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Martin Riger

Richard A. Williamson Georgetown University

College of William and Mary, Law Center

Marshall-Wythe School of Law
Hugh A. Ross

Theodore E. Wolcott
Case Western serve University, University of California,
Franklin T. Backus Law School Hastings College of the Law

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Senator HARTKE. I believe we are making considerable progress in addressing these issues and I want to thank all the people who are participating

Today we will have three witnesses that will present a wide range of views and issues before us. The first is Dr. Lowell C. Smith, vice president, academic affairs, Bryant College, Smithfield, R.I., on behalf of the National Association of Manufacturers.

Good morning, sir. Go right ahead.



Mr. SMITH. Mr. Chairman, I am delighted to be here this morning to represent the views of the National Association of Manufacturers mostly because I believe so enthusiastically in what I am about to present to the committee as my views.

I would like permission to depart occasionally from the prepared text.

Senator HARTKE. The entire text will appear and then you just proceed in the way in which you think you can be most helpful to the committee.

Mr. Smith. Thank you. Well, part of my concern is dealing with the vagaries of what this committee is supposed to be addressing. I'm not quite sure whether I'm supposed to be responding to legislation which is waiting in the wings or to Mr. Nader's very formidable document or some other more obscure concept of what corporate rights and responsibilities really are. But in the absence of any formal preparation, I will assume that Mr. Nader's document is the departure point and will address the issues that he deals with.

Mr. Nader has prepared a document for the committee's consideration which ascribes all of the ills of society to the corporate form. The assumptions upon which this study is based are fallacious but that doesn't stop his group from presenting them simply because their assumptions are incorrect.

In order to go through this very long study and deal with each of the problems and errors that it contains it would take more time than this committee has to deal with these issues, but I would like very simply to draw some assumptions from which the study bases its arguments and ask if this is a model with which the country can live.

The study suggests several key considerations which the corporate chartering act should address:

1. Remove the power to charter corporations from the States and vest it in some kind of Federal bureaucracy as yet undefined.

2. Eliminate the boards of trustees of the top 700 corporations in the United States and substitute for them boards composed entirely of outside directors who would be full-time directors with unique functions.

3. Salary ranges for the board of directors would be established by the Federal chartering bureaucracy in the enabling legislation.

4. There would be a redistribution of income, particularly of corporate management, to reduce compensation levels.

5. Have the board of directors designate executives responsible for compliance with all Federal and State laws and require periodic signed reports describing the effectiveness of compliance procedures. This, in itself, is such a staggering concept that it's almost unbelievable.

6. Have the board review important executive business proposals to determine their full compliance with law, to preclude conflicts of interest, and to assure that executive decisions are rational and informed of all foreseeable risks and costs with an emphasis on all foreseeable risks and costs. It would require the board to review the studies upon which management relied to make decisions, require management to justify its decisions in terms of costs or rebutting dissenting views, and when necessary request that outside experts provide an independent business analysis.

7. In the relocation of principal manufacturing facilities, the board would require management to prepare a "community impact statement” which would require the corporation to state the purpose of a relocation decision, to compare feasible alternative means, to quantify the cost to the local community, and to consider methods to mitigate these costs.

I'd like to depart from the prepared testimony here for just a moment, Mr. Chairman. The State of Rhode Island, which is our home, at the present time is suffering one of the highest unemployment rates in the country. At the start of the recent recession, the unemployment rate reached 1542 percent, which by any standard is excessively high.

Now everyone I think in this room, and certainly in the public at large, would concede the U.S. Congress is an ethical group, has a high moral sense, and has a reasonably well-established concept of community impact. One of the primary reasons that the State of Rhode Island has such a high rate of unemployment is because the Congress in its wisdom cut DOD appropriations and, in their wisdom, the DOD closed Quonset Point Naval Air Station and vastly reduced the size of the Newport Naval Station.

I would suggest this was an entirely appropriate thing to do if facilities were old, incapable of modernization or at a cost much too high to be sustained, or if for some reason or other these functions could be done better at some other facilities. If the decisions were not politically motivated, but economically motivated, then the decisions were just.

On the other hand, to the best of my knowledge, there was no such thing as a community impact statement. At the same time the Federal Government is creating a massive community problem with which the community must deal with little or no castigation of the Federal Government from the press. This is not the same kind of circumstance under which business would be served had the circumstances been essentially the same I think.

Senator HARTKE. Let me say to you, I'm going to have to go vote. I'm not too sure I understand what you're saying. Are you complaining that the press is not fair?

Mr. SMITH. No, not at all. What I'm

Senator HARTKE. I thought the press might like to find out whether they are or not.

Mr. SMITH. No. What I'm saying is that

Senator HARTKE. Are you saying that the Pentagon made a mistake? Mr. Smith. I'm saying that precisely the same kind of circumstances which dictate changes in business environments and relocations of major manufacturing facilities are in operation outside the competitive sphere without the restraints which are being proposed in the Nader document,

Senator HARTKE. Let me see if I understand what you're saying. In other words, what you're saying is that they did this specifically without considering the social consequences ?

Mr. SMITH. No. I think that there were probably serious considerations given for the social consequences but they were done anyway.

Senator HARTKE. All right. And you say they weren't criticized for it?

Mr. SMITH. Except in Rhode Island.

Senator HARTKE. Is that the essence of it? Let me ask you then, you say a 15-percent unemployment rate is unacceptable. What is an acceptable rate of unemployment for Rhode Island ?

Mr. Smith. I would say that somewhere near the national average would be much more palatable.

Senator HARTKE. Well, I don't think anyone is going to disagree with you that 7-percent unemployment is a lot better than 15-percent unemployment. Is that an acceptable rate?

Mr. SMITH. No.
Senator HARTKE. What is?

Mr. SMITH. I would say full employment. As economists define it nowadays, it is somewhere in the neighborhood of 6 percent.

Senator HARTKE. I don't accept that. In other words, I don't think that's the issue we are addressing ourselves to at all. We are talking about corporate responsibilities. The fact that other people have not met their responsibility-and I quite agree with you that Government has been derelict in so many fields—does not mean—that's a different problem.

Mr. SMITH. All right. Let's address just the issues on the relocation.

Senator HARTKE. All I can see is what you're saying is that the press has seen fit not to give that the same treatment.

Mr. SMITH. What I'm saying, Mr. Chairman, is that precisely the same considerations that go into the abandonment of any large manufacturing facility or job center anywhere may be applicable, and the fact that it has a community impact is of secondary consideration to some of the other considerations on which the decision is based.

Senator HARTKE. I understand what you're saying, but does that lessen the responsibility of the corporation to give consideration to those matters?

Mr. SMITH. I don't think anyone is suggesting that they should not give consideration to these issues. I'm suggesting that they should not be a part of legislation.

Senator HARTKE. Why not?

Mr. SMITH. Because there are many other things which should have overriding considerations. For instance

Senator HARTKE. In other words, the effect upon a community certainly is, in my judgment, a proper concern of a legislative group. Isn't that right? What other concern is there except the people?


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