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Mr. WOLVERTON. You probably think that you will get 5 percent, whereas it might only be that we would catch 1 percent. Mr. CORCORAN. Well, let us catch 1 percent.

Now, let us go to the “Registration Requirements for Securities" on the exchanges, on page 22, section 11 (a).

These are provisions which Mr. Whitney attacks as the most dangerous in the bill and around which he is trying to rally against the bill corporation executives all through the country.

Just before we come to that section let us look at section 13, for a moment, on proxies.

This is another provision to prevent insiders from deluding outsiders as to their interest in the company. It is to check proxy abuses.

You will remember, if you are a stockholder of a company, that you very seldom go to meetings. You give a form of proxy which will enable somebody else to vote your stock in any way he sees fit. The proxy solictors tell you nothing, since they are required to tell you nothing under the laws of most States. A few men on the inside who may have no interest in the company whatever, can get you to give them proxies because you have no information for judgment.

Now, this section requires the proxy solicitors to furnish information, that anyone asked to execute a proxy should have, i.e., what interest the person named as a proxy has in the company. Furthermore, it requires that a list of the stockholders to whom solicitations have been sent, or a list of the bondholders from whom consents are solicited be filed with the Federal Trade Commission.

The bill as it now reads requires that the statement of the other stockholders and bondholders solicited shall accompany each proxy. That is wrong. The section should be redrafted to provide that such information should be filed only with the Federal Trade Commission.

In connection with reorganizations of companies, particularly, one of the biggest evils has been that the only interest which knows or has a list of the bondholders, or the stockholders, under existing conditions, is the house sponsoring one protective committee, and there is no way in which a stockholder or a bondholder who does not want to go along can find out who are the other stockholders and bondholders similarly situated, with whom he might cooperate, and form a protective committee.

This provision prevents the great mass of unorganized stockholders and bondholders from being at the mercy of a management which controls the lists of those to whom proxy solicitations can be sent.

Mr. CROSSER. You say the statute or act. You mean the bill.
Mr. CORCORAN. The bill.
Mr. MERRITT. How are you going to get a list of the bondholders?
Mr. CORCORAN. Of what, sir?
Mr. MERRITT. How are you going to get a list of the bondholders?

Mr. CORCORAN. If there is no list we cannot get it. But this section provides that the solicitors must send a list to the Commission of the persons to whom they sent requests for proxies. And the solicitor issuing the call for proxies

Mr. MERRITT. That is a pretty loose proposition.
Mr. CORCORAN. I beg your pardon, sir.
Mr. MERRITT. That is a pretty loose proposition.

Mr. CORCORAN. The bill provides that if you are going to solicit proxies you have to let the stockholders and bondholders and others whom you are soliciting know to whom you have sent solicitations, so that they will know of those to whom a similar proposition has been made.

Mr. MERRITT. What do you think that that will amount to? I not think that it will amount to anything.

Mr. CORCORAN. Well, in the real-estate reorganizations in New York, it has amounted to a great deal.

Mr. MARLAND. Mr. Chairman-
The CHAIRMAN. Mr. Marland.

Mr. MARLAND. Mr. Corcoran, before you pass that section of the bill relating to proxies: Do you not consider that one of the most serious difficulties confronting a corporation, that is, the practices, and the fact that under our present methods, the method of getting proxies for the election of officers?

Mr. CORCORAN. Yes, sir. You will notice (b) in here, sir; you are thinking of a situation where a broker in whose name the stock stands, gives proxies.

Mr. MARLAND. Yes.
Mr. CORCORAN. That is forbidden under section (b).

Mr. MARLAND. Is it not a fact that officers and directors of corporations frequently owning a very small fraction of 1 percent of the stock of that corporation solicit and receive proxies from Stockholders, sufficient to insure their reelection?

Mr. CORCORAN. That is right, sir. That is why the bill requires that a solicitor shall show the relations, and interests in the security, of the men who are named in the proxies to vote the stock, so that the solicitors have to tell the stockholders that solicitors who own only 1 percent of the stock of the company are asking their proxies to vote their shares as well. I think it covers exactly the point that you are making, sir.

Mr. MARLAND. That is objectionable.
Mr. CORCORAN. That is objectionable.

Mr. MARLAND. Recent disclosures of the Senate committee show that the officers, where one corporation sold or negotiated the sale of the control of that corporation to another corporation and received a large bonus, had an interest in a stock exchange pool, at the same time he consented to the merger of his corporation with the other. You recall that?

Mr. CORCORAN. No, sir. I am sorry, but I do not recall the specific case.

Mr. MARLAND. You remember the disclosures made before the stock exchange investigating committee of the Senate with regard to the profits made in consolidating oil company stocks. .

Mr. CORCORAN. Yes.

Mr. MARLAND. And that the president “Blank Corporation received a large interest, or a small interest-amounting to a great many dollars—in a pool'in another stock at the time he engineered the consolidation between those two oil corporations.

The disclosure of the information or the reporting of the interest that the president of that corporation had, the number of shares of stock he had in his own company might have been very valuable to the stockholders at that time, might it not?

Mr. CORCORAN. Very. Proxies, as solicitations are made now, are a joke. The persons who control the machinery for sending out the proxies, with practically no interest in the corporation, can simply keep other people from organizing, can get enough proxies to run the company. At most stockholders' meetings, no one turns up, and the proxy is always very carefully worded to approve all acts of the officers and directors for the preceding fiscal year. Something like such an approval is included in the corporation records, but insofar as real approval by the stockholders is concerned it is a mere sham. But the proxies do satisfy the letter of the law.

Mr. MARLAND. We do know that officers and directors of corporations owning a very small percentage of the stock perpetuate themselves in office.

Mr. CORCORAN. Yes.

Mr. MARLAND. Has your study given you any idea as to how that evil can be corrected?

Mr. CORCORAN. Well, if the law requires the management to show what the position of directors' holdings regulation of the exchanges and the Commission could to some degree bring about a condition where the stockholders would at least know what their situation was. In addition, a Commission could require enough information in a proxy when it was sent out to the stockholders to let them know what their situation was.

Most stockholders of course won't even read the proxy. They will just sign it or throw it in the wastebasket. But there is always a chance that out of the great number who remain inert one or two will really take up the fight and if they know who and where the others are they will try to get the others interested. Then in concert they can do something about the company. All you can do for the proxy evil, is publicity. With publicity you can hope that somebody will be willing to try to take up the fight and carry the costs a legal fight always entails.

It is one of the big worries about the corporate form of doing business in this country, that the stockholders, nor really even the boards of direetors do not actually run corporations, but coterie of a very few men on the inside.

Mr. MARLAND. Would it be practical to require the directors, officers of corporations, to send out proxies to stockholders, instead of sending out proxies designating them as the proxy to hold the shares or vote the shares of others, designating some one with a publc interest to vote the shares?

Mr. CORCORAN. That might be done, sir, but it is pretty hard to pick the person to represent the "public interest.” You have often heard it said that, if for instance, the Interstate Commerce Commission could deputize someone to vote all of the unvoted railroad stock, the Government could control the railroad situation without having to invest in it. But you would not want to do that, and you could never be sure of anyone designated to act “in the public interest."

You are tied up, sir, with a problem so big that this proxy solicitation touches only one edge of it.

Mr. MARLAND. In this bill, you are attempting to touch one edge?
Mr. CORCORAN. We are attempting to touch one edge.
Mr. MARLAND. You are attempting to touch only one edge.

Mr. CORCORAN. You must realize how big the problem is. We can only do a little toward it at this point. We can force a certain amount of publicity as to how much of the stock of a corporation a man has who is soliciting the proxies and saying, “Please let me vote for you."

You will notice further that there is a provision at the end here that the Commission may, by rules and regulations, prescribe in the public interest or for the protection of investors the form and details of proxies. Possibly if the suggestion that you make should prove practical, the Commission could require that some provision like that go in the proxy, or blanks so left for names.

Mr. COOPER. Mr. Chairman

Mr. CORCORAN (continuing). I do not know whether the Commission would want to go so far as to insert a provision to the effect that somebody representing the public interest should vote the proxy if a stockholder did not like the particular people named.

Mr. COOPER. Mr. Chairman. Are you through, Mr. Marland?
Mr. MARLAND. Yes.
The CHAIRMAN. Mr. Cooper.

Mr. COOPER. I am very much of the opinion, and I think that we are all agreed that we have got to have some regulation of the stock exchange. There is also another question in this bill I am interested in.

That is regulation of private capital. I have had some protests come to me against this measure, and I thought that it might expedite things if I should take about two minutes to tell the witness what these objections are and then have him reply.

Mr. HUDDLESTON. Mr. Cooper, may I ask a question about another provision, before you proceed to that?

Mr. COOPER. Certainly.

Mr. HUDDLESTON. Right in line with what you have just said. The solicitation of proxies is usually made on the corporation's stationery and under stamps belonging to the corporation, and with the use of clerical staffs of the corporation, and under the color of the authority of the corporation.

Mr. CORCORAN. Yes.

Mr. HUDDLESTON. So that a distinct impression is made upon the stockholder that by giving his proxy, he is doing something to further the interests of the corporation.

Mr. CORCORAN. Yes, sir.
Mr. HUDDLESTON. Does this section touch upon that aspect?

Mr. CORCORAN. It permits the Commission, sir, to prescribe the form and detail of the proxy by rules and regulations.

Mr. HUDDLESTON. It does not prohibit the solicitation at the expense of the corporation?

Mr. CORCORAN. No. That ought to be done through State law. It does not.

Mr. HUDDLESTON. It does not.

Mr. CORCORAN. No. Of course, you might justify the use of the corporation's clerical help and its time and its stamps, and all of the rest, on the ground that all that makes it possible for the stockholders to vote at the meetings. If it were required to put at the bottom of the proxy, "It is not necessary for you to execute this proxy to have

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a corporate meeting—you will understand that this proxy has been prepared on corporate time and expense, for your convenience—there is no obligation on you to sign it,” then no pressure would be put on the stockholders.

Mr. HUDDLESTON. What I object to is that there is an implied statement to the stockholder, that by executing the returning the proxy, he is doing something to further the interests of the corporation.

Mr. CORCORAN. Yes. It might be desirable to omit the last sentence of the letter that accompanies the proxy in which the president urges the stockholder to return the proxy properly signed and witnessed, as soon as possible.

Mr. MERRITT. But you cannot have a meeting without those authorized to vote being represented.

Mr. CORCORAN. That is true, almost everywhere, except in Delaware. I think that they can have a very small quorum in Delaware.

Mr. MERRITT. You cannot have a legal meaning in Connecticut, unless you have a majority of the stockholders represented.

Mr. CORCORAN. No.

Mr. MERRITT. That is one of the reasons why it is wise to ask for proxies.

Mr. CORCORAN. I wonder if it is a wise thing to have a corporation meeting of that kind. Corporations have to work. That is your answer.

Now, Mr. COOPER.

Mr. COOPER. Mr. Chairman, some of the complaints that I hear is that this measure goes far afield from the regulation of the stock exchange.

One of the provisions of the bill is that no corporation can place an issue of stock on the market to be sold unless the application for registration complies with the rules and regulations made by the Commission, which has the power to administer the act.

The question of setting up rules and regulations is entirely at the discretion of the Commission.

It seems to me the bill gives to the Government a monopoly of the control of the disposition of private capital.

For instance, if an industry or a business wanted to expand in order to meet competition, enlarge their plant, in order to do that, they would have to put some stock on the market; but they cannot put that stock on the market unless it is first approved of by the Commission.

Now, at the present time, the tendency of the Government is to curtail industrial production-and we might as well face the factswe are trying to control the farmer in his production, cotton grower, and the President has even gone so far as to send a message to Congress, to the Agricultural Committee, to control the sugar industry in our country, and the Agricultural Committee is now considering a bill to do that very thing. In other words, supposing it was said, "Well, we already have enough steel industries in our country. We already have enough leather industries, and we are not going to permit you to issue any stock and put it on the market for sale in order to expand that industry."

Now, the industry may want to get up to date. It may want to put in improved machinery.

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