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Leading Stockholders of Major American Corporations in 1972 Based on Responses to an Inquiry of Senator Lee Metcalf to
REPORT FOR THE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS AND THE SUBCOMMITTEE ON BUDGETING, MANAGEMENT, AND EXPENDITURES OF THE
SENATE COMMITTEE ON GOVERNMENT OPERATIONS
JULIUS W. ALLEN
THE LIBRARY OF CONGRESS
JULY 23, 1973
Part I-Leading Stockholders of Major American Corporations in 1972 Based on
Responses to an Inquiry to Senator Lee Metcalf to 324 Corporations
The principal focus of this report is an analysis and
CORPORATE OWNERSHIP REPORTING ACT evaluation of replies received in response to a request directed to 324 of the largest corporations in America A recent bill referred to the committee which reflects this for a list of their 30 top stockholders and the amounts interest is the Corporate Ownership Reporting Act, inof such holdings. That such stockholders would con- troduced as S. 3923, 92nd Congress, by Senator Metcalf centrate heavily among trust departments of leading on August 16, 1972. The chief provision of this act would banks of the country and other institutional investors require any corporation doing business in the United was both anticipated and confirmed.
States and having a gross income of over $10 million to The report begins by placing the inquiry in perspective, furnish the Librarian of Congress a report containing the both of the interest of the Senate Committee on Govern- name and address of each owner, as defined below, of that ment Operations in the subject, and of its place in the corporation, together with the number and percentage of field of financial concentration. Following the tabulations any class of the voting securities of the corporation which and evaluation of responses received, which are arranged such owner is authorized to vote. The term owner is in six industry sections, is a chapter of general observa- defined to mean any person who directly or indirectly or tions on (1) the variations in information disclosed by acting through one or more persons has power to vote 1 firms in the different industries, (2) the question of con- percent or more of any class of voting securities of a fidentiality raised by many of the respondents, (3) the corporation. significance of bank holdings and some of the data gaps The information which this bill is intended to elicit that remain, and (4) the position of Code and Company, would provide a better understanding of the ownership the nominee of the New York Stock Exchange. A brief and potential controlling power which exist in dominant concluding chapter is followed by an addendum on the segments of the economy. role of the bank nominee.
GROWTH OF INSTITUTIONAL
Such information assumes added importance with the The Senate Committee on Government Operations has growth of large institutional investments, including parlong been concerned with the quality of Federal reports ticularly stock investments by insurance companies, and the coordination of Federal reporting services. It has employee pension funds, and by other trusts and estates recognized the inadequacy of information obtained in administered by bank trust departments. For example, various areas critical to national policy decision making, the Institutional Investor Study Report of the Securities including in particular certain basic financial and other and Exchange Commission, issued in 1971, points out economic data from leading corporations in this country. that institutions as a group (excluding endowments, At the same time it is anxious to avoid duplication of re- foundations, investment counselling accounts, and various porting requirements and imposition of heavy reporting minor types of institutionally managed portfolios for burdens on business enterprises, especially small busi- which data are not available prior to 1952) increased their nesses.
share of total stock outstanding from less than 7 percent A few examples may be cited. In the 91st and 92nd in 1900 to about 19 percent in 1952. A more comprehensive Congresses, the Subcommittee on Intergovernmental definition of financial institutions places estimates of Relations held extensive hearings on bills (S. 3067, 91st institutional holdings at about 24 percent of outstanding Congress, and S. 1637, S. 1964, and S. 2064, 92d Congress) corporate stock in 1952, a figure that increased to 26 to provide for consumer, labor, and small business repré- percent by 1958 where, with some fluctuations, it resentation on the advisory committees of the Office of mained through the following decade.' However it should Management and Budget, and for other reforms of be noted that these investments have been concentrated advisory Committees. These hearings and subsequent heavily in the shares of the larger, publicly traded coraction by the committee and subcommittee were instru
1 U.S. Securities and Exchange Commission. Institutional Investor mental in the passage of Public Law 92–463, the Federal
Study Report. Summary Volume (92nd Congress, 1st Session, Advisory Committee Act, approved October 6, 1972. House Doc. No. 92-64, Part 8), p. ix.
porations. Thus, as the same study notes, three successive Census of Share-ownership surveys conducted by the New York Stock Exchange of the ownership of securities listed on that Exchange show that from 1962 to 1965 and 1970, institutional holdings increased from 31.1 percent to 35.5 percent to 39.4 percent, respectively.” In fact, John C. Whitehead, chairman of the Securities Industry Association, is reported to have said this year: "In 1963, institutional investors accounted for 35 percent of the dollar value of New York Stock Exchange trading volume. That percentage today is over 70 percent. In some stocks, 90 percent of volume is institutional.” 3
and individual investors. But market conditions at the moment suggest that control of the situation lies in the hands of the institutions, and that the two-tier market will disappear only if theyand in particular those giants, the bank trust departments--decide to swerve from the investment policies on which they have leaned very heavily in the last few years. The power of the institutions to shape events seems right now more awesome than ever before—and also more subject to attack.
BANK TRUST DEPARTMENTS
EQUITY HOLDINGS OF FINANCIAL INSTITUTIONS
Paul Kolton, president of the American Stock Exchange, estimated this year that total equity holdings of financial institutions amounted to $310 billion divided as follows:
45 Insurance companies...
42 Foundations, investment counsellors and smaller institutions...
53 Some of the potential danger that such concentration portends was well outlined in the recent Business Week article from which the statistics just cited are taken: "Are the Institutions Wrecking Wall Street?” (Business Week, June 2, 1973, pp. 58–66.) This article reaches the following conclusion:
It is a fact that institutions (mutual funds, insurance companies, pension funds, and bank trust departments) trade stocks in such huge quantities that they accentuate price swings in the market-all the more so because institutions increasingly limit their investing to a relative handful of stocks. What has emerged is a highly volatile market in a few issues, a lack-luster market in most issues—and a closed door to many of the companies that want to take their shares public. Beyond all that—and one prime reason the small investor has deserted the market--are allegations that institutions, because of their huge holdings, are privy to inside information of which the small investor is left ignorant.
Finally, another aspect of the same problem is confronted by Martin E. Lybecker, writing in the April 1973 issue of the Yale Law Journal, when he states:
Among the most powerful (and most anonymous) of our nation's financial institutions are bank trust departments. They manage assets substantially exceeding the assets of the largest one hundred corporations in the United States. In fact, bank trust departments have larger securities portfolios than all other institutional investors combined. As a result, certain commercial banks have the power to control major corporations.
Yet the regulation of bank trust departments seems cursory in many respects compared to that applied to other institutional investors. Only superficial data are gathered by bank examiners, whose responsibilities relate primarily to the bank's other departments. Even less information
is made available to the public. Lybecker makes, among others, the following recommendations:
The first step towards public disclosure of bank trust investment activities is to determine which fiduciary relationships held by banks should be subject to the securities transactions reporting provisions. Trust accounts over which the bank does not have investment discretion and all personal trust and estate accounts not managed collectively might be excluded. Quarterly reports should be required for all the remaining trusts, common trust funds, pension funds, and group employee benefit funds. Disclosure should include all significant securities purchases, sales, markets used, and quarterly holdings. In addition, the reporting trusts should disclose quarterly the market value and size of all securities holdings which, after aggregation within each trust group, exceed five percent of the outstanding shares of any corporation. Finally all banks administering trust assets should report annually their 100 largest securities holdings, their portfolio proxy policy, and their investment management poli
cies. The inquiry by Senator Metcalf and this report, based on the responses to his inquiry, thus have a direct bearing on the size of institutional investments and the issues they raise for the American economy and for public policy.
TWO-TIER MARKET Similarly the lead article in the July 1973 issue of Fortune, "How the Terrible Two-Tier Market Came to Wall Street", by Carol J. Loomis, starts out with the summary statement: "The big banks have used their trust and pension-fund dollars to create a situation unique in history. For a good many corporations it spells trouble in raising equity capital.” The two-tier market refers to one market of a select few securities, usually with very high price-earnings ratios, so-called glamour stocks, which institutional investors favor to the virtual exclusion of the other market which consists of less favored stocks which nonetheless have substantial investment merit. As the article states (p. 83):
The two-tier market owes its existence to the actions, and the nonactions, of both institutional
? Ibid., p. ix.
5 Lybecker, Martin E. Regulation of bank trust department investment activities. Yale Law Journal, v. 82, April 1973: p. 997.
• Ibid., pp. 999-1000.
SCOPE OF INQUIRY
In order to obtain a better perspective on the nature of my 25 April remarks in the Senate, “Disclosure and concentration of stockholdings of the largest companies in Control of Industrial Corporation Stock.” the United States among bank trust departments, insur
Very truly yours, ance companies, other financial institutions, and other
(Signed) LEE METCALF. holders, Senator Metcalf in May of 1972, addressed the following letter to the chief executive officer of 324 of the Directory of Companies in its May 1971 issue as follows:
These corporations were taken from the Fortune Nation's largest corporations:
(1) the 100 largest industrial companies, ranked by sales U.S. SENATE,
in 1970; (2) the 50 largest commercial banking companies, Washington, D.C., May 1972.
ranked by assets in 1970; (3) the 50 largest retailing comDear
panies, ranked by sales in 1970; (4) the 50 largest transporI shall appreciate receiving a list of the 30 top stock
tation companies, ranked by operating revenues in 1970; holders in your company, and the amount of common
(5) the 50 largest utilities ranked by assets in 1970; and stock each holds. In addition, I would like to know the
(6) the 24 largest stock life insurance companies, ranked
by assets in 1970. Of the 50 largest life insurance companies total number of voting shares of common stock.
listed by Fortune the other 26 are mutual companies that If your records do not conveniently identify the actual
are owned by their policy holders and do not issue stock. owner of the stock, the street name will suffice.
The following table gives an indication of the relative Enclosed, for background regarding this request, are size of the corporations in these six groups. Table 1.-SIZE RANGE OF CORPORATIONS FROM WHICH STOCKHOLDER DATA WERE
Largest company by sales in 1970.
100th company by sales in 1970... Commercial banking companies:
Largest company by assets in 1970..
50th company by assets in 1970... Retailing companies:
Largest company by sales in 1970..
50th company by sales in 1970..... Transportation companies:
Largest company by operating revenues in 1970...
50th company by operating revenues in 1970... Utilities:
Largest company by assets in 1970.
50th company by assets in 1970..-Stock life insurance compani
Largest company by assets in 1970. 24th company by assets in 1970.-
* Net investment income.
1 Operating revenues.
* Commercial banks and life insurance companies do not have aggregate sales investment data comparable to the other four types of companies included.
1 Retained in committee files.