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I would like to hear testimony on why we should continue the present arrangement of State chartering of corporations or arguments for alternatives.

Some people view criticism of big business as being tantamount to / blasphemy. The corporation is so solidified in our society that it has come to seem a part of the natural order of things. As we begin these hearings, it is important to remember that this was not always the case. We are not interested in polemics or diatribes from any quarter. We want information and discussion that sheds light on the issues before us so that I, as well as every other interested person, can better appreciate the impacts of big corporations on us.

There are now about 2 million corporations in the United States, but back in 1790, when the country was hardly out of the receiving blanket, fewer than 50 corporations had been chartered by the States. These corporations were chartered to perform essentially public activities, to build roads, canals, and bridges. They were also given as an incentive certain monopolistic privileges. People regarded these corporations with a healthy fear, even though they played a minor role in what was then basically an agrarian economy.

It is important to understand this skeptical attitude toward the country's first corporations. People foresaw possible domination and encroachment by corporations on the liberties and opportunities of individuals. They sought to protect themselves by asserting the general principle that corporations had only those powers explicitly granted to them in their charters. The changes that occurred over the past 150 years have buried this initial concern in an avalanche of corporations and changes in State laws to a point where corporations can do anything not explicitly prohibited to them.

Even though State corporate laws generally limited corporate size and ownership of other corporations, lawyers devised a way around these laws. First by establishing the infamous gigantic trusts into which a corporation could place a controlling number of their shares, and the managers of the trust could effectively gain monopolistic control of various economic activities.

The Federal response to these trusts was to pass the Sherman Antitrust Act in 1896 which outlawed any combination or conspiracy that restrained trade. Slowly the trusts were broken up, but not before efforts were launched to get a State law that suited the special appetites of corporate management. New Jersey began to change its chartering laws to enable corporations to do as they pleased. This started a competition among the States with Delaware eventually winning out, becoming the mecca of corporate chartering. What was once a concern of States to control corporate size and activities was replaced with a desire for revenue from chartering and annual franchise fees.

What ever happened to the healthy fear of 200 years ago when there were only a handful of corporations around? Only this past Tuesday in the Washington Post there were more examples of corporate abuses. Firestone, the latest of over 100 corporations to do so, admitted contributing $330,000 in improper payments to U.S. political candidates from foreign sources. These revelations raise some disturbing questions. Who is responsible for these illegal contributions, and what do they buy? How, under State corporate laws, is it determined who to

hold accountable? The directors? The chief executive officer? The employees who made the contributions? And what does $330,000 from foreign sources paid to politicians do to our Government? The same edition carried a story about the Justice Department's case against DuPont for allegedly suppressing price competition among retailers of its Lucite brand paint. I wonder how much more it cost somebody to paint his house because of DuPont's alleged price fixing. Remember that the basis of the fear of uncontrolled and unaccountable corporate power 200 years ago was that corporations would dominate and encroach on the liberties and opportunities of individuals. Have we not now arrived at that point?

Faced with these corporate actions and present State laws, I have a sense of futility of leaving the job of limiting or controlling corporations to the States. With 50 States competing for corporate fees, corporations can shop for the most congenial forum. If Delaware wishes to end its longstanding friendship with corporate management, there are 49 other potential friends of big business. I also feel that with many corporations operating on a national and some on an international level, it is inappropriate for one State, such as Delaware, to have such tremendous influence over national corporations. In effect, a single State sets the standards of corporate laws for the entire country.

The purpose of these hearings is to determine, based on past and present experience, what the rights and responsibilities of the giant national and multinational corporations should be in the 21st century.

Should the law of corporations and the corporate charter address the larger questions of the power and influence of these giants on the environment, the economy, the consumer, and the various levels of government? What are the proper roles of the Federal, State, and local governments in determining these rights and responsibilities?

We have over the last few years begun to appreciate the real costs of some industrial activities of the past. Our air, water, vision, and hearing have all undergone substantial changes. How industrial activities affect our health and environment is especially complex and subtle. Many times we don't find out what the adverse effects of substances are until long after they have been released into the environment. Clearly we cannot rely on a purely profit orientated corporation to portray objectively the full implications of its activities or the products it makes. It strikes me that we are all guinea pigs in a worldwide experiment to determine if what we eat and drink and breathe today will kill us tomorrow. As corporations get bigger, their impact on the environment becomes greater.

I am concerned about the increase and concentration of economic power in fewer and fewer corporations. How is this going to impact on our economy, on competition, on our national plans for energy and other major problems of the future? In the past, the economic power of large corporations has allowed them to influence growth of our communities. In the future with even greater concentrations of economic power, we are more at the mercy of the corporate executives than ever before.

It is important for us to determine to what extent the elected representatives of the people or a small cadre of entrenched corporate managers are establishing the economic and social policies of this country.

What are the implications of these giants on our foreign policy? There are recent examples of strange activities by corporations operating in foreign countries. How did corporate interests influence our Government's policy toward Allende in Chile? To what extent did ITT aid the overthrow of the legally elected Chilean Government? How do we prevent corporations from making foreign payments to Italian politicians or trying to buy reductions in export fees by bribing foreign government officials? I read in a recent issue of Newsweek the comments of Edwin Reischauer on Lockheed's payment to a Japanese in order to get contracts with Japan. He said, ".. "... the damage has been astronomical, . . . the stupidities committed have been almost beyond belief. In a country not given to official bribery, in competition with American, not foreign companies, Lockheed officials allegedly paid exorbitant bribes through a somewhat disreputable rightwing extremist whose involvement in any cause is likely to do it more harm than good. Can men actually be paid salaries for making such absurd decisions?"

I am especially concerned with the ability of consumers and small businessmen in today's market to effectively deal with giant national and multinational corporations. How has the increase in size affected those who buy and sell from the giant corporations? Not only the individual consumers but the small businessman and local and State governments. The problem is the ability of the giant companies to disregard the rights of smaller companies. Big companies can control through their buying power entire industries, and can use their deep pockets to litigate a small businessman into bankruptcy.

Finally, I wonder about the influence of these corporations on State and local governments. We don't allow the welterweight champion in the ring with heavyweight champs, but many communities find themselves up against corporate giants. How does the local tax assessor see to it that the corporation pays its share of taxes? If he fairly assesses corporate property and then finds himself in an adversary fight with a seasoned lawyer skilled in the arts of advocacy, he will probably settle for whatever assessment the corporation suggests.

The federal response to these problems has been to look at one industry and one problem at a time. When the problems became acute, the Federal Government created a bureaucracy to deal with it. It has occurred to me that the creation of a modern self-enforcing type of Federal charter might contribute significantly in the congressional efforts to reduce the massive Federal bureaucracies that have grown around these problems and industries.

The first corporation giants, the railroads, were responsible for the establishment of the first regulatory commission, the Interstate Commerce Commission (ICC). The creation of the Securities and Exchange Commission (SEC) represent the most direct Federal involvement in corporation law. It was created when the capital market of this country was crumbling in order to restore investors' confidence in the stock market, and brought information to the investor. The Civil Aeronautics Board (CAB) exists because of the giant airlines and the Federal Communications Commission (FCC) in large part because of Ma Bell.

Most recently the Federal Government has been addressing the issues created by the corporate giants on a problem-by-problem basis.

We now have the Environmental Protection Agency (EPA) to repair the damage already done to the environment, and hopefully to prevent damage in the future. We have the Consumer Product Safety Commission to assure that dangerous or defective products are not marketed.

What options do we have? Is it possible to save billions of taxpayer dollars by using the corporate charters to handle the problems we have been solving through giant Federal bureaucracies. Why not consolidate the hundreds of Federal laws and regulations into concise constitutional principles in a single document, which also contains the remedies for violations of those laws or requirements.

If we can come up with a chartering principle that will simplify and streamline the Federal involvement in some of these areas of concern, would not that also facilitate returning to the State and local governments responsibilities that they are in fact most suited to handle? I feel strongly that the smallest unit of Government capable of doing the job efficiently should be the highest unit of government to have the responsibility. Is it true that the States can handle the chartering job efficiently? If not, would transfering that role to the Federal Government not in fact reduce the overall Federal involvement?

There is little doubt of the need to move the relationship of the Federal Government and giant corporations toward the 21st century, to build bridges between the highly technical global industry and the lives of ordinary people. In doing this, we want to hear all points of view. Not only those of the experts we are to hear today and in subsequent days of hearings, but in the future the experiences of those most directly affected by these giants.

I approach these hearings mindful of the problems we have experienced in the past, but with no preconceived notions as to how to solve them. I am willing to consider that ultimately there is no role for the Federal Government in this area other than what it is today. On the other hand, I believe that the giant corporations have, in large measure, been responsible to the creation of the Federal regulators. We shall look for more effective ways to do the job and at the same time reduce the size of the bureaucracy.

I think it is going to be a tight schedule today. We are going to have several votes, so I think we will have to move along as rapidly as possible.

At the outset I want to stress my appreciation for the witnesses coming. I know Mr. Hessen has been here I understand since Thursday, experiencing the air quality in the Washington area, and I thank you for your patience.

I hope we have not irreparably damaged your health.
Mr. HESSEN. My attorneys will be in touch.

Senator DURKIN. At the present time, Senator Hartke has asked me to read a letter. He is unable to attend the hearings today.

DEAR SENATOR DURKIN: I regret that I will be unable to attend the hearings on corporate rights and responsibilities Tuesday, June 15. The need for an extensive investigation of the relationship between the Government and the corporation is obvious and long overdue. As you know, I am deeply committed to the pursuit of this question, and I am very pleased that while we were unable to

commence the hearings as planned last week, that you were able to find time to inaugurate this investigation.

I will be looking forward to working with you closely throughout these hear. ings and on the development of any legislation that may be necessary to better define the Government/corporate relationship.

Sincerely,

VANCE HARTKE,

U.S. Senator.

Senator DURKIN. Also a statement from Senator Inouye for the record.

[The statement follows:]

STATEMENT OF HON. DANIEL K, INOUYE, U.S. SENATOR FROM HAWAII

I regret deeply that I am unable to appear this morning on this first day of the hearings on the social and economic rights and duties of corporations. A previous commitment has prevented my attendance at this important event. However, I look forward to participating actively in future hearings.

Chairman Magnuson and Senator Hartke are to be congratulated for taking the lead in scheduling hearings on this subject. Very little recent study has been given by the Federal Government to the impact of corporations on American society or to corporate rights and responsibilities. These hearings are therefore timely and extremely important, for they will contribute to our understanding of the modern corporation and its relationship to the economy and to the general public's well-being.

In no other area has the corporation developed and evolved more rapidly than in foreign direct investment. In the short space of three decades, the multinational enterprise has literally changed the face of this planet, affecting virtually every inhabitant by developing new products and markets, transforming financing methods and capital movements, bringing the world together through communications, diffusing technology, and exploiting natural resources more extensively and intensely than ever before. The world today would be unimaginable without the modern multinationals. No one knows this better than Senator Hartke who, to his credit, was one of the first in the Senate to address himself to this issue.

The leaders in the development of modern multinational enterprise have been American corporations, and their global impact has been immense. At year-end 1974, the last year for which official figures are available, the U.S. direct investment position abroad was an estimated $119 billion, a sum which probably underestimates the accurate position because of deficiencies in our data collecting programs.

Sales by majority-owned foreign affiliates of U.S. companies amounted to $438 billion in 1974, or more than four times American exports and almost three times their sales total only 4 years earlier. Investment in overseas affiliates has increased far more rapidly than domestic investment, particularly in the crucial manufacturing area. Job creation by overseas affiliates has also expanded much more rapidly than by domestic enterprises.

International investment is a two-way street, however, and recently we have witnessed a major growth of foreign direct investment in the United States. A new benchmark study just completed shows that such investment was $26.5 billion at year-end 1974 and has been accelerating. Sales in 1974 of these foreignowned affiliates was $147 billion. These foreign multinational corporations employed more than 1 million Americans. They plan a crucial role in our international trade, dominating certain major segments of it.

The American role in the evolution and growth of the multinational firm has been steadily diminishing even as the pace of international direct investment has increased. Foreign multinationals are now almost as numerous as American companies and have proved to be aggressive competitors.

Statistics can only begin to suggest the enormous importance of the multinational enterprise in the global economy. Economic power also means political and social power. In some cases multinational firms have boldly and illicitly engaged in actions contrary to the interests of the host country. Companies, with their vast resources and expertise, can consciously or unconsciously thwart the

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