of management from those acquainted with the intimate problems of the individual property to subordinate government officials. The report of the Commission's Finance Division upon the application of the Northern Pacific for authority "to issue not exceeding $115,534,300 of refunding and improvement mortgage bonds, 5 per cent, series C; said bonds to be sold at not less than 90 per cent of par and accrued interest, and the proceeds thereof used to redeem at 1032 per cent of par outstanding joint 62 per cent bonds of the applicant and the Great Northern Railway Company," contains an incisive, though brief statement of principle:

"The applicant represents that the retirement of the joint six-and-ahalfs, as proposed, will materially reduce its future interest payments and that, therefore, in the judgment of its officers, directors and financial advisers, it is wise so to retire them. It may be that, at some future time, such retirement could be effected on more favorable terms and with greater interest savings. But corporate policy, in a case of this kind, must be determined by the carrier's directors. And since the responsibility for that determination rests with them, we do not feel that the substitution of our judgment for theirs would be warranted."1

No other holding, indeed, would be consistent with the final clause of each order authorizing an issue of securities: that noth

1 Bonds of Northern Pacific Ry. Co,, decided May 3, 1922, 71 I. C. C. 583. To the earlier report on the refinancing of the joint control of the C. B. & Q. by the Great Northern, which had approved the issue of joint 6s, Commissioners McChord and Eastman appended dissenting opinions, which insisted that the Commission should limit the interest rates authorized to 6 per cent. Commissioner Potter, in his concurrence, commented on this proposal in clear language:

"The intimation that a forced refunding on a 6 per cent basis should have been resorted to suggests a policy of repudiation which should not be encouraged by us. In this country the investor has the right to choose the investments which he will make. When, as in this case, he is entitled under the contract which he holds to receive a definite amount at a certain time, he has the right to demand that amount in the medium which his contract provides. To force an investor to receive in payment of his debt another security worth only 80 or 90 cents on a dollar would represent a policy of dishonesty which we, on behalf of the American public, have no right to enforce and approve."

Securities of N. P. Ry. & G. N. Ry., 67 I. C. C. 458.

Commissioner Eastman's opinion that the Commission should inquire closely into the details of the proposed security issues is also illustrated in his dissent to the D. & R. G. Wn. Stock Issue Case, Stock of Denver & Rio Grande Western R. R., 70 I. C C. 102.

"In supervising the issue of securities by a newly organized railroad corporation, it will, I think, be conceded that we ought not to permit the company to begin its career with a burden of fixed charges which it cannot carry, or with too narrow a margin for the stockholders' interest."

ing contained in the order shall be construed to imply guaranty or obligation on the part of the United States.

8. The issue of encroachment on the field of management appeared also in the Pan Handle Lease Case. There the Commission by a vote of 6 to 5 approved a 999 year lease of the Pan Handle to the Pennsylvania, which owned 98.3 per cent of the stock, attaching to the approval the condition that the Pennsylvania interests should not dispose of the Pan Handle stock without, the consent of the Commission. Such a condition had previously been attached to approval of a lease of other Pennsylvania System property without dissenting opinion.1 In that case, however, the Pennsylvania had owned all the stock, whereas in the Pan Handle case a small minority interest had opposed the lease. The Commission's report does not appear, however, to have attached great weight to this consideration. The report

is indeed a curious document. Five Commissioners dissented, and three subscribed to a concurrence which approved the lease, but protested against the condition requiring the permission of the Commission before the stock could be sold. Commissioner Potter voiced this protest:

"We say it is a good thing to put the properties together. We don't even say that the stock ought not to be sold. We recognize that perhaps it should be sold-but only with our consent. We say the Pennsylvania may acquire the Pan Handle by lease if it will turn over to us the right to say whether an asset consisting of shares of stock shall be continued in its present form for 999 years or be converted into something else. To my mind this is an invasion in management in the field of company policy which has not been authorized and which properly was withheld from a governmental agency."

1 Acquisition of Control of the N. Y. P. & N. by the Pennsylvania, 70 1. C. C. 299.

2 "We do not consider it necessary to discuss our responsibility in protecting the interests of minority stockholders who may object to proposed action on the part of a carrier corporation, inasmuch as it is our view that the granting of the authority herein requested will not be inimical to the interests of any of the interested stockholders." Lease of the Pan Handle by the Pennsylvania R. R., Fin. Docket No. 1466, der ded July 10, 1922, 72 I. C. C. 128.

3 Commissioners Campbell, Daniels and Hall justified their dissenting opinions in terms which indicate their belief that the Commission was seeking to exercise a power it did not "ossess. Commissioner Potter's explanation of his vote in favor of the report containing the condition to which he objected is as follows:

"The explanation of my vote in favor of the report containing the offensive condition is this. Perhaps the applicant will desire to proceed

The Pennsylvania indicated that it would contest the lawfulness of the Commission's order in the courts.

§ 9. These, then, are the important general restrictions. How is adherence to their requirements provided? The Act sets up both civil and criminal liability in order to create a motive for a director to direct. Presumably he will direct because it is to his interest to direct: fines are provided as penalties to be assessed against directors or officers who "knowingly vote for" or "direct" a violation of the Clayton Act; the fine penalty is supplemented by imprisonment for knowing assent to or concurrence in an issue of securities not authorized by the Commission, issued contrary to Commission order, or for unauthorized use of the funds derived from the sale of securities approved by the Commission. Fine and imprisonment (one or both) are also provided in the event a director or officer knowingly "authorizes, consents to, or permits" a violation of the law requiring a certificate of convenience for the building or acquiring of additional mileage. Similar penalties attach (1) to holding position as officer or director in more than one carrier, except as duly authorized; (2) to benefiting personally from the sale or negotiation of securities; and (3) to paying dividends from capital account, whatever that may mean. Civil liability may attach whenever a security has been issued or a liability assumed by a carrier without proper authority, or contrary to the terms of authorization. A holder for value, in good faith and without notice that the issue or assumption is void (a security, for the issue of which the Commission's authority is required, is void if issued without this under the report. The application has been before us for a long time. Bad as I think is the report, it seems to be the only way by which the applicant can obtain what I conceive to be even partial justice. Perhaps the applicant will conclude that the condition is illegal, as I am strongly inclined to think it is, and that it may be disregarded, as seems to me it may. Whatever we may think of our power we are not above the law. The courts may intervene in a helpful way. And then, too. it may be that sometime within 999 years this Commission will be composed of men whose views do not accord with ours. Perhaps other men at another time will correct our error. I even indulge the hope that with further consideration we may change our mind. The report is no worse than a denial and it may be helpful to have our views understood. So I vote for the report in its present form rather than for a denial."

With him concurred Commissioners Cox and Lewis. Commissioner Eastman, with whom Commissioner Aitchison joined, dissented because not believing in the lease device. With the "intent" of the condition attached he expressed himself as "in entire accord." All in all, it was indeed a "freak opinion" as the newspapers called it.

authority having first been obtained) may hold the carrier, and, as well, the directors and officers who participated in the authorization or disposal of the security. Where the possibility of fine or imprisonment for a failure to "know" might not necessarily call forth an inquiring spirit, the imposition of civil liability doubtless insures a canvass of the situation by directors.

CHAPTER XXV

THE ADJUSTMENT OF LABOR DISPUTES

Section 1. The Railroad Wage Bill, 372-Sec. 2. Federal Control and Labor, 373-Sec. 3. The National Agreements, 374-Sec. 4. The Railroad Labor Board, 376—Sec. 5. The 1920 Wage Advance, 381—Sec. 6. Abrogation of the National Agreements, 383-Sec. 7. The Pennsylvania Election Dispute, 387-Sec. 8. Contracting of Maintenance, 388Sec. 9. Wage Reductions, 1922, 390-Sec. 10. Coöperation, Labor Board and Interstate Commerce Commission, 396.

§ 1. The adjustment of labor disputes by a government agency is concerned with problems of discipline, working conditions and wages. Regulation has not, however, invaded a field in which the responsible executive has previously exercised full control. Before 1920 his independent exercise of discretion had already become much circumscribed as strong labor organizations were developed and were recognized as negotiating bodies. The clear enunciation of the continuity of service principle was, indeed, the result of a law passed under pressure from labor organizations and over the protest of the railroad managers.1

Logically, too, an orderly method of disposing of labor disputes must be a part of any comprehensive scheme to rehabilitate railroad credit. This is in part because the sums paid as wages and salaries occupy a large place in railroad costs; in part also because strikes, or even threats of strikes, causing business concerns to hesitate to make shipments, demoralize operations and cut into earnings. The risk of buying into a strike when buying railroad securities must be compensated for in the rate of return offered investors. To minimize the possibility of strikes is to minimize one element of risk which the investment market regu larly discounts.

The importance of the labor problem in any rehabilitation of credit, based upon the rule of rate making, arises from the con1 Wilson v. New, 243 U. S. 332.