33. Why should the regulation of railroads and of capitalistic monopolies be regarded as among the most critical problems in social organization? 34. Draw up in parallel columns the advantages and disadvantages of concentration of control. Do you need to subdivide the question according to social advantages and disadvantages and individual advantages and disadvantages?

35. Can there be such a thing as a good big business? If not, is the remedy to be found in diminishing the size of the business or in increasing the size of government?

36. Federal incorporation is frequently urged as one means of controlling our big businesses. In what ways would federal incorporation assist in this control?

37. What effect would the abolition of proxy voting have upon concentration of control? What would be the effect of limited voting?

38. Make a list of things which have been done in the field of corporation finance to counteract the evils of concentration in that field.

39. What is meant by the "sprinting contest" between legislators and corporation lawyers?

40. "It is a great mistake to confuse the corporation problem with the trust problem." What are some of the issues of the corporation problem? What are some of the issues of the trust problem?

41. Why should we be concerned with preventing certain kinds of interlocking directorates? Should we try to prevent all interlocking directorates?

42. Why do the corner grocer, the druggist, the barber give us no great concern? Are they made of sterner moral fiber than are the railroad magnate or the trust promoter ?

43. "The necessary inference from the foregoing analysis is, then, (1) that combinations are inevitable, (2) that regulation is equally inevitable.” Do you agree?

44. "In some cases probably the regulation of trusts will have to go as far as the limitation or the fixation of selling prices. But in any case, (1) profits of promotion will have to be limited; (2) the issues of securities supervised; (3) the separation of ownership from control; through various combinations of securities, prevented; (4) full publicity required; (5) interlocking, directorates prohibited-though this is likely to avail little; (6) adequate taxation imposed; (7) progressive participation by government in the dividends provided for." Explain the significance of each proposal.

45. Compare the program for limiting the evils of the trust in 1900 (Selection 304) with the program of 1913-14 (Selections 305-8). What are the outstanding points of similarity? Of difference?

46. "The history of trust legislation represents an attempt to restore competition and to regulate its plane." Do the Sherman Act, the

Seven Sisters of New Jersey, and the Acts of 1914 bear out this statement ?

47. Characterize the policy underlying the trust legislation in this country. 48. "Concentration of private control of industry is merely one device to enable the modern business man to meet the risks of his day." Is this true? If true what does it accomplish?

49.

"After all, is there concentration of control today? Such things are relative. Is control concentrated in relation to the size of the market and the scale of production ?" What is the answer?

B. The Corporation as an Instrument of Concentration

275. CONTROL BY A DOMINATING SPIRIT'

In other cases a single enterpriser dominates the corporation and wields full authority. The stockholders elect his candidate to office, the directors defer to his judgment, the officials act as his agents. His position may be firmly entrenched by outright ownership of a majority of the voting shares, or it may rest upon personal influence over the owners of voting shares sufficient to carry elections. In these "oneman" corporations the theoretical division of authority and function becomes a legal fiction. Practically, the dominating head of affairs, who may not be an officer or even a director, corresponds to the old capitalist-employer, except for the fact that he furnishes a far smaller proportion of the capital, carries a far smaller proportion of the pecuniary risk, and performs a far smaller proportion of the detailed labor of superintendence. These limitations do not restrict, but on the contrary enhance, his power, because they mean that the individual who "owns the control," or dominates those who own it, can determine the use of a mass of property and labor vastly greater than his own means would permit.

Thus, while the corporate form of organization has made a theoretical division of the leadership of business enterprises among several parties at interest, it has also made possible in practice a centralization of power. The great captains of finance and industry wield an authority swollen by the capital which their prestige attracts from thousands of investors, and often augmented still further by working alliances among themselves. Among the enterprisers of the whole country, this small coterie exercises an influence out of proportion, not only to their numbers, but also to their wealth. The men

Taken by permission from W. C. Mitchell, Business Cycles, pp. 33-34. (University of California Press, 1913. Author's copyright.)

at the head of smaller enterprises, while legally free to do as they will with their own, find their field of initiative limited by the operations of these magnates.

See also 136. Types of Business Organizations.

138. Classes of Corporations.

276. MINORITY CONTROL

A1

It appears from the evidence that, where the property is not held under a voting trust and where the stock has its voting rights, a small fraction is able to control a corporation if the holdings are widely scattered, and that this is due mainly to the supineness and absence of initiative of stockholders in protecting their interests.

In this connection the officers of great life insurance companies were called [before the committee] and extracts from the minutes of their meetings of policyholders were produced, with the following results:

NEW YORK LIFE INSURANCE CO.

The Equitable Life Assurance Society has about 500,000 policyholders; approximately 25 to 50 vote at annual elections; the agency force is about 5,000. As the result of extraordinary efforts to get out a vote, they sent out 500,000 requests for votes, with stamped envelopes for reply, and in response received 22,000 votes.

'Adapted from the Report of the Committee to Investigate the Concentration of Control of Money and Credit, February 28, 1913, pp. 145-47.

The situation that exists with respect to the control of the so-called mutual companies is in a modified way illustrative of all great corporations with numerous and widely scattered stockholders. The management is virtually self-perpetuating and is able, through the power of patronage, the indifference of stockholders, and other influences, to control a majority of the stock.

An interesting case of concentration of control in my personal experience is the following:

A corporation with an authorized capital of $5,000,000, half preferred, half common, each stock voting unrestrictedly, had, after its first year of organization, a total number of 14,000 stockholders.

Fourteen thousand notices of the annual meeting procured an attendance of 12 stockholders. Of these 12 but one stockholder, holding one $10.00 share, demanded a detailed financial statement, and when asked for the reason of his intense interest confessed that he wanted details only to assist him in forming a similar corporation in the church of which he was minister.

277. PREFERRED STOCK AND CONCENTRATION OF

CONTROL
A2

In most corporations all the stock is of one class and each share has an equal right to its proportion of the assets and earnings. Such stock is called "common" because no share has any privileges which do not attach to all the other shares. In general, common stock may be defined as stock which does not possess any special or peculiar rights.

Other corporations, however, set aside certain amounts of stock in a separate class and grant to this class specific privileges. Such stock is called preferred. The usual preference consists in giving a fixed dividend to the stock preferred before any payment whatever is made to the common stock. This dividend may be "cumulative"; that is, if profits are not enough to pay it in full in one or more years, the unpaid portion remains as a claim against earnings that must be settled before any payment is made to the common stock. Or it may be "non-cumulative"; that is, if profits in any year, including usually

'Taken from an unpublished statement of Julius Kahn.

2

Adapted by permission from W. H. Lough, Corporation Finance, pp. 71–73. (De Bower-Elliott Co., 1909. Author's copyright, 1917.)

the accumulated profits of preceding years, are insufficient to cover the preferred stock dividend, the unpaid portion is wholly lost to the preferred stockholders, no matter how large the earnings in succeeding years may be.

The stock may be preferred as to assets, as well as dividend, or as to both.

It may be a convenient means of separating a company's stock into different voting classes. Sometimes the preferred stock has no vote at all; sometimes it elects a limited number of stockholders. In either case the owners of the majority of the common stock may elect a majority of the board of directors. Therefore, a much smaller interest will control the business than would be necessary if all the stock issued voted alike.

BI

The New England Investment and Security Co. controlled the following properties:

The Worcester Railways and Investment Co., which controlled: The Worcester Consolidated Street Railway Co., which leased:

The Worcester & Webster Street Railway.
The Webster & Dudley Street Railway.

The Springfield Street Railway, a consolidation of:
The Western Massachusetts Street Railway.

The Springfield & Western Street Railway.

The Milford, Attleboro & Woonsocket Street Railway.
The Interstate Consolidated Street Railway.

The Attleboro Branch Railroad.

The whole outstanding common stock represented a par value of $100,000. The preferred stock, largely held by investors in Springfield, Worcester, and Boston-"the public"-and of a par value of $4,000,000, was legally in the position of a minority.

The owners of the 1,000 common shares selected four of the seven trustees, and the owners of the 40,000 preferred shares selected but three.

It was possible thus for the owners of a majority of the $100,000 common stock to dictate the policies of this group of railways that comprised a capital of over $4,000,000.

See also 127. Types of Investment Credit Instruments (Stocks).

'Taken by permission from G. J. Shoholm, The Boston Social Survey, p. 10. (Author's copyright, 1916.)