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tive with respect to what might be called the pathology of secrecy. As Max Weber and numerous successor students of bureaucracy have demonstrated, in. formation is such an important tool of power within a large organization that secrecy tends to take on a force of its own, quite apart from the legitimate needs of the organization. The result is that not only does the world outside receive less information than is desirable, but the flow of information within the organization becomes distorted in such a way as to hamper its effective functioning. The opening up of corporations to the public would aid substantially in limiting the effects of this unfortunate characteristic of bureaucratic structure.
At this point it may be wise for me to repeat that there are legitimate, indeed essential needs for corporate secrecy in some areas. Without exploring them in detail, let me list the most important. First, secrecy is necessary to protect incentives for innovation. Firms would spend a good deal less time and money on developing new or improved products or better ways to produce old ones if they knew that their competitors could have immediate access to any new ideas developed. Second, there is clearly a need to protect the vigor and candor of intra-organizational discussion about corporate decisions. The freedom of this kind of discussion would obviously be substantially inhibited if corporate executives were unable to count on the confidentiality of their conversations and written memoranda. Third, information in the possession of corporations includes much that bears on the personal privacy of employees, customers, and stockholders. Files and records of this sort need, if anything. more protection from disclosure than is provided under existing law. Finally, there are certain classes of information that if disclosed would prevent the economic game from being played at all. Competitive bidding, for example, could hardly work if each bidder knew the bidding plans of all other bidders.
With the exception of information falling into one of these four principal categories, the law might well provide that all other corporate information is in the public domain. A coherent policy toward corporate information based on this principle might have two aspects. First, it would make sense to expand the current patchwork requirements for the affirmative disclosure of corporate information and coordinate them into a more carefully designed reporting system. Such a system ought to require, at a minimum, substantially improved financial reporting including detailed line-of-business data, the "disconsolidation of subidiary and divisional accounts, reporting of substantially more information than we now have on the overseas operations of multinational corporations, and perhaps some statutory guidelines aimed at improving the informational quality of the typical accounting statements.
Corporations ought also to be required to publish reports on areas of their activity of particular social concern, at least where the cost and bulk of such reports is small enough to justify it. Statistics on the employment and promotion of women and members of minority groups, for example, would cost virtually nothing to disseminate, since such figures are already kept by most if not all large companies. It may well be possible to design a system of reporting on the environmental consequences of corporate activities. In light of recent events, it might also be desirable to require corporations to report their expenditures for lobbying and other political purposes. And there are probably other areas where disclosure requirements could markedly improve the social behavior of large companies.
Finally, attention should be given to the possibility, in some industries, of requiring the publication of data on product performance and reliability in a form that would permit purchasers to make better informed choices. We already have examples of the feasibility and utility of such a system in the labelling requirements applicable to various food, drug, and other consumer items. Such a system could hardly be extended to all product lines, and care would have to be taken that disclosure requirements did not become too rigid or costly; but it seems likely that the principle could be substantially expanded beyond its present areas of application.
Besides affirmative requirements that corporations report and publish certain specified data, the rules governing access to corporate information ought to be opened up by the enactment of a sort of “freedom of information act" applicable to large, public corporations. Such a statute should, of course, contain exemptions for information whose continued secrecy serves one of the legitimate social interests discussed above: protection of the incentives for innovation, the confidentiality of the corporate decision making process, individual privacy, and the “game” aspect of the competitive market. The statute ought also to permit corporations to require payment for information sought under its terms, including the full clerical costs of searching for and copying documents, although substantial shareholders might be entitled to access to some kinds of information for free.
What I have been saying can be summed up simply : Corporations have no "right" to keep secrets, indeed they should be permitted to do so only where secrecy serves the public interest. Greatly expanding public access to corporate information should constitute an important part of any effort to modify the institutional structure of large public corporations to make them more responsive to the needs of the society they serve. Such a policy could only be effectuated by federal legislation, for the states lack the incentive, and as a practical matter, the power to make such a program a reality.
Mr. CUNNINGHAM. I wish to make the announcement that the chairman has made at each of these hearings, which is that this issue will be under continuous consideration by the committee for the rest of this session, and presumably in the next Congress.
These hearings will be recessed subject to the call of the Chair, and it is not clear yet what decisions the leadership will make as to whether hearings on issues not requiring legislative solution in this Congress will be, so we don't know if hearings will be resumed in this session or not.
We are, however, requesting that any individuals who are interested in this issue, and feel they can make a contribution to the committee's consideration of the issue of relative roles of the Government and the corporation in defining corporate rights and responsibilities in our society, submit papers to the committee for inclusion in the record of these hearings, or addendum to that record, for the consideration of the members and the staff.
The issues have only been broadly defined in these last 6 days, and a much closer examination of many of the subjects that have been presented to the committee in these hearings will be necessary before the committee can make any decision as to what further action, if any, may be necessary;
The hearings are recessed, subject to the call of the Chair.
[Thereupon, at 12:30 p.m. the hearings were recessed, subject to the call of the Chair.]
ADDITIONAL ARTICLES, LETTERS, AND STATEMENTS
UNITED MINE WORKERS OF AMERICA,
Washington, D.C., June 15, 1976. Hon. WARREN G. MAGNUSON, Chairman, Senate Commerce Committee, Washington, D.C.
DEAR SENATOR MAGNUSON: This letter is written in support of the objectives of Ralph Nader's proposal for federal chartering. The Commerce Committee is to be commended for initiating a serious national discussion of the myriad problems inevitably associated with our present haphazard and competitive system of creating and regulating corporations. Federal chartering, with appropriate provisions for democratic corporate goverance, protection of stockholders, employees, communities affected by the businesses and taxpayers, provides a solution to the problem of control of corporations by incestuous management autocracies. These undemocratic groups easily lead to daily violations of employee rights to freedom of speech, association, and safety in the work place, and to the absolute dependence which communities, from Alloy, West Virginia to New York City, must place on the whims and threats of major employers. Individal state laws do not work to ameliorate the problem ; instead they exacerbate it. No single state can enact the vitally necessary regulations because those businesses chartered in that state will recharter in a state which has, like Delaware, sold its laws for corportion tax revenues.
I particularly wish to call attention to the need in any viable and effective federal chartering program for securing the rights of both employees and communities in their dealings with the giants of industry. The need for greater attention to the debilitating and often killing conditions under which many American workers labor is evident. From the coal field we witness repeated disasters that need never have occured if people had been placed first, rather than profits or productivity, by greedy corporations and incompetent and ill-motivated bureaucrats. In the heavy industrial center of our nation, American citizens are dying of diseases never before encountered by medicine, diseases which murder and which are the direct result of a cold spirit of unconcern in the executive suites. Profit again is placed above people in industry after industry as PCU and PCB enter the bodies of chemical workers, as asbestoses strike the lungs in insulation workers, and as black lung deals death to coal mine workers who labor to meet our energy demands.
Further, no one is fully safe in his or her right to speak, to criticize management (witness the experience of men who have blown the whistle on nonperforming military hardware or unsafe unclear plants), or to freely join in association with other similarly minded individuals for social, poiltical, or labor union purposes.
Additionally, the communities which frequently depend upon a single employer for all or the bulk of their jobs and income, almost inevitably find themselves politically, as well as economically, subservient to that industry. The legends of the brutality and injustice of company towns are founded on fact-fact which continues to this day as few cities are free of the insidious influence or threats of a coal, steel, automobile, textile, aircraft, or similar industry. These firms foul the air, destroy the streams, dodge fair assessments of taxes, block progressive legislation and generally conduct themselves in a manner befitting a 12th century feudal lord.
No one proposal, including federal chartering in general, or the Nader proposal specifically, will solve the plethora of problems smothering America's towns and cities. But the proposal before this committee is a major sride in the correct direction and the United Mine Workers of America endorses its goals and principles.
With your permission, Mr. Chairman, I would like for this letter to be inserted in the public record of the Commerce Committee's hearings on federal chartering and corporate responsibilities. Sincerely,
CONGRESS OF THE UNITED STATES,
Washington, D.C., June 27, 1976. Hon. WARREN G. MAGNUSON, Chairman, Senate Committee on Commerce, 128 Russell Senate Office Building,
Washington, D.C. DEAR MR. CHAIRMAN: Would you be so kind as to include the enclosed statement in the record of the Commerce Committee's hearings relative to corporate chartering. Sincerely,
JAMES V. STANTON,
Member of Congress. Enclosure.
SUPERCORPORATIONS TOWER ABOVE THE LAW-BY JAMES V. STANTON The American economy needs to get off to a new start if we are to bring down high prices and relieve unemployment. But the new start can be made only when we wake up and realize that the people hold the ultimate power in this country. The people are in possession of the law and no individual can escape it or set it aside. We are not stuck with an Indira Gandhi here; we did (past tense) have a Richard Nixon.
We congratulate ourselves about this. But why? While we haven't handed over the law to any human person in the United States, not even a president, the fact is that we have ceded it to a whole class of artificial persons who manipulate the law as if it were theirs. And, out of apathy or an inferiority complex, we let them get away with it.
These “persons” are the mammoth corporations. We have procreated them in a process that once reminded Justice Brandeis (Ligget Co. vs. Lee) of "the Frankenstein monster." These robots grow by feeding on each other, through a diet euphemistically referred to as “corporate mergers." Two things happen as they become super-heavyweights. First, they get so big that they tower above the antitrust laws. Second, doing what those laws are supposed to forbid, they dominate key industries (having gobbled up most of their competitors) and enter into "sweetheart” relationships that prove lovely for them but not for the people.
The public pays a price for such romance. In the oil industry supercorporations that pretend in their advertising to be rivals actually hold hands offstage in "joint ventures." In the food industry we have a bully, ITT Continental Baking, effectively fixing the price of bread in regional markets, while just four cereal manufacturers corner a national market, fattening themselves on a soggy form of competition. In the auto industry, demand goes down but prices go up as the few remaining manufacturers politely follow their leader, General Motors, on pricing policy. The workers are laid off because cars won't sell : prices are too high.
Simply put, the old-fashioned economic law of supply and demand just doesn't work in the oligopolistic industries. The Joint Economic Committee of Congress noted recently: "When demand declines, prices tend to remain fixed at high levels or rise further in the concentrated industries. The long-term trend in the concentrated industries has been steadily rising prices."
Anyone who reads this as the diatribe of a Democratic-controlled Congress ought to listen to what the Republicans, too, are saying. Arthur Burns, Federal Reserve Board chairman, laments: "Prices no longer behave as they used to." The Justice Department, coming alive under former Atty. Gen. William B. Saxbe, asserted : "Only through free competition can we produce the things we all need at prices we can all afford"-and: “Business firms who fix prices rob the public as surely as those who rob at the point of a gun. The Department of Justice will not look the other way." Meantime President Ford, clearly seeing the link between inflation and oligopoly, asks Congress for more money to strengthen antitrust enforcement.
But, unfortunately, there is nothing new about the government wheeling out its big legal guns to blast away at the supercorporations. The fact is that Uncle Sam has been cannonading off and on since 1890, when the Sherman Act was passed. But this has been a no-win war. Some politicians have won glory in the fighting as “trustbusters”: lawyers have profiteered from it: some corporations claim to have been martyred. But there rarely has been any blood on the floor-no oozing of corporate financial substance except what was recoverable, to be reconstituted elsewhere. In fact, every time the smoke clears we find the supercorporations largely intact, with the people all the poorer for having picked up the court costs.