EXXON CORPORATION

Morgan Guaranty held 1.6 percent of Exxon stock at the end of 1972. (Fortune, July 1973). Emilio Collado, executive vice president of Exxon, is also a director of Morgan Guaranty Trust Company.

FORD MOTOR COMPANY

Morgan Guaranty held 1.7 percent of Ford Motor Company common stock in two nominee accounts. (Response to Metcalf). Carter L. Burgess is a director both of the Morgan Guaranty Trust Company and of the Ford Motor Company.

GENERAL ELECTRIC COMPANY

Morgan Guaranty held 2.7 percent of General Electric stock, mostly as nominee for the account of the Trustee of the General Electric Savings and Security Trust. (Response to Metcalf). J. Paul Austin, Chairman and Chief Executive Officer of Coca Cola Company, is a director both of the Morgan Guaranty Trust Company and of the General Electric Company. Thomas S. Gates, director and formerly chairman of the executive committee of the Morgan Guaranty Trust Company, is also a director of the General Electric Company.

GENERAL MOTORS CORPORATION

Morgan Guaranty held 1.5 percent of General Motors stock at the end of 1972. (Fortune, July 1973). Howard Joseph Morgens, Chairman and Chief Executive Officer of Procter and Gamble Corporation, is a director of Morgan Guaranty Trust Company and a member of the Finance Committee and director of the General Motors Corporation. Thomas L. Perkins, counsel with Perkins, Daniels and McCormack, is a director and member of the Executive Committee of Morgan Guaranty Trust Company and a member of the Finance Committee and director of the General Motors Corporation.

INTERNATIONAL BUSINESS MACHINES CORPORATION

Morgan Guaranty held 4.5 percent of IBM stock at the end of 1972. (Fortune, July 1973). Frank T. Cary, Chairman and President of International Business Machines Corporation, is also a director of the Morgan Guaranty Trust Company.

MERCK AND COMPANY

Morgan Guaranty held 4.1 percent of Merck's stock at the end of 1972. (Fortune, July 1973). Walter H. Page, president of the Morgan Guaranty Trust Company, is also a director of Merck and Company.

SOUTHERN RAILWAY COMPANY

Morgan Guaranty held 3.5 percent of Southern Railway stock in three nominee accounts. (Response to Metcalf). W. Graham Clayton, Jr., President and Chief Executive Officer of the Southern Railway Company, is also a director of the Morgan Guaranty Trust Company. Ralph F. Leach, Chairman of the Executive Committee of the Morgan Guaranty Trust Company, is also a director of the Southern Railway Company.

UNION CARBIDE CORPORATION

Morgan Guaranty held 0.9 percent of Union Carbide stock. (Response to Metcalf). R. Manning Brown, chairman of the New York Life Insurance Company, is a director both of the Morgan Guaranty Trust Company and of the Union Carbide Corporation.

UNITED AIRCRAFT CORPORATION

Morgan Guaranty held 7.0 percent of United Aircraft stock in four nominee accounts. (Response to Metcalf). Olcott D. Smith, director and former chairman and president of the Aetna Life and Casualty Company, is a director both of the Morgan Guaranty Trust Company and of the United Aircraft Corporation

THE LIBRARY OF CONGRESS, CONGRESSIONAL RESEARCH SERVICE, Washington, D.C., September 20, 1973. To: Budget Subcommittee, Attention: Vic Reinemer. From: Julius Allen, Economics Division. Subject: Directorate linkages involving the Burlington Northern and various banks.

Louis W. Menk, Chairman and Chief Executive Officer of Burlington Northern, is a director of the First National Bank of Chicago and of the First Bank System of Minneapolis.

Robert W. Downing, President of Burlington Northern, is a director of Northwestern National Bank and the Northwest Bancorporation, both of Minneapolis.

John M. Budd, Chairman of the Finance Committee of Burlington Northern, is a director of First National Bank of St. Paul.

Frank H. Coyne, Vice President (Finance) of Burlington Northern, is a director of First Trust Company of St. Paul.

Philip H. Nason, President of the First National Bank of St. Paul is a director of the First Bank System, Minneapolis, the Federal Reserve Bank of Minneapolis, Allied Banks International and of Burlington Northern. Robert B. Wilson, President of U.S. Bancorporation of Portland, is a director of U.S. National Bank of Oregon and of Burlington Northern.

Donald Dayton is a director of Northwest Bancorporation and of Burlington Northern.

Cris Dobbins, Chairman of Ideal Basic Industries, is a director of United Banks of Colorado, United Bank of Denver, and of Burlington Northern.

John H. Laeri is a director and former vice chairman of First National City Bank, New York, and director of Burlington Northern.

John M. Meyer, Jr. is director and former chairman of the board of Morgan Guaranty Trust Company and director of Burlington Northern.

(Source: Standard and Poor's Register of Corporations,
Executives, and Directors.)

The involvement of the large commercial banks with American companies is a source of concern to some members of Congress and others who fear an excessive concentration of economic power in the hands of a few banks. How does this involvement work? This is the first of two articles that examine a fairly typical case right on the Island, that of Long Island Lighting

Co.

The Long Island Lighting Co. is so entwined in the nation's financial power structure that a bill in the past Congress to curb banks could have forced four directors to resign from either LILCO or their banks' boards.

Capital is the lifeblood of corporate America, and LILCO, like other elephantine utilities, needs enormous amounts of money to function For every dollar of revenue

that LILCO earns, the corporation must invest about $4 in its generating and gas-electric distribution system. Such a capital structure-which is just the opposite of most manufacturing firms-would tend to make any institution bank-oriented, and LILCO is just that.

A review of LILCO's financial ties shows:

Four of the nation's superbanks (First National City, Chase Manhattan, Morgan Guaranty Trust and Bankers Trust) hold large blocks of LILCO stock in their trust departments and extend substantial lines of credit to the utility. A First National City officer sits on LILCO's board, and until last May, a Bankers Trust director also sat on LILCO's board.

The chairmen of Long Island's largest bank, Franklin National, and largest employer, Grumman Corp., sit on LILCO's board. LILCO's chairman, John J. Tuohy also sits on Franklin National's board.

The involvement of the superbanks with LILCO is a phenomenon that has been noted on a national scale with concern by those, such as Sen. Lee Metcalf (D-Mont.) and Rep. Wright Patman (D-Tex.), who are opposed to such concentrations of economic power.

Patman, longtime chairman of the House Banking Committee, focused on the question in his staff's definitive study of the commercial banks and their trust activities in 1968. Patman said in his introduction to the study: "... the data presented here for the first time show that the American economy of today is in the greatest danger of being dominated by a handful of corporations in a single industry [commercial banks] as it has been since the great money trusts of the early 1900s. . .

"Commercial banks control the investments of billions of dollars of funds and vote large blocks of stock of major corporations in practically every important industry in the economy. These same banking institutions have gained representation on boards of directors of and serve as major sources of credit for many of these same major industrial corporations . . . the question that the Congress and the American people must decide is whether this situation should be allowed to continue and develop further without substantial legislative and administrative checks to this concentration of economic power in the hands of a few." An outgrowth of the Patman study was a bill, H.R. 5700, which died with the past 92nd Congress, designed to prohibit conflicts of interest and to encourage competition in the banking industry. One of the bill's provisions prohibited interlocking directorates among banks and corporations that maintain substantial loan relationships. Had this provision passed into law, four of LILCO's 11 directors could possibly have been forced to resign from either their banking or corporate affiliations.

The four LILCO board members and their banking affiliations are:

Eben W. Pyne, senior vice president of First National City Bank (the nation's second largest commercial bank) which extends a $12,000,000 line of credit to LILCO.

Tuohy and Harold Gleason, board members of Franklin National Bank (Long Island's largest bank and 21st largest in the nation), which extends a $7,500,000 credit line to LILCO. Gleason is chairman of the bank's board.

LILCO President Edward C. Duffy, a director of Long Island Trust Co., which extends a $1,000,000 line of credit to LILCO.

A fifth LILCO director, Grumman Board Chairman E. Clinton Towl, was a director of Bankers Trust until last May when he resigned from the bank to avoid what his firm termed an "awkward" situation when Bankers Trust cut its line of credit to Grumman, because of that firm's financial difficulties over the Navy F-14 contract. Bankers Trust (the nation's eighth largest bank) extends LILCO a $5,000,000 line of credit.

Tuohy said that there was no connection between the lines of credit and interlocking directorates with the banks. "I can think of no situation where any of the banks are going to exert any influence over the Long Island Lighting Co.," Tuohy said.

LILCO Treasurer Fred C. Eggerstedt Jr. said: "All of those lines of credit were there before the people on the board were there." Eggerstedt said the utility is in the position of being a constant borrower from banks on a short-term basis (which is very profitable for the banks) in order to be in a position to float its huge bond issues at the most opportune time for the company. In recent years, Eggerstedt said, LILCO has been trying to trim these short-term borrowings, because of the requirement by the banks-in recent tight money markets-that the borrower leave 20 percent of every million loaned on interest-free deposit.

Metcalf's executive assistant, Vic Reinemer, views the interest-free deposits, which the banks can use to lend out at high interest rates, as one of the rewards the banks derive from their relationships with utilities and other businesses.

Reinemer and Metcalf are the leading advocates of unveiling those who control the votes in the nation's corporations with particular emphasis on utilities. They frequently point out that while the Federal Power Commission requires utilities such as LILCO to file annual reports showing their 10 top owners, the names listed for the most part are front names for the banks.

For example, the commission's report for 1971 shows Chase Manhattan through two nominees-Kane & Co. and Cudd & Co.-holding 5.1 percent (1,036,415 shares, the largest block held by a single institution) of LILCO common stock in its trust department. The bank, which is prohibited by law from beneficial ownership (a beneficial owner receives dividends) of any of the stock, holds the securities for mutual funds, pension plans, estates and individuals. Metcalf and Reinemer, however, are concerned about "proprietary" ownership, which means the power to vote the stock. The bank refuses to reveal how much of its block of LILCO stock it may vote at its own discretion, and claims the use of front names, or nominees, is a business convenience rather than an attempt to hide control.

As a point of comparison, the 1971 commission report shows that all of LILCO's directors and officers together had proprietary or voting rights to only 276,198 shares, or 1.3 percent of the company's 20,185,039 shares. The report said 88,053 individuals and institutions own stock

in LILCO. While some in the financial field claim that control of five percent of the stock of a widely held-com--pany could mean effective control of a corporation, Patman said that 1 or 2 percent can be enough to “gain tremendous influence over a company's policies and operations."

The 1968 Patman study said the trend of the 1930s for management to control a corporation "may now be giving way to a new trend toward control ... through large blocks of stock in these corporations." Eggerstedt said, "I know that general theme song [possibility of control by the banks]. It isn't so. These banks don't control the vote. If they don't like what's going on, they don't try to change it. They sell. It's as simple as that. They're not in the business of trying to run the company; They're in the business of trying to purchase good investments." Robert G. Olmsted, a LILCO director, said banks "lean over backwards not to get into management." Why? "I think they're very sensitive to the political implications," he said.

Eggerstedt provided the following list of banks with their nominees (or front names) and the percentage of stock held in LILCO as of March, 1972:

Chase Manhattan-Cudd & Co. and Kane & Co., 1,001,991 shares or 4.9 percent, indicating the sale of some stock after the Federal Power Commission report was issued.

First National City-King & Co. and Gerlach & Co., 573,836 or 2.8 percent.

Morgan Guaranty-Carson & Co., Reing & Co., Douglass & Co., and Genoy & Co., 618,715 shares or 3.1 percent.

Wilmington Trust Co.-Dean & Davis, 312,440 or 1.5 percent.

National Shawmut Bank of Boston-Ferro & Co., 174,000, or .9 percent.

Irving Trust Co.-Gilmet & Co., 131,800 or .7 percent. Bank of New York-Varley & Co., 120,000, or .6 percent.

Bankers Trust Co.-Salkeld & Co., 101,967, or .5 percent. First Jersey National Bank-Lages & Co., 100,000 or .5 percent. NEXT: Keeping the money in the family.

Stone & Webster Inc. is expected to be paid $16,670,000-or approximately $2,000,000 more than the lowest bidder for the architect-engineering contract on the Long Island Lighting Co.'s Shoreham nuclear power plant.

LILCO said that Stone & Webster, whose services were costliest of three of the four other engineering companies considered, was selected for the contract on May 31, 1967, because of the firm's "professional qualifications and experience." There also are a number of business-directorfinancial links between LILCO and Stone & Webster, although the utility insists these did not enter into the awarding of the contract.

The thread of these ties can be traced through LILCO Director Eben W. Pyne and is outlined in the Arthur D. Little Inc. study (published in December, 1968) for the Atomic Energy Commission and the Justice Department entitled: "Competition in the Nuclear Power Supply Industry" under a chart entitled "Corporate Relationships Through Director Affiliations."

LILCO board Chairman John J. Tuohy said he was unaware of the various corporate relationships involved and insisted that they had nothing to do with the awarding of the contract to Stone & Webster.

Interlocking directorates are the blueprints on which those concerned about the concentration of economic

power in the U.S. build their arguments that too few men or institutions control too large a segment of the economy. An interlock occurs when an officer or director of one corporation sits on the board of directors of a second corporation.

Opposition to interlocks are almost as old as the concept itself. In 1913, Louis D. Brandeis (later a U.S. Supreme Court justice) wrote in Harper's Weekly: "Obviously, interlocking directorates, and all that term implies, must be effectually prohibited before the freedom of American business can be regained. . . ."

The LILCO-Stone & Webster ties:

Pyne is a senior vice president of the nation's second largest commercial bank-First National City Bank-and is in charge of the bank's Long Island-Staten Island Group. When LILCO was going through a corporate reorganization in the late 1940s and was considered a questionable financial risk, First National City was the only bank that would lend it substantial sums of money. First National City continues to extend an important line of credit to LILCO-$12,000,000; holds 573,836 shares (or 2.8 percent) of LILCO's common stock in its trust department; and performs such financial services for the utility as serving as transfer agent for LILCO's stock, for which it is paid fees of about $100,000 a year.

Pyne, an Old Westbury resident, also serves on the board of directors of the conglomerate W. R. Grace & Co., an international industrial concern with interests in chemicals, consumer products and natural resources, such as oil.

Pyne's wife, Hilda Holloway Pyne, is a great-granddaughter of William R. Grace, founder of the company, and daughter of William Grace Holloway, deceased, who was chairman of W. R. Grace for 10 years, from 1945 to 1955. Mrs. Pyne and her daughters shared in two estates which court records indicate held large interests in W. R. Grace & Co. Pyne himself is listed as holding 17,116 shares in W. R. Grace.

J. Peter Grace of North Hills, chairman of W. R. Grace, has been a director of Stone & Webster since 1945, and is also a director of First National City. Whitney Stone, chairman of Stone & Webster, was a member of W. R. Grace's board of directors from May, 1959 to March, 1964. Pyne was elected to the W. R. Grace board in 1960.

Stone & Webster owns about 1,770,000 shares (or approximately 8 percent) of the Transcontinental Gas Pipe Line Corp., which provides LILCO with most of its natural gas supply, a commodity that is allegedly in short supply. Stone & Webster, which is a diversified company, also provides banking investment services for Transco, such as underwriting its bond issues. William M. Egan, Stone & Webster's financial vice president, said his firm doesn't interfere in the management of Transco. "We maintain a hands-off position," Egan said.

Whitney Stone also is a member of the board of Chase Manhattan Bank, the Nation's third largest commercial bank. Chase Manhattan extends a credit line of $5,000,000 to LILCO and through its trust department is the largest institutional holder of stock in the corporation-1,001,991 shares of LILCO common stock.

Tuohy, chairman of LILCO, was asked in an interview, "Are you aware of any financial or corporate interlocks between LILCO, the banks that service it, or any of its directors and Stone & Webster?" He replied, "None." LILCO's chairman was shown a chart depicting in graphic form the interconnections laid out above between Pyne, the director, First National City bank, W. R. Grace, Stone & Webster. Transcontinental, Chase Manhattan, and LILCO. Tuohy's response was, "You astonish me. All that is of great interest. It really has nothing to do with anything. I'm not aware of these relationships. The rest is, I wouldn't say without interest, but it's without meaning to me, I can assure you, as far as doing business with Stone & Webster."

Tuohy and LILCO President Edward C. Duffy said the contract was awarded to Stone & Webster by LILCO's board of directors on the recommendation of LILCO's management. Duffy said that sealed proposals were obtained from five leading engineering firms which then were

reviewed by the utility's engineering, construction and purchasing departments.

Duffy said that an evaluation of the figures submitted showed that Stone & Webster was the second highest bidder. The lowest bids came from Burns & Roe and United Engineers & Constructors, which were 11 to 12 percent lower than Stone & Webster's figures. . . or a difference of about $2,000,000 based on the value of the present contract.

But, Duffy said, the two lowest bidders were the first eliminated by his staff. This left three companies in the running: Bechtel Corp., probably the most experienced firm in the nuclear power plant construction field at the time; Stone & Webster; and Ebasco Services, which had built most of LILCO's modern fossil-fuel power plants. Duffy said, "We didn't award this on the basis of price. We examined the work they had done... the people they had and how long they had been with them [for stability of organization]."

Bechtel was one percent higher than Stone & Webster, and Ebasco was five percent lower, which is $835,000 on the basis of the present contract. Duffy said that at the time the contract was awarded, Stone & Webster had the edge on experience in nuclear construction in the U.S. over Ebasco. At that point, Stone & Webster had completed several such plants, and Ebasco had four under way in the U.S. and six under way overseas.

Tuohy said that none of his directors either boosted or denigrated any of the engineering firms, but accepted the recommendations of the LILCO management. "We were just trying to get the right outfit to do the job," he said.

While Tuohy's perspective is from the inside, and is that of one who knows the truth of the situation, the LILCOStone & Webster links arouse some skepticism in outside observers.

Irving Like, former attorney for the Lloyd Harbor Study Group, which has opposed LILCO's Shoreham plant, said: "What troubles me is that you have this type of a concentration of financial and industrial power, which is committed to a project long before you have any permit issued. Money being loaned, deals being made outside of the public view. It's a fait accompli," he said. "The whole deal has been made for the building of the plant, the money's been put up, the contracts have been let, the procurement and manufacturing has taken place, all without the authority of a construction permit.

"That means by the time the licensing board sits or hears the application, you already have a substantial financial commitment made to the project," Like I said. "I can't imagine the licensing board is going to reject the permit when the people who have a vested interest in the issuance of that permit are not only the utility, but all the others: the banks that are financing the construction of the project, the architects who have the seed contracts, the fabricators. In the face of that you've got just an