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5. Public Relations of Service Companies
The committee on public relations at the convention of the American Electric Railway Association, October, 1914, through Thomas N. McCarter, president of The Public Service Corporation of New Jersey, outlined the definite code of principles to govern relations between the electric railways and the public, which follow:
"1. The first obligation of public utilities engaged in transportation is service to the public, and the first essential of service is safety.
"Quality of service must primarily depend upon the money received in fares, which should be sufficient to permit the companies to meet the reasonable demands of patrons and to yield a fair return on a fair capitalization.
"2. Regulated private ownership and operation of electric railways is more conducive to good service and the public welfare than government ownership and operation. The interests of the public are fully protected by the authority given to regulatory bodies.
"3. In the interest of the public and good service local transportation should be a monopoly and should be subject to regulation and protection by the state rather than by local authorities.
"4. Short-term franchises are detrimental to civic welfare and growth because they ultimately
check the extension of facilities and discourage good service.
"5. Securities which have been issued in accordance with the law as it has been interpreted in the past should be valid obligations on which an electric railway is entitled to a fair return.
"6. The relation of adequate wages to efficient operation should always be recognized, but electric railways, being public servants regulated by public authorities, should be protected against excessive demands of labor and strikes.
"7. The principles of ownership of securities of local companies by centralized holding companies is economically sound for the reason that the securities of the latter have protection against the varying business conditions of a single locality or company and because money for construction and improvements can thus be more readily obtained.
"8. In the appraisal of an electric railway for the purpose of determining reasonable rates, all methods of valuation should have due consideration.
"9. Full and frank publicity should be the policy of all transportation companies, to the end that proper information may be available to the investor and the public."
6. The Right and Wrong in Holding Companies
Holding companies are corporations authorized to hold the securities of other corporations.
They are corporate stockholders which eliminate the individual. No feature of the trust system has been more severely criticized or more widely resorted to. In the order of development it came after pooling and the trust proper had failed to serve the purposes of combination to restrict competition and secure unity of control. It was the form of corporate organization in which such aggregations as the sugar, the oil, and the tobacco trusts took refuge when their original trust decrees became legally untenable. It has rendered service in each of the great fields of trust organization of industrial, railway, and public utility consolidations.
Curiously enough, the holding company is almost contemporaneous with the Sherman AntiTrust Act. In 1889 the New Jersey legislature took the unusual step of authorizing what legislatures and courts had up to that time refused to do, except incidentally or by express designation. Since that year most of the other states in selfdefense have amended their corporation laws to admit a corporation to serve in the capacity of a stockholder. The result has been that trust after trust sought shelter under this device to renew its loosening grip on corporate monopoly. Probably the worst feature of the holding company is its elimination of the body of stockholders from responsibility for the management and policy of the trust corporation. It has been pointed out that the large corporations are man
aged mainly by their executive committees. Under that system of government the management of the controlled company is conducted primarily for the benefit of the controlling or holding company, which may be and often is opposed to the welfare of the controlled companies.
This has tended also to impair public faith in these issues. "If it were asked [Samuel Untermeyer declared] what single thing is mainly responsible for the loss of public confidence in security values, I should say, without hesitation, the holding company. This financial device is not only a great evil in itself, but harbinger of other evils. It is a recent abomination, a prolific means of oppression, and the most faithful source through which minority stockholders are defrauded of their rights. But for this device, the majority of the trusts that are afflicting this country could never have been born. The holding company is the result of vicious competition between the states, which have bid against one another for the patronage of the corporations by offering the inducements of the lax requirements and improper privileges."*
By playing one state's authority against another, trusts condemned in one have sought refuge and authorization in another to do the condemned things. It will be recalled that when the Sugar Trust of New York and the Standard Oil were declared illegal by the courts back in the * Munsey's Magazine, August, 1912.
early eighties, they went to the legislature of New Jersey and obtained a statutory grant of the power of monopoly, the creation of holding companies, to take the place of the trusts which the courts had dissolved. Here we get at the source of the difficulty, in the evasive recoupment of monopoly power.
A third field of holding company expansion is found in the control of public utilities. How extensively the holding company figures in this movement is seen by the following table of values of the three main classes of utility investments in the United States:
Per cent By holding hold. companies COS.
Electric lighting...$2,111,961,000 $1,741,958,000 82.5 Gas business... 1,320,000,000 874,000,000 Traction companies 4,043,663,000 3,281,000,000 81.4
$7,475,624,000 $5,896,958,000 78.9
This form of corporate management in which nearly seventy-nine per cent of the investment of $7,475,624,000 is found, stands by itself in occupying a field of monopoly service under public regulation. Its uniqueness is the result of decades of experiment with competition. In the address already referred to Francis T. Homer stated this principle clearly, as follows:
"When, however, you pass from the holding company and the purposes which it accomplishes in the railroad, industrial, manufacturing and