AYTON AMENDMENT TO CLAYTON ACT. FRIDAY, JANUARY 14, 1921. COMMITTEE ON INTERSTATE COMMERCE, UNITED STATES SENATE. The subcommittee met at 10 o'clock a. m., pursuant to adjournment, Senator Townsend (chairman) presiding. Present: Senators Poindexter, Kellogg, Smith of South Carolina and Stanley. The CHAIRMAN. Mr. Plumb, the committee will be glad to hear you now. STATEMENT OF GLENN E. PLUMB, COUNSEL ORGANIZED RAILWAY EMPLOYEES. Mr. PLUMB. Mr. Chairman, I appear to present, so far as I can, the views of these organizations on the proposed amendment to the Clayton Antitrust Act, as expressed in the so-called Frelinghuysen bill. Before beginning my statement I want to say that I listened to the testimony of Commissioner Clark, and that we commend all of the suggestions as to changes in the Frelinghuysen bill that were made by the commissioner. The CHAIRMAN. You say you do commend them? There has grown up in the administration of our railways a general custom prevalent with most railway officials and directors whereby such officials and directors have become interested in or also represent concerns with which the railways have dealings. So general is this custom that we find now represented upon the railway directorate groups of men who also act as directors for financial institutions and manufacturing and contracting concerns with which the railway company represented by such directors must necessarily have extensive dealings. A few years ago, in the 20-year period prior to 1900, these officials and individuals were in many cases personally interested through the ownership of stock or securities in both the railway company which they represented and the concerns with which the company had dealings. In the past 20-year period this is becoming less and less the standard state of facts. To-day railway directors and officials have little or no personal interest in the railways they officer and in all probability smaller personal interests in the outside concerns in which they also are officers and directors. As the railways have gradually passed into the control of great financial interests under gradual absorption of railway corporations into great groups or systems under the control of a single or associated group of financiers, with this centralization it has become the custom to appoint men of recognized or supposed management ability as directors or officials of the railways these interests control, regardless of the extent of the personal investments of such appointees in the properties they were managing. In like manner control of the great supply corporations has been acquired by the same financial interests and these industries are also officered and directed by men selected by the financial interests. I desire now to quote from an editorial received last night which sets out these facts. Senator POINDEXTER. What is that editorial from? Mr. PLUMB. This is from the Iowa Homestead, the Pierce publication: The first thing to consider in this connection is the close interlocking of New York banking and railroad interests. Three New York financial institutions J. P. Morgan & Co., the Chase National Bank, and the National City Bank-with their various subsidiary or closely affiliated banking corporations, have 267 directorships on 92 leading railroads. This does not include the chief Vanderbilt directorships, which would bring the total of railroad directorships connected with leading New York financial institutions well over 300. This will serve to indicate something of the surprising concentration of railroad control in the hands of those generally described as "the Wall Street interests." The second important point to consider is that these same financial interests hold at least 54 directorships in leading railway supply and repair companies which furnish locomotives, rails, rolling stock, and other equipment to American railroads. They are represented by two directors of the board of the immense Baldwin Locomotive Works at Philadelphia; by four directors of the American Locomotive Co.; by four directors of the American Brake & Shoe Factory; by six directors of the Midvale Steel Co (which controls the Cambria Steel Co.); by three directors of the Westing house Brake Co.; by four directors of the Bethlehem Steel Co.; by three directors of the United Steel Corporation: and so on and on throughout the list of impertan railroad supply and repair concerns In addition to the directorships held by the New York banking group these various equipment companies (theoretically competitors) have interlocking directorships among themselves, thus tying up two or more of the various companies the closer together. For example, William H. Woodin is president of the American Car & Foundry Co., and also on the executive committee of the American Locomotive Co. and a director of the Canadian Car & Foundry Co. In these same three equipment companies the Morgan banking group and the National City Bank of New York City also have each five directors. So, also, S. M. Vauclain is president of the Baldwin Locomotive Works and a director of the Westinghouse, Midvale, and Cambria companies. The Pullman Co. is also closely connected with this vast combination through the presence on its board of directors of H. S. Vanderbilt and J. P. Morgan. Furthermore, many of these railroad-equipment companies have subsidiary companies which in turn furnish them with their supplies. For example, the Baldwin Locomotive Works owns the entire capital stock of the Standard Steel Works, that manufactures the steel ties, wheels, springs, and castings which the Baldwin Co. uses. The American Locomotive Co. has a similar subsidiary corporation (the Penn Seaboard Steel Corporation), while the American Steel Foundries Co., in addition to seven plants in various parts of the country, has recently acquired a controlling interest in the Griffin Wheel Co., the largest manufacturers of steel wheels in the world. So I might go on, showing how these various financial and manufacturing interests dovetail into each other, forming a stupendous combination that absolutely dominates the railroad repair business of the United States. But enough has been given to show that material which is supposedly charged at cost may carry several profits to subsidiary companies. Thus there are cumulative profits found in the prices charged by equipment and repair companies to the railroads, forming a tremendous load of graft and waste, for which the public must eventually pay in the form of freight and passenger rates. I just stated previously that in the past 20 years the tendency of railway officials and directors to become less and less personally interested in the roads that they managed had developed to such a point that now in many cases they have no interest at all. I will give one illustration to show how far this new custom has gone. The Chicago, Burlington & Quincy Railroad Co. is officered and directed by a very substantial and responsible group of men of recognized skill and ability in the operation of railways. Not one of these men from the president down has a dollar invested in the railway properties they are managing. Each one holds legal title to a certificate for five shares of stock in order that he may be qualified to act as director or official Senator KELLOGG. Will you give the names of the C., B. & Q. directors? Mr. PLUMB. I have not that list of names here, Senator. This was. the testimony of Hale Holden, president of the C., B. & Q., before the Interstate Commerce Commission about a month ago. Senator KELLOGG. You know that none of the C., B. & Q. stock is on the market, do you not? Mr. PLUMB. There are only about 1,700 shares. Senator KELLOGG. Practically none. It is all owned by the Northern Pacific and Great Northern. Mr. PLUMB. I was just about to make that statement. The CHAIRMAN. You might get the names of those directors and put them in your testimony. Mr. PLUMB. I shall be glad to do so. The names of the officials of the Chicago, Burlington & Quincy are as follows: Hale Holden, president; Thomas S. Howland, vice president, secretary, and treasurer; O. N. Spencer, principal attorney. The names of the 13 directors are as follows Howard Elliott, Hale Holden, Charles E. Perkins, Louis W. Hill, Frederick H. Rawson, Oliver N. Spencer, Robert J. Dunn, Ralph Budd, Thomas S. Howland, Jackson E. Reynolds, William M. Baldwin, Claud G. Burnham, C. W. Bunn. These are the officials and directors of the C., B. & Q., and while they hold legal title to five shares of stock each, the stock does not belong to them. The equitable title to the stock rests in the Northern Pacific and Great Northern Railway Corporations. That corporation owns over 98 per cent of the capital stock of the C., B. & Q. Senator STANLEY. That very stock ownership was a question under discussion in the Northern Securities case, was it not? Mr. PLUMB. That was one of the questions. Senator KELLOGG. But that has always been held legal. Senator STANLEY. I understand; it just occurred to me that those were the roads that figured in the Northern Securities case. Mr. PLUMB. I am not citing this interest as being anything intrinsically wrong, but to show how in this great development great financial interests have controlled great railroads and entire systems so that the men who manage and direct its properties no longer have interest in the railroad properties they are directing. In 1913-and this was taken from evidence before the Interstate Commerce Commission available at that time, but it has not been brought down to date; I do not know what changes have occurred since 1913-there were 11 directors of the Burlington who were also the directors in 25 industrial concerns, notably the Car Trust Invest ment Co., Great Northern Iron & Ore Co., Lehigh & Wilkesbarre Coal Co., Pennsylvania Coal Co., Philadelphia & Reading Coal & Iron Co., the Pullman Co., and the United States Steel Corporation. These same men were also directors in 26 financial institutions. I do not know to what extent these necessarily conflicting interests are represented by the same men upon the directorate of the C., B. & Q. to-day, but it is perfectly apparent in the case of the C., B. & Q. that they have no personal interest in the railway property they are administering. When they have outside personal interests in other concerns dealing with the railways, it is admitted by all concerned that such a dual interest joined in the same individual is a constant temptation to the men possessing such interest to benefit personally out of transactions between the carrier and the concerns furnishing supplies. The extent of this temptation is the evil which section 10 of the Clayton Antitrust Act sought to correct. It is the avowed purpose of the Frelinghuysen Act to afford a protection against this evil equivalent to or more effective than that provided for in section 10. If these same men who are directors in the railways with no interest in the properties they administer are also selected by the same financial interests that place them in their railway positions to administer the affairs of the supply concerns, as the hired agents and employees of the financial interests controlling both the railways and the supply concerns, the situation is even worse than it would be if they represented only their individual interests, for it is impossible to have the ownership of the Baldwin Locomotive Works and the railways which it supplies join in a single controlling financial interest without one industry or the other suffering. Since the Government has retained and is exercising the right to regulate the railroads and the profits arising from the operation thereof, but has not attempted to regulate the operation of the Baldwin Locomotive Co., or the profits arising from its activities, it is absolutely certain that if one interest controls both the railways and the Baldwin Co. it will command the officials that it has selected to manage both properties to so conduct their operations that the unregulated industry will absorb all of the profits that it can get from the regulated industry, in order that the interest controlling both may be best served. The growth of consolidated railway systems for the past 20 years has brought under one single controlling management great numbers of railways that are subsidiary to this single management that formerly were independent organizations. The Pennsylvania is a good illustration of that. The benefits which would naturally result from such consolidations, which all of us recognize, depends upon complete cooperation between the various subsidiary carriers which make up the larger carrier system. It is naturally in the interest of the common good that the utmost freedom of cooperation should be allowed to all carriers so affiliated in a single system, and that the parent or controlling company should be permitted to purchase equipment and material for all of its subsidiaries as their joint exigencies would require, and that the benefits that accrue from such larger purchases should be distributed to the subsidiaries at the reduced price which larger purchases make possible. |