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uhan $1,000,000 and (2) ii the corporations concerned are by virtue of busmess or location such competitors that an elimination of competition by agreement

See page 21 among them would violate any of the antitrust laws. The illegality is entirely personal to the individual who becomes a uirector of the proscribed sort and involves a fine of $100 for each day of the continuance of the illegal situation, or unprisonment.

The Senate bill in etiect allows one year as a period during which the direc- Period for readjustment torates and the management of existing corporations may be reformed. The House bill allows two years.

Interlocking of Directors-Railroad Corporations
The principle of the Senate bul set out above is applied to interlocking of

Senate bill unectorales Delween iwo or more railroad corporations, except that for the inter

Between rallroad corporastate trade commission the Interstate Commerce Commission is substituted as the

tions administrative body. Consequently, under the Senate bill interlocking of directors of railroads would be forbidden among railroad corporations themselves,

See page 26 when they are competitive, except as to instances in which the Interstate Commerce Commission had found as a fact that competitive conditions were not substantially impaired. Without any provisions for administrative amelioration the Senate bill pro- Between railroads and

other businesses ceeds to forbid outright, after two years, transactions of purchase, sale, or lease between any railroad and any other business concern if an officer or director of the railroad is an officer or director in a corporation in question or is interested

See page 28 in the business in case it is unincorporated.

The House bill, in the first place, contains no prohibition against interlocking House bill among competitive railroads. In the second place, with rather more particularity See page 20 than the Senate bill, it unqualitiedly forbids interlocking (1) between railroads and businesses with which they deal in obtaining equipment and supplies or in constructing or maintaining their lines, and (2) between railroads and banks which they use as agents, underwriters, or purchasers in the disposal of issues of securities. The House bill for regulation of railroad securities (H. R. 16133, Mr. Ray

Railroad securities bill burn) also contains a proposal regarding interlocking of directors, providing that no person may be an officer or director of more than one railroad subject to the jurisdiction of the Interstate Commerce Commission without first obtaining the approval of the Commission. It will be noticed that this legislative suggestion is analogous to the general proposal of the Senate bill except in that it is not limited to competitive railroad corporations.

V

Interlocking of Directors--Competitive Corporations
THE COMMITTEE RECOMMENDS THAT INTERLOCKING OF DIRECTORS
AMONG COMPETITIVE BUSINESS CORPORATIONS, INCLUDING RAILROAD COR-
PORATIONS, SHOULD BE PROHIBITED REGARDLESS OF THE SIZE OF COR.
PORATIONS IF ELIMINATION* OF COMPETITION AMONG THE CORPORATIONS IN
QUESTION WOULD CONSTITUTE A VIOLATION OF THE SHERMAN ACT.

Recommendation of committee

According to the policy of existing laws interlocking of directors among corporations is objectionable only if the corporations are competitive and if they would effect a monopoly or a restraint of trade in case they agreed not to com

Existing law

*Note:-One member of the committee thinks that interlocking should not be prohibited unless mere lessening of competition would constitute violation of the Sherman Act.

pete. Since departures from established and well-understood public policies should be made only consciously and after thorough deliberation, a prohibition of interlocking of directors among competitive corporations should contain a test of legality so stated as to refer unmistakably to existing policy and existing law. The limitation in the committee's recommendation is such a test. The use of a test of this kind will also be an influence to prevent control of competitive corporations coming within the test by means of common ownership of stock and election of "dummy" directors.

No legislative provision on such a subject as interlocking of directors should contain limitations in terms of the size of the corporations affected. Any attempt at classification in this respect will result in inequality and unfairness, for the conditions of different industries are such that business units of a specified capital may be very important in one industry but in another industry may be insignificant. Any legislation pursuant to a public policy should be universal in its application.

No reference to size

Interlocking of Directors-Railroads and Other Businesses

Contents of bills

Two classes of concerns

Relations between railroad corporations and businesses with which they deal present a distinct situation which should be separately considered. As has been indicated above both the Senate and the House bills include provisions regarding interlocking of directors between railroads and other businesses. The businesses in question may be divided into (1) industrial concerns with which railroads deal in buying, selling, or contracting regarding equipment, supplies, construction, and the like, and (2) banks and other concerns with which they have financial transactions. The outlines of the provisions of the pending bills, given above, show that the Senate bill contains a sweeping prohibition affecting both of the classes of businesses just cited whereas the House bill has separate and more detailed prohibitions for each class. The committee has considered each class by itself, believing that in any event somewhat different considerations are involved.

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VI
Interlocking of Directors-Railroads and Industrial Businesses
THE COMMITTEE RECOMMENDS THAT INTERLOCKING OF OFFICERS AND
DIRECTORS BETWEEN RAILROADS AND INDUSTRIAL BUSINESSES WITH WHICH
THEY TRANSACT A SUBSTANTIAL VOLUME OF BUSINESS (FOR EXAMPLE, IN
THE RELATION OF BUYER AND SELLER) SHOULD BE PROHIBITED EXCEPT IN
SUCH INSTANCES AS THE INTERSTATE COMMERCE COMMISSION MAY DETER-
MINE ARE NOT DETRIMENTAL TO THE PUBLIC INTEREST.

Recommendation of

mittee

No questions of trusts

The questions involved in this connection do not directly concern monopolies or restraints of trade as these terms are ordinarily used in discussions of the antitrust laws. They rather relate to conservation of resources through maintenance of entire independence between public services of such great importance as railroads and other business enterprises with which the railroads should deal at arm's length, since otherwise there will at least be suspicion on the part of the public that funds which should be devoted to improvement of facilities for service are diverted for private purposes and that such a diversion of funds will unfavorably affect rates for service which the public pays.

One member of the committee believes that interlocking of directors between railroads and industries should be prohibited only in such case as the Interstate Commerce Commission may determine work a detriment to the public interest.

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