Lapas attēli
PDF
ePub

Part I

Leading Stockholders of Major American Corporations in 1972 Based on Responses to an Inquiry of Senator Lee Metcalf to 324 Corporations

REPORT FOR THE SUBCOMMITTEE ON INTERGOVERNMENTAL RELATIONS AND THE SUBCOMMITTEE ON BUDGETING, MANAGEMENT, AND EXPENDITURES OF THE SENATE COMMITTEE ON GOVERNMENT OPERATIONS

BY

JULIUS W. ALLEN

SENIOR SPECIALIST IN BUSINESS ECONOMICS
ASSISTED BY EUGÉNIE DIERINGER
ECONOMICS DIVISION

CONGRESSIONAL RESEARCH SERVICE
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

Chapter I

INTRODUCTION

The principal focus of this report is an analysis and evaluation of replies received in response to a request directed to 324 of the largest corporations in America for a list of their 30 top stockholders and the amounts of such holdings. That such stockholders would concentrate heavily among trust departments of leading banks of the country and other institutional investors was both anticipated and confirmed.

The report begins by placing the inquiry in perspective, both of the interest of the Senate Committee on Government Operations in the subject, and of its place in the field of financial concentration. Following the tabulations and evaluation of responses received, which are arranged in six industry sections, is a chapter of general observations on (1) the variations in information disclosed by firms in the different industries, (2) the question of confidentiality raised by many of the respondents, (3) the significance of bank holdings and some of the data gaps that remain, and (4) the position of Cede and Company, the nominee of the New York Stock Exchange. A brief concluding chapter is followed by an addendum on the role of the bank nominee.

CONCERNS OF COMMITTEE

The Senate Committee on Government Operations has long been concerned with the quality of Federal reports and the coordination of Federal reporting services. It has recognized the inadequacy of information obtained in various areas critical to national policy decision making, including in particular certain basic financial and other economic data from leading corporations in this country. At the same time it is anxious to avoid duplication of reporting requirements and imposition of heavy reporting burdens on business enterprises, especially small busi

nesses.

A few examples may be cited. In the 91st and 92nd Congresses, the Subcommittee on Intergovernmental Relations held extensive hearings on bills (S. 3067, 91st Congress, and S. 1637, S. 1964, and S. 2064, 92d Congress) to provide for consumer, labor, and small business representation on the advisory committees of the Office of Management and Budget, and for other reforms of advisory committees. These hearings and subsequent action by the committee and subcommittee were instrumental in the passage of Public Law 92-463, the Federal Advisory Committee Act, approved October 6, 1972.

(15)

CORPORATE OWNERSHIP REPORTING ACT

A recent bill referred to the committee which reflects this interest is the Corporate Ownership Reporting Act, introduced as S. 3923, 92nd Congress, by Senator Metcalf on August 16, 1972. The chief provision of this act would require any corporation doing business in the United States and having a gross income of over $10 million to furnish the Librarian of Congress a report containing the name and address of each owner, as defined below, of that corporation, together with the number and percentage of any class of the voting securities of the corporation which such owner is authorized to vote. The term owner is defined to mean any person who directly or indirectly or acting through one or more persons has power to vote 1 percent or more of any class of voting securities of a corporation.

The information which this bill is intended to elicit would provide a better understanding of the ownership and potential controlling power which exist in dominant segments of the economy.

GROWTH OF INSTITUTIONAL INVESTMENTS

Such information assumes added importance with the growth of large institutional investments, including particularly stock investments by insurance companies, employee pension funds, and by other trusts and estates administered by bank trust departments. For example, the Institutional Investor Study Report of the Securities and Exchange Commission, issued in 1971, points out that institutions as a group (excluding endowments, foundations, investment counselling accounts, and various minor types of institutionally managed portfolios for which data are not available prior to 1952) increased their share of total stock outstanding from less than 7 percent in 1900 to about 19 percent in 1952. A more comprehensive definition of financial institutions places estimates of institutional holdings at about 24 percent of outstanding corporate stock in 1952, a figure that increased to 26 percent by 1958 where, with some fluctuations, it remained through the following decade.' However it should be noted that these investments have been concentrated heavily in the shares of the larger, publicly traded cor

1 U.S. Securities and Exchange Commission. Institutional Investor Study Report. Summary Volume (92nd Congress, 1st Session, House Doc. No. 92-64, Part 8), p. ix.

2

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."

[blocks in formation]

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.

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

[blocks in formation]

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

fronted by Martin E. Lybecker, writing in the April Finally, another aspect of the same problem is con1973 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 policies.

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.

Lybecker, Martin E. Regulation of bank trust department investment activities. Yale Law Journal, v. 82, April 1973: p. 997. Ibid., pp. 999-1000.

Chapter II

SCOPE OF INQUIRY

In order to obtain a better perspective on the nature of concentration of stockholdings of the largest companies in the United States among bank trust departments, insurance companies, other financial institutions, and other holders, Senator Metcalf in May of 1972, addressed the following letter to the chief executive officer of 324 of the Nation's largest corporations:

Dear

U.S. SENATE,

Washington, D.C., May, 1972.

I shall appreciate receiving a list of the 30 top stockholders in your company, and the amount of common stock each holds. In addition, I would like to know the total number of voting shares of common stock.

If your records do not conveniently identify the actual owner of the stock, the street name will suffice.

Enclosed, for background regarding this request, are

[blocks in formation]

Directory of Companies in its May 1971 issue as follows: These corporations were taken from the Fortune (1) the 100 largest industrial companies, ranked by sales in 1970; (2) the 50 largest commercial banking companies, ranked by assets in 1970; (3) the 50 largest retailing companies, ranked by sales in 1970; (4) the 50 largest transportation companies, ranked by operating revenues in 1970; (5) the 50 largest utilities ranked by assets in 1970; and (6) the 24 largest stock life insurance companies, ranked by assets in 1970. Of the 50 largest life insurance companies listed by Fortune the other 26 are mutual companies that are owned by their policy holders and do not issue stock. The following table gives an indication of the relative size of the corporations in these six groups.

Table 1.-SIZE RANGE OF CORPORATIONS FROM WHICH STOCKHOLDER DATA WERE

[merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][ocr errors][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small][merged small]
« iepriekšējāTurpināt »