The Milwaukee and Fox River Valley Railway Company petitioned for a certificate of public convenience and necessity for an interurban railway. The commission granted the certificate with the decision: "While the project involves many uncertainties, these uncertainties do not create a risk of such magnitude as to justify the commission in denying promoters and investors the privilege of assuming it. . . ."1 The territory to be covered by this company was already practically entirely served by the Milwaukee Northern Railway, and the decision is therefore interesting as showing that the commission will allow competition where it believes there is business enough for two. The opinion went on to say, however, that there would be no rate-cutting or destructive competition in this instance, because the commission has the power to fix rates.2

One noteworthy fact in connection with this problem is that in Wisconsin the "public convenience and necessity" idea does not extend to telephone companies. "These alone are left in a class by themselves, supposed to be governed by the ordinary laws of competition." 3 No explanation for this exception is offered either by the commission or by the original law. It is also to be noted that there is a possible appeal from the commission's decision to the circuit court of Dane county, and from there to the state supreme court.

In New York the principle above outlined is definitely extended to all public-utilities companies. One example will suffice to illustrate the principle upheld. The Hudson River Electric Company petitioned for permission to exercise rights granted them by a franchise issued by South Glens Falls to light the streets of that village. The public service commission decided:

The village of South Glens Falls is now being served and has for years last passed been served with the electric light of the United Gas, Electric Light & Fuel Company of Sandy Hill and Fort Edward, N.Y.. The said company has a plant sufficiently adequate to supply proper service to the said village... and no reason exists why the applicant should be allowed to light therein."

The commission then ordered the existing company to furnish light at the rate proposed by the applicant.

1 Ibid. Decision, Milwaukee and Fox River Valley Railway Co.

Some states, far from recognizing the monopolistic character of public utilities, have attempted to maintain competition among them. For example, Missouri has a statute preventing any railroad from owning, controlling, or operating a parallel or competing line. Section 41 of the Oklahoma state constitution prohibits public service corporations from holding or controlling in any manner whatever the stock of any competitive corporation engaged in the same kind of business. In the light of the Wisconsin and New York attitude on this question, it would seem best to allow rate-regulated competition if the field can afford business enough for two, but to prohibit in the first place the construction of the competitor if the field is clearly inadequate to provide fair profits for a duplicate equipment. Report of the Wisconsin Railroad Commission, Vol. IV (1909-1910), p. 60. Report of the New York Public Service Commission (2d dist.), 1909, Vol. I, p. 660.

In another decision of the New York commission a further development is seen. When the North Shore Electric Light and Power Company asked for permission to furnish power in a territory already served by the Port Jefferson Electric Light Company, it was shown that the latter's service was inadequate, that the plant needed improvements and additions, that rates were discriminatory, and that the business methods were lax. The commission denied the application, provided the Port Jefferson Company present within ten days a resolution of the board of directors promising without complaint to obey any order of the commission within six months from date, requiring additions, improvements, etc. The company furnished the resolution requested and the application of the competitor was refused. In a similar case decided some time previous, the recommendations of the commission following the refusal of the competitor's application amounted to a practical renewal of the entire plant and equipment as well as a reorganization of the company's whole business system.

Thus in states existing side by side we may outline the evolution of commission regulation: (1) states without a railroad or public utilities commission of any sort (six); (2) states having power to enforce changes in service, rates and equipment (twenty-eight); (3) states that may regulate security issues for new enterprises but may not pass upon the social necessity of the undertaking for which they are issued (eleven); (4) one state that may in addition determine whether public convenience or necessity demands the new project, if the applicant is a common carrier (Wisconsin); (5) one state that may apply this test to all public utilities, and use the power to grant or refuse such a certificate as a whip to compel adequate service from the resident company (New York).

Blue-sky legislation applies to all companies the principle evolved as a middle step in public utility regulation. It will be interesting to see whether other steps of this series are ever given a universal application, whether a commission be given power to fix prices and regulate the output of industries (as was indeed suggested in the last presidential campaign), and whether the monopoly principle be recognized here too as in the case of public utilities.

1 Report of the New York Public Service Commission (2d dist.), 1910, Vol. I, pp. 782, 783.

INTERLOCKING CORPORATIONS

BY HAROLD M. BOWMAN OF THE NEW YORK BAR

(From the Michigan Law Review, February, 1913)

Once more a striking phrase has suddenly become a part of our everyday speech and with it a cause, though it is as yet a more or less indefinite cause, has found a measure of prosperity. It is an effective phrase, one in which an advertising agent or a seeker of political catch words must take a pure delight. "Interlocking directorates." You do not have to hear it often to find yourself thinking of the boards of directors of many of the big corporations in the land as mortised and fitted to work in perfect unison - an interlocking, interchangeable, intercorporate marvel of the joiner's art. Nor does the imagination far outstrip the facts. In every city of any size how many interlocking corporations are there? How many are there in the big cities; some of state-wide importance, some of national or even international influence?

The Steel Corporation, for example, is a morsel to roll under any man's tongue. Here is the way it impresses one militant journalist:

The Steel Trust's advantage over competitors of three dollars a ton in cost of production, due not to superior efficiency but to the ownership of certain strategic railroads and steamship lines, is greatly enhanced by its relations to many other carriers. The few men who control the Steel Corporation are directors also in twenty-nine other railroad systems, with 126,000 miles of line — more than half the railroad mileage of the United States and in steamship companies. These men are also directors in twelve steel-using street railroad systems, including some of the largest in the world; they are directors in forty machinery and similar steel-using companies; in many gas, oil, and water companies, extensive users of iron products; and in the great wire-using telephone and telegraph companies. The aggregate assets of these different corporations exceed sixteen billion dollars. Sixteen billion dollars is more than twice the assessed value of all the property of New England. It is more than one and one-half times the assessed value of all the property in the thirteen Southern States. It is larger than the assessed value of all the property in the twenty-two States, North and South, lying west of the Mississippi River, except only Texas.1

Interesting, even startling, but in a measure misleading, if these great properties are considered as being under a common control. The common control extends to a considerable part of them; with the others this relation means little more than ease of intercommunication

1 Collier's Weekly. Oct. 5, 1912. Compare the testimony taken by the Pujo investigating committee of the House of Representatives, especially that taken on Dec. 18, 1912.

or ability to respond quickly to a common impulse, for a common benefit or defense. On the other hand, the Steel Corporation is not the only sun with satellites in the American sky. There are several others.

However, the new-found phrase has proved in a measure tyrannical. As is so often the case with such phrases, being a catch-word it has bred impulsive judgment it has turned attention to one side of a big problem and has effectively excluded most others. First, it has begged the question it has created an assumption that interlocking directorates are in and of themselves undesirable. But this might be indulged, if it had not so totally obscured the big questions that lie just behind. Directors, after all, are merely the agents, or trustees of corporations. A corporation's owners are the principals. Its big stockholders and yes, begging leave, its little ones are the men behind the guns. If interlocking agents are anathema why not interlocking principals? Yet the question of common ownership is as effectively obscured as though it were almost non-existent.

The problem is more than this. Indeed it is not one but several problems. The question of intercorporate directorates, it must be granted, is a question of importance. But it is indissolubly connected with several others. The questions of intercorporate contracts, of intercorporate combinations, consolidations, leases and sales, invite thought in which the intercorporate directorate may be but incidental, a background shadow. And brooding over all is always the question of the interlocking ownership of these corporations, the interfinancial hegemony, which can no longer be obscured. Moreover each and all of these problems has two sides. Public and private interest differ and are not the same. Intercorporate directorates, intercorporate ownership, contracts between corporations having common directors or ownership, may signify one thing from the standpoint of a minority stockholder, another from that of the majority stockholder, and still another from that of the public. And all of these questions may in turn be qualified or entirely metamorphosed by the nature of the business in which, as it happens, the particular set of interlocked corporations under examination is engaged. If the corporations are smaller middle-sized merchandising corporations, the consuming public may be specially exercised at their real or imagined practices. If they are industrial corporations, labor will be particularly alert to all their doings. If they are public service corporations, they will always entertain a medley of interested inquisitors — a little bit of this, that and the other thing. If they are corporations of the secret process brand, or if they are close corporations, or if they are in any sort of business in which reticence is something more than good manners, they may experience one sort of thing - which may sometimes prove very painful - whereas if they are corporations of the banal, open-to

everybody kind, or the kind that has an assured monopoly, a perpetual franchise, and stock and bonds all listed on the stock exchange, the experience may, as a rule, be quite different. A little more discrimination than we have had thus far in the interlocking directorate controversy - which doesn't quite cover everything in the trust and corporation question may prove helpful.

Most of all, differentiation would be welcome in dealing with the concern of the stockholder on one hand, that of the public on the other. Obvious as the need of this may seem to be, it has been somewhat lacking.

The stockholder's interest in the corporation is that of a property holder, his relation to the director is that of one of several joint owners of property to their representatives and managers representatives and managers who have very full powers indeed, who can help the stockholder or hurt him beyond repair. The stockholder's prime concern is that the director shall work always and all the time for the corporation, for that means he will work for the stockholder. The director may be, and if he is a big man in the business world, he is likely to be, a director in other corporations, perhaps in several of them. That of itself may mean nothing of importance to the stockholder. The corporations in which the director is interested as director may never come into commercial contact with his own, or their contact may be in its effect neutral or even beneficial. But once the director is interested as director in a competing corporation, or in a corporation which performs a service or produces a commodity or possesses property which the other corporation desires to buy, then the situation changes immediately. The director is at once in the position of one who seeks to serve two masters whose interests are or may easily become more or less conflicting and antagonistic. Can he maintain a perfectly even balance? Will he dot every i, cross every t, do equity like a Solomon ? When contracts are made between the two corporations is there not danger that he will give one of them the better of it? The danger is a very real one, and the opportunity presented has tempted many men in just such situations to do gross fraud.

Perhaps it will be said that the stockholder has himself to blame if he permits conditions which make such discrimination or dishonest dealing easy. That would be true if the stockholder's position were that of the ordinary employer or owner. But this is not the case. While in certain respects his rights and powers are like those of such an employer or owner, in others they are entirely unlike them. Unless he owns a working majority of the stock himself he cannot say who shall be the directors; he cannot say that a part or even all of the directors chosen shall not hold like positions in one or a dozen other corporations, any or all of which may be competitors of his own