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In several different ways the European Community is trying to achieve a uniform answer to corporate questions as between the nine member countrieseither through a special supranational corporation law or by harmonization of the separate national rules. Thus the United States finds itself quite alone in assuming that decentralized regulation of corporation law is appropriate. It would be an exaggeration to say that federalization of corporation law would be a major advantage in our dealings with other economies but it would do something to make simpler a wide variety of transactions and it would do something to assure foreign businessmen that they were dealing with a concern subject to some reasonably strict standards of integrity.

Some proposals would go considerably beyond this level of change. There are always a few romantics who think well of the German (or Yugoslavian) practice of labor participation in management at the board level-referred to as “codetermination.” Whatever its merits in its home grounds, this institution seems to me plainly unadaptable to American conditions. The German system evolved over a long period of time that tended to push labor union leadership into a style of cooperative and restrained understanding of management's problems.

The American labor movement, on the other hand, has adapted itself over the years to an adversary style of labor relations in which bargaining (and the use or threat of economic weapons) about labor's share of the output has been the almost exclusive function of unions. To adapt to an approach in which labor leaders participated in operational and financial decisions (and shared in the responsibility therefor) would take a number of years during which time the uproar in the boardroom might seriously reduce the functional efficiency of management. The Nader group, while rejecting this approach, would attempt to shift control away from independent management back to the shareholders. I find this a curiously anachronistic approach. As far back as the 1860s we find railroad shareholders complaining of their inability to get a grip on what their hired managers were doing to their investment. In the 1970's the process has gone so far that it is practically impossible to get active widespread shareholder attention focussed during even the crises of corporate life-a downhill slide such as the Penn Central or a "going private" transaction, etc. Thus I am exceedingly skeptical of the utility of such device as mandatory cumulative voting, free access to the proxy system for competitive slates of directors, the "pass through" of voting rights to the beneficial owners behind initial funds, pension trusts, etc. While the theory behind them is one with which one can be sympathetic and while one doubts that they will do any harm one feels fairly sure that they will not do any appreciable good either.

REFORM AND INTERNATIONAL RELATIONS The other set of international problems which need to be borne in mind while considering the reform of corporate structures is the need to maintain reasonably harmonious relations with other governments. Proposals for change must be scrutinized with a view to identifying those that might lead to friction with foreign governments and those which might on the other hand diminish the concern which other countries feel about the activities of American-based multinationals (and hence the distrust of American foreign policy connected with that concern). It is universally recognized that it is within the competence of the United States to define the structure of corporations formed under its law. However, the multinational enterprise operates in other countries either by itself or through subsidiaries organized under the laws of other countries. Thus host nations have several legitimate bases upon which to rest their claim to control corporations' activities that affect them and by which to limit the United States claim to control them. Most episodes reveal a certain ambiguity on the part of foreign countries in this field: they would like to have the U.S. control and restrain its multinationals but only to the extent that they themselves substantively approve of the American policy in question. Thus our attempts to prevent American multinationals from exporting from neutral countries to Cuba or mainland China have evoked anger from governments not sharing our point of view. On the other hand, actions taken by the American government to uncover, punish or prevent bribery and other forms of political misbehavior by multinationals have been and will be publicly welcomed by other governments, although some of them may have private reservations.

As other issues arise we should be cautious about intruding our rules on other countries where that is objectionable to them. Concern is at times expressed that American based multinationals follow practices in regard to the use of pharmaceuticals not as yet thoroughly tested by our standards or in regard to industrial pollution which would not pass muster within this country. To the extent that such permissions represent deliberate judgments by other regimes that they would weight the competing values differently, we should not interfere even by holding back “our own" corporations.


In an affirmative vein, one sees that some changes, particularly an intelligent program for expanding the amount of disclosure required of corporations, especially multinationals, would win favorable mention in most quarters. In a very general way our adherence to this objective has been pledged by our signature last month to the declaration drafted by the Organization of Economic Cooperation and Development which contains, among other things, a set of disclosure guidelines. Much remains to be done by way of fleshing out these very rudi. mentary statements as to what is to be done. In particular, tedious and detailed negotiations may be needed to ensure that other nations do no lag too far behind us in compelling their corporations to make these revelations, thereby disadvantaging those American firms that do meet their standards. A most valuable portion of the requirements, on the domestic scene as well, will be the call for breakdowns by product line and regions. Some of this data will be very useful internally for our own efforts to understand and control industrial processes have been hampered by reporting practices that lump together different portions of a conglomerate enterprise and thus disguise how well or poorly it is doing in any particular line of endeavor.

There are likely to be a variety of ways in which the United States will be called upon to accommodate the ways of its corporations to new perceptions of the needs of the world economy. Work is going on in various United Nations bodies, the OECD, the Organization of American States and others to develop appropriate standards. If we are skillful and fortunate we will be able to negotiate mutually acceptable standards of behavior that will give other countries reassurances that American-based firms will not do harm to their important interests while at the same time not doing damage to our need to maintain those corporations as viable, flexible economic entities.

[Whereupon, at 1:31 p.m., the committee recessed to reconvene on Tuesday, June 22, 1976, at 10 a.m ]


TUESDAY, JUNE 22, 1976


Washington, D.C. The committee met at 10 a.m., in room 6202, Dirksen Senate Office Building, Hon. Vance Hartke presiding.

Senator HARTKE. Before we begin the fifth day of hearings on corporate rights and responsibilities, I have a letter for the record from David L. Chambers, professor of law at the University of Michigan Law School, containing a statement by 80 law professors across the country that expresses their belief that State corporation statutes no longer adequately serve to guide and regulate the activity of large corporations and their managers. I'll put that in the record. [The letter follows:]



Ann Arbor, Mich., June 25, 1976. Hon. VANCE HARTKE, U.S. Senate, Washington, D.C.

DEAR SENATOR HABTKE: I am enclosing a statement signed by a large number of professors of law who teach corporate law: 80 professors at 62 different law schools in 28 states. The statement expresses their belief that state corporation statutes “no longer adequately serve to guide and regulate the activity of large corporations and their managers.” The signers, without recommending a specific approach, conclude that “there is a particular urgency at this time for the Congress to consider some form of federal intervention."

The signatures are the response to a letter sent to teachers of corporate law at American law schools listed in a directory of the Association of American Law Schools. The letter was written by Professors Marvin A. Chirelstein of Yale Law School, Donald Schwartz of Georgetown University Law Center, and Russell Stevenson of George Washington University National Law Center.

You and your fellow members of the Committee are to be warmly commended for convening these exploratory hearings. Sincerely yours,


Professor of Law. Enclosure.


Statement on a Federal Role in Corporation Law

As law teachers who have had a special opportunity to study the law of corporations from an independent perspective and to reflect on the proper function of corporation law and the extent to which the law in its current state fulfills that function, we have a particular interest in the current hearings on the possibility of an expanded federal role in corporation law.

While we believe that it would be difficult if not impossible at this time to achieve a consensus among us as to the precise role the federal government should play in shaping the organic law of corporations, "we are in general agreement that state corporation statutes and case law have suffered over the years from what Professor William Cary of Columbia University has called a "race to the bottom," and that as a consequence they no longer adequately serve to guide and regulate the activity of large corporations and their managers, as is the proper role of organic law. We also believe that, with the Supreme Court apparently in the process of drawing limits against the further expansion of federal regulation of corporations through the medium of the securities laws, and with public concern about various kinds of corporate impropriety running at a high level, there is a particular urgency at this time for the Congress to consider some form of federal intervention in this area, whether through the means of a federal chartering statute, through federal "minimum standards" for state corporation laws, or some other mechanism.

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