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INTRODUCTION-THE ENERGY INDUSTRIES AND FEDERAL CHARTERING

GREGG K. ERICKSON*

Practically every American is regularly associated-as customer, ployee, owner, member, or beneficiary-with literally thousands of dividual corporations. Each of these entities-whether pension fand, mutual savings bank, university, labor union, or oil companyMares historical antecedents that stretch back practically to antiquity.1 The modern industrial corporation, distinguished by the production f goods, its large size, the diversity of talents and energies that it tinely mobilizes, and the divorcement of ownership from control a far more recent arrival on the economic and legal scene, having en largely a creature of the nineteenth century.2

The industrial corporate form has never been free of vocal and roublesome critics. În America, at least, the corporation has been erceived as a threat to representative democracy and a source of responsible power for well over a century. During this period, and ren before, Federal chartering of corporations has frequently been ranced as a part of proposed institutional solutions.3

Today, public dissatisfaction with industrial performance, especially the energy and petroleum sector, has raised questions to which the notion of Federal chartering is particularly pertinent. The nine ticles and essays which follow reflect an effort to bring together in convenient format a representative selection of modern approaches the notion of Federal chartering and the related subject of the puby appointed director.

Departing somewhat from this format, however, is the first item aded here, an editorial from the New York Times entitled, "The orporate State." Its inclusion is appropriate, however, since it articues in a thoughtful way the basic challenge presented to our society the growth of the corporation: how do we "prevent powerful erial interests from frustrating the Democratic process... [w]ithundermining the efficiency of business"? It is in relation to this sic question that one must weigh the specific proposals and coments contained in the other eight selections.

Mr. Erickson is a staff economist with the National Fuels and Energy Policy Study. was formerly staff director and economist with the Alaska State Legislature's Joint ine Impact Committee, and a research associate with Resources for the Future. For a complete review of the Historical Development of the Corporation, see, Harbrect Callin, "The Corporation and The State in Anglo-American Law and Politics," 10 al of Public Law, 1-46 (1961).

Fear of the industrial corporation is not new, but it is only in this century that its tial characteristics have been recognized and analyzed. The pioneer in this effort was te A. A. Berle, Jr., who, with Gardner Means, wrote The Modern Corporation and te Property. See also, The Concept of the Corporation, by Peter Drucker. The article by Mr. Nader (reprinted here) sketches the history of the Federal charterda. Also see Brabner-Smith, "Federal Incorporation of Business," 24 Virginia Law , 159 (1937); Hudson, "Federal Incorporation," 26 Political Science Quarterly, 63 ; and Watkins, "Federalization of Corporations," 13 Tennessee Law Review, 89

The second item included here is adapted from a paper presented by Mr. Ralph Nader at the 1971 Conference on Corporate Accountability. As its title implies, "The Case for Federal Chartering" is a strong endorsement of the Federal chartering concept. Nader examines the differences between Federal licensing, which would allow corpora tions to continue operating under existing State charters, and true Federal chartering, under which State corporation law and State charters would be supplanted. He also outlines a governmental struc ture which he suggests would be appropriate to administer a Federa chartering act, and, in a general way, the features he considers essen tial in such an act.5

One of the most interesting and thought-provoking sections o Mr. Nader's paper deals with the historical development of the Fed eral chartering idea, and its relation to the more general criticism o the corporation as an institution. He traces this thread from the antici pations of James Madison-who unsuccessfully argued for inclusio of a Federal chartering provision in the Constitution-through th trust-busting era around the turn of the century and the reforms o the New Deal to the present.

In the face of the long history of concern and attention recounte by many others, it seems remarkable that the corporation has survive in a form and relationship to the rest of society so little modified b either legislative acts or judicial decisions. Not since Chief Justic Marshall wrote his opinion in the Dartmouth College case has th relationship between the state and the corporation been subject to substantial redefinition." In that landmark decision, Marshall dealt fatal blow to the notion, residual from the Middle Ages, that th corporation existed solely as a creature of and for the state. Marsha emphasized the contractual nature of the compact that exists betwee a corporation and its creator, and by doing so exalted the proper rights of the individual over the collective power of the state.

Such a redefinition was clearly necessary, and perhaps inevitab in the context of emerging industrialism. As one writer characteriz it, it was "a master stroke of judicial politics. In 1819 the day w yet to come when individuals, private or public, would have to be pr tected from corporations." If investors were to commit capital purposes that made liquidation difficult or impossible, that requir long-time horizons for the development of profit potential, then th would need some degree of certainty of tenure, some protection fr arbitrary and capricious modification of their legal status and th right to exist.

Nader points out that while the notion of Federal chartering is most as venerable as the fear of corporate power, at every moment political decision an alternative remedy was chosen. Whatever

Although Nader clearly believes States should be completely supplanted, at least large corporations, a licensing law would be politically much easier to obtain. Licen legislation could be relatively narrow, speaking to specific issues, whereas a chartering must necessarily open up consideration upon all matters pertaining to the corporat relationship with the State.

The article by Quinn (also reprinted here) presents a more detailed and more conse tive proposal.

See also Brabner-Smith supra note 3, at 159; and Buchanan, "The Corporation and Republic." in Hacker (ed.), The Corporation Takeover, pp. 19-42.

The Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 519, 539 (18 Robbins, "The Private Corporation: Its Constitutional Genesis," 28 Georgetown Journal 165, 170 (1939), quoted in Harbrect & McCallin, supra note 1, at 29.

specific reasons underlying this consistent aversion to tederalization at any given time, there clearly has been a continuing commitment on the part of the American body politic to leave to the States the formal definition of the contract relationship between the corporation and the Government. The practical result of this policy has been the competition that developed among States for the revenue derived from the inCorporation fees. The effects of this competition are evaluated both by Nader and by Professor Donald Schwartz, in "Federal Chartering of Corporations." In Nader's version of Gresham's Law, bad law has driven out good.

Whatever the merits of State corporation law, it would be disingenTous to claim that Federal lawmakers have failed to rectify this glaring problem for over 100 years simply because they have been the captives of special interests. Clearly, there have been other factors at work, not the least of which has been widespread concern for the maintenance of high levels of productivity and other economic objectives. The fact is that Americans have, rightly or wrongly, feared that the class of contraints that might develop within Federal chartering could throw the onomic system into turmoil. While the rights of corporate mangers may not be sacred, their ability to maintain high levels of output as not to be trifled with lightly.

This concern is particularly pertinent to consideration of any proOsal that would require major integrated oil companies to obtain Federal charters. Like it or not, these organizations embody the techical and organizational competence essential to meeting the Nation's Energy needs.10 Even if these organizations could be dismembered and constituted in some different mold, or replaced entirely, whatever ew entity emerged would confront the same organizational problems that the petroleum industry has already met. Though a new entity's rganizational development might not converge on the same solutions, tside interference could still be a threat to successful attainment of objectives, however it might define them.

11

The literature specifically on Federal chartering, including the setions reproduced here, is written primarily from the legal perspecTe. While the authors are aware of the economic and political facets of the question, one must look beyond the subject of Federal charterto the broader field of corporate power and political accountability obtain an explicit formulation of the economic/political issues that ll be fundamental to the final disposition of any Federal chartering roposal.

Though not the first person to perceive the dialectic of control versus rformance, Peter Drucker, in his study of General Motors, articul the issue in terms that are as relevant today as they were when ten in 1946.

The parochialism of the military imagination inspired Clemenceau's epigram that war is too important to be entrusted to the generals. Yet neither Clemenceau nor anybody

Thatcher, "Federal Control of Corporations," 14 Yale Law Journal 301 (1905). For Etre modern view, particularly in relation to the impact of institutional change on techical development, see Schmookler, "Technological Progress and the Modern American oration," in Mason, The Corporation in Modern Society, pp. 141-165.

Trucker supra note 2, at 91; see also Galbraith, The New Industrial State.

See inter alia, D. Schwartz (this collection), note 34.

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