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We are advised by the FCC that the information submitted to it by the broadcast companies listed nominees rather than the banks which hold the stock, and that translation of the nominees to the actual banks required the better part of 2 weeks' time by a veteran commission official, using the Nominee List.

BANK BROADCAST COMPANY HOLDINGS

The list of holdings by banks in broadcast companies, as supplied by the FCC, is put in perspective by the Congressional Research Service, which has identified parent companies, stations owned by broadcast companies, those companies' total shares of stock, and the percentage of stock within the portfolios of principal banks, individually and collectively.

Broadcast companies, as the Library of Congress analysis shows, are often subsidiaries of companies that are not primarily engaged in broadcasting-Avco, Dun and Bradstreet, General Electric, Westinghouse, ScheringPlough Corporation, Kansas City Southern Industries, Kaiser Industries, Fuqua Industries, Pacific Southwest Airlines, Rust Craft Greeting Cards, Inc.

Voting Rights of New York Banks

The data in Part III show the substantial voting rights of a few New York banks in networks and major broadcast companies. This FCC data shows that, for example:

Chase Manhattan Bank has sole or partial voting rights to more than 14 percent of the stock in the Columbia Broadcasting System, as well as 4.5 percent of the stock in RCA Corporation, parent of the National Broadcasting Company;

Bankers Trust has voting rights to more than 10 percent of the stock in American Broadcasting Company, and 9.8 percent of the stock in Metromedia;

Bank of New York has voting rights to 12.7 percent of the stock in Pacific and Southern Broadcasting Company, which includes four TV and eight radio stations;

First National City Bank has voting rights to 7.1 percent of the stock in Capital Cities Broadcasting Corporation, which includes six TV and 11 radio

stations;

Manufacturers Hanover Trust and U.S. Trust Company have voting rights amounting to from 3.4 percent to 11.1 percent of the stock in 14 broadcasting groups;

Eleven banks have voting rights to 38.1 percent of the common stock in CBS. Eight banks have voting rights to 34.1 percent of the common stock in ABC. Chase Manhattan and Bankers Trust together have voting rights to 19.8 percent of the stock in CBS, and 17.4 percent of the stock of ABC. A third New York bank, Bank of New York, has voting rights to 7.2 percent of the stock in ABC and 3.3 percent of the stock in CBS.

Part I of this report shows that these same banks have significant holdings-not all of them necessarily including voting rights-in a broad spectrum of the economy, including energy, transportation, manufacturing and retailing. Part II of this report shows that a few unnamed banks had sole voting rights within those same major

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The FCC has several restrictions on ownership of broadcast companies. One is the duopoly rule, which prohibits ownership of two AM, FM, or TV stations which serve the same area. Another rule permits an investor-institutional or individual-to own up to 21 stations-seven AM, seven FM, and seven TV, provided that no more than five of the latter are VHF stations. Beyond those liberal provisions, no individual or bank was permitted until last year to own more than 1 percent of the stock of other broadcast companies with 50 or more stockholders. (Mutual funds have been permitted to own up to 3 percent since 1968.)

In 1972 the Commission raised the ownership limitations for banks from 1 percent to 5 percent. It raised the limit because so many banks were in violation of the Commission's 1 percent regulation that, to comply with it, 19 banks would have had to divest themselves of $976 million in stock in 25 companies."

Inadequate Ownership Reports

The FCC did not know that the banks were in gross violation of regulations until the banks told the Commission about it. The data submitted by the banks were based on a survey conducted among the 19 largest banks in April 1969. It took 3 years to get that material to and considered by the Commission. Then the Commission gave the banks 3 years more to get in compliance with the more lenient rules, which may be relaxed further before then. The Commission has before it now requests from insurance companies to raise their allowable holdings from 1 percent to 5 percent, and requests from the mutual funds to raise their allowable holdings from 3 percent to 10 percent.

The problem at the FCC is inadequate and misleading corporate disclosure to a Federal agency. As Commissioner Nicholas Johnson stated in his dissent in a related case later last year:

The problem is that the Commission's ownership reports, for a variety of reasons, are not providing the relevant information on institutional holdings of broadcast stock. The Commission is often reduced to asking transferee applicants to ascertain from the institutional holders of their stock whether the institution is in violation of Commission rules, as a condition to Commission approval of the application in question. This inquiry is not always made **

*

Somewhere in the foggy past there was an effort underway to revise the Commission's ownership reporting form. Perhaps that effort needs to be revived.10

Because of their pertinence to this study the two FCC orders referred to above, including dissents, are included in Appendix E, pages 377.

FCC 72-391, 75954, Docket No. 18751, RM-1460, Report and Order Adopted May 9, 1972.

10 FCC 72-525, 79407, File No. BTC-6682, adopted June 14, 1972.

PART IV

ELECTRIC UTILITY REPORTS TO THE FPC

Part IV of this report is a staff analysis of ownership reports filed in 1971 with the Federal Power Commission by the 209 electric utilities which comprise the nation's largest industry.

The FPC directs the companies to list, rank, and provide addresses for the 10 security holders with the highest voting powers.

Forty percent of the electric utilities identified utility holding companies, a few parent utility companies or industrial firms as their principal owners. (Sometimes members of the board of directors or a few others held nominal shares.) The parent companies' reports to the Securities and Exchange Commission, as noted previously, do not provide much information on proprietary (voting) rights.

Five of the small utilities were owned by up to 21 persons. Alpena Power Company (Michigan), owned principally by one family, went beyond the FPC's requirements, and listed the voting rights of all 21 named, individual stockholders.

The information submitted by other electric utilities varied widely. San Diego Gas and Electric, with 30,925 stockholders, named the New York banks and other institutional investors with major blocks of voting rights, without using their nominee names. The UGI Corporation (Pennsylvania) provided details on its stock option plan, along with ownership data.

Nominees Hide Owners

Numerous utilities reported some stock in the name of an institutional investor and other stock, held by the same institution, in nominee name. Several utilities listed only nominees, with as many as three of those 10 nominees representing the same bank.

Thus, the "top 10" security holders were actually only the top seven or eight. Additional stock may be held by these top seven or eight security holders in accounts not reported as part of the "top 10." The report to the ICC and SEC discussed on p. 5 showed that the holdings of Bankers Trust-apparently the foremost stockholder in the Burlington Northern-were listed as Stockholder Number 6 (Hemfar & Co.), Stockholder Number 7 (Pitt & Co.), Stockholder Number 12 (Lehcor & Co.), Stockholder Number 13 (Salkeld & Co.), Stockholder Number 24 (Pendiv & Co.) and Stockholder Number 26 (Barnett & Co.). Use of multiple nominees by the same investor could result in a preeminent position within a company by an investor whose nominees are not even listed among the "top 10."

Bankers Use Nominees Most

Banks used nominees more frequently than other institutional investors. The banks with dominant holdings in the industries previously discussed were also preeminent in electric utilities.

Chase Manhattan appeared among the top 10 security holders of 42 utilities, using four different nominee names. Morgan Guaranty Trust appeared among the top 10 security holders of 41 utilities, using 13 nominees. Manufacturers Hanover Trust appeared among the top 10 security holders of 31 utilities, using five nominees. First National City Bank appeared among the top 10 security holders of 29 utilities, using eight nominees. State Street

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THE MULTIPLE LEVERS OF CONTROL

Inadequate Disclosure a Recurring Theme

Control of a small block of stock in a widely held company by a single or few like-minded financial institutions provides them with disproportionately large powers within the company. The House Banking and Currency Subcommittee on Domestic Finance, in its 1968 study, Commercial Banks and Their Trust Activities: Emerging Influence on the American Economy, considered a 5 percent or larger holding of one class of stock significant in judging the potential influence of a bank trust department's stockholding in a particular corporation. The subcommittee emphasized that "even 1 or 2 percent of stock in a publicly held corporation can gain tremendous influence over a company's policies and operations."

CONTROL PRESUMED

Congress has established various ownership percentages, usually 10 percent, as the benchmark at which control by an institution or individual holding can be presumed. It is noteworthy that in 1970 sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 were amended to reduce from 10 percent to 5 percent the levels of ownership at which a person seeking shares of a company would be required to report his holdings. This appears to reflect the feeling that at these levels such a person could acquire substantial leverage in the company. S. 2460, recently recommended by the ICC (see Proposed Legislation, p. 233), would require reporting of 1 percent or more holdings of any class of stock in a railroad having operating revenues exceeding $5 million annually. S. 2506, the Oil and Gas Regulatory Reform Act of 1973 now being considered by the Senate Commerce Committee, would require oil pipeline applicants to report "the name and

address of each shareholder with voting rights to one per centum or more of the shares, together with the number and percentage of any class of voting shares of the entity which such shareholder is authorized to vote."

The levers of control available to principal stockholders derive from several sources. One of these sources, regarding which detailed information is presented here, is the purchase, sale, holding, and voting of stock. As prelude to our discussion of the other levers of control we note that, as in the case of stockholdings, a recurring theme is inadequate disclosure by institutional investors, especially banks, to the Government, to stockholders, and even to portfolio companies.

Information Not Included in “IIS” Report

The SEC's Institutional Investor Study report concluded that some institutions, particularly banks, have personnel and business relationships with portfolio companies which may tend to reinforce any power conferred as a result of stock holdings, create potential conflicts of interest and lead to misuse of inside information. The IIS report found a strong statistical correlation between bank stockholdings and personnel and business relationships. However, the SEC did not collect and publish information regarding the personnel and business relationships of identified institutional investors. Nor did it publish details regarding the personnel and business relationships of unidentified, individual institutional investors.

Inadequate Information on Corporate Interlocks

Comprehensive and current information regarding such relationships between individual bank trust departments and their portfolio companies is difficult to assemble either from agency files or standard references. Some major banks were not responsive to a recent request by the Congressional Research Service of the Library of Congress for a report on their corporate interlocks with other corporations, funds, and universities.

Chase Manhattan did not respond to repeated requests, written and oral, from the Congressional Research Service. Morgan Guaranty Trust supplied information regarding interlocks with publicly owned domestic corporations and domestic foundations and universities. However, Morgan did not report interlocks with closely held companies, foreign corporations or subsidiaries and other affiliates of domestic corporations. Furthermore, Morgan supplied CRS only with interlocking positions, without providing the names of the directors or officers who held them.

Interlocks extend well beyond the election of an institutional representative to the portfolio company's board of directors, or a portfolio company's official on the board of the financial institution. Interlocks provide major banks with levers throughout the industries in which they hold major blocks of stock. These interlocks also extend into the Federal agencies which regulate portfolio companies, as was documented in the hearings by the Subcommittee on Intergovernmental Relations which preceded enactment of P.L. 92-463, the Federal Advisory Committee Act.

INTERLOCK DATA

Despite the inadequate response by the two abovementioned banks, the Congressional Research Service has developed current, if partial, interlock data on both banks. These data appear in Appendix F (p. 385). It shows that Morgan Guaranty has directors on the boards of four major energy corporations, Atlantic Richfield, the

Burlington Northern, Continental Oil, and Exxon, along with its significant stockholdings in each. Morgan Guaranty also has directors on the boards of both Ford and General Motors, as well as significant stockholdings in both of the auto manufacturing companies. A Case History

Among the reports of electric utilities to the Federal Power Commission which are analyzed in Part IV is that of Long Island Lighting Company (LILCO) which listed Church Street Post office station in New York as the address of five of its 10 top security holders. The listed address of two of the accounts was Post Office Box 1508Kane & Co. and Cudd & Co., both nominees for Chase Manhattan. Three of the accounts-Carson & Co., Reing & Co., and Genoy & Co.-were listed at Box 491 at the same post office perhaps an arm's length away. All three are nominees for Morgan Guaranty Trust, which was not mentioned in the ownership report.'

11

Kenneth Crowe, a Newsday reporter who shared a Pulitzer prize, closely examined LILCO's ties with banks and other institutions in a two-part series this year, which also appears in Appendix F. He found substantial interlocks and credit arrangements between LILCO and four of the New York superbanks which hold large blocks of its stock. He found a company (Stone and Webster) with long and close financial relationships with LILCO receiving a large contract from the company even though other qualified firms bid less. And he was told by the board chairman of LILCO that he, the board chairman, was not previously aware of any of these relationships and interlocks, and was astonished to receive the information.

CONCLUSIONS AND RECOMMENDATIONS Neither companies nor ordinary stockholders have information which they need, to protect their own interests, regarding stock ownership and the personnel and business relationships between portfolio companies and institutional investors, principally banks. The Federal Government does not have sufficient information in these areas upon which to base reasoned public policy. Much of the information collected by Federal agencies regarding stock ownership, displayed in public files and shared with State agencies and the public, is meaningless or misleading despite the clear policy stated in the Federal Reports Act of 1942 that information collected by Federal agencies should be tabulated so as to "maximize the usefulness of the information to other Federal agencies and the public."

The information needed regarding the several levers of corporate control is held by a few institutional investors, principally six superbanks headquartered in New York. These institutional investors have the capacity to report their holdings quickly and fully.12 Similar reports on personnel and business relationships with portfolio companies would be even easier to make.

"LILCO's 1973 report to the FPC still reports Kane & Co. and Cudd & Co. in Box 1508. The three Morgan nominees used in the earlier report are not mentioned. However, Box 2010 at the Church Street Station is reported as the address of Douglass & Co. It is a nominee for Morgan, which is not mentioned in the ownership report, although Chase Manhattan and First National City Bank and Manufacturers Hanover Trust are named along with their nominees.

12 "We will know sometime today what our position was in various companies yesterday "-Edward T. Ryan, vice president, Chase Manhattan, FCC Administrative Conference with the American Bankers Association, Sept. 1, 1970, Docket 18751.

"Sure, we'll disclose as often as you like every week, if necessary."-Roger Kennedy, vice president, Ford Foundation, Business Week, June 2, 1973.

EFFECT OF CONCENTRATION

Congress and some Federal commissions have on occasion established limits on institutional levers of corporate control, principally regarding stockholders. But neither the Congress, nor the commissions, nor the executive branch can fully evaluate the total effect of concentration-the impact of the several levers of corporate control exercised by banks and other major investors throughout industry groups and the economy as a whole. Meanwhile, the portfolio companies in which a few banks have substantial influence make many decisions affecting public policy. Oil companies deal with foreign nations regarding oil supply and cost. Pipeline companies deal with the Soviet Union for natural gas. Utilities exercise the right of eminent domain. Milling companies and the Soviet Union arrange grain sales which sharply affect domestic price, supply, transportation, and storage. These are momentous public issues in which Federal officials play a minor role, much of it after basic decisions have been agreed upon by American companies and foreign governments.

ALTERNATIVES FOR READJUSTING CORPORATE POWER

There are various alternatives for readjustment of corporate decisionmaking power. They include limitations on stockholdings, antitrust actions and Federal chartering of corporations providing disclosure and performance requirements within the charter.

Another alternative is modification of the "one share, one vote" rule in corporate voting. This rule has no basis in common law. Weighted voting, which reduces the voting power of large stockholders, was used in early American corporations and is still used in some foreign, capitalistic countries today. Appendix G includes a discussion and bibliography on modification of "one share, one vote" by Julius Allen of the Congressional Research Service of the Library of Congress and the Cornell Law Review article on the subject by Professor David L. Ratner, a consultant to the Subcommittee on Budgeting, Management, and Expenditures. They note Alexander Hamilton's prophetic warning to the Congress in his report on the National Bank:

A vote for each share renders a combination between a few principal stockholders, to monopolize the power and benefits of the bank, too easy. James Madison espoused Federal chartering of corporations and Hamilton urged weighted voting in corporations. Consideration of these far-sighted proposals by two of the Founding Fathers would be most appropriate as the Nation's bicentennial approaches.

DISCLOSURE IS THE PREREQUISITE

Whatever solutions the Federal Government chooses to the mounting problems resulting from economic concentration, the prerequisite is the regular collection and disclosure of information from institutional investors on stock holdings and the personnel and business relationships between institutional investors and portfolio companies.

Equally important, the information must be centrally available to the Federal Government and the public, at one location, most appropriately the Library of Congress. Such information, insofar as it is now reported, is scattered among three Federal banking agencies, 50 State insurance commissions, the SEC (for investment compa

nies), various other Federal and State regulatory commissions, and the files of hundreds of universities, foundations, and funds.

PROPRIETARY OWNERS SHOULD BE IDENTIFIED

Proprietary owners of 1 percent or more of the stock in publicly held companies should be identified. Reports on their voting rights and their corporate personnel and financial relationships should be filed, on a quarterly basis, with the Library of Congress. This information should be published, for regulatory review and stockholder information. Straightforward and regular reporting of these matters will vastly simplify the job of regulatory commissions, and provide Congress with basic information which it always needs and never has. It will also afford ample time and minimum inconvenience to those stockholders who wish to discuss issues and candidates for corporate elections-prior to proxy solicitation-with representatives of the large institutional investors who usually cast the deciding votes. Stockholders Face Obstacles

Stockholders at present face formidable obstacles. Considerable expense and effort is required, months prior to annual meetings, for stockholders to comply with SEC rules, to receive consideration of modest, additional agenda items or even one candidate for the board of directors, then to locate and present their case to the few institutional investors who by proxy and often casually will decide the outcome of the election. Because of these cumbersome procedures the typical corporate election today features a "Russian ballot"-bearing a single slate of nominees for the board of directors. Some company ballots do not even provide for casting a "No" vote.

If Congress, like Salome, decides to lift the seven veils, which in this instance shroud the ownership of stock, care must be taken that the lists of principal proprietary owners do not get lost in "Cede & Co.", the nominee for the new subsidiary of the New York Stock Exchange, Depository Trust Company, which has replaced the Central Certificate Service division of Stock Clearing Corporation. The urgent need to reduce the paperwork burden of the securities industry must not be permitted to render meaningless the effort to provide timely access to the voter lists which are fundamental to affecting change within corporate and political systems.

OVERSIGHT NEEDED

Much can be done toward reaching the objectives suggested above without new legislation. The regulatory commissions suffer from lack of oversight by Congress, the Office of Management and Budget and the General Accounting Office.

OMB has been directed by Congress in various statutes to plan and promote the improvement, development, and coordination of Federal management information systems, to help agency heads develop consistent accounting classifications and, with the Comptroller General and the Secretary of the Treasury, conduct a continuous program for the improvement of accounting and financial reporting in the Federal Government. The 93d Congress, in approving S. 1081, the Alaska pipeline bill, provided GAO with additional responsibilities for review of questionnaires sent to firms by the independent regulatory commissions, whose data collection has for years been impeded by the OMB, its predecessor Bureau of the Budget, and industry advisory committees.

The Civil Aeronautics Board has recently shown how a regulatory commission, without new legislation, can get behind inaccurate and misleading ownership reports to the Federal Government and require quarterly reports from

LEE METCALF,

Chairman, Subcommittee on Budgeting,

Management, and Expenditures.

institutional investors. The collection of relevant information by other agencies can begin prior to enactment of new legislation. We intend to encourage such efforts.

EDMUND S. MUSKIE,

Chairman, Subcommittee on Intergovernmental Relations.

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