a part of its charter; and as to existing companies it would have to have the assent of the stockholders whose right to vote is to be destroyed. This right is binding upon the state and corporation which are parties to it. It is not binding upon Congress.

Conceding, as we may, that Congress cannot change the state-made grant, it can exclude from commerce any corporation that holds this grant in a form inimical to the freedom of commerce. It can exclude every corporation in which any other corporation has the right to vote, and can in effect compel the surrender. of that right by any person or holding company engaging in commerce as a member of the corporation, or compel the reorganization of the corporation under a new charter denying such right (a reorganization in some cases under state laws, instead of in all cases such as would be required by federal incorporation).

In every effort to deal effectively with the problem, we are brought back to the basic proposition that, in the words of Chief Justice Marshall, a corporation 'may be correctly said to be precisely what the incorporating act has made it

- to derive all its powers from that act, and to be capable of exerting its faculties only in the manner which that act authorizes.' And Chief Justice Waite has added that 'every corporation necessarily carries its charter wherever it goes, for that is the law of its existence.' In a very real sense, the charter is the only law that it cannot ignore or evade, but it is also a law by the aid of which, if so designed, it can successfully evade other laws. There can be no permanent solution of the matter that does not reform the charter and make the corporation a safe instrument of commerce. Mr. Justice Brown has said that the corporation is presumed to be incorporated for the benefit of the public'; and the Baltimore platform

has declared that it must be so incorporated if it is to engage in interstate trade.

This is the theory of the Williams bill, and I agree with Senator Williams that it is the only theory on which the proposal of 1909 can be made completely effective; and the only way in which monopoly, dependent for its existence on corporate devices, can be completely destroyed and prevented. It is the method indicated in the recent report of Secretary Redfield, urging 'fundamental charter provisions' to be required of all interstate corporations.

The holding company is prevented by Senator Williams's bill, first, by requiring that the corporation shall not have the power to acquire or hold the stock of other corporations; second, by requiring a provision in its charter that no other corporation shall have any vote or voice, directly or indirectly, in its affairs. This may be supplemented, if necessary, by imposing the penalty of forfeiture on any member of the corporation who prevents it from amending its charter to conform to the law. It will, I believe, be sufficient for Congress to declare the law: its conditions will be met. The extent to which it is possible to go with charter restrictions is instanced by the following unwise provision in the charter of a Panama steamship corporation organized in New Jersey in 1911:"The power of any stockholder or director to vote on any question shall cease upon notice from the PostmasterGeneral of the United States that such a stockholder or director represents a competitive railway interest.'

The second condition required is one to effect the prevention of interlocking directors.' Here, also, the efficient remedy seems to be plain and unmistakable. It would be unjust to do as one bill introduced by a very able Senator attempted to do- exclude a

corporation from commerce if one of its directors happens to become a director of a competing company. He may do this after his election. The corporation cannot control him, and its life or death is in his hands. The corporation can be protected only by a charter provision against such an event. Senator Williams has, I believe, laid the axe at the root of the tree by requiring a charter provision declaring any director in a competing corporation ineligible as a director, extending this provision also to include any person representing any competing interest. I quote again from the charter of the existing New Jersey corporation to which I have referred: 'No person shall be eligible as a director who shall be a director in or an officer or agent of any corporation or association engaged in any competitive transportation business by rail.'

The Williams bill requires the charter to declare any person representing a competitive interest, including a director in a competing corporation, to be ineligible as a director. Such a charter provision is self-operating. The attempted election of an ineligible director is a nullity and the office remains vacant. The charter is safeguarded, and the corporation is a safe instrument of business.

The same method adapts itself to the third requirement, that of a condition preventing watered stock. It is unjust to provide, as one important Senate bill did provide, that a corporation should be excluded from commerce if it issued capital stock with a par value exceeding 'by more than ten per cent' the value of the property received therefor.' Under this provision, an honest business error in the valuation of the property would exclude a corporation from commerce and effect its ruin. What is needed, and all that is needed, is to nullify the dangerous

sanction that has been supposed to be given under some state laws, to issue stock at any valuation declared by the directors. Senator Williams, in the bill revised with his sanction and introduced in the lower House by Honorable William R. Smith of Texas, has entirely nullified the permissive statutory power by requiring that all stock shall be fully paid or payable, and permitting it to be paid in property only when its value has been determined on oath filed in a public office to be not less than the par value of the stock, or, in the case of stock authorized to be issued without par value, to be not less than $5 per share. This condition applies after the passage of the law, but is required to be inserted in the charter within a limited time. It would completely nullify the permissive power offered under the state laws.

The fourth condition required by the Baltimore platform deals with 'management' rather than 'incorporation' or 'governing laws.' It must prevent 'discrimination in prices.' The Williams bill excludes any corporation which destroys competition by any unfair methods, including 'temporarily or locally reducing prices.' One of the New Jersey 'seven sisters' meets quite specifically the language of the platform. It declares it a misdemeanor 'to discriminate [in prices] between different persons . . . or sections. . . of the State... after making due allowance for the difference, if any, in the grade, quality or quantity, and in the actual cost of transportation . . . if the effect or intent thereof is to establish or maintain a virtual monopoly, hindering competition or restriction of trade' [sic]. This provision, applied to 'different persons and sections of the United States,' adapts itself admirably to the platform requirement. It is not possible to discuss here the various statutes relative to unfair competition,

or the various similar conditions that might be contained in the federal law, but I wish to express the thought that the state in creating a corporation, and Congress in admitting it to interstate commerce 'for the benefit of the public,' may well require of it the highest standard of business ethics, even as to matters with respect to which the same standard might not so justly be required as a restriction of the liberty of the individual.

The last condition demanded in the platform is one to effect 'the prevention of control by any one corporation of so large a proportion of any industry as to make it a menace to competitive conditions.' This is perhaps the one item in the platform declaration which is not entirely specific. It may be met by a general condition in the language quoted, excluding a corporation from commerce if it acquires a dominance of any industry. It may, and perhaps should, be met by a provision limiting the capital to be employed in a particular industry. Limitation of capital was originally, and in theory is still, the rule in the creation of corporations. But today the limit is fixed by the corporation charter adopted by it under a general law, and not by a special charter granted by the legislature.

There is, of course, no question of the power of Congress to limit the capital of corporations engaged in interstate trade. Judge Smith's revision of the Williams bill asserts this power with striking efficiency. It excludes a corporation from interstate trade if its authorized capital 'exceeds $200,000,000, unless a larger capitalization shall be permitted by special act of Congress; subject also to any lower limitation of capital which Congress may at any time prescribe for corporations engaged in any particular industry.'

Let us summarize the conditions demanded by the platform. First, the

only conditions which can be imposed on corporations engaged in interstate trade to prevent holding companies are (1) a condition that the corporation itself shall not be a holding company, that is, that it shall not have the charter power to hold stocks of other companies; (2) a condition that its stock shall not be held by any holding company, which can only be effected by requiring a charter prohibition against such holding, and may be met in part by a charter prohibition against the voting of any stock so held. Second, the only condition that will prevent interlocking directors is one that the corporation shall not have as a director a person who is a director in any competing company, and that can justly be effected only by requiring a charter provision declaring any such person ineligible as a director. Third, the only condition that will prevent watered stock is one that requires the stock to be fully paid, or payable upon an actual valuation, and the most effective ultimate condition for this purpose is to make this a charter requirement; the charter law is the only one that is incapable of evasion. Fourth, the only condition that can be imposed by a 'declaration by law,' which will prevent discrimination in prices, is one similar to that contained in the New Jersey amendment approved by Governor Wilson. And fifth, the most effective, if not the only condition to prevent the control of an industry by one corporation, is one that limits the capitalization of corporations engaged in particular industries.

These are the only conditions specifically required by the platform. They are the chief conditions necessary to the prevention of monopoly. Had they prevailed in the past, monopoly would not now exist. Would their requirement now destroy existing monopolies ? For instance, what effect would they

have on the common-stock control of the 'dissolved' Standard Oil and Tobacco trusts? Is it possible to meet the recent taunt of Senator Gallinger, made on December 3, 1913, following the reading of the President's message, when he is quoted as saying that attempts to suppress private monopoly would be about as successful as the Standard Oil suit, which has resulted in no change of ownership, no reduction of prices or of profits.' The Democratic party and individual members of Congress will wish to go before the country in a situation different from that which confronted the last administration. They must present a fait accompli according with the letter and spirit of the anti-trust declaration.

As an aid to the solution of this question of common-stock ownership, let us go back again to the origin of the corporation, and bear in mind the basic fact that 'it is presumed to be incorporated for the benefit of the public.' The state, in creating a corporation should, and Congress when admitting it to commerce can, write at the head of every charter and into its every provision the words, 'Salus populi suprema lex.' The state creates a corporation on the assumption and with the intent that it shall be an independent business unit. The state has a plain right so to condition its organization as to safeguard this intent. The incorporators themselves in the first instance would be apt to desire such safeguards. The 'buying-in' privilege peculiar to a corporation is a special privilege which does not exist with respect to a partnership. The state, in granting this privilege, should protect itself and the incorporators against the facility which it presents for the acquisition of control by competitive or monopoly interests. The simplest and most workable condition for this purpose is the requirement of a

charter provision similar to that of the Williams bill, that no person representing or holding stock in a competing company should be eligible as a director or have 'any vote or voice in its affairs.' If such a provision were inserted in the charters of the various Standard Oil corporations, it would not take very long to obtain competitive conditions between them. The several interests would separate themselves very quickly to secure the control of separate corporations. The Waters-Pierce interests have pointed the way toward such action.

It has been suggested that Congress might prohibit the voting of stock by a holder in a competing company, if done with intent to prevent competition. Even if such a law were constitutional, its enforcement would be extremely difficult and partial. The burden of proof would be upon the government, or possibly the contending stockholder seeking to establish the intent. In the absence of any strong contest, the actual control would continue as it is. Here, as elsewhere, the problem can be rightly solved, and permanently solved, only by going to the root of the evil, requiring the corporation to be safeguarded by its charter law against control by competing interests. It is a safeguard which the state should require in the first instance, which experience and present conditions show to be necessary, and which Congress can require as a part of the conditions it now aims to impose on corporate organization.

The interlocking' of corporate interests is the real evil. It can be made impossible only by charter safeguards which shall effectively prevent ownership of stock by a competitive interest. Short of this there are three degrees of prevention, if I may so express it. The first is the prevention of interlocking directors by the charter provision

above mentioned. This is, I believe, of little practical value in cases like that of the dissolved Oil Trust, where each director remains a stockholder in all the constituent companies. Competition between companies so officered is impossible. The second degree, which would seem to be much more effective, is to require a charter provision that no person representing a competitive interest, as director, stockholder, or otherwise, shall be eligible as director. The third, and much more effective, charter provision, is that no such person shall be entitled to vote as a stockholder. The fourth and completely effective provision is that first suggested, that no such person shall acquire or hold any stock or any interest therein, directly or indirectly, placing a heavy penalty on its secret ownership with intent to exercise control. This should and could be required of a new corporation created by a state if it is to be made proof against acquisition by competitive interests. Whether the federal law should go so far as to require so drastic a condition as to either existing or future corporations, is an open question. The power is there, and if at any time its exercise seems necessary, it should be used.

We cannot meet this problem if we surrender in advance to the view that the state grants have by a process of estoppel become binding upon Congress, or that the rights acquired under them are too complex to be dealt with by an effective law. We should, I believe, prescribe conditions to take effect at once that will disintegrate and batter down the corporate walls of existing monopoly; but we must also prescribe conditions, to take effect within one, two, or three years, that will reach the creating power and prevent for all time the use of the corporate charter, whether granted by a state or by a foreign government, as a means of circumventing the Sherman Act

or of monopolizing the nation's commerce.

Any bill that is drawn will have to be carefully guarded as to its effect on existing corporations, first, to compel without evasion the complete disintegration within a reasonable time of all existing monopolies; second, to allow reasonable leeway for the amendment of charters of other corporations with a view to ultimate complete uniformity in the substantial safeguards to be required. With respect to holding companies it may be said, that though they owe their origin to the demand for monopoly powers, they have acquired some incidental legitimate uses which it may be possible not to destroy. I do not mean by this that they should be permitted as an institution, and prohibited only when used 'with intent to create a monopoly,' a provision that would throw us back on the existing law; but that the prohibition asserted and expressed might be accompanied by an exception, in effect permitting one corporation to operate, under subsidiary charters, separate branches of one business, treating it in other respects as a single corporation, and not permitting it to hold less than ninety per cent of its subsidiaries' stock, or to combine competing properties.

The adjustment of this far-reaching corporate reform to the actual business conditions of the country will not, I believe, be as difficult or drastic as one might at first suppose. It is directed primarily to requiring an amendment of the charters of corporations organized under the so-called liberal state laws. This can be done by each corporation for itself under the broad power given it to make or amend its own governing law. Reorganization will be necessary in some cases, but, as every corporation lawyer knows, reorganization is not a destructive or necessarily burdensome measure; it is readily effected for a business advan