REGULATION OF CORPORATIONS DISCUSSION BY THOS. H. HOGSETT, OF CLEVELAND; CHARLES T. "What restrictions, if any, could be placed upon the purposes of corporations existing and to be formed under State laws, and also upon their methods of management, which would not only promote the interests of the State, but render Federal regulation unnecessary?" ADDRESS BY JUDGE HOWARD C. HOLLISTER. Mr. President, Ladies, Gentlemen of the Ohio State Bar Association: Please permit me, before taking up my paper, to acknowledge the compliment in the request to read it, and to express my fear of its inadequacy. The last twenty years have seen the growth of gigantic industrial organizations, practically monopolies, either by force of the number of interests centering in them or through the advantages large capital always has. The signally successful example therefore set by the Standard Oil Company of combining into one organization many of the operators in the business of refining and transporting crude natural oil, followed by combinations of operators in other natural products and of manufacturers all over the country, have resulted in concentrating in the hands of a comparatively few concerns practically the entire important business industries in the nation. The first form these combinations took was a trust pure and simple, long since held to be illegal because ultra vires of corporate powers1 and a combination to suppress competition and 1 People v. North River Sugar Refining Co., 121 N. Y., 582. control prices.2 Most of the important industries have become incorporated for the many reasons which make the corporate form of doing business desirable. The present usual forms are corporations owning all of the property or owning the stock or a majority of the stock, of the constituent companies, organized under the laws of one of a few states, passed for the purpose of making incorporation easy and practically free from any effective provision for supervision or control, granting license at small cost to do business anywhere, with powers almost as broad as pen and ink and the ingenuity of lawyers can make them, doing little business in the state of incorporation, and generally, accorded all the protection and freedom of action which the rules of comity between the states give to aliens and citizens of foreign states. By no means sinister was the purpose which brought many of these organizations into being; they evolved naturally from conditions which were themselves a natural growth. The construction of transcontinental railroads, the multiplying of railroads in all parts of the country, the telegraph, the telephone, and the improvements in all of these and the thoroughly organized national mail service had brought the far parts of the country close together. The keen, far-sighted American business man with that spirit of self-direction, self-initiation and self-perfection so justly attributed to him by acute observers,3 alive to every chance to increase his opportunities, sending his salesmen to all parts of the country, in touch with all the latest information concerning his line of trade, observant of improvements in methods and machinery at home and abroad, easily perceived the immense saving of cost in production and of expense of administration by the organization of competitors into one company. He saw, too, that his profits would be thereby increased in stability and amount. The combination came naturally and as naturally took the corporate form. 2 State of Ohio v._Standard Oil Co., 49 O. S., 137; The Distilling & Cattle Feeding Co. v. People, 156 Ill., 448. 3 "The Americans," Prof. Hugo Munsterberg; "Anglo-Saxon Supremacy, Edmond Demoulins. The number of these, the thousands of millions of dollars represented by them, the extent of their operations covering even many commodities and products which always were, or have become in our country, necessaries of life, have startled the nation. They are practically monopolies and will in time, as the system is extended have it in their power, unless checked, to each completely dominate its peculiar field. They are the modern industrial trusts so-called, and for the purposes of this discussion, railroads are in the same category. In most cases they are capitalized far beyond the value of their property. Blocks of stock costing nothing given to promoters, to bankers for underwriting, and to buyers of bonds as bonus, valuable in many instances only for control or for possibility or probability of dividends in prosperous times, vouched for even by names which should stand for proper dealing, are sold to a credulous, uninformed public to become later the means of great enrichment of the creators and even of the directors of the corporation when they enhance or depress the value of the stock in the market. These are direct wrongs to investors in such stock and the stockholders towards whom the directors sustain relations of trust. The evils generally of monopoly need no elaboration here. It may be said briefly that monopoly injures the producer who has but one purchaser and the consumer to whom the price is arbitrarily fixed at a figure large enough to pay dividends on watered stock or to provide exorbitant profits, and labor is kept at as low a price as possible for the same purpose. When the control and direction of business is in a few hands, the characteristic qualities of our people have no way of expression. Their individuality, independence of action, and spirit of enterprise, no longer directed to the development of business for self, cannot operate freely, for the opportunity is taken away, and men richly endowed with all of these qualities must content themselves with salaries for doing the business of others. Often these are princely in amount, but the large rewards must necessarily be few. 4 United States v. Missouri Freight Association, 166 U. S., 290, 322, 323, 324. The young men who heretofore began business for themselves on moderate capital, with all the opportunities our great country has given them to develop their marked trading instincts, see little ahead but clerkships for themselves and for their boys as they come on. But other evils worse than these mark the growth of these industrial enterprises. The possession of enormous fortunes, quickly made by the men in all parts of the country, who, too often do not appreciate the responsibilities of wealth, whose notions of success are measured in terms of dollars and whose happiness is sought in pursuit of pleasure or ostentatious display and wasteful expenditure of money, has provoked the envious emulation of almost all classes of people. If the dollar is the standard of living, then that must be made at any cost. The old standards of living, of respectability, of proper-mindedness, of patriotism, the qualities we were taught made great men, have apparently given way to a social condition in which the man with the most money occupies the highest place. But the man who puts his plant into a combination, even at a price in excess of its value, and makes money thereby as well as through monopolistic profits is properly to be subjected to little criticism, although the public welfare may require some control over the management and operation of the new concern. If that were all, scruples on his part would be highly quixotic. It is not so much of him people complain, if his conduct, when wealth has come, shows reasonable appreciation of the responsibilities attending its possession, and, indeed, he may be ignorant of, or helpless in, the knowledge of the fact that his concern has become a monopoly, or of the methods by which that result was brought about. The chief objection is to the unfair advantage taken by many great corporations and combinations of manufacturers through which they have established themselves in commanding positions in their respective lines, until their power has grown almost governmental in its operation and influence. Secret agreements to ruin certain competitors, reduction of prices in certain localities below the cost of production to effect the same purpose, combinations with others to make competition difficult or impossible, favorable discrimina tion in the cost of transportaion, rebates of rates from the railroads of one kind or another, improper private switching charges, extortionate charges for the use of private freight cars, access to lines of credit denied to competitors and hostile to them; these and other abuses of which information has slowly come to the people, have built up a number of monopolistic corportions of enormous power and influence, to the destruction of their competitors and the detriment of the public. A mighty instrument for gain and aggrandizement for such concerns and for others more local in their operation, such as public service corporations in municipalities, has been and is their control of, at least local, political party organizations. The rise, growth and domination of the trust and of the so-called political party leader have been coincident. The unscrupulous business man, clothed with corporate powers, seeking and obtaining special privileges, has created the so-called party leader, and the two have grown fat together. Their operations are mutually dependent and their pecuniary gain reciprocal. Time and space forbid a particular discussion of this subject, nor is it necessary, in this presence, to demonstrate its pertinency to the industrial, social, economic and political situation which confronts the country, or its bearing on the welfare of our people and our institutions. Says Mr. Carter Harrison: "The evils of American government are many and apparent, nor is the cause of their existence difficult to trace. Within a decade municipal government in practically every city of the land has been openly indicted as corrupt and criminal. The blame for these may fairly be laid at the door of commercial politics."5 The evils, however, underlying monopoly and contracts and combinations in restraint of trade are, in the eyes of our law, the suppression of competition and the enhancement of prices, either because they bring such results about, or tend to do so, or have these things within their power, and the attendant detrimental results to the people. 5 Address at Yale University, March 9, 1905. |