the corporation that have specific accountabilities. It also permits an abolition of the most rigid, totalitarian system that comes under the guise of democratic elections, namely, the corporation's electoral

process.

The corporate electoral process is an imperfect carbon copy of the way the Kremlin conducts its own elections. In fact, the Kremlin might have learned from the corporations how to develop its processes. As long as the advocates of present corporate power want to argue retaining the status quo, they have to answer two major legitimacies that they are under, among others, if they say the shareholders are the final arbiters, then they have to ask why the shareholders don't have the rights to stay in and arbitrate right through to the replacement of the executives and board of directors without being stifled by a clearly rigid system where the rulers of the corporation can perpetuate themselves, using the corporation's money in a proxy system that is an absurdity.

They also have to explain the other legitimacy of the corporation; and that is risk-taking. The giant corporation now is moving into a process of eliminating risk. Hundreds of hearings in the congressional arena in the last 20 years have as their major theme the elimination of corporate risk.

Traditionally, corporations were developed to give shareholders limited liability. Now, the corporations themselves want limited liability. They want it in the form of Government guarantees, in the form of protection from competition, in the form of limitations on products liability lawsuits. They want it in a whole host of forms which boil down to one precept: The giant corporation in America is striving relentlessly for a state of affairs whereby it can capitalize its profits and socialize its losses.

The Federal charter concept gives initiatory rights and remedies to shareholders, taxpayers relating to subsidy matters, consumers in terms of more information, more competitions, more class actions, to the community to defend itself from the systematic, no matter how inadvertent poisoning of its atmosphere and environment, by companies such as Allied Chemical and its "crocodile bird" company; Life Sciences in the kepone tragedy; or Gary, Indiana, where United States Steel somehow thinks it owns the air and the water; or in Minnesota where Reserve Mining, a joint venture of Armco Steel and Republic Steel, has contaminated Lake Superior with microscopic asbestos fibers, as well as the drinking water and air in the area; and such examples flood this country.

The poisoned children, lead contamination in their bodies near El Paso, from the lead smelter; and so on, and so on, ad nauseum.

The concept of accountability to the constituencies that are abused directly is a concept square in the tradition of our legal evolution. To be sure, it uses the courts. To be sure, there are some agencies such as the SEC that have to lay down some functions and standards; to be sure there's nothing wrong with a government that is responsive to the people.

The extent of coercive impacts or nonconsensual relationships is the ethic out of which this proposal arises. Coercive impacts which harm people, which makes economies inefficient, which retard innovation.

I would like to say a word about innovation.

Traditionally, corporations have been associated with innovation. What they don't like to publicize is the innovation they have suppressed, whether it is safety systems in automobiles, cable TV in communications, satellite communications vis-a-vis A.T. & T., or solar energy which amounts to a technological abundance that threatens the relative technological scarcity characterized by capital investments in fossil fuels.

We must recognize this chartering proposal as a liberation of smallscale innovators who want to become more expansive and a liberation of small-scale business which is now under the heel of these giant corporate powers.

It is important, I think, to recognize that these giant corporations are not similarly viewed qualitatively in their impact. They have to be viewed quantitatively as well.

Exxon grossed $45 billion last year. In the Western Hemisphere in terms of gross revenues, that places Exxon in the following ranking: The U.S. Government first; Brazil, second; Canada, third; and Exxon, fourth. Texaco is coming up fast. You are dealing here with corporations that have achieved such market and such political power that they have been characterized as private governments. Private governments must be subjected to the rule of law.

Let me conclude on this note, Mr. Chairman, in the public health area, health specialists are beginning to be concerned about cancer as an environmentally caused disease. Almost every study that has been made on this subject comes down on the estimate that cancer-about 80 to 90 percent of cancer is environmentally caused. That means pollution, carcinogenic drugs, food additives, cigarettes, and the like; all of which are developed, promoted, or carelessly handled by corporations, including the relentless promotion to make millions of Americans addicted to cigarettes. Even the addiction area, in substantial part, can be laid at the door of these companies. So that the phrase "corporate carcinogens" is beginning to come into play. Corporations, with their pollution, worker hazards and additives, are a cause of cancer. It almost sounds like something new. It almost sounds like the two words have never been juxtaposed. But there's nothing new empirically about those two words, because workers have been exposed to corporate-produced cancer for decades. What is new is that our perception of corporate impacts has not been fully reflective of the empirical reality because the facts are not getting out until recently; and when they do get out, they are not communicated in the intensive way that Morris the cat communicates its message to millions of Americans on television.

The perceptual development of corporate impacts is difficult to communicate only in a country where the communication systems are not amiable to the serious consequences of these impacts.

Indeed, in many ways we have to view corporate institutions as the most concerted, unified, and powerful source of influence in the country. Much of what Government does is derivative of what corporations ask Government to do or push Government to do. We know that. Labor unions themselves are often derivative of corporate power; and when have you ever heard of dissenting tendencies within giant corporations

or industries spilling into the public arena. Do you ever hear the press reporting that Exxon, as a hypothetical illustration, is being driven by three experimental schools of thought: One saying we should transform this company into a solar company; another saying we want more of the same from Washington; a third saying why don't we try to pursue more conservation?

You never hear of those kinds of conflicts either because they don't exist or if they did, they would not be communicated. These are monolithic sources of power. As monolithic sources of power, they gain their impact not just from their economic wealth or their political influence; they gain their influence also because they are basically authoritarian systems masquerading under stockholder democracy.

I think this is something that has to be weighed with great concern, because the early alerts to problems in our country have come from individuals free from the travails and the contractions of institutional control.

If you look back at the great episodes of progress in our freedom and liberty and justice in our country, you will see that they proceed from individuals who felt free to stand against institutions, from the people who stood against King George to the people who are trying to stand against the oil companies.

Any type of economic institution that does not permit the constitutional bill of rights to operate inside these giant institutions is an institution that is going to stifle individual conscience, individual dissent, and individual challenge; and workers today, from the finest chemists, engineers, lawyers, and accountants to the assemblyline workers concerned about their product are not protected by our freedom of speech or its bills of rights. The chemist that tells a chemical company that it has falsified data that it has submitted to the EPA is the chemist that can be shown the door at 5 p.m. that day and ostracized all the rest of his or her professional life without any legal protection, without any due process at all.

That is the kind of authoritarian process that must be changed and to which our Federal chartering of giant companies' proposal is directed; namely, to give these employees the rights of freedom of speech, the rights to due process, and the rights against arbitrary dismissal which can destroy their professional career. An American can stand on a soapbox in Lafayette Park and challenge the President of the United States. The first amendment protects that American.

An individual can stand inside Exxon and charge Exxon with violations of the law and that American can be arbitrarily dismissed and his or her professional career is ruined.

Now, that is not a regulatory proposal. That is the accordance of constitutional rights to corporate employees in these giant institutions which can be pursued by these employees in the courts. When a Government agency suppresses the freedom of speech of an American citizen, the American citizen does not appeal to a regulatory agency. The citizen can go to the courts to get justice. That is the kind of accountability, that is the kind of initiatory rights and remedies that characterize a good many of these proposals in the Federal chartering construct.

The reason why Federal chartering is important is that it brings to the Congress a comprehensive proposal to try to deal with corporate

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abuses rather than a piecemeal amendment by amendment approach that individually is inadequate and in their totality are inadequate. It also tries to focus some of our most fundamental principles, economic and political and juridical in this country on the issue of corporate power. We have too long deferred this public debate; and it is a pleasure to see this committee initiate it with thoroughness and fairness and dedication.

Thank you, Mr. Chairman.

Senator HARTKE. Thank you, Mr. Nader. I think one thing we ought to know-which I am not sure is clearly understood-is how the proxy system really works. Why is the proxy system today in the big corporations so effective in maintaining the control that they have at the present time?

Mr. NADER. Let me ask Joel Seligman to respond. That is an important question. He has studied these proxy contests. He can respond to that question.

Mr. SELIGMAN. Historically, the image which was accurate for awhile whereby directors were chosen in sort of a town meeting where all the shareholders would show up and cast their vote for all the candidates. State corporate law to this day regulates the town meeting, or the shareholders meeting in an effective way.

In your large corporations, corporate democracy takes place through the proxy diminution. Either management or challengers sends out proxy statements asking to be designated the power to vote for these shareholders. The reason that breaks down is simple. Money. Management has the right to use the corporate treasury to finance their proxy solicitations. It has the right to $70,000, $80,000, $90,000 in a routine election. Or when there is a challenge, $1 million, $2 million, $3 million to support their candidates.

By contrast, the outsiders who would challenge the incumbent management must pay out of their own pockets. The only way of being reimbursed is if they win control of the board. This is a rare event. It is for that reason, that since the GM contest in 1967, there hasn't been a single major proxy contest for control of the board of directors of a large corporation in this country.

Senator HARTKE. Could you explain further how that works as far as the pension funds that are paid to purchasers of large blocks of stock? Mr. SELIGMAN. There are two problems you have to keep in mind. One is that nobody but the incumbent management has the effective power to nominate directorial candidates. That is separate from the pension fund problem. The pension fund problem evolves around who votes the shares owned by the pension funds. In many instances a trust department officer in a large bank will cast these shares. In many instances, you see the same thing in other types of institutional holdings. There is one exception to this. This is the stock exchange. On both the New York and American Stock Exchange there are rules which require stockbrokers, when they hold shares for various purchasers, to pass through the right to vote where there's a challenge of any sort. This is the kind of remedy we think most appropriate for large corporations.

In other words, we have pension funds that, rather than allowing a bank officer who is perhaps emotionally inclined to support manage

ment for a lot of reasons, to cast the shares in a monolithic way, pass through the votes to the actual owners, the beneficial owners of the stock.

Senator HARTKE. Isn't it fair to conclude that in reality, the stockholder is not involved in any of the decisionmaking processes any more whatsoever in large corporations?

Mr. SELIGMAN. My theory is the trust department banker, but you have a situation where, through a series of sort of legal shell games, you have a nomination process by incumbent management which assures that no outsider is going to have an effective voice in choosing directors.

Senator HARTKE. The contention that the stockholder is a part of management in the large corporations is really, at this moment, a non sequitur?

Mr. SELIGMAN. I think that is correct.

Senator HARTKE. So regardless of how you come to a solution, whether you follow the corporate-national corporate chartering, or any other method, the question really is the relationship between the corporation and the Government. In other words, that is the question you are deciding here; is that true?

Mr. NADER. Yes. The constitution of the corporation is the charter. The Government provides the charter to the corporation, exchanging considerable privileges it accords the corporation in return for certain standards that have to be observed. After all, a corporation is a legal fiction that has been given constitutional rights as well as limited liability to its investors and other privileges.

Senator HARTKE. I don't think there is any question that in this field that as far as the Federal Government is concerned, that it has the power-I think that should be clearly understood from the very beginning that there is no question that it has the power here to enact some statute which requires disclosure and also the additional remedies for the parties which are effected by the corporation.

Therefore, the question really comes down to whether or not what you are proposing here, Mr. Nader, is really not something other than just a big umbrella to bring underneath one government what at the moment is out there under 50 or more separate governments?

Mr. NADER. It is more than that. That is the jurisdictional approach. It is more than that. It really amounts to a new constitutional convention for corporations. It is not just a jurisdictional assemblage into a national jurisdiction from 50 State jurisdictions. It is also a redefinition and an elaboration of rights and remedies on the part of the groups who are affected by corporate power.

It is important to note that the States will still have a role. Under a Federal charter concept, the States still retain a very significant role if they choose to exercise it in policing the corporations in their jurisdictions.

Senator HARTKE. But you have to admit that in most cases-I shouldn't say in most cases-in a lot of cases now the role of the States is very limited in relation to the corporate structure.

Mr. NADER. Yes; most definitely. And from time to time giving the corporations more permissive powers. For example, Delaware permits a corporation to reimburse a corporation executive who was fined in a