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Appendix A

REPORTING REQUIREMENTS AND DISSEMINATION OF INFORMATION

ON CORPORATE OWNERSHIP AND STRUCTURE

A Report From the General Accounting Office to Senator Metcalf, March 1973

FEBRUARY 9, 1973. respect to the subject matter referred to in (1), (2), (3) Mr. ElmER B. STAATS,

and (4) above. Comptroller General of the United States,

This requested information has been the subject of General Accounting Office, Washington, D.C.

informal discussions between my staff and your staff DEAR GENERAL Staats: As you may know, I sponsored over the past 2 months. I have, therefore, mode every legislation in the 92nd Congress which would provide for effort to limit the scope of the request to that which the obtaining and public dissemination of information on is reasonable and obtainable within a limited period of the ownership and structure of large corporations, par

time. I ask that the requested information be submitted ticularly those under the jurisdiction of Federal regulatory by 15 March. agencies.

If you have any questions with respect to the subject Such legislation is before the Government Operations matter of my request or as to its time schedule, please Committee this session. It is my desire to start now to get in touch with my executive secretary, Vic Reinemer or prepare certain data on Federal policy and procedures counsel, Win Turner, at 180-2651. which will be useful in the consideration of this legislation. I would appreciate your timely cooperation on this

My request is that your Office provide me with informa- request because of the possibility of early hearings on tion related to the following subject areas with respect to the legislation. There is no need for you to obtain agency each of seven regulatory agencies; Federal Power Com- comments on this matter. mission, Federal Communications Commission, Civil

Very truly yours, Aeronautics Board, Federal Trade Commission, Inter

LEE METCALF. state Commerce Commission, Securities and Exchange Commission and Federal Maritime Commission:

COMPTROLLER GENERAL (1) All laws, rules, regulations or other procedures of

OF THE UNITED STATES, the agency that require information as to the proprietary (voting) ownership of a corporation or firm, including Hon. LEE METCALF,

Washington, D.C., April 10, 1973. whether proprietary or trustee owners must report those

U.S. Senate. who control i percent or more of the stock. (2) All laws, rules, regulations or other procedures of

DEAR SENATOR METCALF: In accordance with your the agency that require information as to subsidiaries of letter of February 9, 1973, the General Accounting Office such corporation, parents of such corporation or any

has identified the reporting requirements imposed on other company or firm having control over the subject regulated companies by Federal regulatory agencies with corporation. For purposes of this request, the definitions respect to stock ownership, control, diversification, debts,

and officers. of "subsidiary”, "parent" and "control” are set forth in the attached bill.

The seven regulatory agencies have broad authority to (3) All laws, rules, regulations or other procedures of obtain whatever information they deem necessary to the agency that require information as to officers or carry out their statutory responsibilities. This information directors of the corporation or firm, its parent or sub- is obtained through formal proceedings on a case-by-case sidiary, who are also officers or directors of other corpora- basis, in periodic reports from regulated companies, and tions or firms.

in numerous applications requiring agency approval. (4) All laws, rules, regulations or other procedures of Taken as a whole, the seven agencies receive a vast the agency that require information as to the long-term number of reports and applications many of which and short-term debt of a corporation or firm.

contain information on the subject area of your request. (5) The extent to which such laws, rules, regulations or

We reviewed the content of these reports and applicaprocedures are being enforced, responded to or are other- tions, as well as applicable legislation, and the agencies' wise effective or ineffective.

rules and regulations, to identify the pertinent informa(6) The extent to which such information is available tion regularly received by the agencies. The information to the public and the cost of duplication to a person

obtained by us was provided to Mr. Vic Reinemer of your requesting such information.

staff on March 26, 1973. (7) A description of those laws, rules, regulations or In your letter you inquired as to whether the laws and procedures which have been recommended by the agency agency regulations were effective and whether they were or any of its members, during the past 10 years, with being enforced. It appears from our examination of a

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limited number of reports that the companies are provid- the 30 largest stockholders. The 24 nominees represented
ing information on the matters on which the agencies 2 insurance companies and 12 banks. However, since the
required data. However, it was not possible to ascertain banks regularly hold stock both for their own account and
whether all pertinent information was accurately reported in trust for others, it cannot be ascertained from the an-
without an examination of the companies' books and nual report who owns and/or votes the stock held in the
records. This was particularly true with respect to sub- nominees' names.
sidiary and parent relationships, officers and directors Assuming that the purpose of the agencies' ownership
and their stock holdings, and long-term and short-term reporting requirements is to identify the organizations and
debts.

persons that control regulated companies through stock With the exception of the Federal Trade Commission, ownership and particularly through the right to vote the each of the regulatory agencies regularly receive informa- stock, it appears that, in addition to the information retion on the ownership of regulated companies. However, ceived from regulated companies, the agencies would have the specific reporting requirements of the agencies vary to obtain information from (1) stockholders holding stock considerably. Some agencies require regulated companies in their own name, (2) those holding stock as trustees or to submit information on a certain number of the largest in some other fiduciary capacity, and (3) trust beneficiaries stockholders, while others require information on all in order to identify who owns and who votes the stock. In stockholders owning more than a given percentage of a this connection, the Civil Aeronautics Board (CAB) has company's stock.

gone further than the other regulatory agencies in reIn evaluating the effectiveness of the agencies' owner- quiring information from these parties. In essence, CAB ship reporting regulations, we initially concerned ourselves requires: with the question of whether the use of nominees by stockholders could impair the data received by the agen

Regulated companies to submit annually the names of cies. Nominees are entities generally created for the sole persons owning more than 5 percent of any class of stock. purpose of representing persons or organizations that (1) Persons owning more than 5 percent of a company's hold stock in trust for others and either vote the stock at

stock to report their holdings annually and to identify who their discretion or as directed by the trust beneficiary, had the power to vote the stock, and the name of the and/or (2) own and vote stock for their own account. Al- trustee if the stock was held in trust. though the stock is held in the name of the nominees, the stock, including the way the stock is voted at stockholders

Trustees owning more than 5 percent of the stock to meetings, is controlled by the person or organization that report annually (1) the identity of each beneficial owner the nominee represents or by the trust beneficiary.

and the stock held for each, (2) the stock held for the We examined a limited number of reports and

applica- the stock held by the trustee.

trustee's own account, and (3) who had the power to vote tions requiring ownership information. It appeared that for large regulated companies the names of nominees are In addition, CAB requires banks and stockbrokers to often shown in lieu of the names of stock owners. The report quarterly (1) the stock held as trustee and the numpresence of nominees in the ownership data was confirmed ber of accounts for which the stock is held, (2) the names of by officials of each of the agencies who told us that the

the nominees holding the stock, and (3) the identity of any companies were not in a position to know who the stock person whose account contains 1 percent or more of any owners were. The officials stated that the companies could class of a regulated company's stock and the person who only report the names of the stockholders of record, which had the power to vote the shares. include nominees.

We trust that the foregoing information and the data Using the nominee list published by the American previously provided to your staff is satisfactory to your Society of Corporate Secretaries we were able to identify needs. As you requested, we did not submit the information the person or organization the nominees represented. For developed by us to the regulatory agencies for comment. example, the 1972 annual report submitted to the Inter- Sincerely yours, state Commerce Commission by one of the country's

ELMER B. Staats, largest railroads included 24 nominees among the list of

Comptroller General of the United States.

REPORTING REQUIREMENTS OF SEVEN FEDERAL REGULATORY COMMISSIONS WITH
RESPECT TO STOCK OWNERSHIP, CONTROL, DIVERSIFICATION, DEBT AND OFFICERS
CIVIL AERONAUTICS BOARD

Section 407(a) states that CAB is empowered to require

annual, monthly, periodical and special reports from any The Civil Aeronautics Board (CAB) regulates the air carrier; to prescribe the manner and form in which economic aspects of air carriers' domestic and inter- Such reports shall be made; and to require from any air national operations with the objective of developing an carrier specific answers to all questions upon which CAB adequate air transportation system for the United States. may deem information to be necessary. In addition, CAB

The basic legislative authority for all reporting require- may require any air carrier to file with it a copy of each ments imposed on air carriers by CAB is contained in or any contract, agreement, understanding, or arrangesections 204(a) and 407(a) of the Federal Aviation Act ment, between such air carrier and any other carrier or of 1958 (49 U.S.C. 1324(a)_and 49 U.S.C. 1377(a)). person. These sections of the Act are augumented by other Section 204(a) states that CAB is empowered to perform specific reporting requirements. such acts, to conduct such investigations, to issue and amend such orders , and to make and amend such general in the same sequence as the information requested in

The information received by CAB is discussed below or special rules, regulations and procedure, pursuant to and consistent with the provisions of the Act, as it shall

Senator Metcalf's letter of February 9, 1973 except for deem necessary to carry out the provisions of, and to

the evaluation of the enforcement and effectiveness of exercise and perform its powers and duties under the Act. the rules and regulations which will be covered in the

Comptroller General's formal response to Senator The name and address of each person holding shares Metcalf."

as nominee for the bank or broker and the number and

class of shares held by the nominee; 1. Information on Proprietary (Voting) Oronership

Information as to any account for which the bank

or broker, as trustee, holds shares amounting to 1 REPORTS SUBMITTED BY CARRIERS

percent or more of any class of the capital stock of Section 407(b) of the Federal Aviation Act of 1958 (49

the air carrier. U.S.C. 1377(b)) states that air carriers must report the

In addition to the annual reports mentioned above, names of stockholders holding more than 5 percent of ownership information is required from certain classes of the capital stock or capital, and the name of the person carriers in their applications for operating authority as for whose account such stock is held, if other than the

follows: holder. Pursuant to this authority, CAB requires that certificated air carriers, air freight forwarders and coopera- no foreign air carrier can engage in air transportation

(1) Section 402 of the Act (49 U.S.C. 1372) states that tive shippers associations file reports on proprietary involving the United States unless there is in force a permit ownership as follows:

issued by CAB authorizing such operation. The section (1) CAB regulations (14 CFR 241, Sections 26 and 36) require certificated air carriers to submit annual reports for the permit. In this connection CAB regulations (14

also contains certain procedures regarding the application that include

schedules that show (a) those persons holding CFR 211.5(a)) require that applications for permits by more than 5 percent of the capital stock or capital and the foreign air carriers contain the percentage of direct and percentage held, and (b) those persons holding more than

indirect beneficial and nonbeneficial interest in the carrier 5 percent of any options to purchase securities from the held by each government and aggregate of nationals of air carrier. (2) CAB regulations (14 CFR 244, Subpart B) require carrier's citizenship. Further, if the applicant is owned or

each government, other than the government of the air freight forwarders to submit annual reports that include controlled by the government, the application must show schedules that show (a) persons holding more than 5

the extent of such governmental ownership or control. percent of the capital stock or capital of the carrier and

No specific form has been prescribed for use by foreign the percentage held, and (b) persons holding more than

air carriers applying for permits. 5 percent of any options to purchase securities from the

(2) Pursuant to section 416 of the Act (49 U.S.C. 1386), carrier.

CAB regulations (14 CFR 296.2 and 297.2) established a (3) CAB regulations require cooperative shippers associations to submit an annual report (CAB Form 244A) include air freight forwarders, international air freight

classification of indirect air carriers. Indirect air carriers that shows the names of persons holding more than 5 forwarders and cooperative shippers' associations. Applipercent of the outstanding capital stock or other interest cations of persons desiring to operate as an air freight related to control of the association.

forwarder are made on CAB Form 351 which requires

information on holders of more than 5 percent of the outREPORTS SUBMITTED BY STOCKHOLDERS

standing stock. CAB regulations (14 CFR 245) require persons owning either beneficially or as a trustée, more than 5 percent 2. Information on Subsidiaries, Parents or Any Other of any class of the capital stock or capital of an air carrier Company or Firm Having Control Over Subject to report such holdings to CAB annually. No specific Corporation format for the reports have been prescribed by CAB.

Section 407(b) of the Federal Aviation Act of 1958 (49 However, the regulations require that the reports disclose

U.S.C. 1377(b)) states that each air carrier must submit the number and class of shares owned and information

an annual report describing the shares of stock or other as to the persons who possess or exercise the right to vote,

interest in persons other than itself held by such air carrier, sell, prevent sale, or otherwise dispose of the reported

or for its account. stock. If the person reporting is the beneficial owner, he must provide information on each person who was

Pursuant to this authority, CAB regulations require trustee of any of his shares during the preceding year.

certificated air carriers and air freight forwarders to file If the person reporting is a trustee, he must provide reports on subsidiary, parent and other control as follows: information on each individual beneficial owner of any

(1) CAB regulations (14 CFR 241, Sections 23 and 33) shares. In addition, if the person reporting is itself a

require certificated air carriers to submit with their annual corporation, information is required" on each person reports a schedule showing the carriers' investments in holding more than 5 percent of the beneficial or record subsidiary companies, investments in other associated ownership of any class of the capital stock of the reporting companies and investments in other than associated comcorporation.

panies. Also, if the reporting air carrier is not the holder of CAB regulations (14 CFR 245.14) imposes special re

record, it must provide the name and address of persons porting requirements on banks and stockbrokers. A bank in whose name the interest is held. or broker that holds as trustee more than 5 percent of any (2) CAB regulations (14 CFR 241, Section 23) require class of the capital stock or capital of an air carrier must certain certificated carriers to submit quarterly a schedfile a quarterly report with CAB. The contents of the ule showing the balances in various asset and liability report must include:

accounts with subsidiaries, associated companies and nonThe number of accounts for which the bank or

transport divisions. The asset accounts are notes and broker holds the stock;

accounts receivable, advances, investments and undistrib

uted earnings. The liability accounts are notes and ac1 See p. 197.

counts payable and advances.

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(3) CAB regulations (14 CFR 244, Subpart B) require or in which the applicant is an owner or stockholder. In air freight forwarders to submit with its annual report a addition, the application requests an organizational chart schedule showing the forwarder's investments in other of inter-company ownership and interlocking relationcompanies. Information must be submitted on each secu- ships, annotated to show percentages of stock holdings, tity owned by the air carrier, and, if the reporting freight officers, directors, members, partners and owners in each forwarder is not the holder of record, it must provide the company. name and address of the persons in whose name the inter- (4) Sections 403 and 404 of the Act (49 U.S.C. 1373 est is held.

and 1374) provide authority for CAB regulations (14 Under the authority of section 407 of the Act (49 U.S.C. CFR 223.7) which require that before issuing any pass 1377), CAB regulations (14 CFR 246) require that every for free or reduced-rate transportation to directors, officers, affiliate of an air carrier submit an annual report showing employees, or members of their immediate families, of the following:

any of its affiliates, each carrier shall file with CAB a list The names and addresses of each of its stockholders

containing all of such carrier's affiliates and showing the

exact relationship of each such affiliate to such carrier or members holding more than 5 percent of the entire capital stock or capital of such affiliate, together with format is prescribed by CÁB regulations for filing this

with respect to control and principal business. No specific the name and address of any person for whose ac

information. count such stock is held, if other than the holder;

A description of the shares of stock or other inter- 3. Information on Officers and Directors ests held by the affiliate, or for its account, in any common carrier, air carrier, foreign air carrier, or any

Section 407(c) of the Federal Aviation Act of 1958 (49 person engaged in any phase of aeronautics;

U.S.C. 1377(c)) states that each officer and director of an

air carrier shall annually, and at such other times as CAB A description of the shares of stock or other inter- shall require, report the shares of stock or other interests ests held by the affiliate or for its account in any per- held by him in any air carrier. In accordance with this son whose principal business, in purpose or in fact, is authority, CAB regulations (14 CFR 245, Subpart A) the holding of stock in, or control of, common carriers, require each officer and each director of each air carrier to air carriers, foreign air carriers, or persons engaged in submit to the CAB annually a description of the shares of any phase of aeronautics.

stock or other interests held by him in any carrier; any The regulation defines an affiliate of an air carrier as a

person engaged in any phase of aeronautics; any common person who has direct or indirect control over such air car

carrier; or any person whose principal business is the holdrier. A person is deemed to control the carrier if he owns, ing of stock in, or control of, air carriers, other persons directly or indirectly, 10 percent or more of the outstand

engaged in any phase of aeronautics, or common carriers. ing issued capital stock of an air carrier. CAB has not

Air taxi operators, study group charterers and inclusive prescribed any specific form for use in filing the annual

tour operators are exempt from this requirement. report.

In addition to the reports submitted by the officers and In addition to the reports required above, CAB re

directors, the air carriers are required to report informaquires certain applications and reports to be filed in order

tion on officers and directors pursuant to section 407(a) of to perform its other statutory responsibilities. These authority, CAB regulations (14 CFR 241, Sections 26 and

the Act (49 U.S.C. 1377 (a)). In accordance with this responsibilities and applications are described as follows: (1) Pursuant to section 408 of the Act (49 U.S.C. 1378)

36) require certificated air carriers to submit an annual certain acts related to consolidation, merger and acquisi- report showing the officers, directors, or management tion of control are unlawful unless approved by CAB.

personnel receiving $20,000 or more per annum including Applications for CAB approval under this section, togeth

their name, address and securities owned. er with any relevant information, are filed in an individ

In addition, CAB regulations (14 CFR 244, Subpart B) ual docket. The processing of the application is handled require air freight forwarders and international air freight pursuant to CAB regulations (14 CFR 302). Also, public forwarders to submit an annual report showing the report

) hearings may be held in connection with the application.

ing carrier's officers and directors including their names, Neither the law nor CAB regulations spell out exactly

titles, salaries and securities held in the air carriers. what information is required to be filed with the applica- certain interlocking relationships are unlawful unless

Section 409 of the Act (49 U.S.C. 1379) states that tion, but we were informed that it may contain information of the applicant's affiliation with other air carriers.

approved by CAB. Applications for CAB approval under (2) Section 401 of the Act (49 U.S.C. 1371) states that

this section are handled in a manner similar to applica

tions for approval of consolidation and mergers. The every air carrier is required to have a certificate issued by CAB authorizing such air carrier to engage in air trans

application and any relevant information are filed in an

individual docket. Neither the law nor CAB's regulations portation. Pursuant to CAB regulations (14 CFR 201.4), an application for a certificate must contain the name and

spell out exactly what information is required to be filed type of business of any affiliate, subsidiary, or principal

with the application. However, the subject of the applistockholder of the applicant engaged in any form of trans

cation undoubtedly results in the docket disclosing inforportation as a common carrier or engaged in any phase of

mation on the applicant's officers and directors. aeronautical activity. This application does not require 4. Information as to Long-Term and Short-Term Debt the information in any specific form.

(3) CAB regulations (14 CFR 296.42 and 297.32), Pursuant to authority contained in section 407(a) of the issued pursuant to section 416 of the Act (49 U.S.C. Act (49 U.S.C. 1377(a)), CAB regulations (14 CFR 241, 1386), require air freight forwarders to obtain operating Sections 23 and 33) require certificated air carriers to

, authority from CAB. The application is made on CAB submit an annual report on long-term and short-term Form 351 which requires information on all companies non-trade debt. The report contains information on each which hold an ownership or stock interest in the applicant issue of long-term debt and short-term debt (other than

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