but I did have a chance, through the years, to observe how the banks operated. With that background, I would certainly like to commend the First National City Bank for the disclosure policy. I think it has been very good. I would like to point out that Senator Metcalf did receive a letter from the First National Bank of Chicago on enclosing a published report of their trust department which listed their 50 largest common stockholders in investment responsibility accounts. Has that material been incorporated? Senator METCALF. It will be. Senator PERCY. I would ask at the appropriate time that it be incorporated. Senator METCALF. You want it immediately after this? Senator PERCY. Yes.1 [The letter referred to follows:] THE FIRST NATIONAL BANK OF CHICAGO, October 26, 1973. Hon. LEE METCALF, US. Senate, Washington, D.C. DEAR SENATOR METCALF: In the absence of Gaylord Freeman, our Chairman, I am responding to your letter of October 11 and I am enclosing a published report by our Trust Department which lists our fifty largest common stock holdings in investment responsibility accounts. As I read your letter, it seems this is the information you are looking for. You will also note that in the materials relating to our major common stock holdings, we state that where the Trust Department has sole responsibility for voting, it generally follows the recommendation of the company's management, although it might oppose certain actions if it felt that the proposed actions would be detrimental to the best interests of its customers. Sincerely yours, NEIL MCKAY, Executive Vice President. Enclosure. NOTE-The responses of other major institutional investors to Chairman Metcalf appear in appendix B, p. 245. 31-20 1)-74-6 Our major common stock holdings. Fifty largest common stock holdings in investment responsibility accounts. The list that follows shows the market value of common stock held in investment responsibility accounts on June 30, 1973. Trust Department holdings are shown with respect to voting authority and are expressed as a percentage of the company's outstanding common stock It should be recognized that the stocks included in this list are held in thousands of separate accounts, and may have been selected for any of various reasons These include, for example, our opinion as to the appropriateness of that stock in light of an account's objectives, or a customer's own preferences, goals, or financial situation. As a result, the composition of these holdings will change from time to time. Voting Authority. Voting authority varies from account to account according to the provisions of each account. Of our fifty largest holdings. the Trust Department's aggregate sole voting authority exceeds five percent of the company's outstanding shares in only five instances. Sole voting. The Trust Department has sole responsibility for voting these shares and voting generally follows the recommendation of the company's management, although a vote opposing certain action might be returned if the Trust Department felt that the proposed action would be detrimental to the best interest of its customers Shared voting. Responsibility for voting these holdings is shared with another fiduciary Ordinarily we sign the proxy and forward it to our co-fiduciary who then returns it to the company. If we have developed a strong opinion on certain of the issues raised, we will express that opinion when the proxy material is forwarded No voting authority. The Trust Department has no authority to vote these holdings and all proxy materia's are forwarded directly to the person holding the voting authority First Chicago Corporation stock. The common stock of our parent company, First Chicago Corporation is handled according to strict policy guidelines We do not purchase or retain these securities in any account unless we are properly authorized or directed to take that action Many of our customers have chosen to inclu7. such stock in their accounts In thos accounts where we normally would IM responsible for voting proxies, no vote is registered for the election of directors First Chicago shares held in the Bank's Profit Sharing Trust are voted in accordance with the direction of the participants in that trust Shares hela in the Bank's Pension Fund are voted with respect to each proposal in the same proportion as all other shares are voted by First Chicago shareholders Senator PERCY. It is particularly interesting how they break it down, showing the market value of their investment responsibility, where they have sole voting responsibility, shared voting or no voting responsibility, which I think is a helpful way of doing it. The report on disclosure of corporate ownership prepared by these subcommittees demonstrates that Federal regulatory agencies often receive information on corporate ownership in a form that is useless in the proper performance of their regulatory duties. Do you think the problem lies in the manner in which the information is requested rather than in any concerted effort by institutional investors or the regulated industries to hide the type of information needed? Mr. LINGUA. Yes, sir, I do. I have already spoken to that. We feel there is nothing to be concealed here. We have more at risk in the assumption that we are concealing than to have the facts disclosed. Senator PERCY. As I have indicated, Citibank has done a very commendable job in publicizing its public holdings and their nature. How well prepared do you believe other institutional investors are to make similar disclosures, particularly those with smaller holdings and possibly those with less sophisticated means of computer tabulations. Mr. LINGUA. I commented it would be much more of a problem for small- and medium-sized companies to make disclosures. If this is made mandatory, I suggested that they be given a reasonable time, perhaps a year's time, to assemble their data. Senator PERCY. If stricter reporting requirements are instituted, how much leadtime do you think is reasonable and fair that institutions be given? Mr. LINGUA. The year I recommended might prove to be too short for some, but I think it is a reasonable average, a reasonable amount for most institutions to do the job. And some reasonable number of days or weeks after, 30 to 40 days after the date for which the data is to be submitted. It is also recommended that the date could be made known in advance, a future date. It is much easier for the institution to run the data as of that date, than to be asked to go back to some past date, even if it is only a few weeks, to rerun it on the basis of a past date. It would make the job a lot easier. Senator PERCY. In your own breakdown that you have given, do you cover just those shares that you have investment responsibility for or do you cover and report on all shares that are held by your trust departments, whether you have investment responsibility or not? Mr. LINGUA. In our annual report, this is our fourth voluntary report, we show the holdings for which we have fiduciary responsibilities and we show, of that total amount, how much we have discretion over, to buy or sell ourselves without discussing with anyone else. We break the voting authority into sole, shared, and none. Senator PERCY. I think it is rather important, and I would like to ask your judgment whether it is important to differentiate, as I saw a trust company and saw its operations for many years, the trust department in the banks that I was affiliated with. They could operate as a depository; it could be a safekeeping account. They could have the stocks in their trust department, and they didn't have any more control over them than a bank down the street. Mr. LINGUA. That is why we differentiated that authority. The proxies to vote for the purely custodian accounts are passed along to the beneficial owners. Senator PERCY. Has that been fully understood in these hearings? What we should be looking at is where the bank has responsibility, can vote that proxy, can buy or sell. These decisions are extraordinarily important. For instance, the Harris Trust, where I have my own blind trust, has no discretion. I didn't think the bank that I was affiliated with should have a discretion. They are a safekeeping company. All the discretion is by an outside firm. Mr. LINGUA. Right, in this report, we show our fiduciary holdings. The purely custodians are not included in this report. Senator PERCY. The First National Bank reported of their 50 largest common stockholdings. In only five instances, do they have sole voting authority exceeding 5 percent of the companies' outstanding shares. Now, 5 percent is a whale of a lot for a widely diversified company. Five percent is very little for a closed corporation, a family corporation. So it depends on circumstances and they don't detail how much control that really is. Let us say 5 percent could be a significant proportion of a publicly held company. Do you break that out in your own reports and show how many corporations you do actually have some degree of control over, where your votes are terribly important? Mr. LINGUA. We have listed our 100 largest fiduciary holdings. The large publicly held companies, we do not have over 5 percent. Xerox Corp. with 4.92 percent is the Senator PERCY. You have voting discretion? Mr. LINGUA. No, this is a discretionary holding. The next page shows sole voting of Xerox of 4.22 percent which is relatively high. Then we show the shared, 0.12 percent and no voting 134 percent. approximately. We hold slightly over 6 percent of Xerox in the total fiduciary accounts. Your question is addressed to smaller and medium-sized companies where we might own more than 5 percent and do own more than 5 percent. Senator PERCY. How frequently do you, when you vote proxies, disagree with the management and vote against management? Mr. LINGUA. Not very frequently, although there are a number of instances where we have voted against management proposals as well as for some stockholder proposals that management did not. They have been very few. What has been consistent with our policy and our way of operating is that we place foremost among our investment criteria, a judgment valuation of management, the way it is run. Senator PERCY. In other words, if you don't have confidence in the management, you get out and sell the shares? Mr. LINGUA. We exert the right kind of influence, if we don't agree, to sell rather than to try to persuade the management to take another course. Senator PERCY. Let me differentiate between the functions of a bank in its commercial end where you are loaning your money and the savers, those who have their accounts with you. It is not the stockholders' money, is it? Mr. LINGUA. Only the losses come out of that. Senator PERCY. You have those who have time deposits and savings |