ments 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 EEO-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 he 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.

For confirmation, let's look at the real world instead of an academic model. There are two groups who know better than any other groups whether Delaware law permits investors to be ripped off by management.

The first group is corporate management. Is there any showing that corporate management values stocks in Delaware corporations less. than corporations chartered in other States? I should think not.

The second group that knows about this is the Delaware corporate bar. Is there any evidence that they value stocks in corporations of other States more? Again, there is no such evidence. If there is evidence of anything, it is that investor confidence in Delaware corporations seems very, very high and some of the most successful and most rewarding corporations as far as shareholder are concerned are incorporated there.

Proponents overlook the fact that management needs shareholders more than shareholders need management. Shareholders are investors who have an extremely wide choice as to what to invest in. There are huge varieties of stocks with all kinds of State charters in all kinds of industries. There are partnerships, individual proprietorships, bonds, certificates of deposits, land, a wide variety of things to put your money in.

They don't have to invest in corporations. Management seeking to set up a corporation, on the other hand, need shareholders and they can't afford to have investors have a low opinion of a corporation's chances of success. At the initial stage, it will never get off the ground if there is no investor confidence. Later, management has an incentive to see that the stock does not reach a low price because if it does, another group may buy it up and take over and fire the management.

It seems to me, therefore, generally-in my prepared statement I go into it in far more detail-that there is an incentive to keep shareholders happy on the part of management and that most of the evidence we have is that shareholders in fact are happy. There has been no march on Washington by the investment community for Federal chartering. That does not mean that there ought to be no Federal law. I am sure that reincorporation from one State to another, for example, is something that one State can't control and that that might create situations in which looting or some other one-shot attempt by management to raid the corporation is possible.

Let me turn now for 2 minutes to the question of Federal chartering as a remedy for Federal regulatory policy. Revocation of a charter is such a drastic step, a hydrogen bomb as it were, that it would rarely be used. It would penalize the workers and suppliers and customers of the firm.

Second, talking about chartering as a remedy obscures the debate over Federal regulatory policy. I think the discussion here today indicates that when you combine chartering and something else, the point just begins to get lost.

There is, however, a serious problem of corporate compliance with the law. I think that that problem comes about because corporations, like Government, involve large, unwieldy bureaucracies and it may be very hard to insure that certain regulatory laws are obeyed, to avoid the easy course of a small fine. It may be easier to keep engaging in the activity whether it be pollution or whatever.

I would recommend, therefore, that you consider giving to the Federal courts powers in the way of appointing trustees and monitors, where there is evidence of recurrent violations and a corporate failure to establish procedures insuring that further violations won't occur, that upon such a finding that a Federal court be authorized to appoint a monitor, to act with the powers of the court and to see that appropriate steps are taken.

Thank you, Senator.

Senator DURKIN. Thank you, Professor. How does the market-I gather that I am correct when I infer from your statement that you think market control is the most effective control on the corporation?

Mr. WINTER. Not in every case. I don't think it's at all effective in the case of pollution. I disagree with Mr. Hessen that it is that effective in preventing antitrust violations such as horizontal price fixing. I think we need a law against horizontal price fixing and mergers which create a monopoly. It seems there are a number of cases in which you can't rely on the market. Indeed, corporation codes themselves have safeguards beyond market forces, the Delaware code or Delaware law, for example, has a basic fiduciary duty as to officers and directors.

I don't mean to take any kind of stand that says you rely on the market entirely. It just seems to me the case for Federal chartering as far as protecting shareholders is concerned is unproven. I expect you will not be able to get the investment community to come down here and tell you they want Federal chartering.

Senator DURKIN. You don't think it's going to help the investor particularly?

Mr. WINTER. No.

Senator DURKIN. Do I detect that you do feel that more complete disclosure may well be in order, and uniform to the extent that more is required, that should be uniform to lift the burden on the corporations that have to provide the data?

Mr. WINTER. I think where there is an established regulatory agency of the Government, that it ought to have the power to secure whatever information is relevant to its task. And I think where a committee of Congress is looking into, either more regulation or less regulation, that it ought to have the power to secure whatever information it needs.

I think disclosure ought to be tied to a specific policy, specific inquiry, and that there should not be a general law requiring disclosure of things that may not be relevant to Federal policy.

Disclosure is costly. It's not just a question of filling out a few forms. You have hire expensive law firms, do all kinds of things to comply. If it's not relevant to Federal policy, the disclosure will be like a tax on the corporation with the revenue coming in and being thrown in the Potomac River.

Senator DURKIN. You think disclosure should be as a result of an articulated Federal public policy?

Mr. WINTER. Yes.

Senator DURKIN. Would disclosure in that vein, plus a much more vigorous enforcement of the antitrust laws, wouldn't that solve-it wouldn't solve the pollution problem but it would solve the concentration problem, would it not?

Mr. WINTER. I probably disagree with you on the concentration. I don't disagree on the vigorous antitrust policy. I think price fixing is

far more prevalent in our economy than we think. We have got to get the Department of Justice out throughout the country, in the towns and cities, and get them to enforce the rules against price fixing.

As far as concentration is concerned, I tend to think that that is where the law ought not be involved, that concentration is more a function of economies of scale and the nature of the industry. Industries which are concentrated in the United States tend to be concentrated in every country. Industries not concentrated in the United States tend to also not be concentrated in other countries. That seems to me to indicate that concentration is a function of the industry rather than some kind of monopolistic device.

Now, if you have proper rules against horizontal mergers, firms can expand solely through sales, solely through satisfying the consumer. I think by and large we probably are protected that way. I might note that right now a most concentrated industry is professional basketball. There are only two firms. Unless they are allowed to merge, they will continue to compete like mad. There has been plenty of competition with just two firms.

Senator DURKIN. Do you have any suggestions that we might adopt to curb violations that you think cannot be curbed by market forces? Mr. WINTER. Well, I do think that in the enforcement area the suggestion of the use of trustees or monitors is a suggestion along that line. I have been impressed by the number of cases of corporations which have been very, very slow in insuring compliance with the law. There is evidence, for example, that in some firms, after a private antitrust siut or even a Government suit, that the price fixing begins again. Part of the remedy might well be a court-appointed monitor with the powers of the court and a corporate officer to set up a system within the corporation that will prevent that from recurring.

In talking with antitrust defense lawyers, I find they feel it's hard to change the habits of years, and you very often find it very difficult to go into a corporation and persuade people that business can't be done that way anymore and not only can it not be done that way, that some system has to be set up to make sure it's not done that way any

more.

I think that's more a question of the remedial powers of the Federal courts than of some kind of sweeping and fairly radical legislation.

Senator DURKIN. Last week the antitrust bill was weakened substantially in the Senate due to a tremendous degree the efforts of the business round table. Are you concerned that we may have manifestation of an undue concentration of economic and political power in such a situation?

Mr. WINTER. Well, I wouldn't reach that conclusion. I think the remedies of the antitrust laws as they presently stand, at least where horizontal price fixing is concerned, are totally inadequate. I say that because where the violation is in retail sales, no consumer has a sufficient interest in a lawsuit. Unless Justice brings the case and has proper remedies at its disposal, the violation will not only go unremedied but may continue for some time. I am not persuaded, however, that the bill as drafted was an appropriate remedy. I myself find the problems a little intractable but the defeat of the bill was not something I regarded as a major disaster. I for one think there ought to be