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U.S. Industrial Council, statement.----

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CORPORATE RIGHTS AND RESPONSIBILITIES

TUESDAY, JUNE 15, 1976

U.S. SENATE,
COMMITTEE ON COMMERCE,

Washington, D.C. The committee met at 10:05 a.m. in room 5110 of the Dirksen Senate Office Building, Hon. John A. Durkin, presiding.

OPENING STATEMENT BY SENATOR DURKIN

Senator DURKIN. Good morning, ladies and gentlemen. We are beginning an inquiry which, in my opinion, is crucial to the well-being of our people and the country. One issue which seems to reoccur and which must be dealt with to preserve a free society is what to do about concentrations of political and economic power. How do we control and hold accountable huge institutions and make them relevant and understandable to ordinary people? To what extent do we profit from these organizations and to what extent is each of us limited or harmed by their actions! These are exceedingly difficult questions to answer, and ones for which I have no easy solutions.

The concentration of economic, political, and environmental power in large corporations has long been an overriding concern to me. In January this year I wrote to the chairman of this committee expressing my concern about the power and influence wielded by giant corporations being used and misused without any apparent check. I would like to have a copy of that letter placed in the hearing record. [The letter follows:]

U.S. SENATE,

Washington, D.O., January 28, 1976. Hon. WARREN G. MAGNUSON, U.S. Senate, Washington, D.C.

DEAR WARREN : The concentration of enormous economic, political, and environmental power in large multinational corporations has long been of overriding concern to me. The recent revelations concerning abuses by these giants have only served to heighten my concern.

The power and influence wielded by these corporate mastodons have been used and misused without any apparent check. Although serious efforts have been made to determine the scope of the power and influence of these mammoth organizations, little useful information has been collected. The impact of the incalculable power and influence, however, can be seen in every sector of our national life and international relations.

It is clear that neither the Federal Government nor the States that charter these corporate giants have adequate tools to deal with the power they wield. Indeed, the tool that has the most promise of bringing these giants into tow, the corporate charter, has developed into a revenue source for which the various States compete by relaxing their chartering requirements.

Staff members assigned to these bearings: Paul Cunningham, David Berger, and Stephen Hallaway.

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The Federal Government has had no more success in regulating these organizations than have the States in chartering them. The relatively few areas that are subject to regulation have been unsuccessful because the regulatory agencies have, in most cases, become captives of the industries they regulate.

Recently, the idea of Federal chartering of these corporate cyclops has received renewed attention. Although my initial instincts do not suggest an expansion of the Federal

role into an area traditionally reserved to the States, something must be done. The concept of Federal chartering as a possible method of bringing the giant multinationals into reign deserves to be examined in depth. Such an examination may lead us to legislation in the corporate chartering area, or it may result in the development of alternative methods of accomplishing the same goal.

I wanted to take this opportunity to inform you of my concerns in this area and to encourage you as chairman of the Commerce Committee to consider call. ing hearings on these matters. Respectfully,

JOHN A. DURKIN. Senator DURKIN. The Chairman has wisely called for hearings now at a time when the public is concerned about the influence and effect that corporate activities have on their lives and communities. The proposal of the Nader corporate accountability research group and the call for Federal legislation present an especially good opportunity for Congress to begin an examination into these questions.

What is true and accurate about corporations is difficult to find out.

There are many arguments for and against leaving big business alone--arguments on all sides that are persuasive, chameleonlike statistics that seem to fit comfortably in any argument and moral and patriotic justifications for any action or inaction. These hearings are an opportunity to get to the heart of these conflicting arguments, to increase our understanding and to propose and enact appropriate legislation, if appropriate.

An example of the difficulty I have with this entire area is that it never made much sense to me to have a State such as Delaware, or any State for that matter, chartering Exxon, General Motors, ITT, or any of the other corporate mastodons. Canada, a country with its own federal system not unlike our own, has a national corporation law.

The Organization for Economic and Cooperation Development has just recently agreed to a general code of conduct for international investment and multinational enterprises. But in our country, the State of Delaware charters the largest corporation in the world, plus about one-half of the 1,000 largest corporations in the United States. Yet, Exxon had sales of over $45 billion in 1974, larger than the gross national products of over a hundred countries including Austria, South Africa, and New Zealand, while Delaware had less than a billion dollars in annual revenues. General Motors employs more people (738,000) than live in the entire State of Delaware (548,000), while the State government of Delaware employs about 13,000 people. The connection with the State of some of the corporations chartered by Delaware is only a small box address and the payment of annual franchise taxes. And yet some of these corporations, ITT for example, have operations in more countries in the world than many nations have embassies and engages in activities in foreign countries, such as in Chile, which have a direct effect on our national foreign policy. Still the State of Delaware retains the authority through its corporate laws to regulate the internal governance of these corporations.

I would like to hear testimony on why we should continue the present arrangement of State chartering of corporations or arguments for alternatives.

Some people view criticism of big business as being tantamount to blasphemy. The corporation is so solidified in our society that it has come to seem a part of the natural order of things. As we begin these hearings, it is important to remember that this was not always the case. We are not interested in polemics or diatribes from any quarter. We want information and discussion that sheds light on the issues before us so that I, as well as every other interested person, can better appreciate the impacts of big corporations on us.

There are now about 2 million corporations in the United States, but back in 1790, when the country was hardly out of the receiving blanket, fewer than 50 corporations had been chartered by the States. These corporations were chartered to perform essentially public activities, to build roads, canals, and bridges. They were also given as an incentive certain monopolistic privileges. People regarded these corporations with a healthy fear, even though they played a minor role in what was then basically an agrarian economy.

It is important to understand this skeptical attitude toward the country's first corporations. People foresaw possible domination and encroachment by corporations on the liberties and opportunities of individuals. They sought to protect themselves by asserting the general principle that corporations had only those powers explicitly granted to them in their charters. The changes that occurred over the past 150 years have buried this initial concern in an avalanche of corporations and changes in State laws to a point where corporations can do anything not explicitly prohibited to them.

Even though State corporate laws generally limited corporate size and ownership of other corporations, lawyers devised a way around these laws. First by establishing the infamous gigantic trusts into which a corporation could place à controlling number of their shares, and the managers of the trust could effectively gain monopolistic control of various economic activities.

The Federal response to these trusts was to pass the Sherman Antitrust Act in 1896 which outlawed any combination or conspiracy that restrained trade. Slowly the trusts were broken up, but not before efforts were launched to get a State law that suited the special appetites of corporate management. New Jersey began to change its chartering laws to enable corporations to do as they pleased. This started a competition among the States with Delaware eventually winning out, becoming the mecca of corporate chartering. What was once a concern of States to control corporate size and activities was replaced with a desire for revenue from chartering and annual franchise fees.

What ever happened to the healthy fear of 200 years ago when there were only a handful of corporations around! Only this past Tuesday in the Washington Post there were more examples of corporate abuses. Firestone, the latest of over 100 corporations to do so, admitted contributing $330,000 in improper payments to U.S. political candidates from foreign sources. These revelations raise some disturbing questions. Who is responsible for these illegal contributions, and what do they buy? How, under State corporate laws, is it determined who to

hold accountable? The directors? The chief executive officer? The employees who made the contributions? And what does $330,000 from foreign sources paid to politicians do to our Government? The same edition carried a story about the Justice Department's case against DuPont for allegedly suppressing price competition among retailers of its Lucite brand paint. I wonder how much more it cost somebody to paint his house because of DuPont's alleged price fixing. Remember that the basis of the fear of uncontrolled and unaccountable corporate power 200 years ago was that corporations would dominate and encroach on the liberties and opportunities of individuals. Have we not now arrived at that point?

Faced with these corporate actions and present State laws, I have a sense of futility of leaving the job of limiting or controlling corporations to the States. With 50 States competing for corporate fees, corporations can shop for the most congenial forum. If Delaware wishes to end its longstanding friendship with corporate management, there are 49 other potential friends of big business. I also feel that with many corporations operating on a national and some on an international level, it is inappropriate for one State, such as Delaware, to have such tremendous influence over national corporations. In effect, a single State sets the standards of corporate laws for the entire country.

The purpose of these hearings is to determine, based on past and present experience, what the rights and responsibilities of the giant national and multinational corporations should be in the 21st century.

Should the law of corporations and the corporate charter address the larger questions of the power and influence of these giants on the environment, the economy, the consumer, and the various levels of government? What are the proper roles of the Federal, State, and local governments in determining these rights and responsibilities?

We have over the last few years begun to appreciate the real costs of some industrial activities of the past. Our air, water, vision, and hearing have all undergone substantial changes. How industrial activities affect our health and environment is especially complex and subtle. Many times we don't find out what the adverse effects of substances are until long after they have been released into the environment. Clearly we cannot rely on a purely profit orientated corporation to portray objectively the full implications of its activities or the products it makes. It strikes me that we are all guinea pigs in a worldwide experiment to determine if what we eat and drink and breathe today will kill us tomorrow. As corporations get bigger, their impact on the environment becomes greater.

I am concerned about the increase and concentration of economic power in fewer and fewer corporations. How is this going to impact on our economy, on competition, on our national plans for energy and other major problems of the future? In the past, the economic power of large corporations has allowed them to influence growth of our communities. In the future with even greater concentrations of economic power, we are more at the mercy of the corporate executives than ever before.

It is important for us to determine to what extent the elected representatives of the people or a small cadre of entrenched corporate managers are establishing the economic and social policies of this country.

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