Mr. Hoover went on to say: I am opposed to the establishment of any new commissions or the creation of any new offices except in a case of vital necessity. However, after having for several years given this subject very earnest consideration, I have reached the definite conclusion that the interests of the public and of the various citizens engaged in the radio industry cannot be adequately and efficiently protected without the establishment of a quasi-judicial tribunal to deal with certain phases of the problem. This Reorganization Plan No. 2 would result in practice in the deterioration of the Commission-type operation, as it would, in all likelihood, result in a one-man agency. Thus, Presidential or executive control would become a reality, and a strengthening of the executive at the expense of the legislative branch. This was neither intended at the time of the establishment of the Federal Communications Commission, nor is it required today. Furthermore, the unlimited right of assignment by the Chairman violates well-established principles of equality of treatment and rotation. For example, under section 11 of the Administrative Procedure Act, examiners must be assigned "in rotation so far as practicable." It is well known that courts adhere to a strict rotation system to assure fairness. Why should not this same fairness and rotation be demanded of administrative agencies? Section 2 of the reorganization plan gives the Chairman too much power in these matters and should not be approved. As to the abolition of the review staff, I have less opposition. In my opinion, this may be a worthwhile proposal as the review staff has functioned to acquaint the Commissioner with the facts and arguments in the cases. This function could be handled equally well by the Commissioners' personal staffs. There is the possibility this change may actually prove beneficial in that the Commissioners will be responsible for writing their own opinions, thus assuring greater responsibility. If the proposed reorganization plan should be disapproved, it must be either approved or disapproved in total. The arguments set forth • above in answer to the proposals (1) to delegate powers and (2) to transfer functions to the Chairman are equally applicable to the CAB reorganization plan. This plan should also be disapproved. The regulatory agencies serve a very important function in our sysgovernment. I believe they can operate efficiently and economically without destroying their independence or creating one-man agency organization. The difference in these agencies are too great to be remedied by a single nostrum-rather, each agency's situation should be examined carefully in order to determine the appropriate remedy to be prescribed. The CHAIRMAN. Thank you very much. We appreciate your views, Senator, and they will certainly be given full consideration by this committee. The Chair regretfully announces that objections have been interposed to the committee proceeding with further hearings while the Senate is in session. Unhappily, therefore, we have to suspend and may not be able to resume today, although the Chair is going to tentatively set 2 o'clock this afternoon in the hope that we can proceed, that the present objector to the committee holding hearings while the Senate is in session will withdraw those objections and let us proceed. These are privileged proceedings because there is a time limit and there is privilege to call up these resolutions at any time, I believe, after they have been before this committee for 10 days, as I recall. Senator CASE of South Dakota. Mr. Chairman, I think that is correct, and I have hesitated to say anything about that, but I think in view of the lapse of time, I think one would have to assert his rights if the hearings will be unduly delayed. Mr. CHAIRMAN. I understand that, but I do think in fairness to the Senate itself we ought to be permitted to make this record. Senator CASE of South Dakota. I thoroughly agree. The CHAIRMAN. I believe I am completely impartial in the matter. I have certain concepts of what is fair and right in procedures and where certain rights of participants and people involved ought to be protected, and I have no preconceived judgment about these particular plans. I want to study them and I would like to have the benefit of testimony and I think all of the Senators would. If we are prevented from proceeding here, we are going to come to the deadline some day when you or others have the right or the privilege of bringing them to a vote, irrespective of whether we have held adequate hearings to inform the Senate on all of the issues that may be involved. I regret the interruption very much, but the Senate has certain rules and I am going to observe them. If somebody wants to take the responsibility for blocking this, they are Senators, too, and they have to be accountable for their own action. I think there is some misunderstanding. I hope we can clear it up when we get over there. We will try to and, if so, we will resume at 2 o'clock. The witnesses may keep in touch with the chief clerk of the committee and he will be able to advise you as soon as the Chair has determined the matter. Thank you very much, all of you, for your presence. We will stand in recess until 2 o'clock. If perchance we do not resume this afternoon, the committee will resume in the morning at 10 o'clock. (Whereupon, at 11:30 a.m., the committee was recessed, to reconvene at 2 p.m. the same day.) CHAIRMAN. The next witness is Mr. Cary, and you have Mr. Cohen, Mr. Loomis, and Mr. North with you. Are all of you gentlemen together? Mr. CARY. Yes, sir. The CHAIRMAN. Come up and have a seat. Gentlemen, beginning with Mr. Cary, each of you identify yourself for the record, please. STATEMENTS OF WILLIAM L. CARY, CHAIRMAN; MANUEL COHEN, Mr. CARY. Mr. Chairman, I am William L. Cary, State of New Shall I introduce them? The CHAIRMAN. Just let each one of them do it. -1 Mr. NORTH. I am Walter North, General Counsel of the Securities and Exchange Commission. The CHAIRMAN. Very good. Mr. LOOMIS. I am Philip Loomis, Director, Division of Trading and Exchanges, Securities and Exchange Commission. Mr. COHEN. I am Manuel F. Cohen, Director, Division of Corporation Finance of the Securities and Exchange Commission. Mr. FLEISCHER. I am Arthur Fleischer, Jr., Chairman Cary's legal assistant. The CHAIRMAN. I don't believe you were on our list. The CHAIRMAN. Thank you very much. Senator Javits has a question or two. He has to go back to the floor. Mr. CARY. Yes, sir. Senator JAVITS. Professor Cary, just so that the record here may be complete, do you and your associates, if they would all give me their attention, adopt as testimony before the Government Operations Committee, where you now appear, the testimony given at the hearing on June 2, 1961, before the Securities Subcommittee of the Committee on Banking and Currency of the Senate, as printed for the use of our committee? Mr. CARY. We do, sir. Mr. COHEN. We do, sir. Mr. LOOMIS. We do, sir. Mr. NORTH. We do, sir. Senator JAVITs. And that applies to all of your staff? Senator JAVITS. Thank you very much. The CHAIRMAN. That testimony, if it has not already been made a part, may be made an exhibit to this record and adopted, and it may be that it will be printed. If not it will be a part of the record as an exhibit. All right, Mr. Cary, you may proceed. Mr. CARY. Mr. Chairman, I have prepared a rather elaborate statement which I would like to offer as part of the record of this hearing. I might say it is a repetition of the statement which was made at the hearing before the subcommittee of the Committee on Banking and Currency. The CHAIRMAN. Is it an identical statement? Mr. CARY. It is identical in every respect except for the first paragraph, the facing page. The CHAIRMAN. We will have it printed in the record so we will have a complete record too. Mr. CARY. Fine. I just wanted to make that clear. STATEMENT OF WILLIAM L. CARY, CHAIRMAN, SECURITIES AND EXCHANGE COMMISSION Mr. Chairman and members of the Senate Committee on Government Operations, I am William L. Cary of the State of New York, and I appear before you as Chairman of the Securities and Exchange Commission for the purpose of discussing Reorganization Plan No. 1 of 1961 which pertains to that agency. With me today are the heads of some of our major divisions and offices including Manuel F. Cohen, Philip A. Loomis, Jr., and Walter P. North. I hope that it 70910 0-61--4 will be agreeable with you if I call upon them occasionally to supplement my remarks. A few words of caution are imperative right at the start. In the light of the time available to consider the implications and possible uses which should be made of Reorganization Plan No. 1 (if you permit it to become effective), I would hope that you regard my suggestions as tentative rather than final. I. The reorganization plan which we are to discuss today contemplates that the Commission, not the Chairman, may delegate to Commission personnel certain functions which are presently vested in the Commission itself. I endorse the principle of the reorganization plan which the President has proposed for our agency. Subject to the basic standards which the Congress established in the Administrative Procedure Act, the plan would give our Commission broad authority to delegate to one or more of its members or to others within the agency certain of the functions which are currently performed only by the Commission itself. Action taken pursuant to any such delegation would be subject to a certiorari-like discretionary review by the full Commission, either upon the request of two or more Commissioners, of a party involved, or of an intervenor under appropriate rules to be fashioned by the Commission. The plan also authorizes the Chairman to name the Commission personnel to perform the various functions delegated by the Commission. II. As to the resolution which has been submitted "That the Senate does not favor the Reorganization Plan No. 1, "I would suppose that such opposition stems basically from the belief that functions assigned by law to a regulatory body such as ours should be performed by all of its members, who are the persons chosen by the President and confirmed by the Senate to perform them. Action by the Commission, it can be argued, should neither be performed by less than a majority of the Commissioners nor be passed down to personnel below the level of Commissioner. If I have correctly sensed the basis of the proposed opposition, I should answer as follows: First, I believe that men of the stature required to perform the functions entrusted to this Commission will necessarily be men who can be trusted to determine which of their functions they may properly delegate to others and which should be decided only at full Commission level. Delegation of matters which are minor in scope, but time consuming in execution, will allow the Commission to concentrate its attention on the major problems facing this agency. Second, under the reorganization plan the Commission will at all times retain the right to review any action delegated under the plan. The plan does not call for permanent irrevocable delegation of any Commission function. Upon the motion of any two Commissioners we may-indeed we must-consider the question at issue ourselves. If experience shows us that delegation in any particular area is ill conceived, we can at once abolish it and resume the practice of acting only at the Commission level. Indeed, I envision that we may well do considerable "cutting and trying" before we learn in what areas and to what extent we can best utilize the authority to delegate pursuant to this plan. I assure you that we have no hard and fast notions on this subject. If the plan becomes law we shall make every effort to use it as a vehicle to expedite the work of our agency only in those areas in which it is found to be appropriate. Should we encounter instances in which it is not working properly, we shall, of course, revoke or modify the delegation accordingly. Third, I should also like to point out that the protections established by Congress in the Administrative Procedure Act for parties appearing before administrative agencies are unaffected by Reorganization Plan No. 1. Any delegation under the reorganization plan is expressly made subject to section 7 of the Administrative Procedure Act. This requires that the Commission, a commissioner or a hearing examiner shall preside at the taking of evidence in those cases where a Commission statute requires adjudication or rulemaking to be "determined on the record after opportunity for an agency hearing." I assume, moreover, that the limitations of section 8 of the Administrative Procedure Act, which apply to cases where a hearing is required to be conducted in accordance with section 7, are also applicable under the plan. Therefore, should the reorganization plan become effective, only the Commission, a Commissioner or a hearing examiner could preside over and issue the decision in a proceeding involving, for example, the revocation of registration of a broker-dealer. Finally, since there is nothing in Reorganization Planǹ No. 1 which expressly repeals or modifies any part of the Administrative Procedure Act, it would seem that the safeguards which Congress has placed in this act would survive the effectiveness of Reorganization Plan No. 1 and continue to be applicable to parties who appear before the Securities and Exchange Commission.* III. In addition to the opposition to Reorganization Plan No. 1 apparently based upon the general inadvisability of delegation, specific criticisms have been raised concerning possible adverse effects which might result from the operation of the plan. I should like at this point to attempt to answer some of these criticisms. It has been suggested that the plan will operate to deprive a party of the right to present its case to the full Commission. That, of course, is the purpose of the plan-to allow the Commission to delegate certain of its duties. However, as I have stated, the plan contemplates that the Commission will always have a discretionary right of review and must review upon the vote of two Commissioners. It seems extremely unlikely to me that the two necessary votes will not be obtained with respect to any matter of importance. It has also been contended that Reorganization Plan No. 1 may deprive a court of appeals of the advice of the full Commission in the event that a delegated action is appealed directly to a court without having first gone before the Commission. This situation could possibly arise if the Commission delegated to a hearing examiner the right to make an initial decision on a particular matter and subsequently declined to review this matter. Should the Commission delegate the right to make an initial decision to a hearing examiner-which it has never done, although authorized to do so by the Administrative Procedure Act-I think it very improbable that the Commission would ever decline to hear the appeal of any party in a contested adversary proceeding. Moreover, even assuming that a case goes directly to the court of appeals without the benefit of a full Commission hearing, the Commission, as a party to the review proceeding, will be able to assist the court through its counsel. Along the same lines as the last criticism, it has been suggested that, since under the plan a staff decision could become final without review, the possibility exists for conflicting decisions to be passed on by the courts without the Commission having had an opportunity to reconcile the conflict. I would say here, as I did in response to the previous criticism, that the likelihood of occurrence of such a situation is very slight. The Commission would certainly review a decision if it conflicted with either its own interpretation of the law or that of another staff member. IV. I believe that it would be premature, and unwarranted, to give at this time a full list of the specific matters which the Commission will and will not delegate under the reorganization plan. As has been indicated, further study is needed before any firm conclusions can be reached. Furthermore, review of the actual operation of the plan, if effective, will undoubtedly result in the reassumption of certain delegated functions and the delegation of others. However, at this time, the Commission has tentatively concluded that there are certain areas in which it should not delegate its authority, even though permissible under Reorganization Plan No. 1 or under its existing power to delegate, and others in which delegation would appear to be helpful and appropriate. IV-A. On the basis of our study to date, I would place at least the following items in the category of nondelegable responsibilities: 1. The general rulemaking powers of the Commission under the acts which it administers. Under these statutes the Commission has the power to promulgate rules of general applicability which serve to implement or interpret the acts it administers. As these rules involve basic policy considerations and are applicable in a general manner, it would not be advisable, and the Commission does not intend, to delegate its rulemaking power relative to policy matters. (Later I shall discuss a few instances in which the formulation of rules with respect to operating details might well be delegated.) As It should be noted in this connection that none of the Commission's broad rulemaking powers, though “rulemaking" under section 4 of the Administrative Procedure Act, is subject to the exception in Reorganization Plan No. 1 concerning the applicability of section 7 of the Administrative Procedure Act. previously stated, section 7 generally provides that only the Commission, a Commissioner, or a hearing examiner may act on a particular matter. As provided by section 4, section 7 is operative only with respect to rulemaking where the Commission statute requires that rules be made "on the record after *See Administrative Procedure Act, sec. 12. |