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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. U n i v e r s i t y of A l b e r t a , 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 t h e s i s as conforming t o the r e q u i r e d standard  THE UNIVERSITY OP BRITISH COLUMBIA August, 1960  In presenting  this thesis i n p a r t i a l fulfilment of  the r e q u i r e m e n t s f o r an advanced degree a t the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I agree t h a t t h e L i b r a r y s h a l l make it  f r e e l y a v a i l a b l e f o r r e f e r e n c e and s t u d y .  I further .  agree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f 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 g r a n t e d by t h e Head o f my Department o r by h i s r e p r e s e n t a t i v e s .  I t i s understood  that 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 a l l o w e d w i t h o u t my w r i t t e n  Department o f  Commerce  The U n i v e r s i t y o f B r i t i s h Vancouver.3, Canada. D a t e  August, 1960.  Columbia,  permission.  ABSTRACT The modern c o r p o r a t i o n d i d 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 a c t without a long struggle marked by an i n c r e a s i n g l i b e r a l i z a t i o n of i n c o r p o r a t i o n process and a p p r e c i a t i o n of i t s merits by businessmen.  This l e d to the  r i s e of the corporate system and r e s u l t e d i n the concentration of i n d u s t r y 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 l a s t e d s e v e r a l decades and was aided by the i n c r e a s i n g l y wide d i s p e r s i o n of ownership among thousands upon thousands of s c a t t e r e d shareholders.  H i s t o r i c a l l y c o n t r o l was  exercised by ownership of a m a j o r i t y of the v o t i n g stock. was a p r o p r i e t a r y r i g h t .  This  As corporations grew i n s i z e and  economic importance, ownership began to disperse and c o n t r o l through l e s s than m a j o r i t y ownership evolved.  This was aided by  l e g a l devices and v a r i o u s techniques that made c o n t r o l p o s s i b l e w i t h 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 w i t h the advent of management c o n t r o l , which stemmed from the wide d i s p e r s a l of ownership among small s c a t t e r e d stockholders.  The r i s e of the i n s t i t u t i o n a l i n v e s t o r s 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 portfolios.  Thus, c o n t r o l may  ship f o r i t s existence.  once more be dependent on owner-  iii The changes t h a t t h i s e v o l u t i o n has brought about have had t h e i r e f f e c t on the system.  Management c o n t r o l , the dominant  form of c o n t r o l i n i n d u s t r y , at present, has many inherent dangers. P r o f i t i s no longer the only m o t i v a t i n g f o r c e d r i v i n g the c o n t r o l l i n g group.  The c o r p o r a t i o n has become a prominent c i t i z e n i n  the community i n which i t r e s i d e s , r u l e d by men accountable t o themselves alone.  Gone: are the inherent checks on management and  the a b i l i t y to oust them when they become s l a c k or dishonest. C o n t r o l has become a power p o s i t i o n i n the economy w i t h no prop r i e t a r y r i g h t t o the s i t u a t i o n .  Ownership has been reduced t o  the passive p o s i t i o n of r e c e i v i n g dividends.  We accept t h i s t h e s i s as conforming t o the required standard  TABLE OF CONTENTS Page 1  INTRODUCTION  1  The Problem Statement of the Problem  1  Importance of the Study  2  Scope of the Study . . . .  4  Method of I n v e s t i g a t i o n  7 . 8  D e f i n i t i o n of Terms Used  8  Corporation  • 8  Public. Corporations Fiduciary Institutions  9  Shareholdings  9  Stockholder  . . .  9  Control.  9  Ownership  9  Proxy. . . .  9  CHAPTER I. II.  CORPORATE HISTORY  10  THE CHANGING CORPORATE SCENE  15  Overall Picture  16  A n a l y s i s of Changes Over the Years  18  Manufacturing.  18  Transportation  20  Public U t i l i t i e s .  21  Summary  .  23  vi CHAPTER III. THE EVOLUTION OP CONTROL  Page 24  M i n o r i t y C o n t r o l Aides  30  Management Control  32  Perpetual Management C o n t r o l  34  Summary. IV.  . 37  THE LOCATION OP CONTROL IN THE 200 LARGEST NONFINANCIAL CORPORATIONS . . .  38  B e r l e and Means Study  39  The Temporary N a t i o n a l Economic Committee Study of the Concentration of Economic Power . . . . . 42 The Location of C o n t r o l i n the 1937 L i s t  V.  43  Types of Ownership C o n t r o l .  44  Minority Control .  45  The Postwar E r a  51  Summary  52  THE CHARACTER OF OWNERSHIP IN THE LARGE CORPORATION  53  The General P i c t u r e  54  Holdings of D i f f e r e n t Types of Owners  VI.  .57  D i f f e r e n c e s Among I n d u s t r i e s . . . . . . . . . . .  59  Summary  63  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. Number of Stockholders and Shareholdings  64 . . . . 66  R e l a t i o n between Income and Shareownership . . . 67 Concentration of Stock Ownership  69  vii CHAPTER  Page Concentration of Stock Ownership i n I n d i v i d u a l Corporations  •. •. •  Trends i n D i s t r i b u t i o n o f Ownership . . . . . . . .  711.  74 75  Types of Stockholders . . . . . . . . . . . . . .  75  Number of Stockholders.  76  Concentration of Ownership. . . . . . . . . . . . .  78  Summary  81  INSTITUTIONAL STOCKHOLDINGS  82  The P a t t e r n of Ownership  v  .  83  The Trends of I n d i v i d u a l 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 VIII.  96  THE MEANINGS .OP CONTROL AND OWNERSHIP AND ITS IMPLICATIONS The S e c u r i t i e s  98  and Exchange Commission and y  the Meaning of C o n t r o l . . . . . . . . C o n t r o l and the Investment Company I n s t i t u t i o n a l Investors IX.  SUMMARY  '.  F  ,?  *•  . . . . '. . 100 104 . . . . . . 109 111  BIBLIOGRAPHY  115  APPENDIX.  120  viii  LIST OP TABLES TABLE I.  Page D i s t r i b u t i o n of Assets i n 200 Largest NonF i n a n c i a l Corporations by Industry . . . . . . . .  II.  Type of C o n t r o l by Industry i n the 200 Largest Non-Financial Corporations i n 1930 . . . . . . . .  III.  41  D i s t r i b u t i o n o f the 200 C l a s s i f i e d by Type of Dominant I n t e r e s t Group and Industry  IV.  50  Estimated Holdings o f E q u i t y S e c u r i t i e s by I n s t i t u t i o n s Market Value on December 31, 1955. . . . .  V.  . ... V  1949-55  .90  Estimated Holdings of New York Stock Exchange Stocks by I n s t i t u t i o n a l Investors  VIII. IX.  92  The 200 Largest Non-Financial Corporations . . . . .  XII.  130  D i s t r i b u t i o n of Dividends Among Various Classes of R e c i p i e n t s . . . .  XI.  121  D i s t r i b u t i o n of Shareholdings and Shares by Types of Stockholders of Record  X.  87  Estimated I n s t i t u t i o n a l Holdings of E q u i t y Securities.  VII.  84  Estimated Purchases of Stocks by Class of Holder 1951-54 . .  VI.  17  . . ....  . . .132  D i s t r i b u t i o n of Shareowners by Income 1956 . . . . .  135  P r o p o r t i o n of Dividend Income t o Gross Income and Returns i n Each Income Class Reporting Dividends .  136  ix  TABLE XIII.  Page Average Dividend Income of Tax Returns P i l e d by I n d i v i d u a l s by Adjusted Gross Income Classes  XIV.  . . . . .  137  Dividends Received by I n d i v i d u a l s C l a s s i f i e d by Gross Income Groups .  XV.  138  Type and Size of Stockholdings i n P u b l i c Corporations w i t h i n Income Groups.  Early  1957 . . . XVI.  P r o p o r t i o n of Stockholders t o Adult Population i n United S t a t e s .  XVII.  139  1929-1959  140  Concentrated Holdings o f Common Stock o f the 200 Largest Non-Financial Corporations as of December 31, 1954  XVIII.  141  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 1. *  • . , .  P a  S  e  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 .  2.  55  Per Cent o f " T o t a l 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.  3.  D i s t r i b u t i o n by Type of Owner  P r o p o r t i o n of Stock Issues of 200 Largest  58 Non-  F i n a n c i a l Corporations of 1937 I n c l u d e d " i n 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.  5.  71  Annual Net Purchases of Common Stock by Financial Institutions  89  INTRODUCTION Since the huge undertaking o f the United States Temporary N a t i o n a l 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 c o n t r o l o f the modern corporation;^  This s m a l l aspect o f the concentration of economic power  has been a c o n t i n u a l source o f i n v e s t i g a t i o n f o r many years and w i l l remain so as l o n g 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 t h a t  corporations w i e l d ; t h e i r i n f l u e n c e i s economic, p o l i t i c a l and social. The r i s e o f the corporate system l e d t o the concentrat i o n o f i n d u s t r y i n the corporate form and has r e s u l t e d i n the separation o f ownership and management. took place over many decades.  This process o f change  I t caused changes i n the p a t t e r n  and d i s t r i b u t i o n o f ownership, l o c a t i o n form and devices o f c o n t r o l , and thus the meaning and i m p l i c a t i o n s o f c o n t r o l and ownership.  J  THE PROBLEM Statement o f the Problem. i s t o determine  The purpose o f t h i s study  1) the f a c t u a l s i t u a t i o n o f c o n t r o l and ownership  ^United States Temporary N a t i o n a l Economic Committee, Monograph 29, The D i s t r i b u t i o n o f Ownership i n the 200 Largest Non-Financial Corporat i o n s , (Washington: Government P r i n t i n g O f f i c e , 1940;.  2 i n the modern c o r p o r a t i o n t h a t e x i s t e d i n the past up to the present, and 2) some of the meanings and i m p l i c a t i o n s of c o n t r o l and ownership. questions.  T h i s i n v o l v e s an answer to the f o l l o w i n g l i s t of  They are considered as a minimum. 1.  What i s the dominant form of c o n t r o l ?  2.  What c o n s t i t u t e s e f f e c t i v e c o n t r o l of a corporat 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 a f f e c t c o n t r o l ?  Importance of the Study.  I n the past decade a great  deal has been w r i t t e n on f o r e i g n c o n t r o l of Canadian c o r p o r a t i o n s . For the most part i t represented l i t t l e more than a v e n t i n g of n a t i o n a l i s t i c emotion without an understanding of what c o n t r o l and ownership was a l l about.  These people probably were mainly  i n t e r e s t e d i n arousing p u b l i c o p i n i o n i n hopes the government would adopt a concrete p u b l i c p o l i c y to safeguard the n a t i o n a l 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 v a r i o u s f a c e t s are understood. The amount of f o r e i g n ownership and c o n t r o l of Canadian i n d u s t r y has increased s u 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 l a r g e s t proport 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 i n c r e a s e d non-resident ownership and control.  T h i s , however, represented an understatement,  the value of ownership and c o n t r o l .  both of  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 b a s i s f o r d e f i n i n g c o n t r o l of f i f t y per cent ownership or more of the v o t i n g stock a l s o 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 t h a t the tax laws were to be changed.  This would i n v o l v e making the existence of  c o n t r o l a f a c t 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 p r e t e n t i o u s to t h i n k t h a t  t h i s study based on American corporations would solve the problem of f o r e i g n c o n t r o l 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 c o n t r o l and ownership would be b e t t e r understood. 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 i n t e r e s t i n the subject, non-resident ownership and c o n t r o l , precludes the use of Canadian data.  Moreover, there was very l i t t l e a v a i l a b l e  even on Canadian-owned corporations. of d i s c l o s u r e under Canadian laws.  This stemmed from the l a c k  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 c o n t r o l of Canadian i n d u s t r y takes the form of m a j o r i t y holdings by non-resident business concerns of equity s e c u r i t i e s of Canadian s u b s i d i a r i e s . There i s C D . B l y t h and E. B. Carty, "Non-Resident Ownership of Canadian Industry," Canadian J o u r n a l of Economics and P o l i t i c a l Science, XXII (November, 1956;, p. 4557  4 thus u s u a l l y the p o s s i b i l i t y of strong business management through the c l o s e l i n k between ownership and management. This l a r g e corporate element... contrasts sharply with a w e l l known feature of ownership of corporations i n the United S t a t e s — t h e d i s p e r s a l of ownership among many thousands of s h a r e h o l d e r s — a feature which has been very marked i n the l a r g e r corporations i n that country f o r 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 t o examine the American scene.  T h i s , however, i s not  considered a serious drawback since the s i t u a t i o n s described i l l u s t r a t e where the bulk of the u l t i m a t e c o n t r o l and ownership of the v a s t m a j o r i t y of Canadian i n d u s t r y r e s t s .  A l s o , as the  economies of the two c o u n t r i e s are so c l o s e l y t i e d and the f a c t that Canadian business f o l l o w s c l o s e l y the p a t t e r n set i n the United S t a t e s , the i n v e s t i g a t i o n may give a look at p o s s i b l e f u t u r e trends i n Canada.  Further, though the ownership and  r e l a t i o n s h i p s w i t h 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 s c a t t e r e d  w i t h no v o i c e i n management.  A l s o , i f the t r e n d evident i n the  United States develops i n Canada, that of c o n t r o l with l e s s and l e 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  s k i p t h i s stage of development and pass on t o i n s t i t u t i o n a l control.  Here, even i f the bulk o f funds are from non-residents,  c o n t r o l could remain i n Canada i f the management and/or t r u s t e e s are Canadian. SCOPE OF THE STUDY The corporate form o f business o r g a n i z a t i o n has become so widely accepted by business t h a t 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 c o n t r o l i s r e s t r i c t e d to the l a r g e s t n o n - f i n a n c i a l corporations. the 2GG  Following the l e a d of e a r l i e r s t u d i e s , a l i s t  l a r g e s t n o n - f i n a n c i a l corporations  to use as a guide.  f o r 1957  of  i s tabulated  These companies have assets of 193  billion  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 f i n d i n g s and  i m p l i c a t i o n s to t h i s group of companies alone. or giant corporations  the  The term l a r g e r  could apply equally w e l l to any company  w i t h assets of one hundred m i l l i o n d o l l a r s . The question of c o n t r o l has many f a c e t s which could be covered even though d i r e c t l y r e l a t e d .  not  Though i t i s w e l l known  that the c o n t r o l of a corporation extends beyond the assets shown and the persons i n the power p o s i t i o n exert i n f l u e n c e 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 w e l l as the meaning of c o n t r o l i n law are considered beyond the scope of t h i s examination.  C o n t r o l , which may  be defined as the a b i l i t y  to s e l e c t and e l e c t the board of d i r e c t o r s i s r e s t r i c t e d to i t s meanings and i m p l i c a t i o n s i n c a r r y i n g out t h i s f u n c t i o n . Even among the giant corporations  e a r l i e r studies found  that many were c o n t r o l l e d by other f i n a n c i a l and corporations.  non-financial  Therefore, the u l t i m a t e l o c a t i o n of power was  always i n d i c a t e d .  not  In f a c t , to f i n d t h i s center of c o n t r o l ,  e s p e c i a l l y today among manufacturing concerns, would be an almost impossible  task.  Therefore, i n t r a c i n g the e v o l u t i o n of c o n t r o l ,  these were not included as t y p i c a l of the form of c o n t r o l they were c l a s s i f i e d under, unless the u l t i m a t e center was known. For  6 example, American Telephone and Telegraph s u b s i d i a r i e s would be considered as management c o n t r o l l e d since the parent was i n t h i s s i t u a t i o n .  corporation  This was considered a l o g i c a l step as  the use o f s u b s i d i a r y companies was a c o n t r o l device.  A l s o , the  two major i n d u s t r i e s 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 r e g u l a t i o n 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 i n d u s t r y i n some instances v o t i n g stock, which has p o s s i b l e o r p o t e n t i a l c o n t r o l , was placed i n the hands of trustees.  Only i n manufacturing was there no r e g u l a t i o n and  although h o l d i n g companies were prevalent, the use of t h i s device has l o s t much of i t s appeal because o f 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 d i r e c t  c o n t r o l by i n d i v i d u a l s o r f a m i l y i n t e r e s t groups and the newlyemerged 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 t o the l a r g e corporations. The c h a r a c t e r i s t i c s of ownership are i n v e s t i g a t e d i n a l l p u b l i c domestic corporations i n the United States.  This i s p r i m a r i l y the r e s u l t of l a c k of  postwar data a v a i l a b l e on the g i a n t corporations and a l s o the f a c t s t a t i s t i c a l a n a l y s i s 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 o f Income provided by the Bureau of I n t e r n a l 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 o f income among income groups over the years. Once again not a l l the f a c e t s o f ownership can be i n c l u d e d ; t h e r e f o r e , i t i s necessary to exclude c a p i t a l formation, concent r a t i o n of i n d u s t r y and the e f f e c t s of changes i n t a x a t i o n on the ownership of corporate stock.  7 METHOD OP INVESTIGATION 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 p o s s i b l e , up-to-date m a t e r i a l was included.  The prewar l i t e r a -  t u r e on the f a c t u a l s i t u a t i o n of c o n t r o l and ownership i n the l a r g e corporation was p l e n t i f u l and thorough.  Unfortunately,  t h i s was not t r u e 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 p u b l i c corporat i o n s and g e n e r a l i z a t i o n s were r e s o r t e d t o , backed w i t h some s t a t i s t i c a l proof, but p r i m a r i l y r e l y i n g on the a u t h o r i t y of noted authors i n the f i e l d . The presentation of the m a t e r i a l i n the t e x t begins w i t h a b r i e f h i s t o r y of the corporation which o u t l i n e d the struggle f o r a l i b e r a l i n c o r p o r a t i o n process, l e a d i n g 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 E v o l u t i o n of C o n t r o l , preceded by an a n a l y s i s of the changes i n the  200  l a r g e s t n o n - f i n a n c i a l corporations over a two-decade p e r i o d . Chapters IV to V I I 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 c o n t r o l i n the s e l e c t 200 and the next important area, that of ownership.  The d i s t r i -  b u t i o n of the twenty l a r g e s t holdings i n the 1937 l i s t of the 200 corporations i s t r e a t e d 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 p u b l i c corporations.  The concluding chapter of t h i s s e c t i o n o u t l i n e s the r i s e  of the i n s t i t u t i o n a l i n v e s t o r s to a p o s i t i o n of importance i n  8 the corporate system.  I t i n d i c a t e s that once more corporate  stock i s becoming concentrated i n the hands of a group who  could  e x e r c i s e c o n t r o l over many of the country's l a r g e s t and most dynamic companies.  Thus, the f u l l cycle of ownership importance  i n c o n t r o l i s coming to completion.  I n the e a r l y stages of cor-  porate development, c o n t r o l was e x e r c i s e d through m a j o r i t y ownership, a p r o p r i e t a r y r i g h t .  With the concentration of i n d u s t r y  i n the corporate form came f i r s t working c o n t r o l , then management c o n t r o l , the separation of ownership and c o n t r o l .  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 i m p l i c a t i o n s of c o n t r o l and ownership.  This  forms the t o p i c 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 c o r p o r a t i o n 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 i n t a n g i b l e t h i n g , which  has a name and c e r t a i n l e g a l a t t r i b u t e s but no m a t e r i a l existence. The c o r p o r a t i o n i s u s u a l l y c o n s t i t u t e d of a number of shareholders, but something d i f f e r e n t from the aggregate members.  The e l e c t e d  r e p r e s e n t a t i v e s of the shareholders, the d i r e c t o r s , are the corporation, not the members.  The property of a c o r p o r a t i o n i s  i t s own.and not the shareholders. P u b l i c Corporations.  Companies w i t h at l e a s t one stock  i s s u e trade on a s e c u r i t i e s exchange or otherwise a v a i l a b l e to the general p u b l i c and owned by at l e a s t 300 shareholders.  9 Fiduciary Institutions.  Banks, foundations, c o l l e g e 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 o f  one issue of stock, which block i s e i t h e r owned b e n e f i c i a l l y by one person, o r r e g i s t e r e d i n the books of the i s s u i n g corporation i n the name of one person. Stockholder.  The stockholder, a l s o known as a shareholder,  i s a person, i n c l u d i n g a c o r p o r a t i o n , who owns shares o f one or more i s s u e s of stock of one or more c o r p o r a t i o n s . Control.  C o n t r o l may be defined as the capacity t o choose  d i r e c t o r s and thus the a b i l i t y to i n f l u e n c e o r p o s s i b l y to dominate the board of d i r e c t o r s . Ownership.  C o l l e c t i o n of r i g h t s to use and enjoy property  i n c l u d i n g the r i g h t to transmit i t t o others.  The complete  dominion, t i t l e , or p r o p r i e t a r y r i g h t i n a t h i n g or claim.  The  e n t i r e t y of the powers o f use and d i s p o s a l allowed by law. Proxy.  An instrument g i v i n g a u t h o r i t y and i s more properly  c a l l e d a power of attorney or v o t i n g power.  A person who i s  s u b s t i t u t e d by another t o represent him and a c t f o r him i n some meeting or p u b l i c body.  This i s purely a s t a t u t o r y r i g h t .  CHAPTER I CORPORATE HISTORY American i n d u s t r y i s , f o r the most p a r t , h e l d i n the corporate form.  Probably over two-thirds i s h e l d 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 a l s o have a r e s p o n s i b i l i t y to employees, customers, s u p p l i e r s , and i n p a r t i c u l a r to that s e c t i o n of the community i n which they operate.  However,  corporations have not always enjoyed the r e c o g n i t i o n 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 c a r r i e d the same weight.  This dominance  and p o p u l a r i t y have been achieved only a f t e r a long struggle marked by an i n c r e a s i n g a p p r e c i a t i o n of i t s merits by men  business-  and the decline of p u b l i c antipathy toward i t . ^ I n Anglo-Saxon c i v i l i z a t i o n s , corporations were known i n  the e a r l y Norman period and p o s s i b l y e x i s t e d at an e a r l i e r date. These were the g u i l d s and boroughs of medieval l i f e . then, as now,  purely a c r e a t i o n of the s t a t e .  They were  This was  signifi-  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 . L i n d a h l & W i l l i a m A. Carter, Corporate Concent r a t i o n and P u b l i c P o l i c y , pp. 43-45. 2 A. A. B e r l e , J r . , & Gardiner C. Means, "Corporation," Encyclopaedia of the S o c i a l Sciences, I V 414-422. t  11 From an economic point of view, the c o r p o r a t i o n can be t r a c e d more d i r e c t l y to the development of overseas trade i n the s i x t e e n t h and seventeenth c e n t u r i e s . These j o i n t stock a s s o c i a t i o n s were nothing more than sprawling partnerships and  operated  without b e n e f i t of Crown or Parliamentary r e c o g n i t i o n through i n f o r m a l i n c o r p o r a t i o n by c h a r t e r grant.^ The development entered a new phase w i t h the accession of the Stuart Kings.  James I and a d v i s e r s are thought to have  brought i n t o E n g l i s h law the s o - c a l l e d f i a t d o c t r i n e , 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 s t a t e . This enabled the Crown to extend c o n t r o l t o a l l corporations, i n c l u d i n g boroughs, g u i l d s and t r a d i n g companies.  A l s o , 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 , d i r e c t n e g o t i a -  t i o n s with the Crown were r e q u i r e d , culminating i n a Royal Grant of a c h a r t e r or patent. The Bubble Act, passed i n 1719, was i n response to p u b l i c 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 c h a r t e r from K i n g or Parliament. repealed u n t i l 1825.  I t was  not  I n c o r p o r a t i o n , however, continued to be a  matter of s p e c i a l grant by King or Parliament u n t i l 1844 when % h e j o i n t stock devices based on a stock of f r e e l y t r a n s f e r a b l e shares owned by a r e l a t i v e l y l a r g e number of people had been t r a n s p l a n t e d from the Continent to B r i t a i n i n the s i x t e e n t h century. See A. B. Dubois, The E n g l i s h 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 i n t o use i n the eighteenth century to describe the s p e c u l a t i v e undertakings of the p e r i o d . 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 a s s o c i a t i o n s w i t h more than twenty-five members were permitted to r e g i s t e r as corporations.  L i m i t e d l i a b i l i t y was not accorded  such corporations u n t i l 1855.  The laws r e g u l a t i n g j o i n t - s t o c k  companies w i t h l i m i t e d l i a b i l i t y were consolidated i n 1862 again i n 1908 and 1929.^  and  The l a s t r e v i s i o n was i n 194-8.  I n America the c o r p o r a t i o n has developed along d i s t i n c t l i n e s and to a more advanced stage than anywhere e l s e .  Many of  the f i r s t American c o l o n i e s had t h e i r i n c e p t i o n i n a t r a d i n g grant to c e r t a i n a s s o c i a t e s ; these developed i n t o governmental corporat i o n s and u l t i m a t e l y i n t o p o l i t i c a l e n t i t i e s .  I n s p i t e of the  strong p r e j u d i c e against business corporations, some f i f t e e n or eighteen can be t r a c e d 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, p r e j u d i c e s went by the boards.  and o l d  The s t a t e s assumed powers to  grant corporate charters but adopted the B r i t i s h l e g a l concept i o n that to o b t a i n corporate capacity was a p r i v i l e g e and not a right.  Thus, the business corporations formed, f o r the most  p a r t , 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 d i d  not seek charters because of the reluctance of s t a t e l e g i s l a t u r e s t o grant the p r i v i l e g e f o r p r i v a t e 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 s t a t e as to whether i n c o r p o r a t i o n was a r i g h t open to a l l who wish to promote l e g i t i m a t e business i n t e r e s t s or a p r i v i l e g e to be  B e r l e and Means, l o c . c i t .  13 granted or withheld by the s t a t e . ^ Beginning with the New York law of 1811, the s t a t e began to s u b s t i t u t e general i n c o r p o r a t i o n acts f o r the process of barg a i n i n g and jockeying with the s t a t e l e g i s l a t u r e f o r a c h a r t e r . The change was due to the demands of businessmen f o r e a s i e r i n corporation, i n c r e a s i n g 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 c o r r u p t i o n and the inherent danger of the grant of valuable p u b l i c p r i v i l e g e s to p r i v a t e c o r p o r a t i o n s . The laws permitted organizers of corporations to w r i t e out t h e i r  own  c h a r t e r i n accordance w i t h s t a t u t o r y requirements and to f i l e t h i s w i t h .the s e c r e t a r y of s t a t e .  Incorporation followed auto-  m a t i c a l l y upon f i l i n g of the a p p l i c a t i o n . 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 p a i d i n before business was s t a r t e d ; that stock should have a par value and should not be i s s u e d except against f u l l payment of such par v a l u e s ; that c a p i t a l should not be reduced or p a i d out as d i v i dends t o the prejudice of c r e d i t o r s . be i s s u e d were very l i m i t e d .  The s e c u r i t i e s which could  By 1850 such general i n c o r p o r a t i o n  laws were common and by, 1875 provided the u s u a l method of i n c o r poration. The h i s t o r y of the nineteenth century i s i n f a c t a slow a d b i c a t i o n of c o n t r o l s 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 c o n t r o l was replaced by economic growth.  The  process  Adolf A. B e r l e , J r . , " H i s t o r i c a l Inheritance of American Corporations, The Powers and-Put i e s of Corporate Management, Conference on^the S o c i a l Meaning of Legal Concepts (New York U n i v e r s i t y , 1950), pp. 191-199. M  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 s t a t e s granting c h a r t e r s .  For most purposes the  charter granted i n one state was equally e f f e c t i v e i n c a r r y i n g out corporate business i n others.  I n d i v i d u a l s seeking a cor-  porate charter went to the state g i v i n g the broadest powers. C e r t a i n 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 i n c r e a s i n g source of income, the competition r e s u l t e d i n the granting of ever broader powers.to the corporations.  The process may  be s a i d to have been coiifc-  p l e t e d upon the enactment by Delaware, Maryland and Nevada of corporation laws p e r m i t t i n g extreme l a t i t u d e to corporate management, an opportunity s i z e and number.  s e i z e d by corporations i n i n c r e a s i n g  A corporation no-longer had to have a severely  defined s i n g l e purpose; any number of e n t e r p r i s e s could gather under one management.  Thus, i n c r e a s i n g management power roughly  p a r a l l e l e d the i n c r e a s i n g s i z e of business e n t e r p r i s e , thereby 7 s e t t i n g the stage f o r the modern corporation of to-day.  B e r l e and Means, l o c . c i t . L i n d a h l 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 g i a n t corporations e x e m p l i f i e d 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 a r i s e when u s i n g a s i n g l e f i n a n c i a l y a r d s t i c k f o r the measurement of economic power i n the economy, the main problem being that the volume of assets depends on the i n d u s t r y as to whether i t represents a dominant p o s i t i o n i n the system.  Yet  on the other hand, s i z e of the assets determines the i n f l u e n c e of the i n d u s t r y 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 v a r i o u s i n d u s t r y groups and analyze the changes since 1940, these may be overlooked.  difficulties  I t i s recognized that there are a number of  other f a c t o r s which determine the degree to which s i z e i s i n d i c a t i v e of economic power. Moreover, i t must not be overlooked that other groups have a r i s e n which have considerable power i n s o c i e t y . are the l a b o r unions, farmers and small businessmen.  These 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, B i g E n t e r p r i s e 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 f i r m s and growth areas. This i m p l i e s that the c o n t r o l of these corporations i s not s t a t i c e i t h e r as the c o n t i n u a l s h i f t i n g of economic power among v a r i o u s groups w i t h i n an i n d u s t r y and between i n d u s t r i e s 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 i n d u s t r y may be seen from a comparison of the 200 l a r g e s t n o n - f i n a n c i a l corporations of 1957 with t h a t " o f a s i m i l a r l i s t i n 1937.  2  The two  lists  have been c l a s s i f i e d by i n d u s t r i e s and presented w i t h t o t a l assets as of the year end.  No adjustments have compensated f o r  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 s i x t y - n i n e b i l l i o n and 193 b i l l i o n  d o l l a r s , r e s p e c t i v e l y . This  represented a t h r e e - f o l d increase i n assets over the two decades. Each i n d u s t r y , however, d i d not enjoy the same growth. be seen from the f o l l o w i n g t a b u l a t i o n . Manufacturing  This  may  replaced  the p u b l i c u t i l i t i e s i n d u s t r y as the l e a d i n g group and increased t h e i r assets f o u r 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 t r a n s p o r t a t i o n i n d u s t r y showed the l e a s t growth of a l l f o u r major groups.  Thus, i n two decades the makeup of the economy  has changed considerably.  This was f u r t h e r exemplified by an  a n a l y s i s of the changes of the companies w i t h i n the various i n d u s t r y groups.  2  See Appendix A Table V I I I , p.  1.21.  17  TABLE I DISTRIBUTION OP ASSETS IN 200 LARGEST NONPINANCIAL CORPORATIONS BY INDUSTRY 1957  1937 Industry Manufacturing  Number o f Companies 107  Assets Billions S  Number of Companies  Assets Billions  26  106  $ 105  Public U t i l i t i e s  51  25  53  56  Transportation  29  16  32  27  Merchandising  13  2  Totals  $  69  9. 200  5 $ 193  18 ANALYSIS GP CHANGES OYER THE YEARS Since 1937 seventy companies have disappeared by reason of merger, c o n s o l i d a t i o n , and d i s s o l u t i o n .  Of these corpora-  t i o n s almost h a l f were manufacturing concerns engaged i n o l d e r i n d u s t r i e s where the r a t e s o f growth have slowed down. and c o n s o l i d a t i o n s were almost non-existent.  Mergers  I n the p u b l i c  u t i l i t i e s f i e l d eighteen of the twenty companies that disappeared were d i s s o l v e d under the P u b l i c U t i l i t i e s Holding Company Act of 1935.  I n the t r a n s p o r t a t i o n i n d u s t r y no one s i n g l e 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 e v o l u t i o n 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 w i t h i n the v a r i o u s groupings o f i n d u s t r y .  The petroleum i n d u s t r y  maintained i t s l e a d e r s h i p i n the i n d u s t r i a l s w i t h twenty-one companies, most of which operate n a t i o n a l l y o r 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 o f the manufact u r i n g group.  This was l a r g e r than the combined assets o f the  200 l a r g e s t corporations i n 1937.  Furthermore, t h i s industry's  economic power extended considerably beyond the assets of the i n d i v i d u a l f i r m s s i n c e they c o n t r o l l e d the p o l i c i e s o f thousands of small businessmen who s o l d t h e i r products through s e r v i c e stations. The f a s t e s t growing i n d u s t r i e s , however, were the e l e c t r i c a l , t r a n s p o r t a t i o n equipment, and the chemicals. I n 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.  I n t e r n a t i o n a l 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 t r a n s p o r t a t i o n manufacturing group had by f a r the l a r g e s t increase i n new f i r m s .  This was  due l a r g e l y to e v o l u t i o n of the  modes i n t r a n s p o r t a t i o n 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 i n d u s t r y with seven l a r g e f i r m s s p r i n g i n g up.  I n a d d i t i o n , the automobile and t r u c k f i r m s  a l s o enjoyed tremendous expansion.  This adjustment to the  new  forms of t r a n s p o r t a t i o n , 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 s u b s t a n t i a l l y with the a d d i t i o n of four new  firms.  The m a j o r i t y 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 e s p e c i a l l y of the chemical and  e l e c t r i c a l industry. recognizable the name.  DuPont and General E l e c t r i c are h a r d l y  as the same companies they were i n 1937  except f o r  Other leading i n d u s t r y groups a l s o enjoyed s u b s t a n t i a l  but l e s s spectacular growth.  They are s t e e l , non ferrous metals,  rubber, lumber and paper, and tobacco. Many i n d u s t r i e s a l s o suffered d e c l i n e s where the r a t e s of growth had slowed down f o r one reason or another. were c o a l mining, amusements and food products.  Among them The c o a l mining  firms except f o r one disappeared from the 200 as a r e s u l t of competition from other products, notably gas and o i l .  I n the  amusement f i e l d , three motion p i c t u r e firms s u f f e r e d d e c l i n e s 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 o f other entertainment forms, p r 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, r a t e s of growth v a r i e d but the m a j o r i t y could not maintain a consistent growth and dropped from the l i s t .  This was  p r i m a r i l y the r e s u l t of f i e r c e competition among the f i r m s , a l though changing buying h a b i t s of the p u b l i c 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 l a r g e s t n o n - f i n a n c i a l corporations was the m o b i l i t y t o adjust to the changing s i t u a t i o n .  Competition among  the g i a n t s appeared t o grow w i t h increase i n s i z e .  Those f i r m s  that were not prepared to grow not only i n t h e i r own product l i n e s but r e l a t e d ones a l s o were unable t o s u r v i v e .  Corporations were  c l a s s i f i e d i n t o i n d u s t r y groups and subgroups but t h i s tends t o hide the f a c t that many compete i n many l i n e s . example, now produces beside rubber products,  Firestone, f o r chemicals, aluminum  and d i s t r i b u t e s thousands o f items through r e t a i l o u t l e t s . Transportation The t r a n s p o r t a t i o n i n d u s t r y has not enjoyed the growth other major i n d u s t r y groups have had.  This was not true o f the  a i r l i n e s and b u s l i n e s , however they only represent three firms i n the 1957 l i s t of 200 l a r g e s t n o n - f i n a n c i a l corporations, which was r a t h e r 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 f o r c e d many o f them i n t o bankruptcy.  Present problems of the r a i l r o a d s ,  however, developed i n times o f p r o s p e r i t y r a t h e r than" depression. ^Martin L. Idndahl and W i l l i a m A. Carter, Corporate Concentration,and.Public P o l i c y , pp. 85-86.  21  V  The important c o n t r i b u t i n g f a c t o r s have been d e c l i n i n g 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 w i t h the economy, and heavy l o s s e s of p r o f i t a b l e types of t r a f f i c to truck and more r e c e n t l y a i r 4.  freight.  Thus, since 1937 twelve r a i l r o a d s have l e f t the l i s t  t o be replaced by t h i r t e e n other roads, two a i r l i n e s and one system.  The  bus  departing corporations r e s u l t e d from mergers, l e a s e d  l i n e s and i n a b i l i t y to grow w i t h economy.  The remaining r a i l w a y s  and companies that j o i n e d the l i s t expanded very l i t t l e .  Much of  the increase i n asset value of the f i r m s 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 d e c l i n i n g i n d u s t r y with a very bleak f u t u r e . Public U t i l i t i e s Since 1937 the i n d u s t r y which has undergone the most r a d i c a l change was the p u b l i c u t i l i t i e s , excluding the communications area.  This was the r e s u l t of the P u b l i c U t i l i t y  Company Act of 1935 which caused the d i s s o l u t i o n of companies on the 1937 l i s t of corporations.  Holding  eighteen  Many of the companies  were huge h o l d i n g corporations that c o n t r o l l e d the e n t i r e gas e l e c t r i c u t i l i t y systems i n the United States.  and  The Holding Com-  pany Act had two important s e c t i o n s which changed the makeup of the e n t i r e u t i l i t y i n d u s t r y .  The Act administered by the  S e c u r i t i e s and Exchange Commission r e q u i r e d 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 t e n per cent of the v o t i n g power of r e t a i l gas and e l e c t r i c companies or which otherwise e x e r c i s e d 4-James Q Nelson, R a i l r o a d Transportation and P u b l i c 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 s i n g l e i n t e g r a t e d 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 i n t e g r a t e d .  Secondly, the c a p i t a l  s t r u c t u r e s must be s i m p l i f i e d and only three l a y e r s of companies were permitted.  The S e c u r i t i e s 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 v o t i n g power among s e c u r i t y holders, the g i s t of which s t a t e s that v o t i n g power should be r e l a t e d to asset and earning value and that a h o l d i n g 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 f i c a t i o n r e q u i r e d d i s p o s i n g of assets, was complicated 7 i n c l u d e d more than one common stock i s s u e .  simpliifit  Furthermore, the  h o l d i n g companies were subject to other r e g u l a t i o n s which r e s u l t e d i n fewer i n t e r l o c k i n g d i r e c t o r a t e s , l e s s concentration of c o n t r o l , greater s i m p l i f i c a t i o n of corporate s t r u c t u r e and 8  reasonable dividend payments. This Act, however, has not destroyed the l a r g e p u b l i c u t i l i t y system, quite the contrary.  There now  e x i s t s systems  j u s t as l a r g e 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 w i t h v o t i n g p r i v i l e g e s evenly d i s t r i b u t e d . The  new  f i r m s that replaced the d i s s o l v e d corporations and the many on the 1937 l i s t have prospered and grown. This i s shown by the ^Moody's P u b l i c U t i l i t y Manual, 1958, p. a27. 6 A l l e n D. Choka, An I n t r o d u c t i o n to S e c u r i t i e s Regulation, p. 120. 7 8  'Op. 0p.  c i t . , Moody's. c i t . , Choka, pp. 120-121.  23  f a c t that t h e i r assets have more than doubled i n value over two decades. SUMMARY I t was evident that the l a r g e corporations possessed great importance i n the o r g a n i z a t i o n of American i n d u s t r y ; and a l l i n d i c a t i o n s point to an even g r e a t e r 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 c o n t i n u a l s h i f t i n g of business l e a d e r s h i p w i t h i n an i n d u s t r y , but a l s o among i n d u s t r y 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 f o r c e s that came i n t o p l a y kept the g i a n t s f l u i d and dynamic.  This r e s u l t e d  i n i n c r e a s e d investment and s h i f t i n g of investments causing s h i f t s i n c o n t r o l s i t u a t i o n s throughout the system.  CHAPTER I I I THE EVOLUTION OP CONTROL The g i a n t 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.  I n the wake of t h i s great t r a n s -  formation came the separation of ownership from management due to the concentration of i n d u s t r y 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 c o r p o r a t i o n management.^  C o n t r o l of these  companies i s of considerable economic importance.  I n 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 S t a t e s .  This represented approximately  of the manufacturing volume of the e n t i r e world.^  one-fourth  Thus, i t helps  e x p l a i n why men have gone to great lengths to devise methods whereby t h i s could be achieved. The phenomena of " c o n t r o l " was perhaps the most important s i n g l e f a c t i n the American corporate system.  As the c o r p o r a t i o n  became recognized as an i n s t i t u t i o n of s i g n i f i c a n c e both i n economic and s o c i a l f a c t , the importance of c o n t r o l grew.  Many and  v a r i e d forms have developed throughout the l a s t h a l f century. The 1  Adolph A. B e r l e , 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. B e r l e , J r . , The 20th Century C a p i t a l i s t R e v o l u t i o n, pp. 25-26. ^Adolph A. B e r l e , J r . , ' " C o n t r o l " i n Corporate Law,* Columbia Law Review, L V I I I (May, 1958), 1212.  25 devices and techniques used, and i n use, have changed through the pressure of p u b l i c o p i n i o n , through concert a c t i o n and through changing economic c o n d i t i o n s . C o n t r o l may be defined as the capacity t o s e l e c t the m a j o r i t y of d i r e c t o r s , to i n f l u e n c e the board of d i r e c t o r s and 5  to p o s s i b l y dominate i t , "Control" i s a f u n c t i o n of the ownership of v o t i n g stock. There has evolved two d i s t i n c t types, absolute or o u t r i g h t c o n t r o l and working c o n t r o l . Absolute c o n t r o l e x i s t s where a m a j o r i t y of such stock i s h e l d by an i n d i v i d u a l stockholder o r group of stockholders who, by agreement or t a c i t consent, a c t together. The same s i t u a t i o n i n f a c t e x i s t s where a l a r g e m i n o r i t y i s so h e l d while ownership of the remainder i s widely dispersed among many shareholders.  Over f i f t y per cent of the v o t i n g stock con-  s t i t u t e s absolute c o n t r o l , 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 p r o v i d i n g always the remainder i s not h e l d c l o s e l y , but i s d i v i d e d amongst many thousands of small 7  stockholders. This phase of c o n t r o l , however, i s not the beginning and end f o r the m a j o r i t y of corporations. g e n e r a l l y i t s normal l i f e span.  A generation or two i s  Absolute stockholder c o n t r o l  u s u a l l y stems from a s i n g l e investment of the o r i g i n a l founder. However, as the corporation grows i n s i z e to that of a g i a n t , the investment necessary t o maintain such a p o s 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 f a m i l y o f f s p r i n g and the inescapable e f f e c t of i n h e r i t a n c e taxes may be 5  Ibid.  6  I b i d . , p. 1213  7  I b i d . , p. 1213.  26 g counted on to compel eventual d i s p e r s i o n . Among l a r g e corporations absolute c o n t r o l was more conspicuous by i t s absence than by i t s presence.  I n the 1937  list  of the 2G0 l a r g e s t n o n - f i n a n c i a l corporations t h i r t y - f o u r companies were d i r e c t l y c o n t r o l l e d i n t h i s manner by f a m i l y 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 p u b l i c 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 l a r g e corporations are not commonly c o n t r o l l e d through m a j o r i t y ownership though there are some s t r i k i n g exceptions.  These, however, are the r e s u l t of the use of v a r i o u s  i n s t r u m e n t a l i t i e s to preserve the c o n t r o l p o s i t i o n , many of which divorce ownership from c o n t r o l .  The Ford Motor Company  i s s t i l l i n the Ford f a m i l y which r e t a i n s c o n t r o l through the 11 use of weighted v o t i n g stock. The Dupont de Nemours company i s c o n t r o l l e d through t r u s t s and a f a m i l y corporation, 12 C h r i s t i a n i a S e c u r i t i e s Corporation,  Others are Gulf O i l by  the Mellon f a m i l y d i r e c t l y and through personal t r u s t s , a c h a r i t a b l e 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 h o l d i n g A. A. B e r l e , J r . , Power Without Property, p. 71. company of the same name f o r the H a r t f o r d f a m i l y . Nevertheless, ^See Table I I I , page 50. ^ T h i s also excludes companies c o n t r o l l e d by other corporat i o n s . The t o t a l i n c l u d e s 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 1p See Footnote 18. Berle, l o c . c i t .  27 these are but a few among a couple of hundred g i a n t s i n American industry. The second stage of the e v o l u t i o n of c o n t r o l among the corporate g i a n t s was that of working c o n t r o l . This was a more complex s i t u a t i o n , however, as i t i n v o l v e d an a d d i t i o n a l element, the a b i l i t y to m o b i l i z e other shareholders.  Working c o n t r o l  commonly e x i s t e d where the holder or holders of a m i n o r i t y i n t e r e s t also had a r e a d i l y a v a i l a b l e method of o b t a i n i n g s u f f i c i e n t a d d i t i o n a l votes so that i n combination they were able to e l e c t a m a j o r i t y of the board of d i r e c t o r s . This most o f t e n was management, though i t need not  be.^  To maintain working c o n t r o l , g e n e r a l l y i t was necessary to have a c l o s e 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 d i r e c t o r s chosen or approved by the m i n o r i t y group. Thus, since a s u b s t a n t i a l percentage of stockholders with small holdings p r a c t i c a l l y always f o l l o w e d management and almost autom a t i c a l l y signed and returned proxies requested,  the a b i l i t y to  d i r e c t the proxy machinery coupled w i t h a m i n o r i t y of ownership meant working c o n t r o l . The s i z e of holdings u s u a l l y r e q u i r e d to maintain t h i s form of c o n t r o l v a r i e d with the p r o p o r t i o n of small stockholders i n the company.  The l a r g e r the percentage of  s c a t t e r e d stockholders, the smaller the m i n o r i t y i n conjunction w i t h management r e q u i r e d .  14.  Power i s shared under such an arrangement and thus i t i s  •'A. A. B e r l e , J r . , * " C o n t r o l " i n Corporate Law,* Columbia Law Review, L V I I I (May, 1958), 1213. 14  ,  \A. A. B e r l e , J r . , Power Without Property, pp. 71-72.  28 imperative that communication "between the m i n o r i t y i n t e r e s t and management be maintained. entrenched.  Therefore,  Both p o s i t i o n s g e n e r a l l y are w e l l  should the m i n o r i t y group decide to oust  management, the outcome may w e l l be i n doubt, with the deciding b a s i s q u i t e l i k e l y the f i n a n c i a l strength.  Proxy b a t t l e s f o r  c o n t r o l , however, are rare as the cost i s p r o h i b i t i v e , time consuming and w a s t e f u l .  When they occur, the m i n o r i t y u s u a l l y has  accumulated l a r g e h o l d i n g s , but has become d i s s a t i s f i e d with management f o r one of a number of reasons.  The purpose of course  i s to e l e c t a s l a t e of d i r e c t o r s which w i l l work with the m i n o r i t y . 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 C e n t r a l was one of these r a r e occasions.  This r e s u l t e d from the r e f u s a l of the C e n t r a l  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 cent of the t o t a l outstanding than management owned;  stock.  per  T h i s , however, was more  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 N a t i o n a l Bank  under an I n t e r s t a t e Commerce Commission order, Cyrus Eaton, the chairman, could not favour Young.  Furthermore, a representative  of the bank was on the board of C e n t r a l that had voted against Young.  He thus set out to o b t a i n 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 t r a n s a c t i o n which  ensued saw the 800,000 shares of Chesapeake and Ohio s o l d to Texans who never put up any cash.  Young now had c o n t r o l of  s i x t e e n per cent of the C e n t r a l stock and, i n so doing,  had  two  29 convinced many small shareholders o f 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 g a i n c o n t r o l by wooing the l a r g e s t part o f the f o r t y - f i v e per cent of the stock h e l d i n brokers names. The cost of the proxy b a t t l e was a t l e a s t $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 b a 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  s e v e r a l questions. Was the change i n management worth the time, e f f o r t and money?  Should management be allowed t o spend the  c o r p o r a t i o n * ^ money t o s u s t a i n i t s e l f ?  Should the newly e l e c t e d  management be allowed to re-imburse themselves?  This example  serves t o i l l u s t r a t e the cost i n money and time o f a proxy b a t t l e i n a g i a n t 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 u s i n g c o r 15 porate funds r e c k l e s s l y .  ,  This second stage of development which has e x i s t e d f o r more than f o u r 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.  I n l a t e r years i t  s t i l l e x i s t e d as a major f a c t o r i n a good many corporations. For example, a t the c l o s t of 1937 no. l e s s than f o r t y - t h r e e companies of the 200 l a r g e s t n o n - f i n a n c i a l corporations, which aggregated $8.7 b i l l i o n of t o t a l assets were c o n t r o l l e d i n t h i s manner. Thus, even though working c o n t r o l i s a c o n t i n u a l l y d i m i n i s h i n g 15 For a complete d e s c r i p t i o n o f t h i s b a t t l e , see J . A. L i v i n g s t o n , The American Stockholder, pp. 129-150. 16 Berle, l o c . c i t .  30 form, i t i s p r e s e n t l y 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 A I D E S  17  I n a d d i t i o n t o the u s u a l c o n d i t i o n s conducive to working c o n t r o l , many l e g a l devices have been used by m i n o r i t y i n t e r e s t s to o b t a i n and maintain c o n t r o l .  One of the instruments used was  the manipulation of v o t i n g r i g h t s attached to the stock.  Stock  issues were weighted or had m u l t i p l e v o t i n g r i g h t s while others were completely d i s f r a n c h i s e d . Thus, only a very small c l a s s or a c l a s s representing a f r a c t i o n of the t o t a l investment were perm i t t e d to vote.  This meant ownership of j u s t over h a l f o f t h i s  p r i v i l e g e d c l a s s was s u f f i c i e n t to o b t a i n l e g a l c o n t r o l of the corporation.  These arrangements permitted a r e l a t i v e l y small stock  investment to c o n t r o l c a p i t a l s t r u c t u r e s 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 v o t i n g power. Purthermore, the Exchange g e n e r a l l y does not l i s t s e c u r i t i e s of a company i n which a c l a s s of stock possesses v o t i n g power d i s p r o 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 m i n o r i t i e s was the voting trust. 'A. Corporation and W i l l i a m P o l i c y , pp. AO  E s s e n t i a l l y , t h i s was a stock p o o l i n g agreement  A. B e r l e , J r , , and Gardener C. Means, The Modern and P r i v a t e Property, pp. 72-84; M a r t i n L. L i n d a h l A. C a r t e r , Corporate Concentration and P u b l i c 92-102.  The W. R. Grace p r e f e r r e d stock, owned by the f a m i l y , has one vote per share. I n c o n t r a s t , A and B p r e f e r r e d 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 f a m i l y - h e l d Class B shares a lo  shereby the stock was t r a n s f e r r e d to t r u s t e e s , o f t e n 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 e x e r c i s e the v o t i n g r i g h t s of the owners. Unless otherwise s p e c i f i e d i n the agreement, the t r u s t e e s had complete c o n t r o l over the a f f a i r s of the c o r p o r a t i o n , o f t e n w i t h l i t t l e or no ownership on t h e i r p a r t .  I n exchange the stock-  holders r e c e i v e d v o t i n g 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 o b t a i n dividends i f and when declared by the d i r e c t o r s . This was a very e f f e c t i v e method of o b t a i n i n g c o n t r o l 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 r e o r g a n i z a -  t i o n , but has been used by promoters and investment bankers f o r new ventures.  I n recent years the device has found use by l a r g e  stockholders i n an e f f o r t to maintain c o n t r o l i n the f a m i l y . This device a l s o l o s t i t s usefulness to c o n t r o l seekers when the New York Stock Exchange refused to l i s t shares i n a v o t i n g t r u s t except under court-approved r e o r g a n i z a t i o n plans. The most widely used device f o r corporate c o n t r o l p r i o r to the depression was pyramiding.  This i n v o l v e d the owning of a  m a j o r i t y of stock of one corporation which i n t u r n holds a m a j o r i t y of stock of another, a process which was repeated many times. This took place by the c r e a t i o n of h o l d i n g companies who  exchanged  shares w i t h those of operating or other h o l d i n g companies.  The  purpose was t o concentrate c o n t r o l of s e v e r a l companies w i t h v o t i n g power with a reverse r a t i o . The f a m i l y shares of stock could r i s e from 1.114 votes per share to 14.86 votes per share. Furthermore, the f a m i l y could r e t a i n a f o r t y per cent vote w i t h only 5.1 per cent of the t o t a l equity and a t h i r t y per cent vote w i t h only 2.8 per cent,of the equity. The Pord f a m i l y must h o l d 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 a u t o m a t i c a l l y reduced to only one vote per share. L i v i n g s t o n , op. c i t . , pp. 166-177 and p. 187. Je  ^ 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 p u b l i c u t i l i t y systems and the railroads.  However, passage o f 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 r e i g n . 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 c o n t r o l . A l though the m a j o r i t y of these instruments have not been, used f o r a couple of decades by l a r g e corporations, the process  they  commenced has continued. Although the various phases o f the changing corporate s t r u c t u r e in- the United States have not been the subject of an extensive study, Professor B e r l e , an eminent corporation lawyer, who has w r i t t e n a t great l e n g t h on the subject o f 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 s p e c u l a t i v e years which continued u n t i l 1929 ended the existence o f the absolute stockholder c o n t r o l as a norm. I t was succeeded by the working c o n t r o l stage; but by then many of the great corporations had already passed i n t o the t h i r d phase—"management c o n t r o l . ^ Management C o n t r o l This i s simply a form which e x i s t s where there i s no s u b s t a n t i a l stockholdings and the stock i s widely dispersed among the many thousands o f stockholders.  Thus, as there i s no  group o f stockholders working c l o s e l y with management o r i s capable- of c h a l l e n g i n g i t , the capacity to d i r e c t 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. B e r l e , Jr.,- Power Without Property, p. 73*  33 management c o n t r o l .  The board of d i r e c t o r s , t h e r e f o r e , can  almost always expect a m a j o r i t y of shareholders to f o l l o w 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 d i r e c t o r s *  They merely request the stockholders  to s i g n and r e t u r n proxies s e l e c t i n g themselves as successors. Under such an arrangement, u p s e t t i n g management becomes very n e a r l y 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 N a t i o n a l Economic Committee study of the l a r g e s t n o n - f i n a n c i a l 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 d i s p e r s i o n of :  stock ownership that no one group was able to e x e r c i s e c o n t r o l by v i r t u e of v o t i n g strength.  With p o s s i b l y a few  exceptions,  c o n t r o l was i n the hands of the board of d i r e c t o r s and p r i n c i p a l o f f i c e r s of these corporations. t h i r t y - f o u r manufacturing,  Furthermore, t h i s group of  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 21  others made up over f o r t y per cent of the t o t a l a s s e t s . recent estimate s t a t e d that approximately  and  A more  o n e - t h i r d of the  200  l a r g e s t corporations w i t h about f i f t y per cent of the t o t a l manufacturing  assets had no stockholders l a r g e enough to 22  i n f l u e n c e management. Among these companies w i t h no d e f i n i t e ownership c o n t r o l are many of the l e a d i n g corporations i n t h e i r f i e l d .  I n manu-  f a c t u r i n g there are General Motors, United States S t e e l ,  General  E l e c t r i c , Eastman Kodak, Goodyear T i r e and Rubber, I n t e r n a t i o n a l Business Machines, and Radio Corporation of America; i n d i s t r i bution Montgomery Ward and Company Inc. S e e Appendix A, Table V I I I , p. 21  op  -  •  ------  I n the r a i l r o a d i n d u s t r y , 121.  Paul T. Howell, "Common Stocks and Pension Fund I n v e s t i n g " 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 A t c h i s o n Topeka and the Santa Fe. Furthermore, there i s the l a r g e s t corporation i n the United S t a t e s , the American Telephone and Telegraph Company representing the communications sector o f the p u b l i c 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 c o n t r o l o f the bulk o f American i n d u s t r y now.". -* Under management c o n t r o l the coup i s almost complete. Stockholders no longer e f f e c t i v e l y have a r i g h t to s e l e c t management.  I n law and i n f a c t they cannot i n t e r f e r e i n management.  I n s h o r t , ownership has become almost meaningless. are almost s o l e l y r e c i p i e n t s . o f dividends.  Shareholders  Moreover, t h i s has  disturbed a customary arrangement i n management.  Formerly the  board of d i r e c t o r s , who were e l e c t e d by the stockholders, examined the r e s u l t s of the a d m i n i s t r a t i o n on behalf of the stockholders. selves.  Now they have become accountable only unto them-  The management r e v o l u t i o n i s complete and a new e l i t e  has a r i s e n . PERPETUAL MANAGEMENT CONTROL  24  Several b a s i c f a c t o r s are responsible f o r the perpetuation of management c o n t r o l .  Chief among them are the f o l l o w i n g : 1) the  wide d i s p e r s i o n of stock ownership; 2) the expense i n v o l v e d i n any attempt to overthrow management; 3) the s t r a t e g i c p o s i t i o n of management i n i t s c o n t r o l over the proxy machinery, and 4) administ 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 t u r n of the century when corporations were much smaller and t h e i r c a p i t a l s t r u c t u r e s were l e s s complex, stockholders had a genuine i n t e r e s t i n the a f f a i r s of t h e i r company. They p a r t i c i p a t e d i n the d i r e c t i o n of a f f a i r s through the hoard of d i r e c t o r s and f o r many by d i r e c t r e p r e s e n t a t i o n i n management. The stockholder was able t o maintain h i s pro r a t a share i n the c o r p o r a t i o n through the doctrine of preemptive r i g h t s .  As a  r e s u l t , h i s i n t e r e s t demanded that management maximizes p r o f i t s t o 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 a c c o r d i n g l y . The sums r e t a i n e d i n the business were only s u f f i c i e n t to meet necessary contingencies and maintain adequate reserves t o keep the c o r p o r a t i o n 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 s a l a b l e at a p r i c e commensurate w i t h earning power and f u t u r e expectations. P r e s e n t l y , 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 s i z e and s t a t u r e , ownership  became comparatively more widespread.  The s i g n i f i c a n c e of these  owners has dwindled t o a mere shadow of i t s former s e l f . F u r t h e r more, even those who may l i k e t o exercise t h e i r fundamental r i 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 p o s i t i o n i s f u r t h e r 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 c o n t r o l 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 v o t i n g r i g h t s , at company expense.  Many stock owners s i g n these statements  almost b l i n d l y and r e t u r n them g i v i n g v o t i n g r i g h t s to the committee.  Others completely disregard them.  Thus, r e e l e c t i o n  36 of management i s always assured. More r e c e n t l y 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 f u r t h e r entrenched the management e l i t e .  The d e c i s i o n  i n the General Motors and du Pont case which prevented du Pont from v o t i n g t h e i r shares i n General Motors denied the r i g h t to exercise c o n t r o l over management.  I n t h i s case, the shareholder  d i r e c t l y was a c o r p o r a t i o n , nevertheless the u l t i m a t e owners, the du Pont f a m i l y and the chemical c o r p o r a t i o n , have been r e duced to the s t a t u s of mere r e c e i v e r s .  Once again the l i n e  between ownership and c o n t r o l has been severed, l e a v i n g management supreme. Since the e a r l y 1950*s a f o u r t h 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 c o n t r o l 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 i n c r e a s i n g yearly.  Nevertheless, t h i s only serves to f u r t h e r concentrate  the v o t i n g power i n the hands of the t r u s t e e s . Thus, the o u t l i n e s of the f u t u r e course of the corporate 25 system are drawn and as B e r l e s t a t e s ; So we d i s c e r n the l a t e s t and apparently inescapable f u t u r e norm i n our chase of property and power. Economic b e n e f i t s by way of dividend or other d i s t r i b u t i o n s a c c r u i n g to the shares of stock are r e c e i v e d by these impersonal i n s t i t u t i o n s to be r e d i s t r i b u t e d to t h e i r p o l i c y h o l d e r s 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 d i r e c t r e l a t i o n s h i p between the r e c i p i e n t s and the stock, l e t alone the corporat i o n . .....He would not know—and i t would be immaterial i f he d i d know—what v o t i n g power h i s insurance company or h i s pension t r u s t h e l d w i t h respect to the management of Union P a c i f i c or United States S t e e l . He could not i n f l u e n c e the s i t u a t i o n i n any case. He i s , i f p o s s i b l e , more passive  B e r l e , op. c i t . , . pp. 75-76.  37 r e c e p t i v e than ever. H i s r e l a t i o n to the " t h i n g s " t h a t make up American i n d u s t r y has- simply ceased. Therefore, the divorce i s complete.  Ownership, i f i t  may be c a l l e d t h a t , has passed t o an impersonal body c a l l e d a c o r p o r a t i o n c o n t r o l t o a group of men who command the f i n a n c i a l resources o f the n a t i o n . SUMMARY The great growth o f the modern c o r p o r a t i o n has s h i f t e d c o n t r o l from the shareholders t o management and p o s s i b l y i n the not too d i s t a n t f u t u r e 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 v a r i e d devices and techniques used i n an e f f o r t to maintain c o n t r o l .  But time, taxes and l e g i s l a t i o n has reduced  t h e i r e f f e c t i v e n e s s except i n a few, i n s t a n c e s . P r e s e n t l y , autonomous management c o n t r o l i s the norm.  Therefore, w i t h the  review o f the v a r i o u s stages o f development o f c o n t r o l and forms i n use, there remains but to discover the l o c a t i o n of c o n t r o l i n the l a r g e s t n o n - f i n a n c i a l c o r p o r a t i o n s .  c  CHAPTER IV THE LOCATION OF CONTROL IN THE 200 LARGEST NONFINANCIAL CORPORATIONS The development of the forms of c o n t r o l discussed i n the previous chapter were based on s t u d i e s done i n the past on the l o c a t i o n o f c o n t r o l i n i n d i v i d u a l corporations.  However,  no attempt was made t o show d i r e c t l y the d i s t r i b u t i o n o f types i n each phase, o r the dominant form among v a r i o u s i n d u s t r i e s . Moreover, very l i t t l e was s a i d about the f a c t o r s that determine various c o n t r o l s i t u a t i o n s .  Thus, t h i s step i n the a n a l y s i s  w i l l t r a c e the l o c a t i o n of c o n t r o l i n i n d i v i d u a l corporations from the depression days up t o the mid f i f t i e s .  Also, i t w i l l  be the f i r s t i n t r o d u c t i o n to the d i s t r i b u t i o n of ownership i n i n d i v i d u a l corporations; f o r , as was mentioned p r e v i o u s l y , c o n t r o l i s a f u n c t i o n of the ownership of v o t i n g stock, and, t h e r e f o r e , 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 c o n t r o l .  Therefore, t h i s phase must  be discussed i n more general terms based on information made a v a i l a b l e by the S e c u r i t i e s and Exchange Commission. C o n t r o l 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 t o e l e c t a m a j o r i t y of the board of d i r e c t o r s 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 w i t h the day t o day management. I t s l o c a t i o n  may o r may not be determined through ownership o r the l e g a l r i g h t s o f d i r e c t o r s , o f f i c e r s and shareholders. BERLE AND MEANS STUDY P r i o r t o 1940 two f a c t u a l s t u d i e s had been completed d e s c r i b i n g the c o n t r o l s i t u a t i o n s that e x i s t e d i n the 200 l a r g e s t n o n - f i n a n c i a l corporations.  The f i r s t by B e r l e 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 e x i s t e d i n 1931.  At t h i s time i t was found that  these 200 corporations c o n t r o l l e d n e a r l y f i f t y per cent o f the corporate wealth and about twenty-two per cent o f the t o t a l 1 wealth. These companies a l s o r e c e i v e d 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 r a t e of growth of t h i s group would w i t h i n twenty years concentrate from seventy t o e i g h t y - f i v e per cent of the corporate wealth i n the hands of t h i s small number of f i r m s . ^ 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 f i f t y - t w o u t i l i t i e s s i f i e d according t o types o f c o n t r o l .  clas-  Such a task was not easy  f o r i n many cases accurate information as t o where c o n t r o l 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 p o s s i b l e . Adolf A. B e r l e , J r . , and Gardiner C. Means, The Modem Corporation and P r i v a t e Property« p. 32. 2  I b i d . , p. 30.  I b i d . , pp. 33-41.  40 In these companies u l t i m a t e c o n t r o l appeared as shown i n Table I I .  These c o n t r o l s i t u a t i o n s were derived wholly or i n  part on ownership forms which depended on a l e g a l base and those which r e s t e d on a f a c t u a l b a s e .  4  The l a t t e r were m i n o r i t y con-  t r o l and management c o n t r o l whereas the former included p r i v a t e ownership, m a j o r i t y ownership, and l e g a l devices. The data shown leaves no doubt that management c o n t r o l was predominant i n a l l i n d u s t r y groups, both i n terms of number of companies and p r o p o r t i o n of wealth.  Thus, i t was  clearly  evident that the separation of ownership and c o n t r o l was w e l l advanced.  I n the v a r i o u s i n d u s t r y groups the extent of manage-  ment c o n t r o l v a r i e d considerably. the  The r a i l r o a d s had progressed  f a r t h e s t both i n terms of percentage of companies c o n t r o l l e d ,  sixty-two per cent, and i n terms of wealth, seventy-five per cent. P u b l i c u t i l i t i e s were next i n l i n e by p r o p o r t i o n of wealth. Some t h i r t y - e i g h t per cent of the companies c o n t r o l l e d f i f t y - f i v e per cent of the wealth i n t h i s form.  Legal devices a l s o were an  important form of c o n t r o l f o r u t i l i t i e s , e s p e c i a l l y the pyramiding of corporate s t r u c t u r e s through the use of h o l d i n g companies.  These devices accounted f o r t h i r t y - s i x per cent of the  companies having the same p r o p o r t i o n of wealth.  Only i n the  i n d u s t r i a l companies was i t found that c o n t r o l based on owners h i p remained t o any s u b s t a n t i a l degree.  I n t h i s group some  s i x t y per cent of the companies s t i l l c o n t r o l l e d f o r t y - t h r e e per cent of the wealth i n other forms.  Nevertheless, the  l a r g e s t - p r o p o r t i o n was c o n t r o l l e d through m i n o r i t y ownership, t h i r t y - o n e per cent which f o l l o w s 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 I n d u s t r i a l Groups Type of Control  RailRoads  P r o p o r t i o n of Wealth by I n d u s t r i a l Groups  Public Utilities  Industrial  Total  RailRoads  Public Utilities  Industrial  Tots  I . P r i v a t e Ownership  5$  4$  8$  6$  1$  1$  9$  4$  I I . M a j o r i t y Ownership  2  6  6  5  1  2  3  2  11  14  32  23  3  5  31  14  18  36  14  21  15  37  14 .  22  62  38  40  44  79  55  43  58  2  2  1  1  —  —  —  100$  100$  100$  100$  100$  100$  100$  100$  80$  74$  54$  65$  94$  92$  57$  80$  I I I . M i n o r i t y Control IV. Legal Devices v. Management  Control  I n Receivership Total IV Management Control & o r Legal Devices. V. i n v o l v i n g a small amount of ownership  Source:  —  Berle and Means, The Modern Corporation and P r i v a t e Property, p. 115.  42 i n d u s t r i e s toward the divorce of ownership and c o n t r o l .  This  was f u r t h e r exemplified by f o r t y per cent of the companies w i t h g r e a t e r than h a l f of the wealth under management c o n t r o l . Combining the two forms of c o n t r o l i n which ownership was a t a minimum, i t was found that s i x t y - f i v e per cent of the 200 l a r g e s t 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 w i t h n i n e t y - f o u r per cent and ninety-two per cent by wealth, r e s p e c t i v e l y . THE TEMPORARY NATIONAL ECONOMIC COMMITTEE STUDY OP CONCENTRATION OP ECONOMIC POWER The second study prepared by the S e c u r i t i e s and Exchange 5  Commission was published i n 1940.  Although based p r i m a r i l y on  the d i s t r i b u t i o n o f ownership of a 1937-39 l i s t of 200 nonf 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 p r e d i c t e d i n 1930 d i d not materialize.  I n f a c t , the asset value of the 200 d e c l i n e d from  49.5 per cent t o f o r t y - f i v e per cent of the corporate  wealth.  This was not s u r p r i s i n g though, considering the economy had s u f f e r e d a severe set-back i n the depression and was only beginning t o 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 t r a n s p o r t a t i o n i n d u s t r y where the i n t e r - u r b a n companies a l l but disappeared and r a i l r o a d s United States Temporary N a t i o n a l 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 t o twenty-seven.  Thus, the e r a of the  great r a i l r o a d systems w i e l d i n g considerable on the wane.  economic power was  The P u b l i c U t i l i t y Holding Company Act of 1935  s p e l l e d death t o many of the pyramided corporate s t r u c t u r e s . As a group the u t i l i t i e s s t i l l loom very l a r g e and represent onequarter of the l a r g e corporations; however, t h e i r corporate s t r u c t u r e s were s i m p l i f i e d and thus the h a l f dozen groups that c o n t r o l l e d the bulk of the companies began t o l o s e importance. I n manufacturing, numerous changes were t a k i n g place. The  o i l i n d u s t r y was beginning i t s climb to the t o p r e p l a c i n g  the s t e e l group.  The c o a l companies were on the d e c l i n e .  new i n d u s t r i e s were on the r i s e t o a place of power.  Many  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 e i g h t y - f i v e remained and many were i n a stage of d e c l i n e . THE LOCATION OP CONTROL IN THE 1937 LIST Unlike the e a r l i e r study, the 1937 group of 200 corporat i o n s was c l a s s i f i e d by type of c o n t r o l through ownership. Other relevant f a c t o r s were taken i n t o 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 o f outstanding v o t i n g stock and representation i n the management.  The d i f f e r e n t c l a s s i f i c a t i o n of c o n t r o l  s i t u a t i o n s was p r i m a r i l y t e r m i n o l o g i c a l , although i n a number o f 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  p a r t l y due t o the change i n c o n t r o l s i t u a t i o n s and p a r t l y because more d e t a i l e d information was a v a i l a b l e . 7  The 1930 study subdivided m a j o r i t y ownership i n t o "majority ownership c o n t r o l " and " p r i v a t e ownership." Furthermore, m i n o r i t y c o n t r o l was not d i v i d e d i n t o three groups, but d i s t i n g u i s h e d between "minority c o n t r o l " and "management c o n t r o l . " I b i d . , p. 100.  44 Types of Ownership C o n t r o l Two main types of c o n t r o l through ownership e x i s t e d , m a j o r i t y and m i n o r i t y e o n t r o l .  M a j o r i t y c o n t r o l was the most  e a s i l y d i s t i n g u i s h e d since i t i n v o l v e d the ownership of f i f t y per cent or more of the outstanding v o t i n g stock.  I n such  s i t u a t i o n s , c o n t r o l f o r a l l p r a c t i c a l purposes was  absolute.  I n f a c t , m a j o r i t y ownership i n l a r g e corporations was not very common. Moreover, such a dominant p o s i t i o n i n l a r g e corporations was seldom h e l d by a s i n g l e i n d i v i d u a l or corporation. Generally, there e x i s t e d a number of separate holdings which were c l o s e l y connected i n one manner o r 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 h e l d through v a r i o u s i n s t r u m e n t a l i t i e s and thus not b e n e f i c i a l owned.  The devices used were t r u s t funds, e s t a t e s ,  personal h o l d i n g companies and endowed foundations. M a j o r i t y c o n t r o l was found to e x i s t i n forty-two companies of the 200.  Of these over h a l f were c o n t r o l l e d by a  s i n g l e corporation, predominately p u b l i c u t i l i t i e s .  This r e -  f l e c t e d the l a r g e pyramided h o l d i n g c o r p o r a t i o n systems with complex c a p i t a l s t r u c t u r e s which c h a r a c t e r i z e d the corporation of the p u b l i c u t i l i t y i n d u s t r y .  Only f i v e companies were owned  j o i n t l y by one or more corporations. I n the remaining companies, the dominant c o n t r o l l i n g group was the f a m i l y .  These l a r g e f a m i l y holdings were the out-  growth of a s i n g l e investment made by the founder. O r d i n a r i l y , the i n d i v i d u a l or h i s f a m i l y sought to perpetuate t h i s c o n t r o l p o s i t i o n of the holdings and used personal h o l d i n g companies and t r u s t s f o r doing so.  A t r u s t permitted the separation of owner-  45 ship, c o n t r o l and the r i g h t to receive income.  In t h i s way,  the  income was d i v i d e d among various members of the f a m i l y , w i t h c o n t r o l r i g h t s , p r i m a r i l y v o t i n g p r i v i l e g e s , l e f t i n t r u s t . Thus, the t r u s t e e s could vote the stock as a s i n g l e block.  Similarly,  a d i v i s i o n of f u n c t i o n was obtained through o r g a n i z a t i o n of a personal h o l d i n g company. Included i n the above group were a h a l f dozen companies where c o n t r o l was shared among s e v e r a l f a m i l i e s . This a s s o c i a t i o n may have been the outgrowth of a j o i n t l y founded company or merger of corporations c o n t r o l l e d by one f a m i l y .  Control  was  maintained through j o i n t representation i n management and  the  f a c t 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 c o n t r o l was subdivided i n t o three major groups based on ownership.  F i r s t was  "predominate m i n o r i t y  c o n t r o l " where t h i r t y to f i f t y per cent of the v o t i n g stock held.  was  Secondly, " s u b s t a n t i a l m i n o r i t y " which consisted of owner-  ship of from ten to t h i r t y per cent of the v o t i n g stock 8 f i n a l l y , "small m i n o r i t y " l e s s than ten per cent.  and,  These, of  course, were a r b i t r a r y d i v i s i o n s but very u s e f u l as they presented a more r e a l i s t i c p i c t u r e . I n the 1937 l i s t of corporations, ninety-seven t r o l l e d through m i n o r i t y ownership. cases c o n t r o l was v o t i n g stock. 8  were con-  Of these, i n over h a l f the  exercised by ten to t h i r t y per cent of the  Predominate m i n o r i t y e x i s t e d i n t h i r t y - s e v e n cases  United States Temporary N a t i o n a l Economic Committee, Monograph 29, op. c i t . , p. 103.  46 and l e s s than t e n per cent c o n t r o l l e d t h i r t e e n companies. These were f o r the most part i n manufacturing i n d u s t r i e s . Unlike m a j o r i t y c o n t r o l , f a m i l y i n t e r e s t groups, i n c l u ding s i n g l e and m u l t i p l e f a m i l i e s , dominated the scene. were i n c o n t r o l i n eighty-three  They  of the ninety-seven corporations  or over two-thirds of the group, with s i n g l e f a m i l i e s c o n t r o l l i n g thirty-four.  I n twenty of the cases, c o n t r o l was  exercised  through greater than t h i r t y per cent ownership and, f o r a l l p r a c t i c a l purposes, t h i s amounted to absolute c o n t r o l where no other s u b s t a n t i a l blocks e x i s t e d .  This included such w e l l known  companies as E. I . du Pont de Nemours i n which ownership was f o r t y - f o u r per cent of the v o t i n g stock, the Aluminum Company of America c o n t r o l l e d by the M e l l o n f a m i l y 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 c o n t r o l l e d by three f a m i l i e s , Clapp, B e l l and McKnight. as i n a l l m i n o r i t y c o n t r o l l e d corporations, management was important.  I n these companies the cooperation of  Nevertheless, i t was  inconceivable  that management's p o s i t i o n would be strong enough to challenge the f a m i l y or, f o r that matter, any other group. More numerous than predominate m i n o r i t y c o n t r o l were companies, almost a l l i n manufacturing or merchandising, cont r o l l e d through ownership o f a s u b s t a n t i a l m i n o r i t y .  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 e x i s t e d 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 f a c t the  m i n o r i t y were g e n e r a l l y w e l l represented i n management.  In this  group, s i n g l e f a m i l y c o n t r o l e x i s t e d i n the Colgate Pamolive Peet Company, the Firestone T i r e and Rubber Company and the I n t e r n a t i o n a l Harvester Company.  Several f a m i l i e s were i n a c t i v e c o n t r o l of such  47  f i r m s as General Foods Corporation, Inland S t e e l and Phelps Dodge Corporation. The t h i r d group of companies, t h i r t e e n i n a l l , where f a m i l y holdings c o n s t i t u t e d l e s s than t e n per cent, appeared to be under t h e i r c o n t r o l because of the heavy r e p r e s e n t a t i o n i n management and the absence of other l a r g e b l o c k s . was an extremely untenable p o s i t i o n .  T h i s , however,  I t i n c l u d e d such f i r m s as  P h i l l i p s Petroleum Corporation and Crown Z e l l e r b a c h . In t h i s study of 200 l a r g e s t n o n - f i n a n c i a l corporations s i x t y companies were found t o have no " v i s i b l e center of c o n t r o l , " based on ownership.  This only i n d i c a t e d , according to the  S e c u r i t i e s and Exchange Commission, that study of the twenty l a r g e s t stockholders of record f a i l e d to d i s c l o s e where c o n t r o l lay.  Many of these corporations, however, were undoubtedly  management c o n t r o l l e d , that i s t o say with ownership widely h e l d , c o n t r o l r e s t e d with those who had dominion over the proxy machinery. tions.  The other p o s s i b i l i t y r e s t e d with f i n a n c i a l i n s t i t u -  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 companies with r a i l r o a d s next i n importance.  manufacturing  This group, however,  included some of the l a r g e s t corporations of the 200. Examples were American Telephone and Telegraph, United States S t e e l , Anaconda Copper Mining Corporation and General E l e c t r i c Company. As mentioned p r e v i o u s l y , management was taken i n t o cons i d e r a t i o n i n determining where c o n t r o l of a c o r p o r a t i o n l a y . Since mere ownership i n i t s e l f was not found to be the sole measurement of dominance, c o n s i d e r a t i o n of r e p r e s e n t a t i o n or management was t h e r e f o r e e s s e n t i a l .  Only r a r e l y i n l a r g e  48 corporations was i t found that ownership and management were one and the same.  (Phis, of course, r e q u i r e d m a j o r i t y ownership by  a s i n g l e i n t e r e s t and e x i s t e d p r i m a r i l y i n f i r s t enterprises.  generation  Here the dominant i n t e r e s t was the o r i g i n a l founder  and the f a m i l y had taken an a c t i v e part i n management. Much more common was the s i t u a t i o n s where r e p r e s e n t a t i o n i n management was l e s s than ownership i n t e r e s t and where management r e p r e s e n t a t i o n exceeded ownership considerably.  This was the outgrowth of the  "managerial r e v o l u t i o n " prominent i n the decade p r i o r t o 1940. I t was the r i s e of a p r o f e s s i o n a l management group which began t o r e p l a c e owner-managers.  The former was most prevalent i n  corporations where absolute c o n t r o l e x i s t e d e i t h e r through m a j o r i t y ownership or a predominate m i n o r i t y ownership of the outstanding v o t i n g stock.  Here p r o f e s s i o n a l men a l s o made up a  l a r g e number of the d i r e c t o r s . T h e i r views, of course, w i t h that of the dominant owner.  coincided  An example of such a case was  the Aluminum Company of America where only two o f the t e n d i r e c t o r s were from the Mellon f a m i l y . The l a t t e r s i t u a t i o n , i n which holders o f small blocks of stock were h e a v i l y represented i n the board of d i r e c t o r s and management, was predominant i n m i n o r i t y c o n t r o l s i t u a t i o n s with l e s s than t h i r t y per cent ownership.  The n e c e s s i t y of such a  course o f a c t i o n was r a t h e r imperative to s t a b i l i t y of c o n t r o l . This s i t u a t i o n appeared t o be due to two p o s s i b l e developments. F i r s t , the o r i g i n a l dominant i n t e r e s t groups have maintained t h e i r r e p r e s e n t a t i o n in' management through wide d i s p e r s i o n of the remainder o f the stock i n t e r e s t .  Thus, new issues of stock  were s o l d t o an ever i n c r e a s i n g number of stockholders which was quite p o s s i b l e i n s u c c e s s f u l companies.  This r e f l e c t e d the  49  advantage o f 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 p r o f e s s i o n a l 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 m a j o r i t y ownership and predominate m i n o r i t y under the heading o f absolute c o n t r o l . This i t was f e l t i s more i n l i n e w i t h the present concept of c o n t r o l . The Table gives the d i s t r i b u t i o n o f the corporations c l a s s i f i e d by dominant i n t e r e s t groups and i n d u s t r y . I t shows once again that the norm i s management c o n t r o l . True, the number o f f i r m s represents l e s s than o n e - t h i r d of the t o t a l companies; however, they comprised the l a r g e s t percentage of assets.  Furthermore, absolute c o n t r o l , which i s next i n  importance, has the m a j o r i t y of groups c o n t r o l l e d by corporations. Therefore, p r a c t i c a l l y speaking, these a l s o are r u l e d by management. Among the major i n d u s t r y d i v i s i o n s , management c o n t r o l was predominate i n manufacturing, r a i l r o a d s and others by percentage of assets.  I n u t i l i t i e s , which excludes the communica-  t i o n s area, absolute c o n t r o l was the norm.  This was the r e s u l t  of pyramided c a p i t a l s t r u c t u r e s through the use of many t i e r e d h o l d i n g companies.  I n f a c t , these also could be considered  management c o n t r o l l e d . Working c o n t r o l , t o use the more modem phraseology, was evident i n a l l i n d u s t r i e s but the r a i l r o a d s .  Manufacturing  and u t i l i t i e s were o f p a r t i c u l a r s i g n i f i c a n c e 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 , r e s p e c t i v e l y .  TABLE I I I DISTRIBUTION OP THE 200 CLASSIFIED BY TYPE OP DOMINANT INTEREST GROUP AND INDUSTRY  Classification I . Absolute C o n t r o l : . S i n g l e Family M u l t i p l e Family Corporations TOTAL I I . Minority Control: A. S u b s t a n t i a l Ownership: S i n g l e Family M u l t i p l e Family Corporations TOTAL B. Small Ownership: Single Family M u l t i p l e Family Corporations TOTAL I I I . Management C o n t r o l GRAND TOTAL  MANUFACTURING RAILROADS UTILITIES OTHER -TOTAL Number Number Number . Number Number of com- Assets of com- Assets of com- Assets o f 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 13 8 6 27  3,676 1,014 2,387 $ 7,077  10 11 5 26  $ 4,926 1,412 1,413 $ 7,751  5 4  826 731  1 1 11 13  114 154 3,740 $ 4,008  340 1  $  340  -  $  —  2 1 24 27  334 131 9,275 $ 9,740  1 2 9 12  6 2 4 12  $  963 175 831 $ 1,969  22 12 45 79  $ 5,087 1,474 16.253 $22,814  $  795 495 4,899 $ 6,189  2 3 3 8  $  13 17 17 47  $ 6,088 2,645 6,547 $15,280  2  $ 1,229  1 1  $  178 81  8 5  $ 2,233 812  1,229 1,938  2 8  $ 259 $ 5,463  13 61  $ 3,045 $27,884  119,095  $ 8,691  200  $69,003  9 34  1,557 8,815  15  $11,668  2 4  96  $25,199  29  116,017  45  367 398 235 $ 1,000  Source: Temporary N a t i o n a l 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 X I .  51 Only i n manufacturing was working c o n t r o l by a f a m i l y o r group of f a m i l i e s evident t o any degree. THE POSTWAR ERA The separation o f ownership and c o n t r o l as evidenced by management dominance i n many of the g i a n t corporations has progressed much f u r t h e r since prewar days.  This was the o p i n i o n o f q  s e v e r a l authors who have w r i t t e n on the s u b j e c t . * P r o f e s s o r B e r l e who has spent the g r e a t e r p a r t of h i s l i f e studying the corporations wrote "Management C o n t r o l " . . . i s the locus o f power over and norm of c o n t r o l of the bulk of American i n d u s t r y now. Probably the 50,000 l a r g e s t h o l d e r s of stocks could s t i l l e x e r c i s e a powerful f o r c e i f they worked t o g e t h e r — w h i c h they do not and probably cannot. Included i n t h i s t o p stratum are s u r v i v i n g i n d i v i d u a l holders of "working c o n t r o l " o f which there remain a good many; most of t h i s second stage group are a l s o apparently outward bound f o r e l i m i n a t i o n . Several f a c t o r s have c o n t r i b u t e d t o t h i s ever changing p a t t e r n o f c o n t r o l : i n c r e a s i n g income and estate taxes which were higher than any other p e r i o d 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 o f f s p r i n g i n f a m i l i e s , many o f whom do not and probably cannot f o l l o w i n t h e i r f a t h e r s f o o t s t e p s ; the changing p a t t e r n o f finance over the past decade w i t h 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 e x t e r n a l 11 funds from i n s t i t u t i o n s r a t h e r than i n d i v i d u a l s ; a l s o , there A. A. B e r l e , 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. L i v i n g s t o n , The American Stockholder, pp. 13-21. 3  1 0  I b i d . , B e r l e , p. 74.  1 1  I b i d . , . B e r l e , pp. 38-46.  52 was the continued d i s p e r s i o n of s e c u r i t i e s and r e s t r i c t i v e legislation. The r e g u l a t i o n s of the S e c u r i t i e s and Exchange Commission r e q u i r e d 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 d i r e c t o r s and by any stockholders who  own  b e n e f i c i a l l y t e n per cent or more of any c l a s s of a company's stock.  Appendix C contains a t a b u l a t i o n dated December 1954,  prepared by Hemphill, Noyes and Company of reported stock holdings of 181 of the 2GG l a r g e s t n o n - f i n a n c i a l 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 p u b l i c records and proxy statements r e p o r t s of the S e c u r i t i e s and Exchange Commission.  and  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 c o n t r o l .  Nevertheless, the t a b u l a t i o n showed the  r e l a t i v e absence of l a r g e stockholdings h e l d by both d i r e c t o r s and other i n d i v i d u a l s . SUMMARY T h i s chapter has dealt w i t h the f a c t u a l l o c a t i o n of cont r o l i n i n d i v i d u a l corporations.  I t i n d i c a t e d that management  c o n t r o l has predominated since 1930 and was growing i n importance.  This was true of a l l major i n d u s t r y groups,  t r a n s p o r t a t i o n and p u b l i c u t i l i t i e s .  manufacturing,  A l s o , t h i s served as an  i n t r o d u c t i o n to the a n a l y s i s of ownership i n l a r g e r corporations.  CHAPTER V THE CHARACTER OP OWNERSHIP IN THE LARGE CORPORATION Since the depression two somewhat c o n t r a d i c t o r y developments have been revealed.  On the one hand, a great many small  i n v e s t o r s were found t o have contributed c a p i t a l so that owners h i p was widespread.  On the other hand, a few l a r g e i n v e s t o r s  h e l d s i z e a b l e blocks of shares i n some l a r g e corporations.  How-  ever, p r i o r t o the Temporary N a t i o n a l Economic Committee study of 1937, very l i t t l e information was a v a i l a b l e on the b u t i o n of stock ownership i n i n d i v i d u a l corporations.  distriI n the  previous chapter, f a m i l y and other i n t e r e s t groups were shown to have been associated w i t h the ownership of p a r t i c u l a r corporations, but l i t t l e was s a i d about the patterns o f such ownership and mechanisms employed f o r maintaining and perpetuating i t . This chapter i s p r i m a r i l y d i r e c t e d toward the a n a l y s i s of the twenty l a r g e s t shareholders of record and, i n p a r t i c u l a r , toward the l e g a l instruments o f ownership i n the 1937 l i s t o f 200 l a r g e s t n o n - f i n a n c i a l corporations.  L a t e r evidence of a  s i m i l a r nature was not a v a i l a b l e , therefore i t w i l l not be p o s s i b l e t o check d i r e c t l y the s i t u a t i o n a t the present. However, i  United States Temporary N a t i o n a l 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 o f the l a r g e corporations was obtained. C, Table XVII.  This can be found i n Appendix  An attempt was made t o 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 o f 1937 the twenty l a r g e s t shareholdings i n each of the equity issues o f the 200 l a r g e s t n o n - f i n a n c i a l corporations h e l d i n aggregate an amount equivalent t o n e a r l y 2 t h i r t y - o n e per cent of the t o t a l value o f a l l i s s u e s .  This was  made up o f 208 common stock i s s u e s which amounted t o n e a r l y t h i r t y - t w o per cent of the t o t a l value of these i s s u e s and 196 p r e f e r r e d stock i s s u e s equivalent t o t h i r t y per cent of t h e i r t o t a l value. V a r i a t i o n s i n the proportions o f i n d i v i d u a l issues h e l d by the group were, of course, very l a r g e .  This may be seen from  examination o f v a r i a t i o n s noted between i s s u e s of i n d u s t r y groups shown i n P i g . 1. I n the common stoek issues o f u t i l i t i e s , the twenty l a r g e s t shareholders o f r e c o r d t o t a l l e d over f o r t y - n i n e per cent of t h e i r combined value.  This compared t o only twenty  per cent o f the t o t a l value t h a t was represented i n the other i n d u s t r i e s group dominated by American Telephone and Telegraph The t h i r t y - o n e per cent f i g u r e i n c l u d e d blocks of stock of one of the 200 corporations owned by another corporation i n the group. I f adjusted f o r the d u p l i c a t i o n , the percentage d e c l i n e d t o twenty-five per cent. I b i d . , p. 70. A shareholding i s a block of shares o f one issue o f stock which block i s e i t h e r owned b e n e f i c i a l l y by one person o r r e g i s t e r e d i n the books of the i s s u i n g c o r p o r a t i o n i n the name of one person.  55  Manufacturing R a i l r o a d s  Utilities  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 N a t i o n a l Economic Committee Monograph 2 9 , 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 i s s u e s , the twenty l a r g e s t 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 d i f f e r e n c e s a l s o showed up i n the  subgroups o f the manufacturing i n d u s t r y . The automobile manuf a c t u r e r s showed the .highest percentage of t o t a l value o f a l l issues represented by the twenty l a r g e s t shareholders o f 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 t o the c l o s e  ownership of the Ford Motor Company; Petroleum, rubber and the chemical i n d u s t r i e s a l s o showed high percentages represented by 5  the group. Although the o v e r a l l averages of the common and p r e f e r r e d stock i s s u e s h e l d by the twenty l a r g e s t shareholders o f record were very n e a r l y equal, considerable v a r i a t i o n was noted among the major i n d u s t r y c l a s s i f i c a t i o n s .  Here by f a r the l a r g e s t  percentage of the t o t a l value of i s s u e s represented by the twenty l a r g e s t shareholdings was i n the p r e f e r r e d stock i s s u e s of the other i n d u s t r i e s group, which amounted t o b e t t e r than per cent of the t o t a l value.  sixty-five  R a i l r o a d s were next i n l i n e w i t h  forty-one per cent of the t o t a l value of these i s s u e s h e l d by the l a r g e s t shareholding group.  U t i l i t i e s and manufacturing  were l e s s than the average o f a l l 196 p r e f e r r e d stock i s s u e s , which was 30.5 per cent.  The "other" i n d u s t r i e s group was made up of companies i n communications, e x t r a c t i v e , merchandising, amusements and a g r i c u l t u r a l implements f i e l d s J  4  I b i d . , pp. 70-73  I b i d . , pp. 603-606.  57 HOLDINGS OP DIFFERENT TYPES OF OWNERS The holdings of the d i f f e r e n t types o f owners were d i v i d e d i n t o three groups.  These were i n d i v i d u a l s (which i n -  cludes personal and f a m i l y h o l d i n g companies and t r u s t s and e s t a t e s ) , n o n - f i n a n c i a l corporations and other holders.  The  other holders c o n s i s t e d p r i m a r i l y 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 p i c t u r e as shown i n F i g . 2 i n d i c a t e d that approximately  forty-seven per cent of the i d e n t i f i e d holdings  among the twenty l a r g e s t shareholders of record were accounted c  f o r by i n d i v i d u a l s .  This meant that l e s s than one-twentieth of  one per cent accounted f o r 12-| per cent o f the t o t a l value o f a l l equity s e c u r i t i e s o f the 200 l a r g e s t n o n - f i n a n c i a l corporations. These were found p r i m a r i l y i n common stock i s s u e s which p a r t i c i pated f u l l y i n p r o f i t s and c a r r i e d p o s s i b l e v o t i n g c o n t r o l .  Of  t h i s amount h e l d 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 f a m i l y h o l d i n g companies, and t r u s t s and estates the remainder w i t h nineteen per cent.  Thus, these two i n s t r u m e n t a l i t i e s were o f considerable  importance i n c o n s o l i d a t i n g and perpetuating the ownership of i n d i v i d u a l s and represented f i v e per cent of the t o t a l value o f the outstanding stock of the 200 corporations.  I t was i n t e r e s -  t i n g t o note that personal and f a m i l y h o l d i n g companies consisted almost e x c l u s i v e l y of common stock, whereas the estates and t r u s t s 7  included a considerable p r o p o r t i o n o f p r e f e r r e d stock.' c.  The d i s c u s s i o n up t o t h i s point included a l l holdings o f the twenty l a r g e s t shareholders of record. This i n c l u d e d unident i f i e d holdings o f bankers and brokers where the b e n e f i c i a r i e s remained u n d i s c l o s e d . The remainder of the t e x t w i l l deal p r i m a r i l y w i t h i d e n t i f i e d h o l d i n g s . I b i d . , pp. 72-73. 7  I b i d . , pp. 73-74.  58  100  0-th«rS  90  )hw«st«v«KbC»'s  80' 70  N»«'financi«J  60 50 40 30 20 10 _ 0  Common Stock  P r e f e r r e d Stock  Total  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 t r u s t s and e s t a t e s . Source: U. S. Temporary N a t i o n a l Economic Committee Monograph 29, The D i s t r i b u t i o n of Ownershin i n the 200 Largest NonF i n a n c i a l Corporations pp. 601-602. f  59 N o n - f i n a n c i a l corporations were a l s o l a r g e holders among the twenty l a r g e s t shareholders o f record.  They accounted f o r  3.1.5 per cent o f the t o t a l value o f a l l the shareholdings i n the group.  Thus, they were n e a r l y as important as i n d i v i d u a l s  as holders o f both common and p r e f e r r e d stock i s s u e s . I n t o t a l , n o n - f i n a n c i a l corporations accounted f o r 8.3 per cent o f a l l equity s e c u r i t i e s o f the twenty l a r g e s t shareholdings i n the 2GG l a r g e s t n o n - f i n a n c i a l c o r p o r a t i o n s . The t h i r d group c l a s s i f i e d as other holders among the twenty l a r g e s t shareholders o f 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 h o l d i n g s . 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 l a r g e s t n o n - f i n a n c i a l corporations. A f u r t h e r breakdown of t h i s group i n t o investment companies, insurance companies and eleemosynary 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 o f i d e n t i f i e d holdings h e l d predominately common stock i s s u e s , whereas insurance companies were a l a r g e holder of p r e f e r r e d stock i s s u e s , r e p r e s e n t i n g l e s s than two per cent of t o t a l value of common stock i s s u e s . This was t o 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  a l s o had a l a r g e r p r o p o r t i o n of holdings i n p r e f e r r e d stock than i n common stock.  The d i f f e r e n c e , 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 l a r g e s t record shareholders by types of owners shows  considerable d i f f e r e n c e s between i n d 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 d i f f e r e n c e evident from i n s p e c t i o n o f F i g . 3 i n the percentage o f stock h e l d by i n d i v i d u a l s ( i n c l u d i n g personal and f a m i l y h o l d i n g companies and t r u s t s and e s t a t e s ) .  Shareholdings of i n d i -  v i d u a l s accounted f o r almost seventeen per cent o f the value o f a l l e q u i t y i s s u e s i n manufacturing compared t o l e s s than 3i per cent o f 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 i s s u e s .  T h i s d i f f e r e n c e was p r i m a r i l y a  r e f l e c t i o n o f the methods o f growth of e n t e r p r i s e s i n these industries.  I n manufacturing, many of the l a r g e concerns now i n e x i s -  tence are the outgrowth of the o r i g i n a l small p r i v a t e e n t e r p r i s e s which have made comparatively few o f f e r i n g s of e q u i t y 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 t o the i n v e s t i n g p u b l i c .  Furthermore,  the c a p i t a l s t r u c t u r e s of these companies c o n s i s t e d mainly o f equity s e c u r i t i e s .  R a i l r o a d s 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 f i n a n c e d from the beginning and continued t o appeal t o the open c a p i t a l market as they grew. S i m i l a r s t r i k i n g d i f f e r e n c e s were apparent i n the proport i o n of i s s u e s h e l d by other types of owners.  Non-financial'  corporations accounted f o r t h i r t y per cent o f the i s s u e s 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 e q u i t i e s as compared to l e s s than four per cent o f the manufacturing s e c u r i t i e s .  This was the r e s u l t o f pyramiding of  h o l d i n g companies of the great u t i l i t y systems and heavy i n v e s t ments by the major r a i l r o a d s i n connecting and s u b s i d i a r y roads whereas manufacturing companies had not quite reached t h i s stage 8  I b i d . , pp. 78-79.  61  5Q  Manufacturing R a i l r o a d s  Utilities  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 N a t i o n a l Economic Committee Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest NonF i n a n c i a l 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 h e a v i l y i n v e s t e d i n the r a i l 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, r e s p e c t i v e l y , of these two i n d u s t r i e s .  Foundations and  other c h a r i t a b l e i n s t i t u t i o n s accounted f o r only a very small p r o p o r t i o n o f the s e c u r i t i e s i n a l l f o u r major i n d u s t r i e s and p r e f e r r e d manufacturing i s s u e s the most. Thus f a r the d i s c u s s i o n has been confined t o aggregates f o r groups o f corporations among the 200 companies covered i n the study prepared by the S e c u r i t i e s and Exchange Commission. A more d e t a i l e d p i c t u r e was obtained by u t i l i z i n g data o f i n 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 l a r g e s t h o l dings expressed as a percentage o f the aggregate value of i s s u e s not only i n d i c a t e d the degree of c o n c e n t r a t i o n t h a t e x i s t e d , but a l s o i n d i c a t e d the p o s s i b i l i t y f o r c o n t r o l i n t h i s group of shareholders.  Thus, i t was found i n f i f t y - s e v e n o r over one-fourth o f  the 200 common stock i s s u e s , the twenty l a r g e s t shareholdings comp r i s e d the m a j o r i t y of the i s s u e . ably among i n d u s t r i e s .  T h i s , however, v a r i e d consider-  I n manufacturing, only f i f t e e n per eent as  compared t o twenty-seven per cent i n r a 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  d i d the owners of the twenty l a r g e s t share-  holdings comprise the m a j o r i t y of the common stock i s s u e s .  Non-  f i n a n c i a l corporations were the most important type o f owner. In seventeen per eent of a l l cases the shares comprised w i t h i n the twenty l a r g e s t record holdings c o n s t i t u t e d t h i r t y t o f i f t y per cent o f the value o f the i s s u e s and o n e - t h i r d i n the ten  t o t h i r t y per cent value range.  I n the former, the p r o p o r t i o n  of i s s u e s d i d not vary a great deal among i n d u s t r i e s but i n the  63 l a t t e r the twenty l a r g e s t owners c o n s t i t u t e d forty-one per cent of the cases i n the manufacturing  i n d u s t r i e s whereas i n the other  three major i n d u s t r y groups the percentage ranged from twenty-one to t h i r t y - t w o . There were only f i v e i s s u e s i n which the top twenty shareQ  holders d i d not comprise a t l e a s t t e n per cent of the i s s u e . As f o r the d i f f e r e n c e s among i n d u s t r i e s , the percentage v a r i e d 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 t e n per cent value range. SUMMARY This d i s c u s s i o n of the twenty l a r g e s t shareholdings has revealed the importance of such i n s t r u m e n t a l i t i e s as t r u s t s and personal h o l d i n g companies i n perpetuating ownership of a block of stock.  H a l f o f the i n d i v i d u a l s shareholdings were i n these forms.  Further, i t has i n d i c a t e d the absolute and r e l a t i v e magnitude of the twenty l a r g e s t shareholdings f o r i n d u s t r i a l and s i z e groups among the 200 corporations.  Of p a r t i c u l a r s i g n i f i c a n c e was the  f a c t that i n only f i v e issues d i d the top twenty shareholders to comprise a t l e a s t t e n per cent of the i s s u e .  fail  T h i s , however,  was the s i t u a t i o n p r i o r t o 1940. Since that time s e v e r a l f o r c e s have been operating i n the economy which caused t h i s concentration to d e c l i n e .  Since i t was not p o s s i b l e to t r a c e t h i s change i n the  l a r g e corporations, the next step i n the a n a l y s i s p e r t a i n s to domestic corporations i n general. q T h i s i n c l u d e s the u n 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 e x c l u s i o n changes the p i c t u r e very l i t t l e . J  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 w i t h i n previous chapters concerned only the l a r g e corporation.  In  t h i s chapter the a n a l y s i s goes one step f u r t h e r and covers a l l p u b l i c 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 o f corporations are widely dispersed o r h i g h l y concentrated i n the hands of a small group. Second t o make comparisons w i t h s i m i l a r surveys i n the past t o determine what trends, i f any, are evident. The importance o f t h i s area i s to t r y and f i n d reasons why c o n t r o l i s no longer dependent on ownership.  I n the past  t h i s was true despite the r i s e of l e g a l devices which have separated d i r e c t ownership, c o n t r o l and management.  For many  of these devices are merely a n c i l l a r y o r 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 o f ownership c h a r a c t e r i s t i c s w i l l provide clues t o forms of c o n t r o l that may e x i s t . THE PRESENT DISTRIBUTION OF OWNERSHIP  1  Types o f Stockholders I n 1956 i n d i v i d u a l s owned o u t r i g h t 56.9 per cent of the stock of p u b l i c corporations.  An a d d i t i o n a l f o u r per cent was  See Appendix B, Tables IX and X, pp. 129-134  65 h e l d "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 s i x t e e n per cent of the t o t a l shares outstanding.  Other s i z e a b l e h o l d i n g s were i n the  names of brokers and d e a l e r s , and nominees. 10.1 per cent of the shares, r e s p e c t i v e l y .  They h e l d 9.3  and  These groups, how-  ever, were not b e n e f i c i a l l y owned to that extent f o r they h e l d the m a j o r i t y of the stock f o r u n d i s c l o s e d i n d i v i d u a l s and tutions.  insti-  Nevertheless, as r e g i s t e r e d owners they have the v o t i n g  r i g h t s and, thus, cannot be overlooked. A more r e a l i s t i c p i c t u r e of the types of holders was  ob-  t a i n e d by an a n a l y s i s of the d i s t r i b u t i o n of dividends among 2 the v a r i o u s c l a s s e s 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 n o n - p r o f i t 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 f o r e i g n e r s .  The  remainder, somewhat over s i x t y - n i n e 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 n e a r l y f i f t e e n per cent of the outstanding stock.  I t was  not p o s s i b l e to a s c e r t a i n the amount of stock owned by i n d i v i d u a l s r e g i s t e r e d 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 i n d i c a t e s the r e l a t i v e importance of the v a r i o u s types of stockholders i n terms of value of h o l d i n g s .  Thus, I n d i v i d u a l s who h e l d 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 w i t h 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 p r i v a t e and p u b l i c 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, n e a r l y eighty per cent of shares outstanding owned i n terms of value approximately seventy per eent o f the stock i n corporations. Corporations which h e l d b e t t e r than s i x t e e n per cent of the shares owned approximately nineteen per cent by value. F i d u c i a r y i n s t i t u t i o n s t h a t h e l d only 3.4 per cent o f the shares comprised nine per cent o f the stock i n terms of value. Number of Stockholders and Shareholdings The number of stockholders t h a t i s i n d i v i d u a l s owning stock i n at l e a s t one p u b l i c c o r p o r a t i o n was 8.6 m i l l i o n i n e a r l y 1956. This meant one out of every twenty persons i n cont 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 a d u l t s , 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 p i c t u r e as i n a great number of eases i n d i v i d u a l s own stock i n more than one corporation.  A measure o f t h i s was the  number o f shareholdings o r stockholders of record on the books of corporations.  I n 1956 i t was found that of the 4,600 p u b l i c  corporations w i t h a t o t a l of 6,679 stock i s s u e s 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. I n 1959 the number of shareowners had increased t o 12.5 m i l l i o n and, t h e r e f o r e , one i n every eight a d u l t s owned shares i n at l e a s t one p u b l i c corporation. See New York Stock Exchange, Factbook, 1960, pp. 26-27. 4  ^A shareholding i s a block of shares of one issue o f  67 h e l d stock i n 4.25  issues.^  This average, however, was  of  r e s t r i c t e d s i g n i f i c a n c e 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 i n v e s t o r s . R e l a t i o n Between Income and Share Ownership  7  The great m a j o r i t y of the 8.6 m i l l i o n shareholders  had  small incomes with over s i x t y - f o u r per cent r e p o r t i n g incomes of l e s s than $7,500 i n 1956.  T h e i r average dividend income, however,  varied*from $516 f o r married people to $660 f o r s i n g l e i n d i v i d u a l s . The prevalence and importance of stock ownership v a r i e d g r e a t l y among households of d i f f e r e n t economic,levels.  The  proportion^of stockholders was lowest among the people of small means and increased w i t h t o t a l income, however, the bulk of owners received incomes i n the $3,000 to $7 500 range. t  The same general  t r e n d was evident i n the p r o p o r t i o n of a d u l t population i n each group that owned shares.  I t was lowest i n the small income brac-  kets but s t e a d i l y increased with i n c r e a s i n g 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 cent of the adult population i n t h e i r income l e v e l .  per  I n the upper  income l e v e l s of $7,500 and over, equity holders represented both the l a r g e s t p r o p o r t i o n of the adult population f o r t h e i r group and the l a r g e s t number of owners.  B e t t e r than one i n f o u r a d u l t s  stock, r e g i s t e r e d i n the books of the i s s u i n g corporation i n the name of one person. %ew York Stock Exchange, Who 1956 Census of Shareowners, p. 23. 7  Owns American Business.  See Appendix B, Tables XI, X I I and X I I I , pp. 135-137.  68 r e p o r t i n g incomes g r e a t e r than $7,500 were shareholders and they represented over o n e - t h i r d of the t o t a l number. The importance of dividends as a source"of income increased sharply w i t h 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 t a x  returns i n 1955, dividends c o n s t i t u t e d 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 w i t h income b e t ween $3,000 and $5,000 to more than f o r t y per cent f o r i n d i v i d u a l s w i t h incomes of $200,000 or more.  Furthermore, the percentage of  returns r e p o r t i n g dividends i n each income c l a s s 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 w i t h 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 d i v i d e n d r e c i p i e n t s w i t h net incomes of l e s s than $7,500 while i t was b e t t e r than f i f t y - f i v e per cent f o r Q  dividend r e c i p i e n t s w i t h a net income of $50,000 or more.  This  was f u r t h e r i l l u s t r a t e d by the average dividend income of each gross income c l a s s .  For married people who f i l e d j o i n t r e t u r n s ,  t h e i r average dividend income went from $450 f o r incomes of l e s s than $3,000 to $15,000 f o r those w i t h incomes of $50,000 or more. For s i n g l e persons, the average was somewhat higher ranging from $565 to $40,000 f o r the same income groups.  These f a c t s i n d i c a t e  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 c a l c u l a t e d by m u l t i p l y i n g number of r e c i p i e n t s times maximum gross of the group and d i v i d i n g i n t o dividend income.  w i t h small and moderate means who form the l a r g e s t bulk of the shareowning population. CONCENTRATION OP STOCK OWNERSHIP The previous d i s c u s s i o n has shown that the l a r g e numbers of shareholders w i t h incomes of l e s s than $7,500 have very small investments  i n corporate stock.  These numerous stockholders  r e c e i v e d small amounts o f dividends which accounted f o r only a minor p o r t i o n o f a l l dividends r e c e i v e d by i n d i v i d u a l s .  This was  shown quite c o n v i n c i n g l y by the dividends r e c e i v e d by each income q c l a s s as reported i n the S t a t i s t i c s of Income f o r 1955. The p r o p o r t i o n of dividends r e c e i v e d by people of small means was low, i n c r e a s i n g s l i g h t l y w i t h 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 w i t h  i n c r e a s i n g income.  Those households which had gross incomes o f  l e s s than $7,500 r e c e i v e d 17.5 per cent of dividends whereas those w i t h incomes above $7,500 reported 88.3 per cent of the t o t a l dividends.  The p r o p o r t i o n of dividends reported by income l e v e l s  under $10,000 amounted t o l e s s than twenty-four per cent, y e t the number o f r e t u r n s f i l e d by t h i s group were over eighty-two per cent of the t o t a l r e t u r n s r e p o r t i n g dividends.  Furthermore l e s s than  one per cent of the t o t a l returns which represented those w i t h incomes of a $100,000 and over r e c e i v e d b e t t e r than twenty-one per cent o f the t o t a l dividends. Combining t h i s data with t h a t presented above on page 67 See Appendix B, Table XIV, p. 138. The data reported i n c l u d e f o r e i g n and domestic dividends r e c e i v e d 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 e x c l u s i o n . y  •  ••  _  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 t h a t had incomes between $3,000 and $7,500 r e c e i v e d only 1-2.1 per cent of the dividends. This compares w i t h the t h i r t y - s i x per cent who had incomes of $7,500 and over who  r e c e i v e d 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 l a r g e s t p r o p o r t i o n of shares outstanding.  These f i g u r e s , therefore.; suggest that not-  withstanding the wide d i s p e r s i o n of ownership i n d i c a t e d by the l a r g e number of shareholders, ownership of corporate stock a l s o h i g h l y concentrated i n the hands of r e l a t i v e l y few  was  persons.  Moreover, the m i l l i o n s of small shareholders were not a f a c t o r to be considered i n the corporate s e c t o r as t h e i r i n f l u e n c e was l i m i t e d * despite t h e i r number. One f u r t h e r i l l u s t r a t i o n of the concentration of owners h i p among the wealthy was depicted i n F i g . 4 which presents the concentration of gross income and d i v i d e n d income among income tax returns f o r 1955.  10  Thus, the 20,000 returns w i t h 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 t w e n t y - f i f t h of one  per  cent of the t o t a l tax r e t u r n s , r e c e i v e d n e a r l y twenty per cent of a l l dividends p a i d to i n d i v i d u a l s .  1 1  Therefore, i t may be e s t i -  mated t h a t these people owned d i r e c t l y or i n d i r e c t l y about one1G  I n Chart 1 three Lorenz curves depict the r e l a t i v e conc e n t r a t i o n 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. I n general the l a r g e r 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. ^Approximately sixty-one per cent of a l l tax r e t u r n s f i l e d i n 1955 were j o i n t r e t u r n s . I t was not p o s s i b l e t o estimate, how (many of these i n c l u d e d more than one dividend r e c i p i e n t . 1  71  FIGURE 4 CONCENTRATION OF GROSS INCOME AND DIVIDEND INCOME  D i s t r i b u t i o n of gross income as a percentage of a l l tax r e t u r n s . D i s t r i b u t i o n of dividend income as a percentage o f a l l returns. D i s t r i b u t i o n o f dividend income as a percentage of dividend r e t u r n s .  72 f i f t h , of a l l the outstanding stock i n domestic corporations. Only 300,000 returns were necessary t o account f o r one-half o f a l l the dividend r e t u r n s r e c e i v e d 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 h i g h l y concentrated than gross income. The evidence presented thus f a r was p r i m a r i l y from F e d e r a l t a x r e t u r n s and t h i s included p r i v a t e corporations.  Therefore,  the concentration of ownership as evidenced may be open to c r i t i cism on t h i s b a s i s .  Thus, a survey conducted by the Michigan  Research Bureau f o r the Board o f Governors o f the Federal Reserve System was i n v e s t i g a t e d . This study, known as the Survey of Consumer Finance which has been conducted f o r a number of years, was 12  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 e a r l y 1957. The composition of f i n a n c i a l holdings showed t h a t eleven' per cent of a l l spending u n i t s owned corporate stocks i n p u b l i c 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 t o seventy-five per cent f o r assets o f $25,000 and over.  Thus, corporate stocks  which were infrequent i n holdings o f 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 o r 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. ^A spending u n i t i s defined as a l l persons l i v i n g i n the same d w e l l i n g and r e l a t e d by blood, marriage or adoption, who pool t h e i r incomes t o meet t h e i r major expenses. 1  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 i n d i c a t e d t h a t spending u n i t s of $10,000 incomes or more had about one-half t h a t owned some stock and one-sixth h e l d 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  illus-  t r a t e d by the type and s i z e of holdings w i t h i n income g r o u p s .  14  Among a l l spending u n i t s eighty-nine per cent had no holdings and only three per cent h e l d stock worth $10,000 or more. general p a t t e r n p r e v a i l e d w i t h i n income groups.  The same  Zero holdings  were reported among n i n e t y - f i v e per cent of spending u n i t s w i t h incomes l e s s than $3,000 compared t o 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 w i t h the s i z e and percentage i n c r e a s i n g s l i g h t l y w i t h higher incomes.  For the lower income groups  under $7,500 the method of presenting data d i d not allow a more d e t a i l e d a n a l y s i s . The upper economic l e v e l s , however, i n d i c a t e d t h a t the m a j o r i t y of owners had f a i r l y l a r g e h o l d i n g s .  Eleven  per cent of a l l spending u n i t s or b e t t e r than one-fourth t h a t owned shares, w i t h incomes over $10,000 o r more, had holdings of between $2,000 and $10,000, and more than one-half of the stockholders i n t h i s group had holdings greater than $10,000.  These  people would, t h e r e f o r e , h o l d the l a r g e s t percentage of the t o t a l stock outstanding.  Thus, once again the p i c t u r e was one of con-  c e n t r a t i o n of ownership among the wealthy.  Indeed i t appeared  more impressive when the t o t a l population was  See Appendix B, Table XV, p.  139.  considered.  74 CONCENTRATION OP STOCK OWNERSHIP IN INDIVIDUAL CORPORATIONS The concentration o f corporate ownership i n the aggregate for  a l l domestic corporations, which has been described, does not  n e c e s s a r i l y r e f l e c t a s i m i l a r concentration o f stock ownership i n i n d i v i d u a l corporations o r s i n g l e i s s u e s .  The concentration o f  stock i n the hands o f the wealthy may r e s u l t from e i t h e r l a r g e shareholdings i n s i n g l e issues o r a wide d i v e r s i f i c a t i o n of holdings i n many corporations.  I n the past i t has been shown  that the number of shareholdings t y p i c a l l y h e l d by i n d i v i d u a l s i n 15  d i f f e r e n t corporations was r e l a t i v e l y few. This was despite the f a c t the number of d i f f e r e n t stocks h e l d increased w i t h higher y  16  t o t a l or dividend income.  No comparable data was a v a i l a b l e t o  determine t o 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 h o l d 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 o f gross income. Furthermore, twenty per cent o f the stock owners f i r s t acquired stock through employee stock purchase plans, t h e r e f o r e , i t can be assumed the m a j o r i t y o f these owners h e l d stock i n only one or two c o r p o r a t i o n s . In  the past the other aspect o f the d i s t r i b u t i o n o f owner-  s h i p , i n v o l v i n g the s i z e d i s t r i b u t i o n of shareholdings, showed <A stockholder i s considered t o have as many shareholdings as the d i f f e r e n t number of i s s u e s i n which he holds shares. ^ U n i t e d States Temporary N a t i o n a l 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 t h a t shareholdings w i t h an average value o f over $10,000 each c o n s t i t u t e d more than s i x t y per cent o f the t o t a l market value 17 of  a l l shares outstanding.  T h i s , too, i t was not p o s s i b l e t o  determine f o r the present, however, two trends appeared evident. The number of i n d i v i d u a l s w i t h i n the l a r g e r income groups has increased and a l s o the number o f l a r g e h o l d i n g s . TRENDS IN THE DISTRIBUTION OP OWNERSHIP In  the l a t t e r h a l f o f the present century the concentra-  t i o n o f stock ownership i s s t i l l evident. A small percentage of the p o p u l a t i o n who enjoy the highest income l e v e l s s t i l l r e t a i n ownership o f the l a r g e s t p r o p o r t i o n o f the t o t a l shares outstanding.  This s e c t i o n deals w i t h a comparison of the past  twenty.years t o determine what trends, i f any, are present. Types o f Stockholders Since the end o f 1937 important changes have taken place i n the manner i n which shares were h e l d by v a r i o u s types o f stockholders.  At t h a t time t h i r t y - s i x per cent o f the shares o f  corporations were owned by domestic corporations and about one 18 per cent by n o n - p r o f i t i n s t i t u t i o n s .  Thus, i n the twenty year  p e r i o d ownership by corporations has d e c l i n e d t o 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 t o over nine per eent.  Although exact f i g u r e s were not  a v a i l a b l e , the n o n - f i n a n c i a l s e c t o r s u f f e r e d the l a r g e s t d e c l i n e , predominately as a r e s u l t of the P u b l i c U t i l i t y Holding Act o f 1 7  Ibid.  I b i d . , pp. 149-150.  76 1935.  The f i n a n c i a l s e c t o r , on the other hand, has expanded  considerably, e s p e c i a l l y investment companies since the passage of the Investment Act of 1940. I n 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 e s t a t e s , the l a t t e r accounting f o r a l i t t l e over t e n per cent of the out19 standing stock. ^  Therefore, i n 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 t o 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 p o s s i b l y i n d i c a t e d c o n t i n u i n g e f f o r t to maint a i n holdings i n t a c t and thus the r e t e n t i o n of c o n t r o l .  Thus,  contrary to popular o p i n i o n , 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 w i t h 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 a t the expense of the n o n - f i n a n c i a l group of c o r p o r a t i o n s . Number of Stockholders Since the f i r s t reasonable accurate estimate of share owners made i n 1927, the number as a p r o p o r t i o n of adult populat i o n has not m a t e r i a l l y changed except i n the past few years. T h i s may be seen from the estimates of s e l e c t e d years from 1927 20 t o 1959.  The prewar years were not d i r e c t l y comparable w i t h  postwar estimates f o r they contain equity owners of p r i v a t e corporations.  Thus, the Temporary N a t i o n a l Economic Committee i n  Monograph 29 suggests t h a t the 1937 f i g u r e might have been lower 1 9  20  Ibid.  See,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 h e l d corporate shareholders had been omitted.  The census prepared by the  New  York Stock Exchange i n 1956 i n d i c a t e d there were an a d d i t i o n a l 1.4 m i l l i o n shareowners of p r i v a t e corporations.  With these  q u a l i f i c a t i o n s i n mind, an a n a l y s i s of the trends can be considered. Throughout the three decade p e r i o d no d i s c e r n i b l e t r e n d was evident i n the number of shareholders i n corporations, i n f a c t , the numbers v a r i e d considerably.  As a percentage of adult  population the f l u c t u a t i o n s were not as great. ever, a c y c l i c a l movement of ownership.  There was, how-  S t a r t i n g w i t h the boom  p e r i o d of the l a t e twenties, ownership approximately 1932.  doubled by  This tremendous r a t e of growth, however, was h a l t e d by the  prolonged depression and then the coming of the war.  Thus, from  the depths of the depression to s h o r t l y 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  w i t h a steady growth i n the number of stockholders.  Prom 1952 to  1959 the number of shareowners has n e a r l y doubled w i t h the greatest growth o c c u r r i n g 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 l a r g e s t p r o p o r t i o n of shareowners s i n c e 1956 f i r s t acquired stock through 21 employee stock purchase plans. The incidence of stockholders as a p r o p o r t i o n of adult population has gone from an average of one i n twelve i n 1927 one i n eight i n 1958.  Therefore, i t was concluded that only  r e c e n t l y 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  to  78 stock i n corporations than i n any previous p e r i o d 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 p r o p o r t i o n 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 population the change was not m a t e r i a l .  of  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 v i d u a l s , and the l a r g e r number of persons i n each income l e v e l cannot be discounted when attempting to uncover d i s c e r n i b l e trends over a l o n g p e r i o d of years., Therefore, these q u a l i f i cations must be kept i n view i n t h i s s e c t i o n . There was some evidence of a smaller degree of concentrat i o n of stock ownership at the end of the p e r i o d than at the beginning.  The d i s t r i b u t i o n of dividend income among dividend  r e c i p i e n t s i n 1937 showed only two per cent of a l l dividend r e c i p i e n t s r e c e i v e d 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 r e c e i v e d n e a r l y ninety-seven 22 per cent of the t o t a l .  I n 1955 twelve per cent of dividend  returns were r e q u i r e d to make up s i x t y per cent of a l l dividend income and e i g h t y - f o u r 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 r e c i p i e n t s the  changes were not as impressive.  Approximately 1£ per cent of  United States Temporary N a t i o n a l Economic Committee, op. c i t . , p. 13.  79 a l l income r e c i p i e n t s i n 1937 r e c e i v e d seventy per cent of the t o t a l dividend income compared to three per cent i n 1955. However, the importance of dividends as a source of income had a l s o changed over the years.  I n 1937 dividend income c o n s t i t u t e d  s i x t e e n 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 o f ownership has been reduced, other surveys have shown that the wealthy people s t i l l h o l d by f a r the l a r g e s t p r o p o r t i o n of corporate stock. The Survey of Consumer Finance conducted i n 1949 pointed out that only a small percentage of the population owned business e q u i t i e s . Of those t h a t d i d , the l a r g e m a j o r i t y were found t o h o l d only small amounts.  Nearly f i f t y - f i v e per cent of a l l spending u n i t s  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 a t l e s s than $5,000.  I n c o n t r a s t , 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, w i t h net worths i n excess of a quarter of a m i l l i o n d o l l a r s h e l d a minimum of f i f t y - f i v e t o s i x t y per cent of a l l marketable stock owned by p r i v a t e i n d i v i d u a l s .  The same a n a l y s i s  showed that as at the end of 1949: i  1.  Spending u n i t s w i t h incomes of $25,000 and o v e r — i n general order of one-half of one per cent of the p o p u l a t i o n — h e l d 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 V I , " Federal Re serve B u l l e t i n , (October, 1949), p. 1191.  80 2.  Spending u n i t s with incomes of $10,000 and o v e r — approximately the top three per cent of the p o p u l a t i o n — h e l d about seventy-five per cent of A a l l marketable stock owned by p r i v a t e i n v e s t o r s . 2  This study then ?'.  concluded:  These f i g u r e s would a l l be s e v e r a l percentage points higher i f stock managed by.o corporate t r u s t e e s f o r i n d i v i dual b e n e f i c i a r i e s were i n c l u d e d i n the t o t a l . There i s no evidence of any marked change i n the concent r a t i o n of marketable stockholdings by income groups between 1949 and 1952. ? 2  These f a c t s have c l e a r l y demonstrated the concentration of ownership that e x i s t e d i n the e a r l y f i f t i e s .  Further evidence  i n d i c a t e d that the accumulation of i n v e s t a b l e funds by the upper income c l a s s e s has been c o n s i s t e n t l y l a r g e during postwar years, despite the e x i s t i n g t a x s t r u c t u r e and that i n d i v i d u a l s w i t h l a r g e incomes and s u b s t a n t i a l wealth continue as a group to h o l d and i n vest a l a r g e p r o p o r t i o n of t h e i r funds i n equity-type  investments.  Thus, though the degree of concentration that e x i s t e d 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. T h i s , 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.  E e i t h B u t t e r s , 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 I n d i v i d u a l s , p. 25. 2 4  2 5  I b i d . , p.  440.  81 SUMMARY The apparently c o n t r a d i c t o r y phenomenon of widespread ownership and yet a h i g h 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 d i s p e r s i o n 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 w i t h the biggest change o c c u r r i n g 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 a l s o the use of such i n s t r u ments as t r u s t s and e s t a t e s .  The holdings of the  corporate  s e c t o r 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 a r i s e n as a major holder of e q u i t i e s . Although the exact s i z e of i n d i v i d u a l holdings was not t r a c e d , 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 s i z e of holdings has decreased considerably and that the number of i n d i v i d u a l s necessary 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 c o n t r o l of t h i s group has been reduced somewhat.  CHAPTER V I I INSTITUTIONAL STOCKHOLDINGS The preceding chapters on ownership o f corporate stock have emphasized p r i m a r i l y holdings of i n 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 l a r g e s t holders o f e q u i t i e s .  However, as noted e a r l i e r , a  p o r t i o n of these holdings were i n the form of personal t r u s t s . These -combined w i t h other i n s t i t u t i o n a l holdings represented between twenty-three and twenty-seven per cent o f the t o t a l value o f outstanding stock a t the end o f 1955.  Furthermore,  t h i s segment was now o f f a r g r e a t e r importance because o f the p o t e n t i a l f o r c o n t r o l that l i e s w i t h t h i s group.  Of t h i s  Professor B e r l e i n h i s l a t e s t book has t h i s t o say: As of to-day, f o u r or f i v e pension t r u s t s or mutual fund managers, i f they get together, are q u i t e able t o ignore the "management s l a t e s " f o r d i r e c t o r s get up s l a t e s o f t h e i r own and vote i n t h e i r candidates. I n place o f the unorganized stockholders, non o f whom has the energy or money to m o b i l i z e h i s f e l l o w s , there are new centers o f power already capable o f c a r r y i n g out such m o b i l i z a t i o n . Tomorrow these centers w i l l be able without having t o ask assistance from i n d i v i d u a l stockholders t o d e l i v e r a c o n t r o l l i n g vote a t w i l l . ' This chapter develops the l a s t step i n the a n a l y s i s o f ownership of corporate stock.  The purpose i s t o show the  i n c r e a s i n g importance o f i n s t i t u t i o n a l i n v e s t o r s and i n d i c a t e  A. A. B e r l e , J r . , Power Without Property, p. 5 3 .  83  the concentration of holdings that t h i s group i s b u i 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 t r a c e d from s h o r t l y a f t e r the Second World War up t o the present. THE PATTERN OP OWNERSHIP Table IY shows estimated holdings of the v a r i o u s types o f i n s t i t u t i o n s as a t 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 o f stock i n the hands of a few which contrasts w i t h the ever i n c r e a s i n g d i s p e r s i o n o f ownership o f stock among individuals. I t was estimated by the New York Stock Exchange t h a t as at the end o f 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 i n c l u d e d some s i x t y b i l l i o n  d o l l a r s o f i n t e r c o r p o r a t e stockholdings and thus represented a c e r t a i n amount o f 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 h e l d by i n s t i t u t i o n a l i n v e s t o r s .  T h e i r holdings  comprised roughly eighty-nine per cent common stock and the 2 remainder i n p r e f e r r e d stock.  This was based on the p r o p o r t i o n o f common and p r e f e r r e d h e l d by i n s t i t u t i o n s i n 1954. See United States Senate, Pactors A f f e c t i n g .the Stock Market Report of the Committee on Banking and Currency, pp. 88-89. f  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 Preferred Common Securities Issues Issues B i l l i o n s of D o l l a r s  Investment Companies: Open End Closed End  $ 7.6 5.6  7.1 5.5  $0.5 0.1  Insurance Companies: F i r e , Marine and Casualty Life  7.0 3.7  6.1, 1.7  0.9 2.0  Non-Profit Organizations: Foundations College Endowment Funds Other  4.6 3.6 3.3  4.4 3.3 n. a.  0.2 0.3 n. a.  Non-Insured Pension Funds  4.2  3.7  0.5  Mutual Savings Banks  0.7  n.a.  n.a.  43.8  n.a.  n. a.  Bank Administered Personal Trust Funds 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 consumer o p i n i o n 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, i n v e s t i n r e a l e s t a t e , buy common stock or other i n v e s t ments.  R e s u l t s showed that since 1949 an i n c r e a s i n g percentage  of consumers favored common stocks u n t i l 1954 when the t r e n d appeared t o change. stock increased.  However, again i n 1957 preference f o r common  I n f a c t , i t showed investment preferences cor-  responded c l o s e l y w i t h the types of assets h e l d and changes noted i n the 1956 h o l d i n g s . The r e s u l t s of these surveys are summarized as f o l l o w s : ^ Per Cent 2 6 8  1949... 1951 1952....  1953 1954 '1957  :  Per Cent .9 7 10  The New York Stock Exchange i n the 1959 survey i n d i c a t e d the number of i n d i v i d u a l s owning stocks of p u b l i c 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 l a r g e s t percentage  increase came from employees p a r t i c i p a t i n g i n employee stock stock option p l a n s .  4  However, the Increased number of share-  ^Includes only spending u n i t s w i t h 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." F e d e r a l Reserve " B u l l e t i n , X L I I I (August, 1957), p. 887. 4  New York Stock Exchange, I960 Fact Book, p. 29.  86 holders was f a r g r e a t e r than the increase i n d o l l a r volume of purchases.  The annual r a t e of net purchases of stocks shown  i n Table V i n d i c a t e d i n d i v i d u a l s share has d e c l i n e d since  1952.  More recent data on the net purchases of stocks by i n d i v i d u a l s and i n s t i t u t i o n s was not a v a i l a b l e .  However, as 1954 was  a  r e c e s s i o n year, i t was expected t h a t f u t u r e purchases of stocks by i n d i v i d u a l s increased during the upswing of the next business cycle.  Nevertheless, i t d i d not seem l i k e l y t h a t they would  surpass the volume of i n s t i t u t i o n s . During the same p e r i o d , 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 p r e f e r r e d i n d i c a t e d that i n s t i t u t i o n a l stock holdings increased more than those of i n d 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 f o r t y - f o u r 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 t h a t  there has been an i n c r e a s i n g tendency since the e a r l y 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 i n v e s t o r s . The r a t e has increased s u b s t a n t i a l l y since 1950 when s t a t e laws were amended to permit t r u s t e e s , l i f e insurance companies, l e g a l t r u s t s and others to purchase stocks under e i t h e r 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  C l a s s of Holder  1951  1952  1953  1954  B i l l i o n s of Dollars Net Purchases "by: Institutions Foreign I n t e r e s t s Individuals Total additions to outstanding stock  $1.15  $1.69  .12  $1.61  $1.83  .06  .13  1.43  1.30  .69  .43  $2.70  $2.99  $2.36  $2.39  Source: United States Senate, Factors A f f e c t i n g the Stock Market, Report o f 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 o f increased investment funds have come from the pension funds and mutual investment companies.  The annual net purchases o f common stock together  w i t h p r o j e c t i o n s through to 1955 are shown i n P i g . 5. The estimates of annual net purchases o f common stock f o r 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 r a t e o f about 100 m i l l i o n d o l l a r s a year i n 1940 t o around 1.1 b i l l i o n i n 1952.  P r o j e c t i o n s through t o 1955 made a t the same time brought  the l e v e l of net purchases t o 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 I r w i n F r i e n d , i n d i c a t e d 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 o f g  annual net purchases o f common stock i n 1954. From estimates made by the S e c u r i t i e s and Exchange Commission, Table V, page 87, i t appeared that net purchases of t o t a l e q u i t i e s by i n s t i t u t i o n a l i n v e s t o r s 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 t r a c e d the growth of stockholdings of i n s t i t u t i o n s since 1900.  I n Table V I there  appears the h o l d i n g s of f i n a n c i a l i n s t i t u t i o n s f o r s e l e c t e d years from 1949 t o 1955.  These r e f l e c t both r i s i n g share p r i c e s  and increased r a t e of purchases which began i n 1950. The holdings  b  p. 77.  " W a l l Street Notes," Fortune Magazine, L I (March, 1955),  89  Open-End Investment Companies  Pension Funds  L i f e Insurance Companies Other Institutions 1940  1948 1949 1950 1951 1952 1955 FIGURE 5 ANNUAL NET PURCHASES OF COMMON STOCK BY FINANCIAL INSTITUTIONS  Source: U. S. Senate, Factors A f f e c t i n g The Stock Market, Report of the Committee on Banking and Currency, p. 94.  90  TABLE V I ESTIMATED INSTITUTIONAL HOLDINGS OP EQUITY SECURITIES  3,  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 D o l l a r s Insurance Companies: Life F i r e , Marine and Casualty  $1,718  $2,446  $2,573  $3,400  $3,700  2,985  4,366  4,501  6,460  7,000  1,800 840  3,700 1,090  3,900 1,030  5,840 1,450  7,600 5,600  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, e t c .  2,900  3,500  3,600  5,100  7,900  Investment Companies: Open-end Closed-end Mutual Savings Banks  TOTAL a.  $32,300 $44,688 $46,485 $66,270 $84,100  Includes u n l i s t e d stock as w e l l as those l i s t e d on the New York and other exchanges.  Source: 1949-1954: U n i t e d States Senate, Stock Market, Report of the Committee on ^Washington: Government P r i n t i n g O f f i c e , New York Stock Exchange, I960 Fact Book,  Factors A f f e c t i n g the Banking and Currency, 1955), p. 96? 1955: p. 27.  91 of i n s t i t u t i o n s which are c a r r i e d a t market values have grown two and one-half times since 1949.  They amounted to 80.4  billion  d o l l a r s as of December 31, 1955, compared w i t h t h i r t y - t w o b i l l i o n f o r 1949.  The Exchange estimated that approximately e i g h t y per  cent of the apparent i n c r e a s e i n h o l d i n g s were a t t r i b u t e d to market a p p r e c i a t i o n and t h a t the balance of twenty per cent represented net a d d i t i o n s to stock h o l d i n g s through purchases of shares and the a c q u i s i t i o n s of newly i n v e s t e d funds.  The  Senate  Committee on Banking and Currency, however, f e l t t h a t the twenty 7  per cent f o r net a d d i t i o n s was probably on the low s i d e . I n 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 V I I f o r the years 1956 to 1959 i n c l u s i v e , and a l s o f o r the year 1949 to enable a comparison to be made. Unfortunately, one important segment was not covered, t h a t i s the bank administered personal t r u s t funds.  A s m a l l p r o p o r t i o n of  t h i s group, however, was l i s t e d under common t r u s t funds. The h o l d i n g s shown at market value c o n t a i n over n i n e t y f i v e per cent of the i s s u e s of the 200 l a r g e s t n o n - f i n a n c i a l 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 h e l d 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. 7  Moreover, the market value of a l l New York Stock  'United States Senate, op. c i t . , p. 96. 8 This i s a p r e l i m i n a r y estimate f o r 1959.  92  TABLE V I I ESTIMATED HOLDINGS OP NEW YORK STOCK EXCHANGE LISTED STOCKS BY INSTITUTIONAL INVESTORS Year-end Market Values Type o f 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 D o l l a r s Insurance Companies: Life Non-Life Investment Companies: Open-end Closed-end Non-Profit I n s t i t u t i o n s : College and U n i v e r s i t y Endowments Foundations Other Non-Insured Corporate Pension Funds  $1.1 1.7  $2.3 4.5  $2.2 4.1  $2.8 5.6  $3.1 6.0  1.4 1.6  7.1 4.0  6.6 3.5  10.3 4.4  12.8 5.2  1.1  2.5  2.1  2.9  3.1  1.1 1.0  3.3 3.1  2.7 2.8  3.7 4.0  3.9 4.4  0.5  5.3  5.6  8.8  10.8  1.0  1.0  1.3  1.4  0.2  0.3  0.3  $30.9  $44.1  $51.0  Common Trust Funds Mutual Savings Banks TOTAL Estimated Per Cent Held "by I n s t i t u t i o n s *  $9.5 12.4#  $33.2 15.1#  15.8?i  16.0#  P r e l i m i n a r y Estimates  Source: New York Stock Exchange. 1960 Pact Book, p. 29.  16.6#  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 t o 308 b i l l i o n d o l l a r s over the decade.  This  was a f u r t h e r i n d i c a t i o n t h a t 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 h o l d i n g s . The i n s t i t u t i o n s p r i m a r i l y r e s p o n s i b l e 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 l a r g e s t holder o f e q u i t i e s o f any o f the f i n a n c i a l i n s t i t u t i o n s , was a l s o the group f o r which the l e a s t i n f o r m a t i o n was a v a i l a b l e .  Prom 1949 t o 1955 (Table VI) the  h o l d i n g s o f personal t r u s t s more than doubled i n value.  These  were administered by 1,480 n a t i o n a l banks which had f i d u c i a r y powers.  However, over n i n e t y - f i v e per cent o f these  were handled by only 444 o f the l a r g e s t banks.  investments  They represented  accounts f o r 112,073 l i v i n g trusts,, an increase o f approximately Q  twelve per cent over 1953* t r u s t s was very scanty.  Since 1955 i n f o r m a t i o n on these  The New York Stock Exchange estimated  that i n 1957 bank administered personal t r u s t s had a market value in  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 a t t h i r t y - o n e b i l l i o n d o l l a r s i n 1959. Commencing i n 1955 common t r u s t funds have h e l d an i n creasing p r o p o r t i o n o f investments handled by t r u s t departments of banks.  Common Trust Funds are an investment ,pool operated by  a bank o r t r u s t company e x c l u s i v e l y f o r the c o l l e c t i v e investment q -'Annual Report o f the Comptroller o f Currency: 1955, pp. 129-135. 'New York Stock Exchange, 1958 Pact Book, pp. 34-35. "Bank Trustees S t i c k t o Stocks," Business Week, (Pebruary-20, 1960), p. 165. 11  94 of moneys c o n t r i b u t e d to the hank i n i t s capacity as t r u s t e e o r 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. I n 1958 the Board revealed t h a t stockholdings had r i s e n t o 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 o f funds operated by 12  banks had i n c r e a s e d from 232 t o 322 over the same p e r i o d . I n the short span o f time o f one decade, pension funds have become a new f i n a n c i a l g i a n t .  I n 1957 these funds grew a t  an annual r a t e o f 4.3 b i l l i o n d o l l a r s and aggregated f o u r t e e n b i l l i o n d o l l a r s f o r i n s u r e d 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 t r u s t e e plans handled by banks. ^ 1  Since 1949 corporate t r u s t e e funds have  quadrupled t h e i r h o l d i n g s from 800 m i l l i o n d o l l a r s t o 4,2 b i l l i o n dollars.  Common stock investment has grown from an annual r a t e  of 291 m i l l i o n . d o l l a r s i n 1951 t o 978 m i l l i o n i n 1 9 5 7 .  14  Further-  more, the h o l d i n g s o f New.York Stock Exchange l i s t e d stock has r i s e n from 500 m i l l i o n . d o l l a r s i n 1949 t o 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 t o l e v e l  o f f f o r a t l e a s t another decade.  Thus, t h i s g i a n t has the poten-  t i a l f o r c o n t r o l o f many o f the l a r g e corporations w i t h i n i t s grasp.  I t i s even more evident when i t i s r e a l i z e d t h a t the  m a j o r i t y of these funds are handled by the same bank t r u s t e e s that h o l d the investments o f personal t r u s t s .  Latest holdings  12  " 1958 Survey o f Common Trust Funds," F e d e r a l Reserve B u l l e t i n , XLV, (May, 1959), p. 478. ' 13  . P a u l L. Howell, "Common Stocks and Pension Fund Invest i n g , " Harvard Bjo^iness Review, XXVI, (November-December, 1958), p. 92. "The Pension Fund: The Assets Keep on Climbing," Business Week, (June 21, 1958), pp. 97-100. 14  95 •under bank t r u s t e e s h i p show they c o n t r o l t h i r t y - o n e b i l l i o n s i n common stock f o r personal t r u s t s and t e n b i l l i o n d o l l a r s i n 15  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 r a t e of growth was the mutual funds.  At the c l o s e o f 1959 investment  companies had t o t a l net assets o f 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 f l o w i n g i n a t the r a t e o f 2.3 16  b i l l i o n d o l l a r s annually.  The equity holdings o f 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 t o 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 t o 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 d i s c u s s i o n has d e a l t w i t h aggregate holdings of v a r i o u s types o f f i n a n c i a l i n s t i t u t i o n s i n domestic corporat i o n s i n general.  I n two t a b l e s i n Appendix G appear the common  stock holdings o f 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 t a b l e 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 o f the 200 l a r g e s t n o n - f i n a n c i a l corporations.  They exclude holdings of bank administered per-  sonal t r u s t s and holdings o f o f f i c e r s and d i r e c t o r s 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 t o Stocks," Business Week, (February 21, 1958), pp. 97-100. ^"Funds Take a Cautious View," Business Week, (February 6, 1960), pp. 110-111. 1  96 t a b u l a t i o n by Hemphill Noyes and Company was dated December 1954. These companies had 1.66 b i l l i o n o f common shares outstanding, o f which 131 m i l l i o n o r eight per cent was h e l d by i n s t i t u t i o n a l i n vestors.  P u b l i c u t i l i t y stocks were the l a r g e s t p r o p o r t i o n o f  h o l d i n g s , comprising over twenty-five per cent o f the t o t a l . They represented over ten per cent o f the t o t a l common outstanding i n t h i s industry. stantially.  Since 1954 i n s t i t u t i o n a l h o l d i n g s have grown sub-  Table VI, page 91, i n d i c a t e d they were 16.6 per cent  of a l l i s s u e s l i s t e d on the Hew York Stock Exchange i n 1959. The second t a b l e contains a l i s t o f the 100 l a r g e s t  insti-  t u t i o n a l common stock h o l d i n g s o f i s s u e s on the New York Stock Exchange i n terms o f the approximate percentage owned. was dated 1953*  The t a b l e  Twenty-eight o f these companies were p u b l i c  u t i l i t i e s where the percentage ranged from two p e r cent i n American Telephone and Telegraph t o twenty-seven per cent i n New York State E l e c t r i c .  Among manufacturing companies the l a r g e s t  percentage was i n Amerada Petroleum, twenty-two per cent t o a low o f over two per cent i n United States S t e e l .  As would be  expected, only f o u r r a i l r o a d s were represented, however the percentage only v a r i e d from a low o f over e i g h t per cent i n Southern P a c i f i c t o a h i g h of twenty-four per cent i n Seaboard  Airline  Railroads. SUMMARY The ownership of e q u i t i e s , 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 i n v e s t o r s have increased s u b s t a n t i a l l y i n the space o f one decade from 1949.  According t o estimates made by the  New York Stock Exchange, the i n s t i t u t i o n a l h o l d i n g s o f a l l e q u i t y  97 s e c u r i t i e s have increased i n value approximately two and h a l f times from 1949  to 1955.  one-  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  p o r t i o n of the decade, estimates of holdings (excluding bank administered personal t r u s t s ) were a v a i l a b l e only f o r stocks l i s t e d on the New York Stock Exchange. 1949  These holdings since  rose to more than f i v e times t h e i r v a l u e . 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 e q u i t i e s outstanding, t h e i r i n f l u e n c e on the corporate s e c t o r of the economy f a r outweighs t h e i r ownership. They have w i t h i n t h e i r grasp p o t e n t i a l c o n t r o l of the m a j o r i t y of the l a r g e c o r p o r a t i o n s .  CHAPTER V I I I THE MEANING OP CONTROL AND OWNERSHIP AND ITS IMPLICATIONS C o n t r o l and ownership were terms that have been used c o n s i s t e n t l y throughout t h i s study, o f t e n w i t h d e s c r i p t i v e adjectives.  The former word was u s u a l l y defined i n context so  t h a t the meaning was c l e a r but p r e c i s e .  However, such d e f i n i -  t i o n s were too narrow, too c o n f i n i n g and too r i g i d .  Ownership,  on the other hand, i s a word g e n e r a l l y understood.  I n law, i t  has been defined as the c o l l e c t i o n of r i g h t s t o use and enjoy property, i n c l u d i n g the r i g h t to transmit i t to others o r the complete dominion, t i t l e o r p r o p r i e t a r y r i g h t i n a t h i n g o r claim. the  However, i n the growth of the corporate system, many of  r i g h t s and p r i v i l e g e s of ownership have become meaningless.  The s i g n i f i c a n c e of c o n t r o l can no longer be expressed by a few d e s c r i p t i v e phrases.  I t i m p l i e s f a r more than they can impart.  The purpose of t h i s chapter i s t o explore some o f the' meanings and i m p l i c a t i o n s of these words brought about by the r i s e o f the corporate system. The e v o l u t i o n of c o n t r o l has been t r a c e d i n a previous chapter.  There i t was noted that i t began w i t h the m a j o r i t y  owner who undoubtedly exercised h i s r i g h t s of ownership t o the fullest.  Then came the second stage where the norm was working  control.  A m i n o r i t y group o r groups o f shareholders working  99 together o r w i t h management r u l e d .  Here once again these share-  holders e x e r c i s e d t h e i r r i g h t s o f ownership, but now the m a j o r i t y could not, unless a f i g h t f o r c o n t r o l developed.  In t h i s era  there arose a c l a s s o f men known as managers who were destined t o take over which, i n f a c t , they had already i n many c o r p o r a t i o n s . Thus, the t h i r d stage, management c o n t r o l where the shareholder or owner was l e f t w i t h nothing more t a n g i b l e than a few pieces of paper and a few r i g h t s t h a t 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 v a l u a b l e p r i v i l e g e s i n the e a r l y stages o f corporate development.  They had the r i g h t t o share i n the company's p r o f i t s  provided the d i r e c t o r s saw f i t t o d i s c l o s e dividends.  As they  were o f t e n part o f management, t h i s meant they p a r t i c i p a t e d i n the d i r e c t b e n e f i t s of ownership. owners.  They were more than b e n e f i c i a l  They had the r i g h t to vote i n the e l e c t i o n of d i r e c t o r s .  I f they h e l d o r were able t o muster s u f f i c i e n t votes, they could e l e c t the m a j o r i t y of the d i r e c t o r s and c o n t r o l , and i f the shareholders were d i s s a t i s f i e d , they could refuse t o r e - e l e c t the directors.  This was a p r o p r i e t a r y r i g h t as an owner.  They a l s o  had the r i g h t t o h o l d d i r e c t o r s r e s p o n s i b l e f o r t h e i r a c t s . Furthermore,  they had the r i g h t to i n s p e c t the books o f the  corporation, t o vote on mergers and c o n s o l i d a t i o n s , changes i n the c h a r t e r and bylaws.  These r i g h t s and p r i v i l e g e s were what  ownership o f stock i n a c o r p o r a t i o n meant. With the advent of management c o n t r o l these r i g h t s and p r i v i l e g e s have been d i l u t e d almost t o a ceremonial s t a t u s . True, the l a r g e s t group of owners, the small shareholders, had been dispossessed s e v e r a l decades ago.  Nevertheless, the l a r g e  100 shareholders  (save i n cases o f dishonesty) presumably wanted the  c o r p o r a t i o n t o make as much money as p o s s i b l e .  I n t h i s respect,  t h e i r aim was the same as that o f t h e i r small f e l l o w stockholders. The m a j o r i t y holders having the l a r g e s t i n t e r e s t a t stake i n the p r o f i t s would have the most powerful m o t i v a t i o n i n the d i r e c t i o n of sound profit-making p o l i e y .  T h i s , a f t e r a l l , was what c o n t r o l  through ownership was a l l about.  1  Furthermore, the government  through l e g i s l a t i o n helped c o r r e c t many o f the e a r l i e r abuses o f c o n t r o l l i n g stockholders. THE SECURITIES AND EXCHANGE COMMISSION AND  V  THE MEANING OP CONTROL With the crash o f the stock market i n 1929 came the exposure o f innumerable corporate p r a c t i c e s which were employed to deceive and d i s c r i m i n a t e against the s m a l l shareholder. These were l a r g e l y r e s p o n s i b l e 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 l a r g e q u a n t i t i e s o f unsound stocks t o eager stockholders without r e v e a l i n g the nature o f 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 pro2  motors, managers and c h i e f stockholders. I n an e f f o r t t o c u r t a i l these and other p r a c t i c e s , the United States Congress passed s e v e r a l s t a t u t e s ; the S e c u r i t i e s Act o f 1933, the P u b l i c U t i l i t y Holding Company A c t o f 1935 and the Investment Company Act o f 1940. A l l three had one t h i n g i n i  A. A. B e r l e , J r . , • " C o n t r o l " i n Corporate Law," Columbia Law Review, L V I I I (May, 1958), pp. 1213-14. 2  •The Meaning o f " C o n t r o l " i n the P r o t e c t i o n of Investors,* The Yale Law J o u r n a l , LX (February, 1951), pp. 311-336.  101 common; v i t a l to t h e i r success was the proper i n 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 " c o n t r o l " and " c o n t r o l l i n g i n f l u e n c e . "  The  r e s p o n s i b i l i t y of g i v i n g meaning to these terms i n a l l instances , was  delegated to the S e c u r i t i e s and Exchange Commission, The  S e c u r i t i e s Act of 1933  l a i d the ground r u l e s which were  to be f o l l o w e d — " t h e t r u t h , the whole t r u t h and nothing but t r u t h , even i f i t might discourage i n v e s t o r s . " ^ i s s u e r s of new  the  I t required a l l  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 w i t h  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 prospectuses to the p u b l i c .  I t r u l e d 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 i s s u i n g  corporations.  Thus, the words "that won't get by the SEC are s i x words of s i n g u l a r potency." Expressly  4  r e p u d i a t i n g the j u d i c i a l c r i t e r i a of c o n t r o l  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 c o n t r o l "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 d i r e c t management or p o l i c i e s of a corporation through the ownership of v o t i n g s e c u r i t i e s or otherwise."  With t h i s as c r i t e r i a , the Commission passed judgement  on a number of s i t u a t i o n s that came before i t judging each on i t s merits.  A shareholder owning eighteen per cent of a v o t i n g stock,  but c o n s i s t e n t l y holding a s u f f i c i e n t number of proxies to e l e c t a m a j o r i t y of the d i r e c t o r s was h e l d to c o n t r o l .  His control  was  perpetuating: he could r e l y on t h e . d i r e c t o r s 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  «T. A. L i v i n g s t o n , The American Stockholder, p. 4  I b i d . , p.  197.  minority  198.  102 shareholders, who voted t h e i r stock together over a p e r i o d of time, e l e c t e d a s l a t e of harmonious d i r e c t o r s and f r e q u e n t l y consulted together, were considered to have j o i n t c o n t r o l . Moreover, the S e c u r i t i e s and Exchange Commission found that c o n t r o l could be wielded i n more s u b t l e ways.  I n corpora-  t i o n s where the board of d i r e c t o r s was nothing more than a rubber stamp, the man who l i n g person.  s e l e c t s the executive committee was the c o n t r o l -  The underwriter who  demands the undated r e s i g n a t i o n  of a m a j o r i t y of d i r e c t o r s as a p r i c e of h i s underwriting contract was i n c o n t r o l .  Further, even a major c r e d i t o r who  shares i n  p r o f i t s and l o s s e s and maintains an o p t i o n to exchange h i s l o a n f o r equity i n the f i r m could be c l a s s e d as a c o n t r o l l i n g person. I n no case d i d the Commission look t o a c t u a l use of power t o direct policy.  Power alone s u f f i c e d .  The P u b l i c 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 h o l d i n g companies and t h e i r s u b s i d i a r i e s to Commission s u p e r v i s i o n over s e c u r i t y i s s u e s 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 s t r u c t u r e s .  In addition,  i t r e q u i r e d p r i o r S e c u r i t i e s and Exchange Commission approval of a l l loans and s e r v i c i n g or c o n s t r u c t i o n c o n t r a c t s 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 h o l d i n g company system. The Act i t s e l f defined a h o l d i n g company as one which owned at l e a s t ten per cent of the v o t i n g stock of a u t i l i t y of another h o l d i n g company.  However, i t s p e c i f i c a l l y excluded from  r e g u l a t i o n any company meeting the ten per cent requirement prov i d e d the company could prove to the s a t i s f a c t i o n of the Commiss i o n that i t d i d not e x e r c i s e a c o n t r o l l i n g i n f l u e n c e over i t s Op.  c i t . , p.  311-336.  103  immediate s u b s i d i a r y . I n t h e i r a d m i n i s t r a t i o n 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 " c o n t r o l l i n g influence * r e q u i r e d l e s s than " c o n t r o l " under the S e c u r i t i e s 1  Aet.^  Companies owning n e i t h e r a m a j o r i t y of s u b s i d i a r y  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 d i r e c t  management or p o l i c i e s of a s u b s i d i a r y , but they could possess a " c o n t r o l l i n g i n f l u e n c e " under the U t i l i t y Act.  For example, i f  the only i n f l u e n c e over a s u b s i d i a r y was ownership of s u f f i c i e n t stock to veto corporate a c t i o n s r e q u i r i n g a two-thirds vote,  the  company would have " c o n t r o l l i n g i n f l u e n c e . " To prove that they exercised no " c o n t r o l l i n g i n f l u e n c e , " parent companies had to demonstrate that t h e i r s u b s i d i a r i e s were not " s u s c e p t i b l e to t h e i r c o n t r o l . " sources.  This might stem from s e v e r a l  I t might r e s u l t from a few h o l d i n g company representa-  t i v e s among the u t i l i t y ' s d i r e c t o r s 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 l a r g e purchases of the u t i l i t y ' s energy output by the h o l d i n g company.  I t could even emerge from a long e s t a b l i s h e d voluntary  p r a c t i c e of confirming or a d v i s i n g the u t i l i t y on production f i n a n c i a l matters.  or  Avoidance of r e g u l a t i o n 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  r e p r e s e n t a t i o n among i t s o f f i c e r s and d i r e c -  t o r s or had been soundly defeated on important corporate i s s u e s . Thus, " c o n t r o l l i n g i n f l u e n c e " was e a s i e r to come by than  A l l words and phrases i n quotation marks are d i r e c t quotes from the various Acts. "The Meaning of Control i n the P r o t e c t i o n of I n v e s t o r s , " The Yale -Law J o u r n a l , LX (February, 1951), pp. 311-326.  104 be r i d of i t .  Creation of v o t i n g t r u s t s by h o l d i n g companies to  h o l d t h e i r investments f a i l e d because the t r u s t e e s were seldom independent of a f f i l i a t i o n with management.  Delegation of proxies  to the dominant f a c t o r 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 i r r e v o c a b l e . Very o f t e n the only e f f e c t i v e way to escape r e g u l a t i o n was f o r the h o l d i n g company to reduce i t s investment below ten per cent and l o s e the power of c o n t r o l . C o n t r o l and the Investment Company The Investment Company Act of 1940 was designed p r i m a r i l y to avoid the p i t f a l l s of empire b u i l d i n g managements who to c o n t r o l a few l a r g e i n d u s t r i a l f i r m s .  aspired  Too o f t e n the concen-  t r a t i o n of investment endangered the s e c u r i t y 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 d e c l a r i n g themselves as d i v e r s i f i e d or n o n - d i v e r s i f i e d funds. The investments  of " n o n - d i v e r s i f i e d " companies were u n r e s t r i c t e d .  But where a fund c o n t r o l l e d an operating company, i t s c o n t r o l became subject to S e c u r i t i e s and Exchange Commission s u p e r v i s i o n . D i v e r s i f i e d companies were only permitted t o i n v e s t 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 f i r m ' s v o t i n g stock.  Moreover, no more than f i v e per cent of the investment  companies assets could be i n v e s t e d i n one company. I n the Act, c o n t r o l was broadly defined as the "power to exercise a c o n t r o l l i n g i n f l u e n c e , " and ownership of twenty-five per cent of an operating company's v o t i n g stock was e s t a b l i s h e d  105 as a "rebuttable presumption of c o n t r o l . "  Thus, the S e c u r i t i e s  and Exchange Commission was l e f t w i t h merely d e f i n i n g " c o n t r o l l i n g i n f l u e n c e . " 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 c o n t r o l and c o n t r o l l i n g i n f l u e n c e under d i f f e r e n t s t a t u t o r y 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  i n t e r p r e t a t i o n the word connotates.  However, even the broad i n -  t e r p r e t a t i o n of c o n t r o l 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 c o n t r o l . I n h i s book "The American Stockholder," J . A. L i v i n g s t o n 7 summed up the essence of management c o n t r o l . He s t a t e d : The managers of corporations c o n t r o l 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 r e t u r n the d i r e c t o r s 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 w i t h e x c e l l e n t s a l a r i e s , n i c e bonuses, stock options and l i b e r a l expense accounts. They have perf e c t e d 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 c l a s s . Further, through t h e i r c o n t r o l of men, m a t e r i a l s 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 , s o c i e t y and business. Twentieth century d i s p e r s i o n of stock and i t s v o t i n g r i g h t s among many hundreds of thousands of stockholders has made t h i s p o s s i b l e . P r o f i t m o t i v a t i o n , although s t i l l an economic g o a l , was not p o s s i b l y only of secondary i n t e r e s t . c o n t r o l l i n g shareholders the economic m o t i v a t i o n was  Whereas f o r profits  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 f r i n g e  L i v i n g s t o n , op. c i t . , p. 15.  1G6 b e n e f i t s which, are s u b s t a n t i a l and although u l t i m a t e l y dependent on p r o f i t s , they are not n e c e s s a r i l y d i r e c t l y r e l a t e d to them. I n the current American economy, the community now has 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.  a  They  not only administer the e s s e n t i a l s e r v i c e s of supply but they a l s o provide employment f o r a l a r g e segment of the population.  Thus,  f a i l u r e to perform w e l l i n many s i t u a t i o n s could b r i n g d i s a s t e r or hardship to s u b s t a n t i a l sectors of the community.  This i s v e r y  t r u e , e s p e c i a l l y w i t h primary products as i n the case of the cor-r porations dominant i n such i n d u s t r i e s 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 , c o n t r o l i s n o t merely the 1  capacity to s e l e c t the board of d i r e c t o r s of a c o r p o r a t i o n , i t i s the a b i l i t y to administer s u b s t a n t i a l and c r u c i a l sectors of the economy.  Therefore, c o n t r o l 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 l a r g e r p o r t i o n of the r i g h t s of i t i s f a r more.  stockholders,  Control i s a f u n c t i o n 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 f u n c t i o n i s necessary and e s s e n t i a l . Someone must choose the board of d i r e c t o r s and m o b i l i z e shareholders to perform t h i s duty when they are  the  scattered.  Management must be made accountable when they become s l a c k , d i s honest or incompetent. becoming abused.  This tends to prevent absolute power from  However, under the present normal s i t u a t i o n ,  these checks and balances are absent. Berle, loc. c i t . ' i b i d . , pp. 1215-1216.  Management becomes  107 accountable s o l e l y to themselves.  This could very w e l l l e a d to  the abuses of power or more government c o n t r o l . I n a recent a r t i c l e i n the Harvard Business Review some of the p o s s i b l e consequences were reviewed. ^ The fundamental ques1  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 h i g h e t h i c a l standard, but as a group they were considered as s u s c e p t i b l e 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 b e n e f i t s p a i d to management, p o s s i b l y t o the detriment of stockholders income and e q u i t y .  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 d i d not f a r e as w e l l as those where shareholders r e s t r a i n t existed.  Some of the reasons c i t e d were:  1) The c h i e f executive i s more apt to make b e t t e r business d e c i s i o n s i f he has men who can s t a t e t h e i r minds freely.  A l s o , there i s the f a c t 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 t h a t personal goals w i l l be at variance w i t h company common goals i s g r e a t .  There are a number of  instances i n recent years where companies have apparently expanded f o r expansions sake alone. 3) The i n c r e a s i n g a d m i n i s t r a t i v e expenses i n c u r r e d o f t e n are not j u s t i f i e d .  Much has been spent f o r s e r v i c e s  as yet so new or i n t a n g i b l e that t h e i r c o n t r i b u t i o n  Ernest Dale, "Management Must be Held Accountable," Harvard Business Review, XXXVIII (March-April, i 9 6 0 ) , pp. 4-9-59.  108 i s almost impossible t o 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 p o s s i b l e f o r the shareholders and the general p u b l i c t o be kept uninformed longer. I n c r e a s i n g s o c i a l r e s p o n s i b i l i t y has o f t e n been c i t e d as an inherent check on management.  T h i s , 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 stockholders.  They a l s o had a r e s p o n s i b i l i t y t o the employees, t o the  customers and s u p p l i e r s and to the s e c t i o n of the community a f f e c t e d by t h e i r operations.  T h e i r job was t o r e c o n c i l e the  c o n f l i c t i n g i n t e r e s t s o f these d i f f e 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, c o n s i d e r i n g the power over the economy that these men w i e l d , was i t tenable that they should be both judge and jury? I n the a l l o c a t i o n of the r e t u r n s t o various i n t e r e s t groups, they reserve a p o r t i o n f o r themselves.  Furthermore, no c r i t e r i a  e x i s t s as t o what c o n s t i t u t e s an equitable s a l a r y o r f a i r r e t u r n on investment.  Moreover, management caters t o l a b o r unions,  customers, s u p p l i e r s and the community since they can exert some i n f l u e n c e 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 v o i c e i n many managements come l a s t .  As Peter Drucker  s t a t e d : " I n s o c i a l r e a l i t y the c o r p o r a t i o n 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 s t a t e d i n an e a r l i e r chapter, the f o u r t h stage o f the development o f 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 o f corporate stock i n the hands o f a few.  They now possess the power t o con-  t r o l and/or exert considerable i n f l u e n c e on management. I n s t i t u t i o n a l i n v e s t o r s f u n c t i o n p r i m a r i l y as an i n v e s t o r . They i n v e s t 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 w i t h them, they s i g n i f y t h e i r disapp r o v a l by s e l l i n g the stock.  They do not l i k e t o get embroiled  i n proxy b a t t l e s o r o f f e r proposals on p o l i c y matters.  They are  not i n any way i n t e r e s t e d i n campaigning f o r the r i g h t s o f stdek12 holders o r o f assuming l e a d e r s h i p and c o n t r o l o f corporations.. Thus, i n s t i t u t i o n s f l a t l y deny the use o f power t h a t i s w i t h i n t h e i r grasp.  I n f a c t , i n many pension funds the problem  Of c o n t r o l i s avoided, they say, by l i m i t a t i o n s placed on pension t r u s t e e s such as not p e r m i t t i n g the fund t o h o l d more than f i v e per eent o f the stock of one company. ^ 1  Nevertheless, while i t i s t r u e they do not wish t o g a i n c o n t r o l , i n s t i t u t i o n s cannot h e l p but exert considerably i n f l u e n c e . They are o f t e n the only major shareholder and the s i z e o f t h e i r holdings does not permit management t o ignore them.  Furthermore,  i n s t i t u t i o n s are i n very close contact w i t h managements i n which 1 2  J . A. L i v i n g s t o n , The American Stockholder, pp. 156-165.  ^"How Should Pension Funds Wield T h e i r Power?" Business Week, (May 23, 1959), p. 98. 1  110 they are h e a v i l y invested. guidance.  Nevertheless,  This i s f o r t h e i r ovm p r o t e c t i o n and  i n the normal course of business,  large  corporations continuously seek the r e a c t i o n o f the major stockholders t o a f u t u r e company p o l i c y . Moreover, a b s t a i n i n g from v o t i n g on a proxy issue o r s e l l i n g out the stock o f a corporation i s i n no sense an a b d i c a t i o n of the use of power.  Thus, i n s t i -  t u t i o n s do exert i n f l u e n c e and through many other ways as w e l l , though they do not c o n t r o l d i r e c t l y .  However, there i s l i t t l e  doubt that under the S e c u r i t i e s A c t and the P u b l i c U t i l i t y  Holding  Act they would be h e l d t o have c o n t r o l l i n g i n f l u e n c e and probably i n some instances c o n t r o l . J . A. L i v i n g s t o n sums up the p o s i t i o n o f 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 i n v e s t i n and t h e i r t e r r a i n i s the e n t i r e s o c i a l s t r u c t u r e o f the United S t a t e s . ' *  L i v i n g s t o n , op. e i t . , p. 248  CHAPTER I X SUMMARY The corporation today enjoys a prominent p o s i t i o n i n the f r e e e n t e r p r i s e system.  I t d i d 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 i n c r e a s i n g l i b e r a l i z a t i o n of i n c o r p o r a t i o n process and the d e c l i n e i n p u b l i c antipathy toward i t . The concentration of c a p i t a l resources i n the corporate form soon l e d t o the existence o f l a r g e corporations.  By 1937  there were 20G n o n - f i n a n c i a l corporations w i t h assets o f approximately seventy b i l l i o n d o l l a r s .  These possessed great  importance i n the o r g a n i z a t i o n of American i n d u s t r y and continued t o grow and assume a g r e a t e r r o l e .  I n 1957 the 200 had increased  t h e i r assets t h r e e - f o l d i n the p e r i o d of two decades.  These  companies were i n no way entrenched as the c o n t i n u a l s h i f t i n g of business l e a d e r s h i p showed. I t f o l l o w s that because o f t h e i r economic importance, c o n t r o l of these corporations was a p r i z e d asset.  Thus, many  forms, techniques and l e g a l devices developed and were used to o b t a i n and maintain t h i s p o s i t i o n .  I n the e a r l y stages of the  corporate system absolute stockholder c o n t r o l was the norm. i n v o l v e d owning a m a j o r i t y of the v o t i n g shares. by the working c o n t r o l stage.  This  I t was followed  The usual conditions were where a  m i n o r i t y i n t e r e s t was able t o m o b i l i z e s u f f i c i e n t votes t o e l e c t  112 a m a j o r i t y o f the hoard o f d i r e c t o r s .  The percentage of stock  r e q u i r e d v a r i e d from l e s s than t e n per cent t o t h i r t y o r f o r t y per cent, depending on the d i s t r i b u t i o n o f the remainder o f the shares.  Often the m i n o r i t y r e s o r t e d t o u s i n g devices such as  weighted o r d i s f r a n c h i s e d v o t i n g stock, v o t i n g t r u s t s and pyramiding through the use of h o l d i n g companies t o g a i n and keep c o n t r o l w i t h a minimum o f investment. Many corporations went d i r e c t l y from the f i r s t stage t o that of management c o n t r o l .  This was simply c o n t r o l by reason o f  access t o the proxy machinery.  I t was the r e s u l t of the wide  d i s p e r s i o n o f ownership which began i n the expansion p e r i o d o f the nineteen twenties.  The r i s e o f autonomous management i n l e s s  than three decades l e d t o the separation o f ownership and management.  A second change, which w i l l make the divorce complete, has  already begun.  This p o o l i n g o f corporate stock i n the hands o f  f i 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 e f f e c t remove the s e l e c t i n g o r v o t i n g 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, t o a l e s s e r extent, insurance companies. The spectacular r i s e i n the holdings o f 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 h e l d 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 t r u s t e e s h i p and were growing a t an annual r a t e o f 4.3 b i l l i o n dollars.  Something over f o r t y per cent or t e n b i l l i o n was i n v e s -  t e d i n common stock.  Mutual funds, a l s o , 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 I n d i v i d u a l s , however, were s t i l l by f a r the l a r g e s t holders of equity s e c u r i t i e s i n corporations.  I n 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 e s t a t e s , a t t e s t i n g to t h e i r continued importance as an instrument of ownership.  Two  c o n t r a d i c t o r y 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 d o l l a r s owned shares i n corporations so that wide d i s p e r s i o n was evident.  Yet, on the  other hand, the m a j o r i t y of the stock h e l d 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 c o n t r o l p o s i t i o n which many of these l a r g e shareholders h e l d was no longer evident.  This was  "  partly  the r e s u l t of the l a r g e investment r e q u i r e d to maintain such a p o s i t i o n , i n h e r i t a n c e taxes and m u l t i p l i c a t i o n of o f f s p r i n g . 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 i n t e r e s t groups c o n t r o l l e d d i r e c t l y seventy-seven 200 l a r g e s t n o n - f i n a n c i a l c o r p o r a t i o n s . dominant form.  of the  Working c o n t r o l was  the  Other i n d i c a t i o n s which pointed to eventual  r e d u c t i o n was that these f i r m s were the s m a l l e s t , averaging l e 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 c o n t r o l , the norm i n i n d u s t r y 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 i n d u s t r y , the p u b l i c u t i l i t i e s excluding communications, was t h i s not t r u e .  However, the passage of the  114 P u b l i c U t i l i t y Holding Company Act, s t r i c t r e g u l a t i o n by the S e c u r i t i e s and Exchange Commission and the tremendoub expansion i n investment required i n the l a s t decade undoubtedly has a l s o l e d t h i s i n d u s t r y i n t o the f o l d . This means i n the hands of some seventy-five thousand d i r e c t o r s and executives l i e great power i n p o l i t i c s , s o c i e t y and business.  This has disturbed the customary arrangement i n  business and the meaning of c o n t r o l and ownership.  Control i s  no longer an a t t r i b u t e of ownership or a p o r t i o n of r i g h t s of an owner.  I t i s now  p r i m a r i l y a power p o s i t i o n .  The f u n c t i o n of c o n t r o l i s nonetheless necessary.  Some-  one must choose the d i r e c t o r s and secure the consensus of s c a t t e r e d stockholders.  When management becomes s l a c k or d i s -  honest, the c o n t r o l holder could throw them out. management was h e l d accountable.  In this  way,  Under the present setup they  are both judge and j u r y , and thus s u s c e p t i b l e 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 o f 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.  . " I s B i g Business G e t t i n g Bigger," Readings i n Economics from Fortune. New York: Henry H o l t andUompany,  1954, pp. 5F56:  Annual Report o f the Comptroller o f Currency: 1955. Washington: G^overnment"~Printing O f f i c e , 1<J56• "Bank Trustees S t i c k t o Stocks," Business Week, (February 20, 1960), 165. B e r l e , J r . , A d o l f A. The 20th Century C a p i t a l i s t R e v o l u t i o n. New York: Harecourt Brace and Company, 1954. . Power Without Property. New York: Harecourt Brace and Company, 1954. -  '"Control" i n Corporate Law,* Columbia Law Review, ETTlI (May, 1958), pp. 1212-1236. " H i s t o r i c a l Inheritance o f American Corporations," The Powers and Duties o f Corporate Management. Conference on the S o c i a l Meaning of* Legal Concepts7 .III, New York U n i v e r s i t y , 1950.  :  ?  , ana and traraener Gardener u. C. means, Means. xne The modern Modern cCorporation and _, o r p o r a t i o n and P r i v a t e Property. New York: The MacMillan CompanyT* 1932. , and Gardener C. Means. "Corporation," Encyclopaedia of the S o c i a l Sciences. IV, 414-422.  B l y t h , C. D., and E. B. Carty. "Non-Resident Ownership o f Canadian,Industry," The Canadian J o u r n a l o f Economics and P o l i t i c a l Science.-XXII (November, 1956;, pp. 449-460. Bumham, James. The Managerial Revolution. John Day Company Inc.7 1941.  New York: The  B u t t e r s , J . K e i t h , Lawrence E. Thompson, and Lynn L. 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L i p p i n c o t t Company, 1958. Moody's I n d u s t r i a l Manual. S e r v i c e , 1958.  New York:  New York: Moody's Investors  Moody's T r a n s p o r t a t i o n Manual. S e r v i c e , ^958.  New York: Moody's Investors  Moody's P u b l i c U t i l i t y Manual. Service, 1958.  New York: Moody's Investors  "Mutuals C l i n g to T h e i r Charms," 1957), pp. 155-156. . -  Business Week, (November 2'3, ..  Nelson, James C. R a i l r o a d Transport at i on and P u b l i c 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.  P e r l o , V i c t o r . The Empire of High Finance. New York: I n t e r n a t i o n a l P u b l i s h e r s , 19"5T. . "People's C a p i t a l i s m " and Stock Ownership,' The American Economic Review. 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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 S t a t e s : 1959. Eighteenth E d i t i o n . Washington: Government P r i n t i n g O f f i c e , 1959. United States Bureau of I n t e r n a l 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. United States Bureau of I n t e r n a l Revenue. S t a t i s t i c s of Income: 1954. F i d u c i a r y Income Tax Returns. Washington: Txovernment ^ r l E t i n g O f f i c e , TWT. United States Bureau of I n t e r n a l Revenue. 1955. I n d i v i d u a l Income Tax Returns. ment P r i n t i n g O f f i c e , 195B7"  S t a t i s t i c s of Income: Washington:~"Grovern-  119 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 O f f i c e , 1955. United States Temporary N a t i o n a l 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 V I I I THE 200 LARGEST NON-FINANCIAL CORPORATIONS .a T o t a l Assets* Industry and Company  M i l l i o n s of D o l l a r s 1937  1957  MANUFACTURING Petroleum: Standard O i l (N.J..) Gulf O i l Socony M o b i l O i l Standard O i l of C a l i f o r n i a The Texas Company, Standard O i l (Indiana) P h i l l i p s Petroleum Sinclair O i l S h e l l O i l Company C i t i e s Service Tidewater O i l Atlantic Refining Union O i l of C a l i f o r n i a Sun O i l Continental O i l ^ Sunray-Mid-Continent O i l The Pure O i l Company The Ohio O i l Company Standard O i l (Ohio) Richfield O i l Skelly O i l Mid-Continent Petroleum  $ 2,061 560 905 596 615 735 213 352 380 414 204 186 165 128 104 178 139  —. 87 65  $ 8,712 3,241 3,105 2,746 2,729 2,535 1,520 1,481 1,385 1,279 797 751 673 653 604 538 523 394 386 358 367  T r a n s p o r t a t i o n Equipment & P a r t s Manufacturing: General Motors Ford Motor Company Chrysler I n t e r n a t i o n a l Harvester General Dynamics Boeing A i r p l a n e  1,227 705 189 427  6,826 3,114 1,497 1,021 571 491  122  TABLE V I I I (Continued) W. S. Grace United A i r c r a f t Lockheed A i r c r a f t Borg Warner Bouglas A i r c r a f t Bendix A v i a t i o n North American A v i a t i o n General American Transportation C u r t i s s Wright Kaiser Industries Mack Trucks Pullman Inc. American Machinery and Foundry  $  $ ——• 104  264 92  470 451 419 416 407 370 350 341 319 316 292  I r o n and S t e e l : U. S. S t e e l Bethlehem S t e e l Republic S t e e l Jones and Laughlin S t e e l Armco S t e e l National Steel Inland"Steel Youngstown Sheet and Tube Kaiser Steel Wheeling S t e e l  1,919 716 365 220 146 204 158 221 —124  4^074 2,260 930 799 723 671 663 636 449  699 293  2,519 1,456 875 792 757 710 688 631 587 342 319  Chemicals: E.I. du Pont de Nemours Union Carbide Dow Chemical O l i n Mathieson Chemical A l l i e d Chemical Eastman Kodak P r o c t o r and Gamble Monsanto Chemical American Cyanide Celanese Corporation of Ameriea Colgate Pamolive Peet  233 179 144 70 —• 69  Non-Ferrous M e t a l s : Aluminum Company of America Anaconda Kehnicott Copper K a i s e r Aluminum and Chemical Reynold Metals Phelps Dodge American Smelting and R e f i n i n g N a t i o n a l Lead The American Metal Climax The New Jersey Zinc  237 593 355 ...  196 152 99 68 89  1,316 1,030 807 742 733 424 414 358  123  TABLE V I I I  (Continued)  Climax Molybdenum . U. S. Smelting and R e f i n i n g  $  0  81 72  $  —  E l e c t r i o a l and E l e c t r o n i c s Machinery and Equipment: General E l e c t r i c Westinghouse E l e c t r i c Western E l e c t r i c I n t e r n a t i o n a l Business Machines I n t e r n a t i o n a l Telephone and Telegraphs Sperry Rand Radio Corporation of America  423 228 74 514 —89  2,361 1,401 1,329 1,087 800 743 721  Food Products: Swift N a t i o n a l Dairy Products Armour Armour and Company of Delaware Armour and Company of I l l i n o i s General Foods Borden Campbell Soup C a l i f o r n i a Packing Coca-Cola Standard Brands Com Products R e f i n i n g National Biscuit American Sugar R e f i n i n g Cudahy Packing Wilson d  320 203 210 330 76 122 65 76 78 111 124 118 £61 90  545 535 443 ' 404 336 292  Rubber: Goodyear Tyre and Rubber Firestone Tyre and Rubber U. S. Rubber B. F. Goodrich  195 166 179 135  913 772 530 527  274 181 184  815 713 456 299  118 88 65 166  575 418  Tobacco Products: American Tobacco R. J . Reynolds Tobacco L i g g e t t and Meyers Tobacco P h i l i p Morris B u i l d i n g M a t e r i a l s and Equipment: P i t t s b u r g P l a t e Glass Company O w e n s - I l l i n o i s Glass Company United States Gypsum Company American R a d i a t o r Company L t d . Sanitary Corporation Crane Company  109  TABLE V I I I  (Continued)  Lumber and Paper: I n t e r n a t i o n a l Paper Company Crown Z e l l e r b a c h Corporation Weyerhauser Timber Company St. Regis Paper Company Scott Paper Company T e x t i l e M i l l Products: Burlington Industries J . P. Stevens Company American Woolen Products Textron (formerly American Woolen) Distilling: D i s t i l l e r s Seagrams Corporation N a t i o n a l D i s t i l l e r y Corporation Schenley I n d u s t r i e s Containers: American Can C o n t i n e n t a l Can Miscellaneous: C a t e r p i l l a r Tractor Deere and Company A l l i s Chalmers Singer N a t i o n a l Supply United Shoe Machinery Hearst Consolidated P u b l i c a t i o n s Texas Gulf Sulphur I n t e r n a t i o n a l Shoe Coal: P i t t s b u r g C o n s o l i d a t i o n Coal Glen Alden P h i l a d e l p h i a and Reading Lehigh Coal and Navigation  125 TABLE V I I I  (Continued)  Amusements; Loew's Inc. Paramount P i c t u r e s Warner Bros. P i c t u r e s  $  TOTAL MANUFACTURING  143 120 178  $  $26,519  $104,656  284 213 185 222 91 81 187 72  1,578 729 545 534 470 416 404 398 334  MERCHANDISING Sears Roebuck and Company Montgomery Ward Great A t l a n t i c and P a c i f i c Tea F. W. Woolworth Anderson, Clayton J . C. Penny United F r u i t Safeway Stores May Department Stores S. S. Kresge S. H. Kress: Gimbel Bros. R.:'H. Macy Marshall F i e l d TOTAL MERCHANDISING  124 76 83 96 84 $ 1,797  $ 5,408  2,012 1,639 581 1,104 1,095 1,114 674 785 761 ——  2,991 2,626 2j177 1,548 1,497 1,293 1,087 972 950 898 827 820 704 700 698  TRANSPORTATION Pennsylvania R a i l r o a d New"York C e n t r a l R a i l r o a d Southern P a c i f i c System Atchison, Topeka and Santa Fe Union P a c i f i c R a i l r o a d Baltimore and Ohio R a i l r o a d Chesapeake and Ohio Railway Northern P a c i f i c Railway Great Northern Railway M i s s o u r i P a c i f i c Railway Chicago, B u r l i n g t o n and Quincy R a i l r o a d Southern Railway I l l i n o i s Central Railroad L o u i s v i l l e and N a s h v i l l e R a i l r o a d N o r f o l k and Western Railway' Chicago, Milwaukee, S t . Paul and P a c i f i c Railroad Chicago and Northwestern Railway A t l a n t i c Coast Line R a i l r o a d New York, New Haven and H a r t f o r d R a i l r o a d 1  644 448 480 ——  674 55^ 529 449  126 TABLE V I I I (Continued) Chicago, Rock I s l a n d and P a c i f i c New York, Chicago and St. Louis R a i l r o a d Erie Railroad Reading Company St. Louis, San Francisco Seaboard A i r l i n e R a i l r o a d Delaware, Lockawana and Western Wabash R a i l r o a d Pan American Airways Boston and Maine R a i l r o a d Missouri-Kansas-Texas R a i l r o a d Greyhound United A i r l i n e s Boston and Albany R a i l r o a d C a r o l i n a , C l i n c h f i e l d and Ohio Railway C e n t r a l R a i l r o a d Company of New Jersey Delaware and Hudson Kansas C i t y Southern Railway Lehigh V a l l e y R a i l r o a d M o r r i s and Essex R a i l r o a d Pere Marquette R a i l w a y The V i r g i n i a Railway Western Maryland Railway Western P a c i f i c R a i l r o a d Hudson and Manhattan R a i l r o a d f  5  TOTAL TRANSPORTATION  $  —274 386 —174  68 68 171 225 134 209 90 156 154 167 114 122  $  464 444 441 399 366 314 312 296 296 291 289 286 —-  $ 16,140  $ 26,663  3,859 369 72 .254 304  11^816 2,396 1,105 778 313  641 1,-2-65 682  2,146 1,829 1460 1,324 1,283 1,097 1,064 1,061 1,037 957 912  PUBLIC UTILITIES Communications: American Telephone and Telegraph The P a c i f i c Telephone and Telegraph Co. General Telephone Corporation New England Telephone and Telegraph Co. Western Union Telegraph 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 Consolidated Edison Company of New York Commonwealth Edison Company E l Paso Natural Gas Company American E l e c t r i c Power Company Tennessee Gas'Transport Southern C a l i f o r n i a Edison Company P u b l i c Service E l e c t r i c and Gas Company Southern Company American and Foreign Power Company D e t r o i t Edison'Company '  441 —— 357 --700 304  127 TABLE V I I I (Continued).  Niagara Mohawk Power Corporation P h i l a d e l p h i a E l e c t r i c Company Columbia Gas System Consumer Power Company General P u b l i c U t i l i t i e s Corporation Texas Eastern Transmission Corp. People's Gas, L i g h t and Coke American N a t u r a l Gas Company United Gas Corporation Middle South U t i l i t i e s Texas U t i l i t i e s Pacific Lighting Consolidated N a t u r a l Gas C e n t r a l and Southwest New England E l e c t r i c System V i r g i n i a E l e c t r i c and Power Ohio Edison Company Pennsylvania Power and L i g h t Union E l e c t r i c West Pennsylvania E l e c t r i c Company Northern States Power Duke Power Transcontinental Gas P i p e l i n e Long I s l a n d L i g h t i n g Northern N a t u r a l Gas Baltimore Gas and E l e c t r i c Lone Star Gas F l o r i d a Power and L i g h t P u b l i c Service of Indiana Duquesne L i g h t Wisconsin E l e c t r i c Power Cleveland E l e c t r i c I l l u m i n a t i n g C i n c i n n a t i Gas and E l e c t r i c I l l i n o i s Power Houston L i g h t i n g and Power Boston Edison Company New York State E l e c t r i c and Gas American Power and L i g h t Company American Waterworks Company C i t i e s Service Company Commonwealth and" Southern E l e c t r i c Power and L i g h t Engineers P u b l i c Service Federal Water Service' International Hydro-Electric Middle West U t i l i t i e s N a t i o n a l Power and L i g h t New England Gas and E l e c t r i c . North American Company P h i l a d e l p h i a Gas and E l e c t r i c P u b l i c Service Corporation of New York  $  560 39-1596 235  ——— 171  266  — _— 153 —189 362  _— 247 265 158 131 —  152 129  ——  198 126 128  —  164 769 358 1,099 1,132 682 341 176 517 408 548 94 795 336 557  $ :• 882 869 852 805 789 767 711 690 678 669 654 625 614 585 576 541 533 531 524 520 506 477 452 438 433 420 408 396 389 389 377 376 375 ' 358 354 328 324 h  —— h h h h h h h h h h h  128 TABLE. V I I I (Continued)  Standard Gas and E l e c t r i c United Gas Improvement United Light and Power Kansas C i t y L i g h t and Power Koppers Brooklyn Union Gas  a b c d e f g h  $  «  811 765. 507 76343 111  $  h — h h — h  TOTAL PUBLIC UTILITIES  $ 24,546  $ 56,152  GRAND TOTALS  I 69,003  $192,879  T o t a l assets l e s s d e p r e c i a t i o n . Merger of Sunray O i l Company and Mid-Continent Petroleum Corp. Merger w i t h American M e t a l . Merger of two companies September 1943 t o form Armour a d Co. Leased l i n e s . Acquired by Delaware, Lockawana and Western R a i l r o a d Company i n 1945. Acquired by Chesapeake and Ohio i n 1947. D i s s o l v e d under P u b l i c U t i l i t y Holding Company Act of 1935. n  Sources: United States Temporary N a t i o n a l 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 f i g u r e s : 19*57 data are taken from Moody's Investment Manuals; L i n d a h l and Carter, Corporate Concentration and P u b l i c P o l i c y , pp. 79-85, and " D i r e c t o r y 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, L V I I I ( J u l y , 1958), pp. 131-150; "The Fortune D i r e c t o r y , 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 r e p o r t .  The p i c t u r e i s one of wide p u b l i c i n t e r e s t i n  the equity s e c u r i t i e s of these corporations contrasted with, a h i g h 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 i n d i v i d u a l s i s shown i n the f o l l o w i n g two t a b l e s .  The f i r s t , Table IX, depicts the  types of holders as given by the stockholder of record data. The two b a s i c data shareholdings and shares h e l d by the stockholder are presented as a percentage of t o t a l number outstanding.  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. i s not t r u e .  This  Therefore, to get a more r e a l i s t i c p i c t u r e of the  importance of the v a r i o u s 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 a v a i l a b l e 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  Millions  30,425 100$  7,632 100$  27,782 91.3  4,343 56.9  1,457 4.8  568: 7.4  Individuals  959. 3.2  305 4.0  Institutions  497 1.6  263 3.4  355. 1.2  ' 708. 9.3  256 0.8  772 1Q.1  576 1.9  1,241 16.3  T o t a l Domestic  3,  I n d i v i d u a l s (Non-Fiduciary) Fiduciaries  Brokers and Dealers Nominees  13  b  I n s t i t u t i o n s and others  a  T o t a l shareholdings were 31,237,000 of which 812,000 were foreign-owned.  b  Includes shares owned by i n 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 h e l d i n the name of stock brokers and bank and t r u s t company nominees.  Source: New York Stock Exchange, Who Owns American Business, 1956 Census of Shareowners, pp. 23-28.  131 was t a x a b l e .  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 r e t u r n s , while the remaining amount was p a i d to domestic noncorporate and f o r e i g n 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 t h a t roughly 191 thousand d o l l a r s i n dividends received by f o r e i g n stockholders. 1.5 per cent of the dividends.  This represented  was  approximately  The remainder of the dividends,  approximately eighty per cent were r e c e i v e d by domestic noncorporate 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 ( t r u s t s and e s t a t e s ) an a d 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 f u r t h e r breakdown of the amounts r e c e i v e d by corporat i o n s 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  n e a r l y h a l f , or 1,168*millions, were reported by f i n a n c i a l companies.  Investment corporations r e c e i v e d the l a r g e s t share,  approximately s i x t y per cent, followed by Insurance companies w i t h 373 m i l l i o n s .  The data from dividend r e t u r n s , though  admittedly only a rough approximation of the value of stock h e l d by v a r i o u s types of h o l d e r s , was found to compare f a v o r a b l y w i t h 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 million dollars.  I n d i v i d u a l s h e l d d i r e c t l y s i x t y per cent of the  ^United States Bureau of I n t e r n a l 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 t o two b i l l i o n d o l l a r s was stock dividends. 2  New York Stock Exchange, Fact Book: 1956, p. 27.  132  TABLE X DISTRIBUTION OF DIVIDENDS AMONG VARIOUS CLASSES OP RECIPIENTS 1955 Millions of Dollars Taxable dividends paid by domestic corporations Dividends from domestic corporations received by domestic c o r p o r a t i o n s 8.  Dividends from domestic corporations r e c e i v e d by domestic non-corporate and f o r e i g n stockholders Dividends from domestic corporations r e c e i v e d by f o r e i g n stockholders' 3  Dividends reported by i n 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  13,468 2,546 10,922 191 10,731  Income from estates and t r u s t s r e c e i v e d by i n d i v i d u a l s but not reported as dividend income  517  Dividends r e c e i v e d by F i d u c i a r i e s and not d i s t r i b u t e d to b e n e f i c i a r i e s '  847  1  Dividends r e c e i v e d by others, which i n c l u d e s pension t r u s t s , n o n - p r o f i t i n s t i t u t i o n s , e t c .  1,237  Sources: U n i t e d States Bureau of I n t e r n a l Revenue, S t a t i s t i c s of Income: 1955« Corporation income Tax Returns, (Washington: G o v e r n m e n O r i n t i n g O f f i c e , 1958;, p. TH b United States Bureau of Census, S t a t i s t i c a l Abstract of the United S t a t e s : 1958, Seventy-ninth E d i t i o n , (Washington, D7C\,  T558J, p. 8W.  U n i t e d States Bureau of I n t e r n a l Revenue, S t a t i s t i c s of Income: 1955. I n d i v i d u a l Income Tax Returns, (Washington: Government P r i n t i n g O f f i c e , 1958J, pp. 6 and 26. c  ^United States Bureau of I n t e r n a l Revenue, S t a t i s t i c s of Income: 1954. F i d u c i a r y Income Tax Returns, (Washington: Government P r i n H n g O f f i c e , 1957;, pp.HPS.  133 stock and an a d d i t i o n a l 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 h e l d an estimated  eleven per cent of the stock w i t h the remainder owned by nonf i n a n c i a l corporations.  The d i f f e r e n c e s between the above c l a s -  s i f i c a t i o n and the one based on dividend r e c e i p t s are p r i m a r i l y definitional.  Thus, the corporate s e c t o r used i n the dividend  c l a s s i f i c a t i o n i n c l u d e s 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 c h a r i t a b l e i n s t i t u t i o n s , pension t r u s t s , e t c . , 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  s e c t o r combined ( i n c l u d i n g n o n - f i n a n c i a l and f i n a n c i a l  corporate corpora-  t i o n s ) 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 f u r t h e r breakdown of t h i s s e c t o r , however, d i d not r e v e a l 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 h o l d i n g eleven per cent and n o n - f i n a n c i a l corporations s i x t e e n per cent of the value, whereas dividend r e c e i p t s showed f i n a n c i a l i n s t i t u t i o n s w i t h almost eighteen per cent and n o n - f i n a n c i a l corporations a l i t t l e b e t t e r than t e n per eent.  Part of the discrepancy can be explained by the f a c t that  some of the dividend r e c e i p t s may have not been d i s c l o s e d through consolidated r e t u r n s . Agreement was a l s o q u i t e 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.  I n d i v i d u a l s , t r u s t s and estates made  up seventy per cent u s i n g dividend r e c e i p t s 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 t h e s i s p r i m a r i l y because i t conformed c l o s e r t o the 1956 New York Stock Exchange survey c l a s s i f i c a t i o n and a l s o permitted comparison w i t h e a r l i e r r e s u l t s u s i n g the same method.  135  TABLE X I DISTRIBUTION OP SHAREOWNERS BY INCOME CLASSES 1956  Reported Household Income  Adult Population  Shareowners  Number Thousands  Per Cent  Under $3,000  34,020  2.8  960  11.6  $3,000 t o $5,000  36,400  5.9  2,176  26.1  $5,000 t o $7,500  18,940  11.6  2.190  26.4  $7,500 and over  10,370  28.6  2.970  35.0  99,800  8.3  8,280  a  Number Thousands  J  Per Cent  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, t r a n s i e n t s , 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 X I I PROPORTION OP DIVIDEND INCOME TO GROSS INCOME AND PROPORTION OP RETURNS IN EACH INCOME CLASS REPORTING DIVIDENDS  Adjusted Gross Income Classes  Percentage of Dividend Adjusted Dividends Returns reporGross as a p e r t i n g Dividends centage o f i n each, c l a s s M i l l i o n s Income gross income  Under $ 1,000 under •% 2,000 a 2,000 3,000 M 3,000 5,000 W 5,000 7,500 M 7,500 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 II 200,000 500,000 500,000 w 1,000,000 or TOTAL  I m l n c o m e  2.2 5.5 3.9 3.9 6.3 12.8 32.5 54 70 85 93 95 100 98  { j V 0 S 8  48 161 205 444 ' 499 452 744 ' 1,006 1,403 1,129 733 470 185 272  $ 3,828 12,828 21,133 66,251 66,027 29,305 17,924 11,983 10,433 5,151 2,226 1,144 418 568  $7,851  $248,530  "$  1.3 1.3 1.0 .67 .76 1.5 4.2 8.5 13.5 22 33 41.4 45 47.5 3.2  Source: United States Bureau of I n t e r n a l Revenue, S t a t i s t i c s o f Income: 1955. I n d i v i d u a l Income Tax Returns (Washington: Government P r i n t i n g O f f i c e ; , p. 20.  137  TABLE X I I I AVERAGE DIVIDEND INCOME OP TAX RETURNS PILED BY INDIVIDUALS BY ADJUSTED GROSS INCOME CLASSES  J o i n t Returns  8,  S i n g l e Persons  Adjusted Gross Income Classes  Average Average Number Amount Dividend Number Amount Dividend 000's Mil. 000's Mil. -  Under $3,,000 $ 3,000 •to $ 5,000 5,000 - - 7,500 10,000 7,500 15,000 10;000 25,000 15,000 50,000 25,000 100,000 50,000 200,000 100,000 cw,vuv 500.000 200,000 500,000 500,000 - 1,000,000 Over $1,000,000  $ 112 $ 450 506 247 298 . 168 570 287 456 236 520 194 358 232 72 645 460 1,200 404 55 292 690' 37 2,350 190 998 20 5,250 842 14,800 6 57 548 42,000 1.380 13 115,700 501 347 3 0468 130 277,000 96 100 625,000 52 0159  $ 286 $ 565 830 : 239 ' 1,100 213 181 2,500 226 4,100 266 ' 7,200 - 16,500 330 * 39,000 235 148 107,000 94 187,000 41 427,000 80 1,540,000  ^ o e s not include a l l r e t u r n s f i l e d by i n d i v i d u a l s who r e c e i v e d dividends. Excludes separate returns of husbands and wives, r e t u r n s o f s u r v i v i n g spouse and returns o f head of househ o l d . These groups make up l e s s than f i v e per cent of the t o t a l .  Source: United States Bureau of I n t e r n a l Revenue, S t a t i s t i c s of Income: 1955, I n d i v i d u a l Income Tax Returns, (Washington: Government 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 r e p o r t i n g Dividends Number Per Cent Thousands  Dividends Amount Millions  129 341 322 626 678 448 477 339 218 66 21  3.6 9.3 8.9 16.9 18.5 12.3 13.0 9.0 5.9 1.8 .8  $  48 161 205 444 499 452 744 1,006 1,403 1.1.29 1,660  3,716  10.0  $7,851  Per Cent 0.6 2.1 2.7 5.7 6.4 5.8 9.6 12.9 18.0 14.6 21.5 100  Source: United States Bureau o f I n t e r n a l Revenue, S t a t i s t i c s o f Income: 1955, I n d i v i d u a l Income Tax Returns, (Washington: "SoveramenTTrinting O f f 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 o f Spending U n i t s Size of Holding Dollars Zero $ 1 - $ 200 200 - - 500 500 - 1,000 1,000 - 2,000 2,000 - 5,000 5,000 - 10,000 10,000 and over Not a s c e r t a i n e d  All Units  $3,000 $5,000 $7,500 10 ,000  89 1 1 1 1 2 1 3 1  95  93 1  1  1 1 1 1 2  ——  100  100  —  1 1 1  —. 100  Over $10,000  88 1 1 2 2 2 1 1 1  80 2 3 3 2 4 2 2 2  57  100  100  100  Source:"1957 Survey of Consumer Finances," "The F i n a n c i a l P o s i t i o n . o f Consumers," Federal Reserve B u l l e t i n , V o l . 42, (August, 1957), p. 894.  2 4 2 7 4 19 5  140  TABLE XVI PROPORTION OP STOCKHOLDERS TO ADULT POPULATION IN UNITED STATES.  Year 1927 1930 1937 1952 1956 1959  Number of Stockholders Millions 4-6 9-11 8-9 6.5 8.6 12.5  1927-1959.  Adult Population Thousands 69,814 73,521 81,140 98,133 99,800 104,582  Stockholders as a percentage o f Adult Population 5.7- 8.6 12.1-15 9.9-11.1 6.6 8.6 12  Sources: Population. United States Bureau of Census, S t a t i s t i c a l Abstract of the United S t a t e s : 1959. ( E i g h t i e t h E d i t i o n ; , (Washington: Government P r i n t i n g O f f i c e , 1959), pp. 357-358. Number of Stockholders. 1927, A. A. B e r l e , J r . , and G. C. Means, The Modem Corporation and P r i v a t e Property, (New York: The MacMillan Company, 1932;, PP. 372-374; 1930. The S e c u r i t y Markets (New York: Twentieth Century Fund, 1935), pp. 49-50. 1937, United States Temporary N a t i o n a l Economic Committee, Monograph 29, The D i s t r i b u t i o n of Ownership i n the 200 Largest NonP i n a n c i a l Corporations, (WasEington: Government P r i n t i n g O f f i c e , 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  Name of Company  (000's omitted) Shares Shares h e l d Shares Other outHeld by Large Per by standing I n s t i t u t i o n O f f i c e r s Holdings Cent etc. 1 2 4 5 3  A l l i e d Chemical 8,858 A l l i s Chalmers 3,271 Aluminum 9,016 Alum. Co. of America 9,884 American Can 10,886 American Cyanide 8,862 American & Foreign Pwr . 7,224 American Gas & E l e c t . 12,846 American N a t u r a l Gas 3,684 American Smelting 5,443 American T e l . & T e l . 42,337 American Tobacco 6,512 Anaconda 8,674 Anderson, Clayton 3,242 Armco S t e e l 5,214 Armour 4,066 A t c h i s o n Topeka 4,854 A t l . Coast Line RR 823 A t l a n t i c Refinery 8,962 B a i t . & Ohio RR 2,563 Bendix A v i a t i o n 4,234 Bethlehem S t e e l 9,853 Boeing A i r c r a f t 3,247 Borden 4,283 Borg Warner 7,194 Boston Edison 2,716 Boston and Maine RR 547 Burlington M i l l s " 7,047 C a t e r p i l l a r Tractor 3,974  659 347 850 446 1,196 783 15 1,837 663 365 707 550 55 28 184 69 618 103  610 23 424 573 121 198 543 158 358 355  204 5 25 2,153 367 48 2 10 86 13 8 19 27 1,694 35 146 5 3 17 3 62 5 39 86 393 21 11oc. 362 74  26  1,413  — 11 2,360 36 — 26 14 —— 10 3,942 55 — 14 — 20 —. 7 —— • — -— 9 — 53 —— — 5 — 13 236 42 — 17 —. 25 — 12 — 6 18 a 419 — 7 — 13 — 7 1  mmu  am turn  10 11  —  \  142 TABLE XVII (Continued) Celanese 5,,845 C e n t r a l and S.W 9,,091 Chesapeake and Ohio 7, 856 Chicago, M i l . St. P. 2,,123 Chicago and N.W. Rwy. 816 Chicago, Rock I s l a n d 1,,403 Chrysler 8, 702 C i n c i n n a t i Gas & E l e c . 6, 700 C i t i e s Service 9, 718 Cleveland E l e c t . I l i u m . 3, 344 Colgate Pamolive 2, 425 Columbia Gas 18, 000 Comm. Edison 14, 831 Cons. Edison 13, 365 Cons. N a t u r a l Gas 7, 366 Consumers Pwr. 7, 474 C o n t i n e n t a l Can 3, 478 Continental O i l 9, 747 Crown Z e l l e r b a c h 6, 172 C u r t i s s Wright 6, 984 Deere & Company 6, 700 Delaware, Lock. & W. •1i 689 10, 730 D e t r o i t Edison D i s t i l l e r s Corp. 8, 769 Douglas A i r . 2, 500 Dow Chemical 22, 644 du Pont 45, 449 Duquesne L i g h t 6, 150 Eastman Kodak 17, 401 E l Paso N a t u r a l Gas 4, 524 Erie Railroad 2,,450 Firestone 7,,890 F l o r i d a L i g h t & Power 2, 340 Gen. American Trans. 2,,182 General Dynamics 1,,974 General E l e c t r i c 86, 538 General Foods 5,,821 General Motors 87, 485 General P u b . U t i l i t i e s 9,,099 General Telephone 3,,414 Goodrich 8, 394 Goodyear 9,,032 Grace, W. R. 2,,634 Great Northern 6 ,082 Greyhound 10 ,600 Gulf O i l 24 ,542 Houston L i g h t & Power 5 ,282 2 ,216 I l l i n o i s Central 2 ,810 I l l i n o i s Power Inland Steel 4 ,917 4 ,098 I . B. M.  235  1,629 465 34 27 217 477 1,151 458 538 349 1,142 1,037 1,031 1,166 1,012 505 1,526 639 24 948 8 730  179 1,629 1,543 1,311 438 1,147 557 104 834 386 286 57 4,781 339 1,691 1,605 123 1,684 936 93 895 78 2,168 849 490 713 313 347  795 9 267 4 2 92 88 35 438 6 180 30 46 12 24 13  40 69 250 33 162 17 11 3 ,397 9 1 ,669 2 ,998 23  102 102 5 2 ,372 5 79 22 141 253 3 ,593 5 17 62 84  —  11 247 1 ,953 44 8 4 263 142  — — — — — — —— — — — 754 — — — — — 582 — —  1 ,292 a 381 133 ,—  — —  13 1 ,118  — — — — — — — —39 20 ,363 — — —166 b — —. b — 538 — —261  18 18 9  —— 22 7 18 9 16 22 11 7 8 16 14 16 22 14  —  36 32 7 41 11 14 3£ 26 7 15 5 41 16 7  —  6-  10  29 18  —  23 11 ? 1-5  —  i-7 38 26 17 12  143 TABLE XVII (Continued) I n t e r n a t i o n a l Harvester I n t e r n a t i o n a l Paper Int. T e l . & T e l . Jones & Laughlin K a i s e r Aluminum Kennecot L i g g e t t & Meyers Lockheed A i r . Lone S t a r Gas Long I s l a n d L i g h t Louis & N a s h v i l l e Mack Trucks May Dept. Stores Mid-Cont. Petroleum Middle South Montgomery Ward Monsanto Chemical N a t i o n a l Dairy National D i s t i l l e r s N a t i o n a l Lead National Steel New England E l e c t . New York Central.. N.Y., Chicago & S t . L. N.Y., N.H. & Hart. New York State E l e c t . Niagara Mohawk N o r f o l k & Western North American Av. Northern N a t u r a l Gas Northern P a c i f i c Ohio Edison Ohio O i l O l i n . Math. Chem. Owens-Illinois P a c i f i c Gas & E l e c t . Pacific Lighting Pacific Tel. & Tel. Pan American Penny J . C. Pexm. Power & L i g h t Pennsylvania EE People's Gas Phelps-Dodge Philadelphia Elect. P h i l i p Morris P h i l i p s Petroleum P i t t s b u r g h Cons.Coal P i t t s b u r g h P l a t e Glass P r o c t o r & Gamble Pub.Serv.Gas & E l e c t . Pub. Serv. Indiana  13,,373  9,,792 7,,177 6,,200 ,784 10, 821 3, 912 2, 681 5,,499 5, 520 2. 337 1,569 5, 841 1, 860 7, 125 6,502 5, 220 13, 408 8,450 11i 380 7,348 9, 109 6, 447 2, 039 525 3, 034 11, 556 5, 626 •3, 435 3, 289 2, 480 5, 806 6,563 10, 832 3, 057 11, 811 5, 400 6,212 6,084 8,232 5, 639 13, 168 1, 118 10,,143 10,,805 2,,880 14,,624 2,,151 9,,061 9,,633 9 ,346 4 ,251  810 1,441 61 65 19 920 321 128 386 322 224 21 326 299 1,740 567 598 700 134 1,361 652 726 44 237  13 817 1,734 247 387 642 258 712 739 383 271 968 151 25 39 486 177 274 162 1,064 651 314 1,091 118 434 275 1,074 844  322 68 44 127 4 36 15 98 54 148 3 27 632 34 6 67 133 260 15 156 445 27 c 1,000 74 48 5 66 9 7 5 8 9 21 3,322 201 39 76 8 126 319 27 13 1 153 30 19 95 70 139 147 7 9  — — —  156 2,717 141  — — —  823 495  — — — — — — — — 2,001 — — —363 —•  857 2,397  — — —15 — ——208  5,658 a 705  — — —115 429 — —252  755 2,871  — — —  9 15  —  6 72 10 9 8 8 9 45 35 16 18 25 10 14 7  —  13 55 8 16 33 12 27 23 47 12 20 11 12 12 34 22 9  —  92 14 10  — —  15 16 6 20 8 44 39  —  12 21  144 TABLE XVII (Continued) Pure O i l 4,,068 Radio Corporation 14,,031 Reading RR 1,,400 Republic S t e e l 5,,955 Reynolds Metals 1,,802 Richfield O i l 4,,000 Safeway Stores 3, 466 St. L o u i s — S . P . 1, 754 St. Regis Paper 5, 391 Schenley 4, 366 Scott Paper 7, 798 Seaboard A i r l i n e 2,349 Sears Roebuck 24, 210 Shell O i l 27, 500 Sinclair O i l 12, 306 Skelly O i l 5,746 Socony M o b i l 34, 982 So. C a l . Edison 6, 297 Southern Co. 18, 088 Southern Railway 2,596 Sperry Rand 4, 276 Southern P a c i f i c 9, 047 Standard O i l ( C a l i f . ) 28, 673 Standard O i l (Ind.) - 30, 506 Standard O i l (N.J.) 60, 502 Standard O i l (Ohio) 4,011 Stevens, J.P. 3,961 Sun O i l 7, 656 Sunray 10, 776 Swift 5, 922 Texas Company 27, 476 Texas U t i l i t i e s 5,905 Tidewater O i l 13,,433 Union Carbide 28, 953 Union E l e c t r i c 10, 383 Union O i l 5,809 Union P a c i f i c 4, 446 United A i r c r a f t 3,217 United A i r l i n e s 2, 463 United F r u i t 8, 775 United Gas 12, 890 U. S. Rubber 5,302 U. S. S t e e l 26,,110 V i r g i n i a L i g h t & Pwr. 6,,000 West. Penn. E l e c t . 4,,224 Western Union 1, 231 Westinghouse 15,,992 Woblworth 9,,704 Wisconsin Elect.Pwr. 4,,215 Youngstown Sheet. & Tube 3,,358  367 714 2 310 142 139  162 103 42 25 356 586 1,006 1,367 533 470 2,121 851 1,810 241 172 758 1,737 2,694 3,537 222 417 155 42 150 1,890 1,006 194 1,582 121 178 457 366 660 142 1,933 317 585 1,097 421 22 1,682 330  977 280  11 46 4 9 c 250 23 23  7 167 1 ,009 677 50 204 24 28 80 40  —  862 174 969 2,482  — — 771 ——— —  6,319 17,983  —  55 72 53 77 32 40 9 734 3 ,898 148 78 416 156 141 109 48 461 45 34 33 112 22 122 21 19 33 42 22 540 219 93  —. — — — —— 266 —.  3,412  a  44 40 2,119  — — —— — . — — — 7,116 —8,603 — —— — — —  9 5 62 10 76 66 5 6 18 24 13 27 31 71 5 69 6  — —  11 12 9 7 9 9 6 29 53  — .—  —  8 20 56 6 85 11 11 12 7 9 28 8  181  19 11 5 11 9 28 17  1,655 167 — — — — — . —  —  145 a.  Many thousands of shares were i n brokers' names.  b.  Very l a r g e .  c.  Approximat e l y .  d.  The f i g u r e s i n " o f f i c e r s , d i r e c t o r s , e t c . " column include holdings i n t r u s t s , estates and c h a r i t a b l e i n s t i t u t i o n s .  e.  Percentage i s a combination of columns 2, 3 and 4.  S p e c i a l Notes: 1.  The i n f o r m a t i o n contained h e r e i n was from p u b l i c records.  2.  The study excludes l a r g e holdings of l i s t e d corporations whose p o r t f o l i o s are not p u b l i c information.  3.  Information regarding holdings of c e r t a i n o r g a n i z a t i o n s not a v a i l a b l e i n c l u d i n g some c h a r i t a b l e o r g a n i z a t i o n s , c o l l e g e s , pension funds, t r u s t departments of banks, and stocks h e l d 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 O f f i c e , 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.  A l l i e d Chemical Aluminum AliamihUm Co.of America Amerada American Can American Cyanide American Gas & E l e c t . American N a t u r a l Gas American T e l . & T e l . American Tobacco A t c h i s o n Topeka Bethlehem S t e e l C e n t r a l & S.W. Chrysler C i n c i n n a t i Gas & E l e c t . C.I.T. F i n a n c i a l Cleveland E l e c t r i c Columbia Broadcast Comm. Edison Cons. Edison Cons. N a t u r a l Gas Consumers Power Continental Can Continental O i l Corn Products Crown Z e l l e r b a c h Deere & Company Dow Chemical du Pont Eastman Kodak Firestone T i r e General E l e c t r i c General Foods General Motors General P u b l i c U t i l i t i e s Goodrich Goodyear  Per Cent 7 9  4  23  11  9  14 18 2 8 13 6 18 5 18 10 16 17 6 8 16 14 14 16 12 9  14 7 3 7 10 6 6 2 17 20 10  Great Northern Railway Gulf O i l Gulf States U t i l i t i e s Hercules Powder ' Houston L i g h t i n g I l l i n o i s Power I . B. M. I n t e r n a t i o n a l Harvester International Nickel I n t e r n a t i o n a l Paper Johns M a n v i l l e Kennecott Kimberley C l a r k Libby Owned Mid-Cont. Petroleum Mid. So. U t i l i t i e s Minn'. Honeywell Minn. Mining Monsanto Chemical Montgomery Ward N a t i o n a l Cash R e g i s t e r National Dairy N a t i o n a l Lead National Steel N.Y. State E l e c t r i c Niagara Mohawk North American Company Northern N a t i o n a l Gas Ohio Edison Ohio O i l Owens 111. Glass P a c i f i c Gas & E l e c t r i c Panhandle Eastern P i p e l i n e Penny, J . C. People's Gas Phelps Dodge P h i l l i p s Petroleum  Per Cent 15 9  21 11 16 26 8 6 5 15 18 9  8 8 16 24 14 6 11 8 13 5 12 9  27 15 13 18 12 11  9  6 16 6 15 11 7  147 TABLE X V I I I (Continued) P i t t s b u r g h P l a t e Glass P r o c t o r & Gamble P u b l i c Serv.Elec.& Gas P u b l i c Serv.Ind. Reynolds, R.J.B. Seaboard A i r l . RR Sears Roebuck Shell O i l Socony M o b i l O i l Southern C a l i f . E d i s o n Southern Company Southern P a c i f i c Standard O i l ( C a l i f . ) Standard O i l (Ind.)  5 3 11 20 8 24 4 5 6 12 10 9 6 8  Standard O i l (N.J.) Texas Company Texas Gulf Sulphur Texas U t i l i t i e s Union Carbide Union P a c i f i c RR United F r u i t United Gas Corp. U. S. Gypsum U. S. S t e e l V i r g i n i a Elect.& Power Westinghouse Wisconsin Elect.& Power  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 O f f i c e , 1955), p. 201.  6 7 8 18 5 10 8 15 14 2 19 10 21  

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