 54 ' 1,006 11,983 8.5 70 1,403 10,433 13.5 85 1,129 5,151 22 93 733 2,226 33 95 470 1,144 41.4 100 185 418 45 98 272 568 47.5 $7,851 $248,530 3.2 Source: United States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1955. Individual Income Tax Returns (Washington: Government P r i n t i n g Office;, p. 20. 137 TABLE XIII AVERAGE DIVIDEND INCOME OP TAX RETURNS PILED BY INDIVIDUALS BY ADJUSTED GROSS INCOME CLASSES8, Joint Returns Single Persons Adjusted Gross Income Classes Under $3 $ 3,000 • 5,000 7,500 10;000 15,000 25,000 50,000 100,000 - cw,vuv 200,000 - 500,000 500,000 - 1,000,000 Over $1,000,000 ,,000 to $ 5,000 - - 7,500 10,000 15,000 25,000 50,000 100,000 200,000.Average Average Number Amount Dividend Number Amount Dividend 000's M i l . - 000's M i l . 247 $ 112 $ 450 506 $ 286 $ 565 298 . 168 570 287 : 239 830 456 236 520 194 213 ' 1,100 358 232 645 72 181 2,500 404 460 1,200 55 226 4,100 292 690' 2,350 37 266 ' 7,200 190 998 5,250 20 330 - 16,500 57 842 14,800 6 235 * 39,000 13 548 42,000 1.380 148 107,000 3 347 115,700 501 94 187,000 0468 130 277,000 96 41 427,000 0159 100 625,000 52 80 1,540,000 ^o e s not include a l l returns f i l e d by ind i v i d u a l s who received dividends. Excludes separate returns of husbands and wives, returns of surviving spouse and returns of head of house-hold. These groups make up less than f i v e per cent of the t o t a l . Source: United States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1955, Individual Income Tax Returns, (Washington: Govern-ment P r i n t i n g O f f i c e , 1958), pp.~"2"F-33^ 138 TABLE XIV DIVIDENDS RECEIVED BY INDIVIDUALS CLASSIFIED BY ADJUSTED GROSS INCOME GROUPS Adjusted Gross Income Classes Under $1,000 $ 1,000 - $ 2,000 2,000 - 3,000 3,000 - 5,000 5,000 - 7,500 7,500 - 10,000 10,000 - 15,000 15,000 - 25,000 25,000 - ; 50,000 50,000 - 100,000 100,000 and over TOTAL Returns reporting Dividends Number Per Cent Thousands 129 3.6 341 9.3 322 8.9 626 16.9 678 18.5 448 12.3 477 13.0 339 9.0 218 5.9 66 1.8 21 .8 3,716 10.0 Dividends Amount Per Cent M i l l i o n s $ 48 0.6 161 2.1 205 2.7 444 5.7 499 6.4 452 5.8 744 9.6 1,006 12.9 1,403 18.0 1.1.29 14.6 1,660 21.5 $7,851 100 Source: United States Bureau of Internal Revenue, S t a t i s t i c s of  Income: 1955, Individual Income Tax Returns, (Washington: "SoveramenTTrinting Off i c e , 19587T"pTTr 139 TABLE XV TYPE AND SIZE OP STOCK HOLDINGS IN PUBLIC CORPORATIONS WITHIN INCOME GROUPS. EARLY 1957. Percentage D i s t r i b u t i o n of Spending Units Size of Holding A l l Over Dollars Units $3,000 $5,000 $7,500 10 ,000 $10,000 Zero 89 95 93 88 80 57 $ 1 - $ 200 1 1 1 2 200 - - 500 1 1 3 2 500 - 1,000 1 1 1 2 3 4 1,000 - 2,000 1 —— 1 2 2 2 2,000 - 5,000 2 1 1 2 4 7 5,000 - 10,000 1 1 1 1 2 4 10,000 and over 3 — 2 1 2 19 Not ascertained 1 1 — . 1 2 5 100 100 100 100 100 100 Source:"1957 Survey of Consumer Finances," "The Fin a n c i a l Position.of Consumers," Federal Reserve B u l l e t i n , V o l. 42, (August, 1957), p. 894. 140 TABLE XVI PROPORTION OP STOCKHOLDERS TO ADULT POPULATION IN UNITED STATES. 1927-1959. Stockholders as Number of Adult a percentage of Year Stockholders Population Adult Population M i l l i o n s Thousands 1927 4-6 69,814 5.7- 8.6 1930 9-11 73,521 12.1-15 1937 8-9 81,140 9.9-11.1 1952 6.5 98,133 6.6 1956 8.6 99,800 8.6 1959 12.5 104,582 12 Sources: Population. United States Bureau of Census, S t a t i s t i c a l Abstract of the  United States: 1959. (Eightieth E d i t i o n ; , (Washington: Govern-ment P r i n t i n g O f f i c e , 1959), pp. 357-358. Number of Stockholders. 1927, A. A. Berle, J r . , and G. C. Means, The Modem Corporation  and Private Property, (New York: The MacMillan Company, 1932;, PP. 372-374; 1930. The Security Markets (New York: Twentieth Century Fund, 1935), pp. 49-50. 1937, United States Temporary National Economic Committee, Mono-graph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest Non-Pinancial Corporations, (WasEington: Government P r i n t i n g Office, 1946), p. 10 1952, L. H. Kimmel, Share Ownership i n the United States (The Brookings I n s t i t u t i o n , 1952;, p. »§. 1956, New York Stock Exchange, Who Owns American Business, 1956  Census of Shareowners, p. 3. 1959, New York Stock Exchange, 1960 Pact Book, p. 27. 141 APPENDIX C TABLE XVII CONCENTRATED HOLDINGS OP COMMON STOCK OP THE 200 LARGEST NON-PINANCIAL CORPORATIONS AS OP DECEMBER 31, 1954 (000's omitted) Name of Company Shares out-Shares held by Shares Other Held by Large Per standing I n s t i t u t i o n O f f i c e r s Holdings Cent A l l i e d Chemical A l l i s Chalmers Aluminum Alum. Co. of America American Can American Cyanide American & Foreign Pwr American Gas & E l e c t . American Natural Gas American Smelting American Tel. & Tel. American Tobacco Anaconda Anderson, Clayton Armco Steel Armour Atchison Topeka A t l . Coast Line RR A t l a n t i c Refinery Ba i t . & Ohio RR Bendix Aviation Bethlehem Steel Boeing A i r c r a f t Borden Borg Warner Boston Edison Boston and Maine RR Burlington M i l l s " C a t e r p i l l a r Tractor 1 8,858 3,271 9,016 9,884 10,886 8,862 . 7,224 12,846 3,684 5,443 42,337 6,512 8,674 3,242 5,214 4,066 4,854 823 8,962 2,563 4,234 9,853 3,247 4,283 7,194 2,716 547 7,047 3,974 etc. 2 3 4 5 659 204 1,413 26 347 5 — 11 850 25 2,360 36 446 2,153 — 26 1,196 367 14 783 48 —— 10 15 2 3,942 55 1,837 10 — 14 663 86 — 20 365 13 —. 7 707 8 —— • — 550 19 -— 9 55 27 1 mmu 28 1,694 — 53 184 35 —— am turn 69 146 — 5 618 5 — 13 103 3 236 42 610 17 — 17 23 3 25 —. 424 62 — 12 573 5 — 6 121 39 a 419 18 198 86 — 7 543 393 — 13 158 21 1 o — 7 358 1 c. 362 10 355 74 — 11 \ 142 TABLE XVII (Continued) Celanese 5, ,845 235 795 18 Central and S.W 9, ,091 1,629 9 — 18 Chesapeake and Ohio 7, 856 465 267 — 9 Chicago, M i l . St. P. 2, ,123 34 4 — —-Chicago and N.W. Rwy. 816 27 2 — — Chicago, Rock Island 1, ,403 217 92 — 22 Chrysler 8, 702 477 88 — 7 Cincinnati Gas & Elec. 6, 700 1,151 35 —— 18 C i t i e s Service 9, 718 458 438 — 9 Cleveland E l e c t . Ilium. 3, 344 538 6 — 16 Colgate Pamolive 2, 425 349 180 — 22 Columbia Gas 18, 000 1,142 30 754 11 Comm. Edison 14, 831 1,037 46 — 7 Cons. Edison 13, 365 1,031 12 — 8 Cons. Natural Gas 7, 366 1,166 24 — 16 Consumers Pwr. 7, 474 1,012 13 — 14 Continental Can 3, 478 505 40 — 16 Continental O i l 9, 747 1,526 69 582 22 Crown Zellerbach 6, 172 639 250 — 14 Curtiss Wright 6, 984 24 33 — — Deere & Company 6, 700 948 162 1 ,292 36 Delaware, Lock. & W. •1i 689 8 17 a 381 133 32 Detroit Edison 10, 730 730 11 7 D i s t i l l e r s Corp. 8, 769 179 3 ,397 ,— 41 Douglas A i r . 2, 500 1,629 9 — 11 Dow Chemical 22, 644 1,543 1 ,669 — 14 du Pont 45, 449 1,311 2 ,998 13 3£ Duquesne Light 6, 150 438 23 1 ,118 26 Eastman Kodak 17, 401 1,147 102 — 7 E l Paso Natural Gas 4, 524 557 102 — 15 Erie Railroad 2, ,450 104 5 — 5 Firestone 7, ,890 834 2 ,372 — 41 F l o r i d a Light & Power 2, 340 386 5 — 16 Gen. American Trans. 2, ,182 286 79 — 7 General Dynamics 1, ,974 57 22 — — General E l e c t r i c 86, 538 4,781 141 39 6-General Foods 5, ,821 339 253 — 10 General Motors 87, 485 1,691 3 ,593 20 ,363 29 General P u b . U t i l i t i e s 9, ,099 1,605 5 — 18 General Telephone 3, ,414 123 17 — — Goodrich 8, 394 1,684 62 166 23 Goodyear 9, ,032 936 84 — 11 Grace, W. R. 2, ,634 93 — b ? Great Northern 6 ,082 895 11 — 1-5 Greyhound 10 ,600 78 247 —. — Gulf O i l 24 ,542 2,168 1 ,953 b Houston Light & Power 5 ,282 849 44 — i-7 I l l i n o i s Central 2 ,216 490 8 538 38 I l l i n o i s Power 2 ,810 713 4 — 26 Inland Steel 4 ,917 313 263 261 17 I. B. M. 4 ,098 347 142 — 12 143 TABLE XVII (Continued) International Harvester 13, ,373 810 322 — 9 International Paper 9, ,792 1,441 68 — 15 Int. Tel. & Tel . 7, ,177 61 44 — — Jones & Laughlin 6, ,200 65 127 156 6 Kaiser Aluminum ,784 19 4 2,717 72 Kennecot 10, 821 920 36 141 10 Liggett & Meyers 3, 912 321 15 — 9 Lockheed A i r . 2, 681 128 98 8 Lone Star Gas 5, ,499 386 54 — 8 Long Island Light 5, 520 322 148 — 9 Louis & Nashville 2. 337 224 3 823 45 Mack Trucks 1,569 21 27 495 35 May Dept. Stores 5, 841 326 632 — 16 Mid-Cont. Petroleum 1, 860 299 34 — 18 Middle South 7, 125 1,740 6 — 25 Montgomery Ward 6, 502 567 67 — 10 Monsanto Chemical 5, 220 598 133 — 14 National Dairy 13, 408 700 260 — 7 National D i s t i l l e r s 8, 450 134 15 — — National Lead 11i 380 1,361 156 — 13 National Steel 7, 348 652 445 2,001 55 New England E l e c t . 9, 109 726 27 — 8 New York Central.. 6, 447 44 c 1,000 — 16 N.Y., Chicago & St. L. 2, 039 237 74 363 33 N.Y., N.H. & Hart. 525 13 48 — 12 New York State E l e c t . 3, 034 817 5 — • 27 Niagara Mohawk 11, 556 1,734 66 857 23 Norfolk & Western 5, 626 247 9 2,397 47 North American Av. •3, 435 387 7 — 12 Northern Natural Gas 3, 289 642 5 — 20 Northern P a c i f i c 2, 480 258 8 15 11 Ohio Edison 5, 806 712 9 — 12 Ohio O i l 6, 563 739 21 — 12 Ol i n . Math. Chem. 10, 832 383 3,322 —- 34 Owens-Illinois 3, 057 271 201 208 22 P a c i f i c Gas & El e c t . 11, 811 968 39 — 9 P a c i f i c Lighting 5, 400 151 76 5,658 — P a c i f i c T el. & Tel. 6, 212 25 8 92 Pan American 6, 084 39 126 a 705 14 Penny J . C. 8, 232 486 319 — 10 Pexm. Power & Light 5, 639 177 27 — — Pennsylvania EE 13, 168 274 13 115 — People's Gas 1, 118 162 1 — 15 Phelps-Dodge 10, ,143 1,064 153 429 16 Philadelphia E l e c t . 10, ,805 651 30 — 6 P h i l i p Morris 2, ,880 314 19 252 20 P h i l i p s Petroleum 14, ,624 1,091 95 — 8 Pittsburgh Cons.Coal 2, ,151 118 70 755 44 Pittsburgh Plate Glass 9, ,061 434 139 2,871 39 Proctor & Gamble 9, ,633 275 147 — — Pub.Serv.Gas & E l e c t . 9 ,346 1,074 7 — 12 Pub. Serv. Indiana 4 ,251 844 9 — 21 144 TABLE XVII (Continued) Pure O i l 4, ,068 367 11 9 Radio Corporation 14, ,031 714 46 — 5 Reading RR 1, ,400 2 4 862 62 Republic Steel 5, ,955 310 9 174 10 Reynolds Metals 1, ,802 142 c 250 969 76 R i c h f i e l d O i l 4, ,000 139 23 2,482 66 Safeway Stores 3, 466 162 23 — 5 St. Louis—S.P. 1, 754 103 7 — 6 St. Regis Paper 5, 391 42 167 771 18 Schenley 4, 366 25 1 ,009 —- 24 Scott Paper 7, 798 356 677 —— 13 Seaboard A i r l i n e 2, 349 586 50 — 27 Sears Roebuck 24, 210 1,006 204 6,319 31 S h e l l O i l 27, 500 1,367 24 17,983 71 S i n c l a i r O i l 12, 306 533 28 —. 5 Skelly O i l 5, 746 470 80 3,412 69 Socony Mobil 34, 982 2,121 40 — 6 So. Cal. Edison 6, 297 851 — — Southern Co. 18, 088 1,810 — — — Southern Railway 2, 596 241 55 —— 11 Sperry Rand 4, 276 172 72 a 266 12 Southern P a c i f i c 9, 047 758 53 —. 9 Standard O i l ( C a l i f . ) 28, 673 1,737 77 44 7 Standard O i l (Ind.) - 30, 506 2,694 32 40 9 Standard O i l (N.J.) 60, 502 3,537 40 2,119 9 Standard O i l (Ohio) 4, 011 222 9 — 6 Stevens, J.P. 3, 961 417 734 — 29 Sun O i l 7, 656 155 3 ,898 —— 53 Sunray 10, 776 42 148 — — Swift 5, 922 150 78 . — . — Texas Company 27, 476 1,890 416 — 8 Texas U t i l i t i e s 5, 905 1,006 156 — 20 Tidewater O i l 13, ,433 194 141 7,116 56 Union Carbide 28, 953 1,582 109 —- 6 Union E l e c t r i c 10, 383 121 48 8,603 85 Union O i l 5, 809 178 461 — 11 Union P a c i f i c 4, 446 457 45 —— 11 United A i r c r a f t 3, 217 366 34 — 12 United A i r l i n e s 2, 463 660 33 — 7 United F r u i t 8, 775 142 112 — 9 United Gas 12, 890 1,933 22 1,655 28 U. S. Rubber 5, 302 317 122 — 8 U. S. Steel 26, ,110 585 21 167 — V i r g i n i a Light & Pwr. 6, ,000 1,097 19 — 19 West. Penn. E l e c t . 4, ,224 421 33 — 11 Western Union 1, 231 22 42 — 5 Westinghouse 15, ,992 1,682 22 — 11 Woblworth 9, ,704 330 540 — 9 Wisconsin Elect.Pwr. 4, ,215 977 219 . — 28 Youngstown Sheet. & Tube 3, ,358 280 93 181 17 145 a. Many thousands of shares were i n brokers' names. b. Very large. c. Approximat ely. d. The figures i n " o f f i c e r s , directors, etc." column include holdings i n t r u s t s , estates and charitable i n s t i t u t i o n s . e. Percentage i s a combination of columns 2, 3 and 4. Special Notes: 1. The information contained herein was from public records. 2. The study excludes large holdings of l i s t e d corporations whose p o r t f o l i o s are not public information. 3. Information regarding holdings of certain organizations not available including some charitable organizations, colleges, pension funds, t r u s t departments of banks, and stocks held i n brokers' names f o r customers' accounts. Source: United States Senate, Factors A f f e c t i n g the Stock  Market, Report of the Committee on Banking and Currency, (Washington: Government P r i n t i n g Office, 1955), pp. 167-181 146 TABLE XVIII THE 100 LARGEST INSTITUTIONAL "BIG BOARD" COMMON STOCKHOLDINGS, APPROXIMATE PERCENTAGE OP OUTSTANDING COMMON SHARES OWNED AS OP DECEMBER 31, 1953. Per Per Cent Cent A l l i e d Chemical 7 Great Northern Railway 15 Aluminum 9 Gulf O i l 9 AliamihUm Co.of America 4 Gulf States U t i l i t i e s 21 Amerada 23 Hercules Powder ' 11 American Can 11 Houston Lighting 16 American Cyanide 9 I l l i n o i s Power 26 American Gas & El e c t . 14 I. B. M. 8 American Natural Gas 18 International Harvester 6 American Tel. & Tel. 2 International Nickel 5 American Tobacco 8 International Paper 15 Atchison Topeka 13 Johns Manville 18 Bethlehem Steel 6 Kennecott 9 Central & S.W. 18 Kimberley Clark 8 Chrysler 5 Libby Owned 8 Cincinnati Gas & El e c t . 18 Mid-Cont. Petroleum 16 C.I.T. Fi n a n c i a l 10 Mid. So. U t i l i t i e s 24 Cleveland E l e c t r i c 16 Minn'. Honeywell 14 Columbia Broadcast 17 Minn. Mining 6 Comm. Edison 6 Monsanto Chemical 11 Cons. Edison 8 Montgomery Ward 8 Cons. Natural Gas 16 National Cash Register 13 Consumers Power 14 National Dairy 5 Continental Can 14 National Lead 12 Continental O i l 16 National Steel 9 Corn Products 12 N.Y. State E l e c t r i c 27 Crown Zellerbach 9 Niagara Mohawk 15 Deere & Company 14 North American Company 13 Dow Chemical 7 Northern National Gas 18 du Pont 3 Ohio Edison 12 Eastman Kodak 7 Ohio O i l 11 Firestone Tire 10 Owens 111. Glass 9 General E l e c t r i c 6 P a c i f i c Gas & E l e c t r i c 6 General Foods 6 Panhandle Eastern Pipeline 16 General Motors 2 Penny, J . C. 6 General Public U t i l i t i e s 17 People's Gas 15 Goodrich 20 Phelps Dodge 11 Goodyear 10 P h i l l i p s Petroleum 7 147 TABLE XVIII (Continued) Pittsburgh Plate Glass 5 Standard O i l (N.J.) 6 Proctor & Gamble 3 Texas Company 7 Public Serv.Elec.& Gas 11 Texas Gulf Sulphur 8 Public Serv.Ind. 20 Texas U t i l i t i e s 18 Reynolds, R.J.B. 8 Union Carbide 5 Seaboard A i r l . RR 24 Union P a c i f i c RR 10 Sears Roebuck 4 United F r u i t 8 Sh e l l O i l 5 United Gas Corp. 15 Socony Mobil O i l 6 U. S. Gypsum 14 Southern Calif.Edison 12 U. S. Steel 2 Southern Company 10 V i r g i n i a Elect.& Power 19 Southern P a c i f i c 9 Westinghouse 10 Standard O i l ( C a l i f . ) 6 Wisconsin Elect.& Power 21 Standard O i l (Ind.) 8 Source: United States Senate, Factors Affecting the Stock Market, Report of the Committee on Banking and Currency, (Washington: Government P r i n t i n g Office, 1955), p. 201. 

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