contract or transaction shall be approved by a majority of such quorum. Any director of the corporation may vote upon any contract or other transaction between this corporation and any subsidiary or affiliated corporation without regard to the fact that he is also a director of such subsidiary or affiliated corporation."

Likewise the interested director of Addressograph-Multigraph Corporation (RS 1-683) is barred from voting. On the other hand, he is not by R. H. Macy & Co., Inc. (RS 2-3305), Koppers Gas & Coke Co. (RS 1-555), The Diamond Match Co. (RS 1-378).

The proposed prospectus of Tampax, Inc., was amended to include reference to the provisions of its articles of incorporation concerning transactions by its directors who might have an interest adverse to that of Tampax, Inc.:

"The corporation may enter into contracts or transact business with one or more of its directors, or with any firm in which one or more of its directors are partners, or with any corporation or association in which any one of its directors is a stockholder, director, or officer, and such contract or transaction shall not be invalidated or in anywise affected by the fact that such director or directors have or may have interests therein which are or might be adverse to the interests of this corporation, even though the vote of the director or directors having such adverse interest shall have been necessary to obligate this corporation upon such contract or transaction; and no director or directors having such adverse interest shall be liable to this corporation or to any stockholders or creditor thereof, or to any other person, for any loss incurred by it under or by reason of any such contract or transaction, nor shall any such director or directors be accountable for any gains or profits realized thereon; always provided, however, that such contract or transaction shall at the time at which it was entered into have been a reasonable one to have been entered into and shall have been upon terms that at that time were fair."-Tampax, Inc. (RS 2-2498), article tenth, paragraph 4, articles of incorporation.

F. ANNUAL MEETINGS

The place selected for the annual meeting, the required notice of such meeting and the provisions for constitution of a quorum apparently are frequently determined by a desire on the part of the management to abridge the exercise of whatever participation in management the security holders may, in terms, have under the charter.

Thus, some question may be raised as to the possible degree of participation in management policies by the stockholders of Bankers Income Shares, Ltd. (RS 2-2090), where the charter provides that at annual meetings action may be taken by show of hands of stockholders present, of whom two constitute a quorum, and notice of the annual meeting, which may be held any place, need be given only to residents of Newfoundland and by posting 24 hours prior to the date of meeting in the office of the company in Newfoundland.

G. REPORTS TO STOCK HOLDERS

A number of registration statements on file with the Commission contain reports to stockholders. An illustration of a not uncommon type of report made to stockholders is afforded by the registration statement of Bagdad Copper Corporation (file No. 2-2690). As required by the form upon which the statement was filed, copies of a series of reports made to stockholders at intervals over a 6-year period were furnished as exhibits. By an amendment to its registration statement dated December 29, 1937, the registrant disclosed the following facts with respect to the contents of these reports to stockholders. The quotations are from the amendment:

"In connection with the annual reports of the registrant as of February 10, 1930; January 5, 1931; October 1, 1932; July 1, 1933; March 5, 1934; February 2, 1935; March 11, 1935; and February 29, 1936, which are included in exhibit B to the registration statement proper, it should be noted that:

"(1) In the report of February 10, 1930, the result of a diamond drill hole was described and the statement made that it proves the existence of commercial ore' for a certain depth below the then present deepest workings at that particular point. The quotation is from a report by the then general manager of the company and registrant believes it would have been more accurate and informative to say that the average copper content of said hole was 0.62 percent copper.

"(3) (a) In the report of October 1, 1932, registrant stated that 'the ore-bearing monzonite covers about 1,000 acres of which some 500 acres are considered to be very probable productive, as indicated by scout drill holes and scattered development work,' and further stated that 'it is estimated that within this particular block of ground are developed some 48,000,000 tons of sulphide copper ore (disseminated uniformly throughout the area), containing more than 1,000,000,000 pounds of recoverable copper metal'.

"Attention is called to the fact that this estimated statement as to 500 acres being very probably productive does not concur with the Hutchinson report, which estimates 1,000 acres of monzonite, of which 400 acres can be considered favorable and 170 acres of the 400 probably productive.

"Hutchinson in his said report, estimated that in 1926 there were contained in the Bagdad area 20,935,530 tons of proven ore. After additional development by registrant in 1928, 1929, and 1930 under the supervision of George G. Thomas, its then general manager, he reported on January 5, 1931, to registrant that the tonnage had been doubled to 48,000,000 tons by the increase in the average thickness of the ore body from 105 feet to 240 feet and slightly lowering the average grade. Registrant has no detailed data to support this estimate.

"The words 'disseminated uniformly throughout the area' were intended as a relative term; the idea being to distinguish the Bagdad ore occurrence, viz., small particles of the copper mineral occurring as specks within the general rock mass as distinguished from ore, as it occurs in fissure veins or lenses replaced in limestone, etc.

"(b) In the same report registrant referred to its research in connection with the Wetherbee process for converting copper concentrates into electrolitic copper and, to illustrate its possibilities, gave the market price of copper at the time of shipment to the smelter and the net price to registrant from the smelter and then said, 'Whereas, on sales of electrolitic copper made direct to the consumer, the company received the full market price for the copper, less 6 mills per pound for freight.' Registrant did not intend in these statements to say that it was about to use this process in a commercial way or that the difference between market price of copper and smelter returns would all be profit to the user of the process or that there would, at that time, have been any profit in the use of such process, although the experiments made by registrant did at that time indicate a saving in the use of such process.

"(4) (b) Under the heading 'Current Assets' in the balance sheet included in said report of July 1, 1933, there is included 'Other securities, $101,340.65.' This item represents an investment of $100,000 in stock of Bagdad Copper Products, Inc., and an investment of $1,340.65 in patent ($1 thereof representing value of process and the balance representing patent expenditures). These items are not current assets and should not have been included under the heading 'Current Assets' in said balance sheet."

An excerpt from a prospectus on file with the Commission discloses the accuracy and sufficiency of the information furnished preferred stockholders to enable them to form a judgment as to the merit of a given course of action on their part. The following is a quotation from the prospectus:

"The offer of (name omitted) dated April 1, 1935, exhibit I-2, filed with the registration statement contains the following omissions and misstatements of fact:

"(a) In paragraph 3 thereof reading as follows:

"Whereas the holders of preferred participations of your company do not have a ready market for their shares because of the fact that they are paid a fixed dividend;'

"The statement that the preferred stockholders 'are paid a fixed dividend' is not complete because it should have been stated that the preferred-stock holders were entitled to a noncumulative dividend of 12 percent per annum plus the right to participate as a class to the extent of 50 percent of any additional dividends declared and paid in any one year.

"(b) In the last paragraph thereof reading as follows:

"You will note that such action on the part of the present holders of the common participations will be a financial detriment as far as dividends and income are concerned, because, while under the present arrangement they are receiving fifty (50) percent of the earned profits as dividends on their participations, they will be in a less favorable position as far as receiving such dividends, in the event this proposal is accepted. In spite of this situation but in order to promote the

best interests of the holders of the preferred participations, and in order to enable the company to progress by the acquisition of additional properties, we are making the foregoing offer to the company, to be accepted upon the terms set forth herein.'

"The foregoing is an inaccurate statement of fact:

"(i) Because there was no financial detriment suffered by the common-stock holders since no cash dividends had been declared or paid to them;

"(ii) Because upon acceptance of the offer and the reclassification of the stock the common stockholders were entitled to any cash dividend over the requirement of payment of dividends to any preferred shares still outstanding and not converted and

"(iii) Further because the concluding portion of such paragraph commencing 'In spite of * * * ' while purporting to be factual is not factual but argumentative.

"The references in exhibits I-1, I-4, and I-5 filed with the registration statement to the valuation of $250,000 as representing the consideration for the rights surrendered by the then common stockholders omit to state that such valuation was imposed upon the company by the then dominant common stockholder (name omitted), and was fixed by the board of directors arbitrarily and without reference to any consideration other than (name omitted) proposal-exhibit I-2.” Senator O'MAHONEY. You were also asked to furnish material with respect to the disparity in the voting power of stock of the type to which you referred yesterday, where one corporation had 200,000 shares of stock, 100,000 of which were sold for one cent a share and the other 100,000, without voting power, were sold for a much larger sum?

Mr. O'BRIEN. $250,000 to the public. We are now compiling statistics of that sort from our public records and further memoranda will be delivered to the committee covering that point.

Senator O'MAHONEY. Thank you. When you have it ready, we will put it in the record.

The committee will stand in recess until tomorrow morning at 10:30 o'clock.

(Whereupon, at 12:15 p. m., a recess was taken until the following day, Friday, March 4, 1938, at 10:30 a. m.)

FEDERAL LICENSING OF CORPORATIONS

FRIDAY, MARCH 4, 1938

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON THE JUDICIARY,

Washington, D. C., March 4, 1938.

The committee met, pursuant to recess, in room 212, Senate Office Building, at 10:30 a. m., Senator Joseph C. O'Mahoney presiding. Present: Senators O'Mahoney (chairman), King, Borah, and Austin. STATEMENT OF BENJAMIN C. MARSH, EXECUTIVE SECRETARY OF THE PEOPLES' LOBBY, WASHINGTON, D. C.

Senator O'MAHONEY. Mr. Marsh, you may proceed, if you are ready.

Mr. MARSH. My name is Benjamin C. Marsh. I appear here as executive secretary of the People's Lobby, with headquarters in Washington, in the Burchell Building.

Senator O'MAHONEY. You have appeared before this committee at other times, I presume?

Mr. MARSH. Mr. Chairman, it is 20 years ago this week that I came to Washington.

Senator BORAH. And you have been running things ever since?

Mr. MARSH. I am beginning to have more and more respect for facts instead of theories than I think some of the members of the Senate and House of Representatives have, because you can work theories until election comes. Then you get down to facts, and you cannot, by referendum vote or judicial ukase, change economic laws. I have been in most of the big dictatorships, except Japan, and I do not want to go there. I would like first to read a brief statement, if I may, and then go into some detail and make some suggestions.

I will say first that the principle of this bill was very carefully discussed by the board of the People's Lobby, which includes Bishop Francis J. McConnell, president, Dr. John H. Gray, former president of the National Economic Association, Dr. Harry W. Laidler, former director of the Bureau of Economic Research, and others; and they approved the principle.

I think in 1918, when I was with the Farmers' National Council, of which Senator Borah will no doubt recall the late George P. Hampton, was director, Mr. Steele of Pennsylvania introduced a bill incorporating the same principle of regulation of corporations.

To fulfill the declared purposes of this bill it must be amended to cover all corporations. as it was when it was originally introduced. With that, it is valuable chiefly as a means to prove the necessity for repealing those laws which have made large corporations a menace,

and to enact legislation which will retain the efficiencies of large-scale control and production and make them inure largely to the benefit of producers and consumers, which, of course, is the purpose of this bill.

The proposed bill applies only to corporations having gross assets of over $100,000. In 1934, over two-thirds of all corporations-280,913 out of 410,626-had total assets under $100,000.

I do not want to criticize previous witnesses, but I will call attention to the inaccuracy of the statement of Mr. Cunningham, if I understood him correctly-and if not, the minutes will correct my misunderstanding that this bill applies only to corporations having over $100,000 gross assets and would permit the Federal Trade Commission, or whatever agency is created, to supervise the accounts of 300,000 corporations. There was some discussion over whether it would apply to gross or net assets. I want to call your attention to some figures in the report on corporation incomes for 1934.

Senator AUSTIN. Who is that by?

Mr. MARSH. That is the report of the Commissioner of Internal Revenue for 1934, just out within the last few days. I have not read it completely, but have tried to go over it as carefully as I had the time. It divides all corporations into total asset classes.

Senator AUSTIN. What page?

Mr. MARSH. Page 72, table 5.

This report shows that this bill applies only to about 130,000 corporations at most. I will say very frankly that, if it is necessary just to try this out, I would have it even apply only to corporations with assets of over $50,000,000. I will give you some striking figures relative to these big corporations, which will indicate why as Senator Borah pointed out yesterday in certain lines a few large corporations were able to dominate the situation. This is the basis of our figures as to how many corporations would be covered by this bill.

Senator BORAH. How many did you say would be covered by the bill?

Mr. MARSH. About 130,000. Out of 410,626 corporations, 280,913 have total assets under $100,000. Of course, that is for 1934. There may have been some change since then.

I would like to read some of the figures given by Mr. Robert H. Jackson recently in an address published in the New York Times, showing what has happened to some of these big corporations, I think approximately 22 of them being listed, giving the profits and deficits in 1932 and 1936, I might say, before and after New Deal treatment.

The United States Steel Corporation in 1932 had a deficit of something like $71,000,000. Then in 1936 it had a profit of $50,583,000. I saw the figures for last year, 1937, and they amounted to almost exactly $100,000,000.

Senator AUSTIN. Where did you get those figures you are giving us? Mr. MARSH. I saw them in the New York Times, taken from the report of the United States Steel Corporation.

Senator AUSTIN. Did you check up on the figures in that list you are now referring to?

Mr. MARSH. No. It was in the New York Times.

Senator AUSTIN. That list was first used by Senator Robinson on the floor of the Senate, and afterward used by Mr. Jackson in the address you speak of. Did you take the same corporations in that list, about 20 of them, and see what profit they earned last year, 1937?