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Senator DURKIN. My question is, you don't have to go all the way down that road to get disclosure !

Dr. Adams. Absolutely not. The one area, as I suggested in my testimony, where Federal chartering would be useful is in providing a legal arena within which the Federal Government and Congress could define the public interest as it relates to the chartering of corporations.

Senator DURKIN. It can get all the players in one room, I guess!

Dr. Adams. Yes. And that is, I think, an argument in its favor. Beyond that, I'm not at all sure that Federal chartering is a guarantee of corporate responsibility.

Senator DURKIN. Do you think the SEC's increased requirements of disclosure has changed corporate behavior?

Dr. Adams. I can't answer that question. I have done no research on it.

Senator DURKIN. Has the fact that it made it easier to sue the board, has that had an impact on corporate behavior, that pervasive threat of suit, the fact that your liability carrier might no longer provide coverage!

Dr. Adams. Again. I have no systematic data, having done no research in that area. I suspect they are merely nervous about legal fees.

Senator DURKIN. Can you offer any explanation in your experience why this last week that the business round table and corporate round table turned the Senate on its ear to defeat the antitrust bill!

Dr. Adams. I'm not familiar with the bill, Senator, so I would rather not comment.

Senator DURKIN. Because we keep hearing, there is competition for widows, and there is competition for the handicapped, but there is a fear and apprehension when someone starts talking about competition amongst the major corporations.

Dr. ADAMS. I'm somewhat familiar with that situation in the airline industry. You do find, with one or two exceptions, that the airlines resist the efforts to deregulate, because they are much more comfortable with a situation in which regulation perpetuates a very small number of firms, at a very set price for their dealings with the public.

That is not an unprecedented example of what happens within regulatory agencies and industry. A large concentrated regulated firm will have done a great deal to build themselves into that regulatory structure and to interchange their personnel on a fairly regular basis with the regulating groups. They resist very heavily the deregulation proposals of the current administration or of any other administration, for that matter.

Senator DURKIN. I think we are coming to the time for a natural break.

Dr. ADAMs. Thank you.

Senator DURKIN. I appreciate, on behalf of the committee, your taking the time to be here.

I apologize for any delays. If the business was run the way we run this place, there would be no profit or social responsibility.

I have got to go vote.

[The exhibits referred to follow:]

EXHIBIT A

RECOMMENDATION OF THE INTERAGENCY STEERING COMMITTEE ON UNIFORM

CORPORATE REPORTING

MODEL CORPORATE DISCLOSURE REGULATIONS, JANUARY 1975 Definitions

Annual reporting.-The term "annual reporting" means as of December 31 of each calendar year.

Control.-The term "control" (including the terms "controlling," "controlled by" and "under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a person, natural or artificial. Sources of power may include, but are not limited to: equity security ownership; debtholdings; sole or partial voting arrangements; common directors, officers, or stockholders; or lease, purchase, lines of credit, supply, distribution, or operating agreements.

Financing lease.—The term "financing lease" shall refer to any lease which during the noncancelable lease period, either (1) covers 75 percent or more of the economic life of the property or (2) has terms which assure the lessor of a full recovery of the fair market value (which would normally be represented by his investment) of the property at the inception of the lease plus a reasonable return on the use of the assets invested subject only to limited risk in the realization of the residual interest in the property and the credit risks generally associated with secured loans.

Parent of Respondent.-"Parent of respondent" shall refer to every firm, holding company or other person or combination of persons who ultimately control the respondent, as well as any intermediary controlling entity.

ANNUAL REPORTING REQUIREMENTS

1. Corporate Structure.

(A) For each respondent, parent of respondent, subsidiaries (and/or organizations controlled) of the respondent, joint ventures involved in by the respondent, and subsidiaries (and/or organizations controlled) of joint ventures involved in by the respondent, the following information shall be submitted :

(1) Name and address
(2) Basis of control
(3) Principal business activities

(a) List and describe by 4-digit SIC Code and short title each industry in which the respondent's activities generated 10% of gross revenues or $5 million dollars (during the reporting year). 4-digit industry SIC codes & short titles are listed in the most recent Standard Industrial Classification Manual as published by the Executive Office of the President, Office of Management & Budget.

(b) 4-digit SIC Codes and short titles should be listed in order of significance relative to the total activities of respondent, based upon the percentage of gross revenues generated within each 4-digit industry.

(4) Copy of the latest balance sheet and income statement and consolidated balance sheet and income statement, if available.

(5) A copy of any chart or other graphic material showing the relationship of the respondent to such parents, the subsidiaries, and other organizations listed.

(B) In addition to subparagraph (A) above, list every corporation partnership, or other business organization in which the respondent owns more than five percent of the outstanding voting securities or other ownership interests and indicate the percentage so owned. II. Voting Stock Ownership

(A) In descending order, the 30 largest holders of voting shares (not to include any holder with less than one-tenth of one percent of the outstanding shares) in the respondent, identified as to

(1) name
(2) address

(3) type (bank, broker, holding company, individual or other specified category)

(4) the number of voting shares held (as of the end of the calendar year) and its percentage relationship to total outstanding shares. (If some shares—such as preferred issues-carry limited voting rights describe the limitation and the number of shares affected.)

(In determining the number of shares held, all nominee and other accounts of each shareholder, including accounts held by depository trust companies (CEDE & CO., SICOVAM, Pacific Coast Stock Exchange Clearing Corp., Midwest Stock Exchange Clearing Corp.) sball be aggregated and reported as one account in the name of the bank, broker, holding company, individual or other indentified shareholder.)

(B) With respect to each of the 30 largest holders, the number of shares (and percentage relationship to total outstanding voting shares) over which the holder has

(1) sole voting power

(2) shared voting power (if voting power is shared with any of the thirty largest shareholders, identify the shareholder and the number of shares held)

(3) no voting power under any circumstances.

(C) With respect to shares over whch the stockholder has no voting power, the name and address of the person(s) empowered to vote the ten largest blocks of stock, the number of shares and the percentage of stock in relation to the total outstanding voting shares.

(D) With respect to the 30 largest holders of voting shares in any parent, holding company or other organization or person controlling the respondent, provide the information required in subparagraph (A), (B), and (C) above.. III. Affiliations of Officers and Directors

(A) The name, address and social security number of each of the principal officers and each director, trustee, partner or person. IV. Debt Holdings

(A) A description of each long-term debt (debt due after one year) of the respondent in excess of one million dollars, including the name and address of the creditor, the character of the debt, nature of the security, if any, the date of origin, the date of maturity, the total amount of the debt, the rate of interest, the total amount of interest to be paid, and a copy of any and all restrictive covenants attached to the indebtedness (where such indebtedness is widely held, such as bonds and debentures, provide the name of the trustee in place of the creditor).

(1) With respect to each holder of more than five percent of each issue reported provide the name, address, and type of holder-bank, broker, holding company, individual or other specified category and amount of debt held.

(B) A description of each short-term debt (under one year) excluding accounts payable to the respondent, including the name and address of the creditor, nature and character of the liability, period of the debt, rate of interest, total amount of such short-term debt, nature of the security, and date when debt was paid, or date when such debt must be paid, and a copy of any and all restrictive covenants attached to the indebtedness.

(C) A description of each financing lease arrangement, equipment trust, conditional sales contract, or major liability with respect to the capital assets of the respondent and involving aggregate payments in excess of one million dollars and a copy of any and all restrictive covenants attached to the indebtedness,

EXHIBIT B

RECOMMENDATIONS FOR CONTENT OF SEC REPORTING REQUIREMENTS Excerpt of Testimony by Alice Tepper Marlin, Executive Director, Council on Economic Priorities to Securities and Exchange Commission, May 2, 1975.

A. ENVIRONMENT

There are four major areas of corporate activity which have a significant impact on the environment: industrial production, land use, transportation and distribution systems, and product choice. The Council's experience has been primarily in the area of industrial production, where we have focused on pollution and pollution control performance. We would like to limit our comments to what we perceive as the essential reporting requirements in that one area, for that is where our experience should prove useful.

For each plant or other major establishment of a corporation, the Council urges that the registrant be required to report annually:

1. Air emissions.--for each pollutant, for all point sources, the actual and allowable emissions and fugitive emissions of all substances for which federal ambient air quality standards have been promulgated and all toxic substances for which occupational health and safety standards have been promulgated; this data is currently required in whole or in part by state and local air pollution control agencies; the substances considered pollutants should be those defined by the federal, state and local air quality agencies and the Occupational Safety and Health Administration.

2. Aggregate water discharges : the net and gross effluent for each pollutant, the water flow per day, and receiving bodies; this information is currently required in National Pollution Discharge Elimination System Permit Applications; the substances considered pollutants or toxic should be those defined by the federal, state and local water quality agencies and the National Pollution Discharge Elimination System.

3. Processes.—the type, capacity, raw materials use by weight and type, and the output of each major process. The raw materials and output data should also be provided in aggregated form for the whole plant. The Bureau of Census Surveys and Censuses of Manufacturers currently require, though not from all firms, raw materials and output data.

4. Controls.—the type and efficiency of installed controls and process changes, and the dates of new installations planned or under construction. This information is not normally required by government agencies unless the registrant is under examination by an agency.

5. Energy usage.-by fuel type, sulfur content, and rate of use (both average daily and peak and low-point power requirements) for each major process and for the whole plant. This information is currently required in the Censuses of Manufacturing.

6. Solid waste disposals.—the type and content of waste; the rate of disposal of each type, and the disposal technique.

7. Legal status.--all pending litigation with the sum total of fines and criminal penalties to which the corporation is currently liable, compliance schedules and variances granted under existing environmental legislation and administration at local, state, and federal levels. This information is publicly available though scattered.

8. Economic factors—the number of employees, the total payroll, and the pollution abatement investment and operating costs anticipated in the current reporting year and for the next five years, excluding those investments and costs associated with changes in the product mix.

Each registrant should also be required to report in aggregate annually : 1. Process capacity and output data. 2. Solid waste, air, and water data. 3. Raw material and energy use information.

4. The potential total fine, settlements, and criminal penalties to which the registrant is currently liable.

5. An analysis of the impact of the plans of the corporation to deal with environmental impact. This analysis should assess this impact on corporate employment, net earnings, and product prices, in the current year, and in subsequent years, up to the last year for which legislation has been promulgated. The assumptions and methods used in the economic analysis should be made available to all interested parties (with modifications to appear in an 8-K, as with the new proposed requirement for firm forecasts).

B. EMPLOYMENT For each establishment employing twenty-five or more people and aggregated for the firm as a whole, the Council urges that the registrant by required to report annually :

1. Personnel distributions.-By nine job categories and by race and sex. Firms now report this data to the EEOC (Form EE0-1).

2. Personnel distributions.—By salary level categories, at least five of which are for managerial personnel.

3. Affirmative action. Either the firm's plans or a statement that the firm has not prepared such a plan.

4. Legal.-A complete report of all pending equal employment litigation or administrative proceedings against the registrant, with a summary of the total possible fines and settlements.

We suggest that the establishment-by-establishment data, and the impact analysis described above to be submitted according to a format established by the SEC and placed as an exhibit at three or more of its offices, available to the investing public. Aggregated data for all of the registrant's establishments should be presented in the 10-K form.

[Recess.]

Senator DURKIN. The next witness will be Professor Winter. Is ho here?

Professor, sorry for the delay.

Why don't you proceed in whatever the most comfortable manner! As I said before, the record will contain your full statement.

STATEMENT OF RALPH K. WINTER, JR., PROFESSOR OF LAW,

YALE UNIVERSITY

Mr. WINTER. Thank you, Senator. I will offer a very brief statement. Perhaps I ought to say in the way of full disclosure, that my employer, Yale University, is a corporation chartered in the State of Connecticut.

Senator DURKIN. OK.

Mr. WINTER. A brief examination of the claims of the proponents of Federal chartering is the most expenditious way to proceed. I will talk first about Federal chartering and shareholder protection.

The proposals made by the proponents, as I understand them, state that corporate charters are a source of revenue for which States compete. Because the decision as to which State to incorporate in is a management decision, the States have skewed their corporation codes so as to favor management. I find that a peculiar argument.

First, I find it peculiar because of the people who make it: a tiny group of shareholders who seem not to be particularly interested in monetary yield on investment, so-called consumer advocates, and academics whose commitment to free enterprise or to any system involving profit maximization is, to say the least, not very firm.

Opposing these proponents of Federal chartering so far as one can tell are the vast bulk of the investing community and of American shareholders. They seem to prefer to continue to fight the Indians rather than be rescued by that particular cavalry contingent.

As far as their argument goes, I also find that implausible. If Delaware, for example, permits management to profit at a cost to stockholders and other States do not, then shares in Delaware corporations must have, for over a generation, returned less to their owners and have traded at lower prices on the exchanges.

Further, if that is the case, the movement of corporations would be away from Delaware to more restrictive States because promoters wanting to raise capital would find it easier to raise that capital in States in which investors were protected.

Indeed, if the proponents of Federal chartering are correct, a State can make a big increase in its franchise taxes by having a corporation code which is very restrictive of management.

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