But I find it very difficult to see that as anything except abuse of power, don't you?

Mr. SMITH. I don't consider it an abuse of power; no, Senator. Senator HARTKE. You don't consider bribery of foreign officialsdo vou consider bribery of foreign officials an abuse

Mr. SMITH. I am sorry, I thought you were talking about something else.

Senator HARTKE. Do you consider that an abuse of power?
Mr. SMITH. I consider it to be wrong.

Senator HARTKE. I see you still have at least a recognition of the fact that some reformation is necessary. It is a question that you at least have a different problem here. You still have an insiders board, do you not?

Mr. SMITH. We have a board that

Senator HARTKE. I mean under this proposal of yours, it would be an insiders board, and it would have to depend on the insiders, really, even upon the management for any special help to obtain any information which would be contrary to the decisions which have been made by management, isn't that true?

Mr. SMITH. Well, it depends on the nature of the problem.

Senator HARTKE. The nature of the problem is whether or not there is a corporate responsibility, and how you are going to respond to it. What I am trying to do is to develop that type of social responsibility which avoids problems, rather than dealing with people who have been causing the problems.

I mean that is the ultimate goal here. We are not interested in trying to hurt the corporations or anything else, we are trying to make the corporations a viable operation which doesn't have to look back over its shoulder.

Mr. SMITH. I have no argument with that at all.

Senator HARTKE. In other words, to have the responsibility inside the board so that the corporation itself becomes a very responsible operating entity. That is the idea. How you reach that goal is open to serious debate. What we are doing is trying to avoid the ideas of what has happened here in the cases of notoriety, the Gulf and the Lockheed cases for example.

What we want to do is to provide an instrumentality-not to deal with these people after the fact, although that too must be done, but to prevent the actual occurrence of the incident in the first place. I think that you recognize that that should be done, but I don't see how you can do it with an insiders board.

Mr. SMITH. Well, I have described, while you were out of the room, the actions that we have taken in order to try to enhance the independence of the board member who has come from inside of the corporation.

In addition to those people, we also have four people who are considered to be conventional outsiders. We have required the early retirement, the breaking of the company ties as an employee of these few insiders, and have restricted the number of operating officers to the chairman and the president as the only ones who are eligible to be board members.

Senator HARTKE. All right; thank you, sir.

Evelyn Y. Davis.

STATEMENT OF EVELYN Y. DAVIS, EDITOR OF HIGHLIGHTS AND LOWLIGHTS

Ms. DAVIS. Good morning, Senator Hartke. I am Evelyn Y. Davis, editor of "Highlights and Lowlights." As a small stockholder in over 100 corporations, of which about 70 have the distinction of having their annual meetings attended by me each year, and where I do present resolutions carried in proxy statements, and many have lagged in their responsibility toward minority stockholders.

The prime abuse this year has been the deliberate effort by many corporations, including Bristol-Myers, J. C. Penney, Exxon, Chemical Bank, Citicorp., Chase, Charter N.Y., Pfizer, Bankers Trust, Loew's, Travelers, National Aviation, and Westinghouse, to have their annual meetings conflict in time and date with the annual meetings of other corporations for the sole purpose to prevent some questioning minority stockholders from attending.

In prior years these corporations-with the exception of Exxonhave met on nonconflicting dates and times. If some say they need more time to compile their figures now to comply with new regulations, as the banks will say because of new Comptroller of the Currency regulations, they can still find nonconflicting times and dates.

Most of these corporations do have interlocking directorates amongst themselves and have directors on their boards who have been active in the New York City financial mess, and do not wish to answer questions from sophisticated investors.

I am also a municipal bond investor. For full disclosure as to my municipal bondholdings and stockholdings, do read Highlights and Lowlights. I have brought up and discussed the matter of conflicting meeting dates with SEC Chairman Roderick Hills in his office on April 16, 1976, and he promised me an inquiry would be made of the New York Stock Exchange and these corporations. So far nothing has been done. And what will the New York Stock Exchange do when its new chairman, Mr. Batten, is still on the boards of J. C. Penney, AT. & T., Boeing, Texas Instruments, and the American Retail Federation?

You brought up Citicorp before. Of course Citicorp made him resign.

If this is not stopped now in a few years all corporations could meet on the same day.

Also many corporations have been meeting for years and years in far out places miles away from their corporate headquarters in areas where only a very small percentage of independent nonemployee stockholders live and in many instances have transported employees and pensioners to those meetings for the purpose of interrupting and harassing minority stockholders who dare to raise questions and present resolutions.

This is oppression of the minority by the majority and the IRS should no longer allow as business deductions the expenses incurred by such employees and pensioners. Why should the taxpayers in the long run have to pay for the oppression of the minority by the majority? As to other matters: Interlocking directorates between banks, corporations, and charitable foundations should be abolished. In no case should a lawyer serve on a board of a corporation where his firm re

ceives fees. The more lawyers there are on boards, the higher the total law fees are. For detail see Highlights and Lowlights.

Directors should be hired for their ability. In too many instances in the past few years corporations have appointed women solely because they are women, bypassing qualified men. The same goes for promotions within the corporations. Directors should be required to attend each stockholder meeting or be bounced from the boards. Legal and accounting firms should be rotated every 5 years, not just the partners. More disclosure as to political contributions should be made, both foreign and domestic as well as disclosure of expenditures made in promoting or defeating legislative issues and referendums. Full disclosure of the hiring of former Government officials and employees should be made to stockholders with details given as to matters they dealt with affecting the corporation while in office.

There should be a time lapse of say 2 years before a Government official can take a job with a corporation or act as legal counsel, lobbyist, or consultant in the industry he dealt with before.

Perhaps this will put an end to the "revolving door syndrome," where someone from the corporate or financial world takes a job for a few years in Washington and then returns to the corporate world with his own stock greatly boosted.

And, finally, charitable contributions given by corporations should be abolished. Stockholders should receive higher dividends and give to charities of their own choice, instead of the charities of the directors' choice.

Senator HARTKE. Thank you, Ms. Davis. I am going to move along because of the limitation we have on time.

Ms. DAVIS. I thank you very much for giving me the opportunity, Senator Hartke, to speak. I think it was quite coincidental that the previous speaker was from Texas Instruments, and you brought up Mr. Batten's board memberships.

Senator HARTKE. I used your information to ask that question.

Ms. DAVIS. Right; thank you very much for giving me the opportunity.

Do you have Highlights and Lowlights? I will give you another copy anyway.

Senator HARTKE. Thank you.

The next witness is Professor Russell Stevenson, George Washington University.

Mr. Stevenson, I might say it is interesting to note your quote from both Woodrow Wilson and Teddy Roosevelt. I think that demonstrates again how ideas themselves and expressions, when removed from personalities, sometimes leave a different impression.

STATEMENT OF PROF. RUSSELL STEVENSON, GEORGE WASHINGTON UNIVERSITY, NATIONAL LAW CENTER, WASHINGTON, D.C.

Mr. STEVENSON. I think that is probably true.

Senator HARTKE. Sometimes expressions come from people who are not necessarily given that type of recognition. So I think you have a rather unique approach here, and I think it is worthy of some exploration.

I will turn the matter over to competent counsel here, Paul Cunningham.

Mr. STEVENSON. Thank you, Senator.

In view of the lateness of the hour and the length of my prepared statement, which I am sure you have had a chance to read, Mr. Cunningham, perhaps it might be well for me to just briefly summarize what I have to say this morning, and then to respond to any questions you may have.

Mr. CUNNINGHAM. Fine.

Mr. STEVENSON. I would like to say I was fascinated by Mr. Smith's statement. It calls to mind a remark by Scott Buchanan a few years ago. He said a corporation is an amoeba grown to the size of a whale.

What is interesting in Mr. Smith's statement is that the directors of Texas Instruments have apparently found it necessary to start providing a little structure to their whale.

As you probably know about the only thing in most State corporation chartering statutes addressed to the function of the board of directors is the simple statement that, "The business of the corporation shall be managed by a board of directors." With that, the guidance given by the State statute ceases.

I am pleased to see Texas Instruments has found a need to do something more about giving its directors some more guidance, and its management some more structure.

Unfortunately I haven't the same confidence that Mr. Smith seems to have that other corporations will follow Texas Instruments lead. Texas Instruments, I might say, has been characterized throughout its life by an independent, aggressive, intelligent management, and I am afraid we can't say the same about all our larger corporations.

My prepared statement is addressed to one aspect of what I think might be contained in a Federal chartering statute.

I addressed that aspect with the idea of attempting to give some content to the notion of Federal chartering.

Much of the debate about the subject has taken the form of ships passing in the night, with the proponents setting up different models of what they view as the proper ends of a Federal chartering statute, and the opponents setting up strawmen which are so absurd that they are easily destroyed.

I think, therefore, it is necessary that we begin to talk at least in some respects about what a Federal chartering statute might contain. I might also say while I am on the subject that while much of the substantative changes in the law that have been discussed as possible candidates for inclusion in a Federal chartering statute could conceivably be implemented by separate Federal legislation, or by amendments to existing Federal legislation-including much of what I have. to propose here--I do think it is important that we give some attention to the structure of this amoeba grown to the size of a whale as a wholistic matter.

We are, after all, talking about some of the most important of our major social institutions, giant corporations, and it seems to me important that we recognize that they are social undertakings, and that the institutional structure of those undertakings, which in many re spects guides the way they operate in the real world, is a concern of society. Unless we address that structure, I think we are bound to see

repeated again and again the kind of corporate misbehavior with which we are all too familiar, and which has provided, sadly, too much copy for the newspapers in recent times.

No doubt the kind of misconduct that we would find a year from now or 5 years from now or 10 years from now would be different from the kind of misconduct going on now, but it would all grow essentially out of the problem, as I see it, which is created by an institution which essentially is amorphous, and which has no structure imposed on it by the society which is intended to be served by that institution.

With that introduction, I would be glad to respond to any questions you may have.

Mr. CUNNINGHAM. Thank you very much, Professor Stevenson.

You addressed out of the context of your statement the problem of a wholistic approach to the corporation, and that in fact has been the overriding theme of these hearings for the last 6 days, and perhaps precipitated more than anything else by Mr. Nader's recent publication about constitutionalizing the corporations, in which he, too, argues there must be a wholistic approach.

Yet when that proposal and similar proposals are examined closely, they are not at all wholistic, except for the name, "Federal Charter," or the mechanism by which the various controls would be imposed.

Analytically they are extentions of existing law, generally, governing disclosure, Securities regulation, the responsibilities of directors and management.

There does not seem to be a well-developed rationale for governing the corporation.

I wondered if you had any thoughts or could direct perhaps the committee, in this case the committee staff, to intellectualization of the concept of the corporation as a social entity, and not solely as a unit of production which will be governed by various incidental regulations on the external performance?

Mr. STEVENSON. Perhaps I ought to address what I see as the problems with the existing state of what we might call the organic law of corporations and by that means get at what might be done in terms of a wholistic treatment.

To take the area of disclosure; for example, one of the most important disclosure obligations in most major corporations is that imposed by the Securities laws. Those laws were designed to protect investors. What I am suggesting and what I think Mr. Nader suggests, some of which I agree with, some of which I do not agree with, is that what we need is a statute which is designed not only to protect investors, but to protect members of the public, to provide governmental agencies charged with regulating corporations with certain kinds of information which they are now unable to get, and ultimately to stimulate and improve the workings of the competitive market, which in the end is the principal force we rely on for governing and legitimatizing the power of corporations.

But the SEC statute is designed to protect investors, and it has been so interpreted by the SEC, I think probably by and large correctly, but with the result that there are enormous pressures being placed on the SEC today to expand their disclosure requirements to take care of other social problems, which the SEC says, and I think in a sense probably rightly, are outside of its jurisdiction.