c. Conference report Debate in the Senate on H.R. 15657 was spirited, and extended from August 19, 1914, to its passage on September 2, 1914. In their report," partnership, or association to the amount of more than $50,000 in any one year, unless and except such purchases shall be made from or such dealings shall be with the bidder whose bid is the most favorable to such common carrier, to be ascertained by competitive bidding after public notice published in a newspaper or newspapers of general circulation, to be named and the time, character and scope of the publication to be prescribed by rule or otherwise by the Interstate Commerce Commission. No bid shall be received unless the names and addresses of the officers, directors, and general managers thereof, if it be a corporation, or of the members, if it be a partnership or firm, be given with the bid. "Any person who shall, directly or indirectly, do or attempt to do anything to prevent anyone from bidding or shall do any act to prevent free and fair competition among the bidders or those desiring to bid shall be punished as prescribed in this section. "Every such common carrier having any such transactions or making any such purchases shall within ten days after making the same file with the Interstate Commerce Commis sion a full and detailed statement of the transaction showing the manner and time of the advertisement given for competition, who were the bidders, and the names and addresses of the directors and officers of the corporations and the members of the firm or partnership bidding; and whenever the said commission shall have reason to believe that the law has been violated in and about the said purchases or transactions it shall transmit all papers and documents and its own views or findings regarding the transaction to the Attorney General. "If any common carrier shall violate this section, every director or officer thereof who shall have knowingly voted for or directed the act constitutiing such violation or who shall have aided or abetted in such violation shall be deemed guilty of a misdemeanor and shall be fined not exceeding $25,000 and confined in jail not exceeding two years, in the discretion of the court. "That from and after two years from the date of the approval of this Act no person shall at the same time be a director or other officer or employee of more than one bank, banking association, or trust company organized or operating under the laws of the United States either of which has deposits, capital, surplus, and undivided profits aggregating more than $2,500,000; and no private banker or person who is a director in any bank or trust company, organized and operating under the laws of a State, having deposits, capital, surplus, and undivided profits aggregating more than $2,500,000, shall be eligible to be a director in any bank or banking association organized or operating under the laws of the United States. The eligibility of a director, officer, or employee under the foregoing provisions shall be determined by the average amount of deposits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association, or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a director, officer, or employee has been elected or selected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter under said election or employment. "[No bank, banking association, or trust company organized or operating under the laws of the United States in any city or incorporated town or village of more than one hundred thousand inhabitants, as shown by the last preceding decennial census of the United States, shall have as a director or other officer or employee any private banker or any director or other officer or employee of any other bank, banking association, or trust company located in the same place: Provided, That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares: Provided further, That a director or other officer or employee of such bank, banking association, or trust company may be a director or other officer or employee of not more than one other bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by stockholders in the other: And provided further, That nothing contained in this section shall forbid a director of class A of a Federal reserve bank, as defined in the Federal Reserve Act, from being an officer or director or both an officer and director in one member bank.] "That from and after two years from the date of the approval of this Act no person at the same time shall be a director in any two or more corporations, [either] any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce, other than common carriers subject to the Act to regulate commerce, approved February fourth, eighteen hundred and eighty-seven, if such corporations are or shall have been theretofore, by virture of their business and location of operation, competitors, so that [an] the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws. The eligibility of a director under the foregoing provision shall be determined by the aggregate amount of the capital, surplus, and undivided profits, exclusive of dividends declared but not paid to stockholders, at the end of the fiscal year of said corporation next preceding the election of directors, and when a director has been elected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter. "When any person elected or chosen as a director or officer or selected as an employee of any [bank or other] corporation subject to the provisions of this Act is eligible at the time of his election or selection to act for such [bank or other] corporation in such capacity, his eligibility to act in such capacity shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change in the affairs of such [bank or other] corporation from whatsoever cause, whether specifically excepted by any of the provisions hereof or not, until the expiration of one year from the date of his election or employment. "That any person who shall violate any of the provisions of this section shall be guilty of a misdemeanor and shall be punished by a fine of not exceeding $100 a day for each day of the continuance of such violation, or by imprisonment for such period as the court may designate, not exceeding one year, or by both, in the discretion of the court.]" 18 H. Rept. 1168, 63d Cong.. 2d sess., Sept. 25. 1914: 51 Congressional Record 17176; S. Doc. 583, 63d Cong., 2d sess., Sept. 23, 1914; 51 Congressional Record 17018. the conferees placed the restrictions as to directors of common carriers in section 10. The provisions pertaining to the other two classes of interlocks, industrial corporations and banks, were incorporated in section 8. With two amendments, the provisions applicable to bank directors, which had been included in H.R. 15657 (sec. 8) as it passed the House, were restored. The prohibition against interlocking directorates was limited to banks, banking associations, or trust companies, with deposits, capital, surplus, and undivided profits that aggregated more than $5 million (rather than $2,500,000), and the prohibition against interlocking directors, officers, or employees of institutions in the same city was limited to cities with a population of 200,000 or more (rather than 100,000). The Senate approved the conference report on October 5, and the House on October 8, 1914.14 The bill was enacted into Public Law 212 on October 15, 1914. 14 38 Stat. 730, 63d Cong., 2d sess., 1914. Secs. 8 and 10 as enacted in Public Law 212 are as follows: "SEC. 8. That from and after two years from the date of the approval of this Act no person shall at the same time be a director or other officer or employee of more than one bank, banking association or trust company, organized or operating under the laws of the United States, either of which has deposits, capital, surplus, and undivided profits aggregating more than $5,000,000; and no private banker or person who is a director in any bank or trust company, organized and operating under the laws of a State, having deposits, capital, surplus, and undivided profits aggregating more than $5,000,000, shall be eligible to be a director in any bank or banking association organized or operating under the laws of the United States. The eligibility of a director, officer, or employee under the foregoing provisions shall be determined by the average amount of deposits, capital, surplus, and undivided profits as shown in the official statements of such bank, banking association, or trust company filed as provided by law during the fiscal year next preceding the date set for the annual election of directors, and when a director, officer, or employee has been elected or selected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter under said election or employment. "No bank, banking association or trust company, organized or operating under the laws of the United States, in any city or incorporated town or village of more than two hundred thousand inhabitants, as shown by the last preceding decennial census of the United States, shall have as a director or other officer or employee any private banker or any director or other officer or employee of any other bank, banking association or trust company located in the same place: Provided, That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares: Provided further, That a director or other officer or employee of such bank, banking association, or trust company may be a director or other officer or employee of not more than one other bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by stockholders in the other: And provided further, That nothing contained in this section shall forbid a director of class A of a Federal reserve bank, as defined in the Federal Reserve Act, from being an officer or director or both an officer and director in one member bank. "That from and after two years from the date of the approval of this Act no person at the same time shall be a director in any two or more corporations, any one of which has capital, surplus, and undivided profits aggregating more than $1,000,000, engaged in whole or in part in commerce, other than banks, banking associations, trust companies and common carriers subject to the Act to regulate commerce, approved February fourth, eighteen hundred and eighty-seven, if such corporations are or shall have been theretofore, by virture of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws. The eligibility of a director under the foregoing provision shall be determined by the aggregate amount of the capital, surplus, and undivided profits, exclusive of dividends declared but not paid to stockholders, at the end of the fiscal year of said corporation next preceding the election of directors, and when a director has been elected in accordance with the provisions of this Act it shall be lawful for him to continue as such for one year thereafter. "When any person elected or chosen as a director or officer or selected as an employee of any bank or other corporation subject to the provisions of this Act is eligible at the time of his election or selection to act for such bank or other corporation in such capacity his eligibility to act in such capacity shall not be affected and he shall not become or be deemed amenable to any of the provisions hereof by reason of any change in the affairs of such bank or other corporation from whatsoever cause, whether specifically excepted by any of the provisions hereof or not, until the expiration of one year from the date of his election or employment. "SEC. 10. That after two years from the approval of this Act no common carrier engaged in commerce shall have any dealings in securities, supplies or other articles of commerce, or shall make or have any contracts for construction or maintenance of any kind, to the amount of more than $50,000, in the aggregate, in any one year, with another corporation, firm, partnership or association when the said common carrier shall have upon its board of directors or as its president, manager or as it purchasing or selling officer, or agent in the particular transaction, any person who is at the same time a director, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, firm, partnership or association, unless and except such purchases shall be made from, or such dealings shall be with, the bidder whose bid is the most favorable to such common 26-188-65--3 The reports of the respective Committees on the Judiciary on H.R. 15657 are guides to the objectives of Congress in sections 8 and 10. Although Congress did not consider it necessary or advisable to prohibit interlocking directorates between the smaller banks, or between the smaller industrial corporations, it is clear that the purpose of the legislation was to prevent, as far as possible, control of great aggregations of money, capital, and property through the medium of common directors. Such concentration was felt to jeopardize basic social, economic, and political institutions. In this regard the reports state: *** The importance of the legislation embodied in section 9 of this bill cannot be overestimated. The concentration of wealth, money, and property in the United States under the control and in the hands of a few individuals or great corporations has grown to such an enormous extent that unless checked it will ultimately threaten the perpetuity of our institutions ***.15 In addition to the hazards of concentrated power, Congress believed that removal of the interlocking management device would serve as a stimulus to improve the caliber of management available to the business community. In this regard, the reports state: The idea that there are only a few men in any of our great corporations and industries who are capable of handling the affairs of the same is contrary to the spirit of our institutions. From an economic point of view, it is not possible that one individual, however capable, acting as a director in fifty corporations, can render as efficient and valuable service in directing the affairs of the several corporations under his control as can fifty capable men acting as single directors and devoting their entire time to directing the affairs of one of such corporations. The truth is that the only real service the same director in a great number of corporations renders is in maintaining uniform policies throughout the entire system for which he acts, which usually results to the advantage of the greater corporations and to the disadvantage of the smaller corporations which he dominates by reason of his prestige as a director and to the detriment of the public generally.10 3. ANALYSIS OF SECTION 8 In order to afford affected companies and individuals an opportunity to make appropriate adjustments for compliance with its provisions, section 8 provided that its provisions would not be operative until the expiration of 2 years from the date of approval of the act. Section carrier, to be ascertained by competitive bidding under regulations to be prescribed by rule or otherwise by the Interstate Commerce Commission. No bid shall be received unless the name and address of the bidder or the names and addresses of the officers, directors and general managers thereof, if the bidder be a corporation, or of the members, if it be a partnership or firm, be given with the bid. "Any person who shall, directly or indirectly, do or attempt to do anything to prevent anyone from bidding or shall do any act to prevent free and fair competition among the bidders or those desiring to bid shall be punished as prescribed in this section in the case of an officer or director. "Every such common carrier having any such transactions or making any such purchases shall within thirty days after making the same file with the Interstate Commerce Commission a full and detailed statement of the transaction showing the manner of the competitive bidding, who were the bidders, and the names and address of the directors and officers of the corporations and the members of the firm or partnership bidding; and whenever the said commission shall, after investigation or hearing, have reason to believe that the law has been violated in and about the said purchases or transactions it shall transmit all papers and documents and its own views or findings regarding the transaction to the Attorney General. "If any common carrier shall violate this section it shall be fined not exceeding $25,000; and every such director, agent, manager or officer thereof who shall have knowingly voted for or directed the act constituting such violation or who shall have aided or abetted in such violation shall be deemed guilty of a misdemeanor and shall be fined not exceeding $5.000, or confined in jail not exceeding one year, or both, in the discretion of the court. 15 H. Rept. 627 63d Cong., 2d sess.. p. 19. The House report was reprinted in, and adopted by, the Senate Judiciary Committee, S. Rept. 698, 63d Cong., 2d sess., p. 47. 16 H. Rept. 627, 63d Cong., 2d sess., p. 19. 8 treats interlocking corporate managements in two classes of corporations: (1) Member banks of the Federal Reserve System and banks, banking associations, savings banks, and trust companies, organized under the National Bank Act or under the laws of any State or of the District of Columbia; and (2) all industrial and commercial corporations engaged in interstate commerce, other than banks, banking associations, trust companies, and common carriers, subject to regulation by the ICC. Since its enactment in 1914, there have been no amendments to the provisions that apply to industrial and commercial organizations. There have been five amendments to the provisions of section 8 that relate to banks, banking associations, savings banks, and trust companies. a. Banking provisions During the period between 1916 and 1935 there were a series of amendments to that part of section 8 relating to banks and banking associations that, generally, were designed to expand exceptions to the interlocks prohibited, and to provide standards that the Federal Reserve Board could apply in granting its approval to such excepted interlocks. On May 15, 1916, for example, an additional proviso was incorporated that permitted, if the consent of the Federal Reserve Board was first obtained, any officer, director, or employee of a member bank to be an officer, director, or employee of two other banks. The standard to be applied by the Federal Reserve Board in its consideration of the interlocking relation was whether such other bank, banking association, or trust company (which could be organized under either Federal or State law), was "*** not in substantial competition with such member bank." On May 26, 1920, the final proviso was again amended, to add private bankers to the exemption that had been given to officers, directors, or employees of member banks. This addition had been requested in order to permit the experience of private bankers in the fields of international finance to become available to member banks.18 On May 9, 1928, the final proviso was again amended, to incorporate a new standard to be applied by the Federal Reserve Board in granting its approval of interlocks. The new standard substituted for the substantial competition test enacted in 1916, the authority for the Federal Reserve Board to give its consent "*** if in its judgment it is not incompatible with the public interest." 19 On March 2, 1929, the first proviso of the second paragraph of section 8, as enacted in 1914, was amended to add to the exempted banking institutions mutual savings banks organized under the Federal Farm Law Act and such other banking institutions which did no commercial banking business.20 The banking provisions of section 8 took their current form in the amendments enacted on August 23, 1935. These amendments to the Clayton Act were made by section 329 of the Banking Act of 1935,21 and its effect was to remove the discretion of the Federal Reserve Board to permit interlocks when it found that such relationship was "not incompatible with the public interest." Instead, the amended 17 Public Law 75, 64th Cong., 1st sess., May 15, 1916; 39 Stat. 121. statute itself exempted seven specific types of relationships from the prohibitions against interlocking directorates. (1) Interlocks prohibited.-Section 8 as amended, prohibits, with respect to banks, banking associations, savings banks, or trust companies, horizontal interlocks between any two or more such institutions, organized under the National Bank Act, the laws of any State or of the District of Columbia, or their branches, that are made by private bankers, or directors, officers, or employees, of Federal Reserve System member banks.22 (2) Exemptions. (a) The Board of Governors of the Federal Reserve System has blanket authority, by regulation, to permit service as a director, officer, or employee, of not more than one such other bank, banking association, savings bank, or trust company. (b) The prohibition is not applicable to interlocks that involve the following seven types of banking organizations: (i) Any corporation in which the United States directly or indirectly owns more than 90 percent of the stock; (ii) A bank, banking association, savings bank, or trust company that is in liquidation or in administration by official appointment; 22 15 U.S.C. 19 (1958). The complete text of the banking provisions in sec. 8 as amended by Public Law 305, is as follows: "SEC. 329. Section 25 of the Federal Reserve Act, as amended, is further amended by striking out the last paragraph of such section; the paragraph of section 25(a) of the Federal Reserve Act, as amended, which commences with the words 'A majority of the shares of the capital stock of any such corporation' is amended by striking out all of said paragraph except the first sentence thereof; and the Act entitled 'An Act to supplement existing laws against unlawful restraints and monopolies, and for other purposes' (38 Stat. 730), approved October 15, 1914, as amended, is further amended (a) by striking out section SA thereof and (b) by substituting for the first three paragraphs of section 8 thereof the following: "SEC. 8. No private banker or director, officer, or employee of any member bank of the Federal Reserve System or any branch thereof shall be at the same time a director, officer or employee of any other bank, banking association, savings bank, or trust company or ganized under the National Bank Act or organized under the laws of any State or of the District of Columbia, or any branch thereof, except that the Board of Governors of the Federal Reserve System may by regulation permit such service as a director, officer, or employee of not more than one other such institution or branch thereof; but the foregoing prohibition shall not apply in the case of any one or more of the following or any branch thereof: (1) A bank, banking association, savings bank, or trust company, more than 90 per centum of the stock of which is owned directly or indirectly by the United States or by any corporation of which the United States directly or indirectly owns more than 90 per centum of the stock. (2) A bank, banking association, savings bank, or trust company which has been placed formally in liquidation or which is in the hands of a receiver, conservator, or other official exercising similar functions. "(3) A corporation, principally engaged in international or foreign banking or banking in a dependency or insular possession of the United States which has entered into an agree ment with the Board of Governors of the Federal Reserve System pursuant to section 25 of the Federal Reserve Act. (4) A bank, banking association, savings bank, or trust company, more than 50 per centum of the common stock of which is owned directly or indirectly by persons who own directly or indirectly more than 50 per centum of the common stock of such member bank. (5) A bank, banking association, savings bank, or trust company not located and having no branch in the same city, town, or village as that in which such member bank or any branch thereof is located, or in any city, town, or village contiguous or adjacent thereto. (6) A bank, banking association, savings bank, or trust company not engaged in a class or classes of business in which such member bank is engaged. "(7) A mutual savings bank having no capital stock. "Until February 1, 1939, nothing in this section shall prohibit any director, officer, or employee of any member bank of the Federal Reserve System, or any branch thereof, who is lawfully serving at the same time as a private banker or as a director, officer, or employee of any other bank, banking association, savings bank, or trust company, or any branch thereof, on the date of enactment of the Banking Act of 1935, from continuing such service. "The Board of Governors of the Federal Reserve System is authorized and directed to enforce compliance with this section, and to prescribe such rules and regulations as it deems necessary for that purpose.' |