point of view will be discussed more fully later; here it is of concern merely because the larger the proportion of bonds to the total outstanding securities, the easier does it become to control large and important properties by a relatively small outlay. The development of the holding company has assisted in attaining this same end: the inverted pyramid has made possible the control of enormous interests with a very modest investment, as is well illustrated in the case of the old Rock Island Company and the present Atlantic Coast Line Company. Then, too, it may be added that, although legal restrictions have been successful in preventing the physical identification of properties, such legal restrictions have not been uniformly effective in preventing an identity of interest. Where the sale or lease of a property is forbidden, a common group of stockholders has frequently made essential unity of action possible. Stockholdings of one railway in another may effect the desired identity of interest also and, in cases where such holdings run counter to the law, the interlocking directorate has been widely employed as a means of harmonizing the interests of large competitive properties. Finally, the type of stockholder has so changed during the past 25 years as to promote this movement toward concentration of control. Railway shares have become less speculative in character and have therefore been acquired by individuals and groups with other financial interests.

CONCLUSION

In conclusion, it may be said, with respect to the railway corporation, that it has attained a tremendous significance in our present economic structure. Upon the financial soundness of these corporations depends not only the wellbeing of hundreds of thousands of security holders and employees with direct interests, but also the well-being and prosperity of many millions of others with an indirect interest-millions who are dependent upon these properties

for the rendition of an adequate transportation service upon such terms as will further economic and social development. Since this successful conduct of railway enterprise is dependent to an unusual degree upon efficiency of organization and administration, a brief presentation of that phase of the carrier business is well suited to serve as an introduction to the study of the major services rendered.

References:

CLARK, WM. L. and MARSHALL, WM. L. Corporation Law. Keefe-Davidson Co., 1901.

CLEVELAND, F. A. and POWELL, F. W. Railroad Finance, pp. 16-19; 107-111. D. Appleton & Co., 1912.

CLEVELAND, F. A. and POWELL, F. W. Railroad Promotion and Capitalization, chap. x. Longmans, Green & Co., 1909.

JOHNSON, E. R. and VAN METRE, T. W. Principles of Railroad Transportation, chap. vii. D. Appleton & Co., 1921.

MEYER, B. H. Railway Legislation in the United States, pp. 53-107. (Good treatment of railway charters.) The Macmillan Co., 1903.

MEYER, B. H. Railway Regulation Under Foreign and Domestic Laws. Report of Industrial Commission, IX, pp. 897-1006.

RIPLEY, W. Z. Railroads: Rates and Regulation. Longmans, Green & Co., 1912.

-Dartmouth College Case, 4 Wheat. 518.

-Munn v. Ill., 94 U. S. 113.

XII

THE ADMINISTRATIVE ORGANIZATION OF

RAILWAYS

The function of the stockholder. The board of directors. Importance of the executive committee. The corporate officers. Evolution of the presidential function. Training and importance of the modern railway president, The secretary and the treasurer. The general counsel and his staff. The organization and work of the accounting department. The traffic department -organization and functions. The importance and functions of the operating department. Staff and line officers. Divisional versus departmental type of railway operating organization. Railway purchasing. The real estate agent. The efficiency of railway organization.

VIEWED as a whole, the railway business of the United States is a tremendous enterprise, tremendous in the amount of capital involved, in the number of people employed, and in the aggregate revenues enjoyed year by year. Indeed, the preceding chapter shows that many individual railway systems have attained a magnitude which is equaled by few of our greatest industrial units. Once an appreciation of this magnitude is gained, the difficulty of administration appears and the need of an efficient organization is patent if even a moderate degree of social efficiency and of financial success is to result. To render maximum service to the public at minimum cost to the railway, to insure the regular operation of an intricate machine in which the major factor is the human element, often variable and undependable, has been a problem which has taxed the ingenuity and capacity of masters of organization. In truth, this problem yet remains unsolved in part, although it must be granted that efficiency of organization has moved forward step by step with the necessities of larger and more complex plants and with the passage of years. That different types of organization should develop is only natural; to expect methods and

policies successful in one situation to be equally successful when confronted with others quite different is unreasonable. However, the general lines of development in railway administration have been sufficiently uniform to justify the presentation of what might be termed the typical organization for the conduct of the transportation business.

THE FUNCTION OF THE STOCKHOLDER

Just as in the case of any other corporation, primary、 control of the affairs of the railway resides in the stockholders. This control is normally exercised at the annual meeting of stockholders through the expression of opinion by individual stockholders, and through participation in the election of members of the board of directors of the corporation. Expression of opinion, however, carries little weight except as it comes from important stockholders and that importance is generally measured by the number of votes which the shareholder is able to cast. All too often the annual stockholders' meeting is only a formality, a gathering where protests and suggestions voiced by minority interests are heard patiently and smilingly, then buried most effectively by the controlling group with the avalanche of votes. A considerable proportion of these votes often represent the proxies of complacent stockholders whose sole interest in the property lies in the maintenance or increase of dividend rate. Such stockholders are willing to continue in power any group which succeeds in accomplishing this purpose, with little regard to the methods or principles employed in attaining that end. Minority representation upon the board of directors is often wholly lacking. Indeed, the absence of any system of voting devised to secure the representation of even strong minority interests upon boards of directors is the weakness and the danger of corporate procedure in the United States. Nevertheless, without regard to the weaknesses of the present plans, the fact remains that through his vote at the annual meeting the stockholder

must exercise such influence as he possesses upon the management and policies of the corporation. To this statement there is but one exception-the existence of a situation which justifies judicial interference with the policies of management. Yet, because such interference must rest upon clear proof of the betrayal of minority interests by the board of directors it is of negligible importance. No stockholder can safely rely upon protection from that source. His protection must lie, rather, in the honesty and integrity of controlling interests, or in the identity of his interests with those of the dominant group.

THE BOARD OF DIRECTORS

At this annual meeting certain ones from among the stockholders are chosen to serve upon the board of directors. These boards are composed of from nine to twenty-one men, who represent large stockholders, supporting banking institutions, interested railways, and occasionally important commercial enterprises. To effect greater continuity in policy, board members in the railway as in the industrial field are so selected as to make impossible a complete change in personnel, even though desired, in less than three to five years. The major functions of the board of directors, acting as a body, are three. Of these, the first concerns general policies. Before it are placed all proposals involving the adoption of new policies, and to it must also be referred all important modifications in old policies. The second function performed by this board, perhaps the most important, is the selection of the executive committee. To this subordinate organization extensive powers are delegated. Operation, finance, competition, and administration constantly give rise to an infinite variety of difficult problems which demand consideration at the hands of others than mere appointive officers. Yet, because of the very nature of the situation, the board of directors, with scattered residence and important individual business interests, cannot meet frequently