requests regarding voting rights down to 1 percent. (Common carriers, however, need report only the 30 largest "holdings" of each class of stock to the FCC, with no reference to individual voting powers.)

The Federal Power Commission asks for the 10 security holders "with highest voting powers ** in order of voting powers." FPC requests, as several of the other commissions do, reporting of known particulars of trust agreements, including identification of beneficial owners of securities held in trust by reported stockholders.

IDENTIFICATION OF SECURITY HOLDERS

The Interstate Commerce Commission asks for identification of the security holders with the "highest voting powers"-the top five in the case of railroad lessors, the top 10 in motor carriers and the top 30 in railroads.

The Civil Aeronautics Board requires air carriers to report the names of stockholders holding more than 5 percent of the capital stock, and the person for whose account such stock is held, if other than the holder. In addition, the CAB now requires reports from these large stockholders, requiring disclosure as to who possesses or exercises the right to vote, sell, prevent sale or otherwise dispose of the reported stock. This CAB surveillance of large stockholders includes the requirement that banks and brokers holding more than 5 percent of any class of the capital stock file quarterly reports with the Board.

Despite agencies' requests for identification of those security holders with highest voting powers, the companies frequently report "nominees" or "street names" which represent the stock held by institutions which frequently are not named in the reports.

A single institutional investor may use a dozen or more different "street" names. Although some agencies tell companies to list security holders "in order of voting power,' holdings of the same institutional investor frequently are not consolidated in reports to the Federal regulatory commissions. The commissions nevertheless accept the unconsolidated, unresponsive and misleading data, and place it in their public files.

THE NOMINEE LIST

Only through use of the Nominee List, published by the American Society of Corporate Secretaries,* can one trans

'Some years ago the FPC's request to obtain voting right information on more than 10 security holders was denied by the Budget Bureau, on the advise of one of its business advisory committees on Federal reports.

A government regulatory agency official, a newspaper editor and an attorney reported in 1971 that the American Society of Corporate Secretaries refused to sell them a copy of the Nominee List. The 1971 edition was printed in the Congressional Record on June 24, 1971

late the nominees to institutions. An excerpt from the Comptroller General's April 10, 1973 letter (the correspondence with him appears in Appendix A, page 197) describes the findings of the General Accounting Office on this point:

We examined a limited number of reports and applications requiring ownership information. It appeared that for large regulated companies the names of nominees are often shown in lieu of the names of stock owners. The presence of nominees in the ownership data was confirmed by officials of each of the agencies who told us that the companies were not in a position to know who the stock owners were. The officials stated that the companies could only report the names of the stockholders of record, which includes nominees.

Using the Nominee List, published by the American Society of Corporate Secretaries, we were able to identify the person or organization the nominees represented. For example, the 1972 annual report submitted to the Interstate Commerce Commission by one of the country's largest railroads included 24 nominees among the list of the 30 largest stockholders. The 24 nominees represented two insurance companies and 12

banks.

For illustrative purposes," the 1973 report to the ICC of the company referred to by the Comptroller General appears on the following page. (The company also filed the report with the SEC.)

(Vol. 117, No. 98-Part II). Subsequently the Society decided to sell the Nominee List, which is updated and issued early each year, for $20. The Society's address is 1 Rockefeller Plaza, New York, N. Y. 10020.

The ownership reports filed with the ICC by railroads which have become subsidiaries of conglomerate holding companies are even less informative than the example used here. Each subsidiary railroad simply lists the name of its parent company.

Conglomerates have practically taken over the railroad industry in the short span of 11 years. In 1962 two major railroads were acquired by parent holding companies. By June 15, 1973, 16 major railroads, which account for approximately two-thirds of the total industry revenues and ton-miles, were controlled by conglomerate holding companies.

On August 9, 1973 the Interstate Commerce Commission advised Congress of questionable and improper practices of the railroad conglomerates. The ICC requested legislation which, among other things, would require reports to the ICC by any persons having legal or beneficial ownership, as trustee or otherwise, of more than 1 percent of the stock of major railroads.

The ICC's report and recommended legislation (S. 2460) appears in the Sept. 20, 1973, Congressional Record, pp. 17102-17107. ICC Chairman George M. Stafford's September, 1973 correspondence with Chairman Metcalf; and the ICC's accompanying report, appear in Appendix A, at p. 232.

29-553 O-74-2

SUMMARY OF THE NEW DATA AND ITS SIGNIFICANCE

OWNERSHIP CONCENTRATED IN UNNAMED BANKS

Staff analysis of the preceding ownership report reveals that holdings are concentrated in banks that are not even mentioned in the company's report to Federal regulators. Furthermore, aggregation of stock reported in the name of multiple nominees for individual banks or other investors reduces the number of top stockholders reported from 30, as required by the ICC, to 20.

For example, six of the "top 30" holders of voting stock reported by the company (the Burlington Northern) are nominees for Bankers Trust Company, which was not mentioned in the Burlington Northern's ownership report. Those nominees and the number of shares reported in their name by the BN are as follows:

Thus, State Street Bank and Trust's aggregated holdings....

561, 500

342, 607

5. The holdings of a brokerage house, Merrill Lynch, Pierce, Fenner & Smith, were reported in that company's name.. 6. The BN reported 78,600 shares held by Norton Simon Inc., a holding company. Two other reported holdings represent the interests of Norton Simon, a director of the BN. One is Hunt Foods and Industries, Inc., a subsidiary_of Norton Simon, Inc., with 122,200 shares. The other is Julia & Co., a nominee for Foundation Funds of Norton Simon, with 49,600 shares. Thus, Norton Simon interests, aggregated__1250, 400 7. Sigler & Co. is a nominee for Manufacturers Hanover Trust, which was not mentioned in the report---

8. Two of the reported top holders of voting stock are nominees for Morgan Guaranty Trust, which is not mentioned in the report and whose former board chairman, John M. Meyer, Jr., is a director of both the Morgan bank and the BN. (Morgan Guaranty Trust is also the stock transfer agent for the BN). Those nominees and the number of shares reported in their names:

Douglass & Co..

Ince & Co...

Thus, Morgan Guaranty Trust's aggregated holdings-

9. Sabat & Co. is a nominee for Savings Banks Trust Co. (New York), which was not mentioned in the report....

248, 875

150, 000 78, 460

228, 460

124, 700

1 According to the Nov. 9, 1973 Wall Street Journal, Mr. Simon recently sold a large part of his holdings in the BN. He criticized railroad conglomerates generally for spending undue time on nonrailroad enterprises, and for excluding women and younger men from the boards of directors, which he found dominated by banks and trust companies.

91-011-73-2

10. The holdings of Equitable Life Assurance Society, an insurance company, were reported in that company's name. 11. The holdings of Paine, Webber, Jackson & Curtis, a brokerage house, were reported in that company's name..

12. Pace & Co. is a nominee for Mellon National Bank and Trust, which was not mentioned in the report

13. Čongen One & Co. is a nominee for Connecticut General Life Insurance Co. It was not mentioned in the report. But the nominee name in this case, "Congen," offers a clue as to the identity of the holder

14. Lages & Co. is a nominee for the First Jersey National Bank, which was not mentioned in the report...

15. The holdings of Stephens, Inc., an underwriting and holding company whose president, Justin T. Stephens, was elected to the BN's board of directors this year, were reported in the name of the company.

16. Emseg & Co. is a nominee for Northwestern National Bank of Minneapolis, which was not mentioned in the report (BN president Robert W. Downing is a director of Northwestern National Bank)..

17. Cross & Co. is a nominee for the First Pennsylvania Banking and Trust Co., which was not mentioned in the report...

18. Monvan & Co. is a nominee for Montreal Trust Company, which was not mentioned in the report.. 19. Wilkin & Co. is a nominee for the St. Paul Companies, Inc., a conglomerate insurance and financial company whose president and board chairman, Ronald M. Hubbs, is a member of the BN's board of directors. St. Paul Companies Inc. was not mentioned in the report....

20. Anderson & Co. is a nominee for the Fidelity Bank (Philadelphia) which was not mentioned in the report---

Shares

100, 000

90, 896

80, 100

75,000

75,000

69, 975

63, 360

57, 308

50, 800

50,000

47, 482

In summary, 11 of the Burlington Northern's "30 security holders *** (with) the highest voting powers" were nominees for four banks--Bankers Trust, Chase Manhattan, the Bank of New York and State Street Bank and Trust-none of which were mentioned in the company's ownership report filed this year with the ICC and also filed with the SEC. The holdings of those four banks totalled 2,655,847 voting shares of common stock, or approximately 25 percent of the 10,671,887 shares voted at the annual meeting of the company last year.

The total holdings of all the unnamed banks among the BN's reported "top 30" security holders amounted to 3,641,932 shares, almost four times as much as those of the other investors, most of which were identified, among the "top 30".

USE OF MULTIPLE NOMINEES

The example upon which we have elaborated is by no means uncommon. The holdings of institutional investors, especially banks, are often hidden from view of regulators and the public through use of multiple nominees-"Hemfar & Co.", "Lerche & Co.", "Kane & Co.", "Bark & Co.", "Pace & Co." and many more. In response to the Federal regulators' request for the addresses of these "security holders" the companies report simply "New York, N.Y.", "Boston, Mass." or "Pittsburgh, Pa.", occasionally adding a post office box number. These nominee names are not in the city directory. They are not in the telephone book. Letters to some nominees whose post office box is listed have not been answered.

The consequence of this continuing use of nominees in ownership reports to Federal regulators is a massive coverup of the extent to which holdings of stock have become concentrated in the hands of very few institutional investors, especially banks.

PART I

30 TOP STOCKHOLDERS OF 89 COMPANIES

Part I of this report is an analysis of the responses received from 324 of the Nation's largest companies in response to a request last year for identification of their 30 top stockholders, the amount of common stock each held, and the total number of voting shares of common stock. The letters to the chief executive officer of each company stated that if the company records did not conveniently identify the actual owner of the stock the street name (nominee) would suffice.

Eighty-nine of the 324 companies responded fully to the query. Partial information was supplied by 74. Subsidiary companies responded in 20 instances. Eightythree replied without submitting relevant data and 58 did not reply. All responses appear in Appendix B, page 239.

The comprehensive industry-by-industry analysis of these replies was prepared by Julius W. Allen, senior specialist in business economics at the Congressional Research Service, Library of Congress, with the assistance of Miss Eugénie Dieringer.

6

89 COMPANIES DESERVE COMMENDATION

The 89 companies which fully responded to the query deserve commendation. Their willingness to cooperate contrasts sharply with the unresponsiveness of most of the other companies. The most unresponsive companies were generally those subject to minimal public disclosure requirements-banks, retail companies, industrial and insurance companies and miscellaneous transportation companies. Policy considerations alone do not appear to justify this inattention. For instance, banks not only manage huge blocks of stock as trustees. They also provide large amounts of capital in the form of loans to the same companies (which make conflicts of interest a definite possibility). They have their own officers sitting on the portfolio companies' boards of directors (which makes it difficult to avoid self-dealing on the basis of inside information). Thus policy considerations would seem to cut the opposite way. It is fair to infer that nondisclosure is more the consequence of governmental apathy than corporate necessity.

It is important to note that not all of the stockholdings analyzed in Part I necessarily carry voting rights. Banks may have sole, partial or no voting rights in stock they hold. (An analysis of new data dealing with stock in which banks and other institutional investors hold sole voting rights appears in Part II. New data on holdings in which banks hold sole or partial voting rights appear in Part III.)" Using the Nominee List, Mr. Allen and associates on our staffs translated nominees into the actual institutional investors. They found that frequently the "30 top stockholders" were but 20 or so, because holdings of the same institutional investor were listed separately in two, three or more accounts. Nominees used by the various investors are included in the tabulations within Mr. Allen's report.

• The letter from Senator Metcalf and Senator Muskie requesting the assistance of the Congressional Research Service in the preparation of this report appears on p. IV.

7 The 1968 Patman Committee study of 13,598 employee benefit accounts managed by 43 banks showed that the banks had sole voting rights in all stock investments in 81.5 percent (11,087) of the accounts. (House Banking and Currency Subcommittee on Domestic Finance, Commercial Banks and Their Trust Activities: Emerging Influence on the American Economy, Vol. 1, p. 510.)

Cede & Co.

The stock reported in the nominee name "Cede & Co." has not been translated because it is in a different category. A few words of explanation and caution about Cede & Co. are in order.

Cede (pronounced "seedy") & Co. is technically a nominee for a nominee. It was created in 1966 and became fully operational in 1969 as the nominee for the Stock Clearing Corporation, a wholly owned subsidiary of the New York Stock Exchange, which furnished stock clearing service to member brokerage firms. Listings under Cede & Co. formerly represented deposits in the Exchange's Central Certificate Service. In May 1973 the business of CCS was transferred to a new Exchange subsidiary, the Depository Trust Company, for which Cede & Co. is

now the nominee.

Cede & Co., as record holder of securities of New York issuers, is entitled to vote stock, but does so only on instructions of the Depository Trust member to whose account such securities are credited. (Recent correspondence regarding Cede & Co. and Depository Trust appears in Appendix Č, page 335.)

INCONSISTENCIES IN REPORTING

Inconsistencies in reporting of Cede & Co. holdings are described by Mr. Allen on page 131. In his Table 3 (p. 22), he identifies the 36 cooperating companies in which Cede & Co. was reported as the largest stockholder, holding as much as 39 percent of an individual company's stock, and often reported as holding between 10 and 20 percent of a company's voting stock.

The Burlington Northern's previously discussed list of "30 top security holders" filed with the ICC this year (p. 4), provides an example of obscure reporting involving Cede & Co. It is not listed among the BN's top security holders. However, the footnote at the bottom of the report states that as of January 12, 1973, Cede & Co. held 803,604 shares. That is even more than Bankers Trust held in its six nominee accounts. The footnote goes on to say that "shares held by Cede & Co. have been included in above listing (of 30 top security holders) to the extent applicable." There is no indication as to which of the "top 30" accounts shares held by Cede & Co. should be applied.

Concentration in New York Bank Trust Departments

The concentration of stockholdings in a whole range of companies-energy, manufacturing, transportation, communications and retail trade-among a handful of New York bank trust departments is portrayed in Mr. Allen's Table 4 (p. 24). It lists the holders of 2 percent or more of the voting stock in three or more of the 89 cooperating companies. Following Cede & Co. which was the holder of record of 2 percent or more of the stock in 55 of the 89 companies, were the trust departments of four New York banks.

Chase Manhattan held 2 percent or more of the stock in more than half (46) of the companies.

Morgan Guaranty and First National City Bank held 2 percent or more of the stock in almost one-third (29 and 28) of the companies.

Bankers Trust held 2 percent or more of the stock in almost one-fourth (21) of the companies.

Ranking slightly below Bankers Trust were the New York brokerage house, Merrill Lynch, Pierce, Fenner & Smith, with 2 percent or more of the stock in 19 reporting companies, the Bank of New York in 17 companies and State Street Bank of Boston in 16 companies.

Table No. 5 (p. 24) shows the holdings of the above eight institutions in the 89 cooperating companies. These are the institutions which held 2 percent or more of the stock in 10 or more of the 89 reporting companies, arranged by industry groups. Thus, for example, Chase Manhattan's trust department held between 9 and 6.9 percent of the stock in each of four airlines, between 8.3 and 5.3 percent of the stock in each of six railroads, and more than 5 percent of the stock in each of five industrials, in addition to lesser amounts of stock in other companies in each of the categories. Table 5 also shows that the above eight institutions together held 20 percent or more of the stock in a number of companies.

The Top of the Pyramid

Were this report presented in geometric terms and were full data on bank ownership available the top of the pyramid might well be the final page of Table 5, which shows the holdings of the eight above institutions in banks. As noted previously, the response from banks to the query regarding 30 top stockholders was poor; only nine of the 50 queried responded fully. The nine cooperating banks include two which are also among the eight major institutional investors mentioned above. First National City Bank reported that Chase Manhattan's trust depart ment held 2.7 percent and Morgan Guaranty's trust department held 2 percent of First National City Bank's stock. Bankers Trust reported that Chase Manhattan held 2.4 percent, and State Street of Boston 2.1 percent of Bankers Trust's stock.

BANK NOMINEES DOMINATE HOLDINGS

Data from banks which submitted partial responses show that bank nominees dominate the holdings of the 30 top security holders in banks. More than one-fourth of the stock in Wells Fargo was reported held by 21 unidentified bank nominees. The 30 top security holders in J. P. Morgan, holding more than one-fourth of the stock in that bank, included 22 unidentified bank nominees. Fifteen percent of the stock in Chase Manhattan was reported held by 22 unidentified bank nominees. The reported bank holdings, in most instances, were several times greater than the combined holdings of other institutional and individual investors among the top security holders.

A wealth of current (1971 or 1972) data not heretofore available publicly follows in Mr. Allen's report. His well-grounded general observations and conclusions begin on page 129.

regarding the number of institutional investors (often very few) which held sole voting rights to substantial percentages of outstanding stock in some 800 companies included in the sample.

However, the IIS report did not indicate the extent of the sole voting authority of single institutional investors in the stock of all the companies, or those within various industrial classifications.

That information would have been an invaluable addition to the report. It would have shown the voting potential of individual institutional investors across the whole range of the economy encompassed by the 800 named companies in the sample. And it would have shown the extent to which a few institutional investors have substantial voting rights-and therefore influence or potential influence among companies competing within an industry group.

ANALYSIS OF UNPUBLISHED DATA

studies could have been based. Last year, William J. The SEC had collected the data upon which these Casey, then Chairman of the SEC, agreed to our request to provide the data. The analysis of that heretofore unpublished data, by Professor Robert M. Soldofsky, a conand Expenditures, is found in Part II of this report and sultant to the Subcommittee on Budgeting, Management, Appendix D, page 345.

The Allen study in Part I, based on 1971 and 1972 data and supplied voluntarily by the companies, deals with stock holdings, not all of them necessarily carrying voting rights. The Soldofsky study in Part II, based on 1969 data, deals with the narrower matter of sole voting rights, excluding partial voting rights sometimes vested in bank trust departments.

Bank Voting Power Increasing

Professor Soldofsky finds the bank trust departments preeminent among the institutional investors, growing rapidly and attaining significant voting power within other institutional investors (insurance companies).

Most importantly, his summary data in Appendix Table 2 show the extent to which-4 years ago various combinations of big bank trust departments had attained significant percentages of sole voting rights within a broad range of companies within the same industrial classifications-airlines, drugs, electrical equipment, insurance, machinery, food, chemicals, aerospace, building conglomerates and finance itself. Professor Soldofsky emphasizes this point after citing sources of data on holdings of other institutional investors:

The only financial institutions not providing complete information routinely about the common stocks that they hold are the trust departments of the commercial banks.

PART III

BANK VOTING RIGHTS IN BROADCAST COMPANIES

Professor Soldofsky found the data on broadcast companies provided by the IIS report too inadequate to analyze. However, current (1972) data on voting rights companies, was supplied to us by the Federal Communi(sole and partial) of named banks, in named broadcast cations Commission. The data supplied by Chairman Dean Burch, with accompanying analysis by the Congressional Research Service of the Library of Congress, appear in Part III.