Cleveland Cliffs Iron Co. Republic Steel Corp. Jones & Laughlin Steel Corp. The CHAIRMAN. Mr. Kerr testified that a director of Cleveland Cliffs is also a director of Inland Steel, to wit, Mr. Edward Brown. Mr. Cook. Yes. We do not have him in our list, and I assume the reason for it is that he either has later information or more extensive information than we have. The CHAIRMAN. Well, I understand the testimony of Mr. Kerr was to the effect that Mr. Edward Brown was just recently made a member of the board of Inland Steel. Therefore, you probably did not have that information. Mr. Cook. Yes; that would constitute a further interlocking relationship. I mentioned earlier that we have found only one instance of direct interlocking by a common directorship between the boards of any of the 16 steel producers studied. That was in the case of Mr. J. H. Hillman, Jr., who is a director both of Alan Wood Steel Co. and Pittsburgh Steel Co. Mr. Hillman is also president and a director of the Texas Gas Transmission Co. He has a similar position with Pennsylvania Bankshares & Securities Corp., and Pennsylvania Industries, Inc. He is a director and chairman of the board of Pittsburgh Coke & Chemical Co., which is in the business of pig iron, cement, coke, and chemicals, and president of Hillman Coal & Coke Co., which is in the coal and coke business. He is also a director of two banks, two industrial concerns, and a steamship company. In filings made with the Commission, Pittsburgh Steel Co. discloses that Mr. Hillman held of record but not beneficially, as of December 12, 1949, 20.8 percent of the outstanding voting shares of the company, and that Mr. Hillman and Pennsylvania Industries, Inc., together owned beneficially 20.8 percent of the outstanding voting securities of the company. Pennsylvania Industries, Inc., is controlled indirectly by Hillman Land Co., of which company Mr. Hillman and his family own all the outstanding stock. The CHAIRMAN. Before you leave Mr. Hillman- Filings of the company also reveal that for the year ended December 31, 1948, Sharon Steel Corp. was the beneficial owner of 22,649 shares of common stock (4.45 percent) of Pittsburgh Steel and that "approximately 8 percent of the outstanding voting shares of the Sharon Steel Corp. are owned by corporations indirectly controlled by Hillman Land Co." A filing by the Alan Wood Steel Co. states that On December 1, 1947, Neville Coke & Chemical Co., which is an associate of J. H. Hillman, Jr., owned 32,932 shares (16.5 percent) of the common stock. It would thus appear that Mr. Hillman is in a position to affect the affairs of 3 of the 16 steel companies, namely, Alan Wood Steel Co., Pittsburgh Steel Co., and Sharon Steel Corp. Mr. LEVI. That does appear to be a violation of the Clayton Act, does it not? Mr. Cook. I have been a lawyer for some years, all of us, of course, dislike giving curbstone opinions. When we do, we sometimes live to regret it. I would say this: The terms of the Clayton Act are clear, these facts are unequivocal. I would say that prima facie you have material before you which prudence would cause you to refer to the Justice Department, the Antitrust Division, for their examination. Mr. LEVI. Have you notified the Department of Justice, Mr. Cook? Mr. Cook. I have not. I had the feeling that we were here as a servant of the committee and the committee would take whatever steps were appropriate on the basis of the information we disclosed to it. The CHAIRMAN. I think I will take it upon myself to send a transcript of this testimony that you are now giving concerning this gentleman-namely, Mr. Hillman. Mr. Cook. We also, for the sake of completeness and for whatever value it may have, inquired to a limited extent into various professional services used by the steel companies. Up to now I have been describing the affiliations of directors and officers of the 16 steel companies as one type of relationship which may exist between these companies. It should be recognized that affiliations of this type, should they exist, need not be evidenced by so formal a relationship as that of the interlocking directorate. Such affiliations may be expressed in numerous more subtle and indirect ways. We have accordingly examined the legal, accounting, and other professional groups whose services might be used by more than 1 of the 16 companies to ascertain wherein such persons may serve more than one of the steel companies. We have prepared a chart showing for each of the steel companies the name of the accounting firm which audited its accounts for 1948 as filed with the Commission, legal counsel whose names are given in various filings with the Commission, and the transfer agent and registrar as given in the standard corporation manuals.1 One of the most significant things to be observed is that one accounting firm, Price, Waterhouse & Co., audited 8 of the 16 companies. The chart I refer to is marked as exhibit H. Ernst & Ernst audited four; Haskins & Sells two; and Peat, Marwick, Mitchell & Co., and Arthur Young & Co. one each.2 The list of attorneys cannot be considered exhaustive. The information is taken, except in the few cases indicated, from the annual reports filed by the companies with the Commission for their 1948 fiscal years. The list may not be complete even for the years checked, because the Commission's reporting requirements through 1948 did not require disclosure of information of this kind unless the company had paid $20,000 or more for services during the fiscal year, except where a director of the company was also a member of a law firm which received fees from the company. The CHAIRMAN. Apparently the fact that Price, Waterhouse & Co. audited 8 of the 16 companies mentioned, Ernst & Ernst audited four, points up the fact that at least eight of these companies are willing to 1 The chart referred to appears in exhibit S-200 in Steel Exhibits, pp. 475-476. * Of 2,295 certified financial statements filed with the Commission in 1948, Price, Waterhouse & Co. certified 244. Ernst & Ernst 229, Haskins & Sells 192, Arthur Anderson 17%, Peat, Marwick, Mitchell & Co. 136, and Arthur Young & Co. 82. have their accounting records, whatever those accounting records entail and involve, in the possession of the accountants of seven of their competitors in each instance. Mr. Cook. That is true. The CHAIRMAN. In the case of the four companies where Ernst & Ernst are the common accountants, each one of them is willing to allow its records to be in the possession of the accountants of three of its competitors. I find, though, that common professional service, which obtains in the case of accountants, is not present in the case of attorneys; is that correct? Mr. Cook. I would not wish to leave any misleading The CHAIRMAN. Only in a few instances. Mr. Cook. Impressions with the committee. By chance, it happens that I am a certified public accountant. Those of us who are in the profession like to feel that the ethics are high indeed. I think it would be necessary to differentiate between possession of the records, on the one hand, and use of the records, on the other. I am sure that the accountants would say that they received them in a professional and confidential capacity and that they would not disclose the materials received from one company to that company's competitors. Nonetheless, I think there still is some independent significance to the fact that a few accounting firms are preeminent, if you will, in the steel-accounting business. It has not been possible to check all the ramifications of the relationships among the companies, their counsel, and their underwriters. In some cases certain relationships are known to us, and I shall mention these. Certain other relationships appeared upon checking the latest registration statements for some of the companies under the Securities Act of 1933 in connection with the flotation of securities, and I shall mention some of those. The law firm of Jones, Day, Cockley & Reavis appears as counsel in 1948 to Republic Steel, Portsmouth Steel, and Jones & Laughlin Steel. J. W. Reavis, a partner of the firm, was at that time a director of Jones & Laughlin Steel. Another member of the firm, Walter J. Milde, was at the same time a director and the secretary of Portsmouth Steel. The law firm of Holtzman, Wise, Shepard & Kelly appears as counsel for Colorado Fuel & Iron. The firm is also counsel to Allen & Co., investment bankers. J. L. Holtzman, of the law firm, is a director of Colorado and Charles Allen, Jr., of Allen & Co., was chairman of the board of the company. In 1949, the law firm represented Allen & Co. as counsel in a flotation of securities by the company in which Allen & Co. acted as underwriter. The company employed other counsel in this connection. The law firm of Cravath, Swaine & Moore appears as counsel for Bethlehem Steel, Republic Steel, and Youngstown Sheet & Tube. It or its predecessor firm-Cravath, de Gersdorff, Swaine & Wood-acted as counsel to Kuhn, Loeb & Co., investment bankers, in connection with the flotation of securities by Pittsburgh Steel in 1948, Wheeling Steel in 1947, Inland Steel in 1940, and National Steel in 1939. When Kuhn, Loeb & Co. acted as underwriter in a flotation by Bethlehem Steel in 1949, Cravath, Swaine & Moore acted as counsel for the com pany and Kuhn, Loeb employed Davis, Polk, Wardwell, Sunderland & Kiendl as counsel for the underwriter. The law firm of Reed, Smith, Shaw & McClay appeared as counsel in 1948 for Jones & Laughlin Steel, Crucible Steel, and Pittsburgh Steel. The firm was counsel for Mellon Securities Corp., since merged into the First Boston Corp., in connection with the flotation of securities by Sharon Steel in 1947. The law firm of Sullivan & Cromwell was counsel to Newport Steel in 1948 and had been counsel to the underwriters in connection with the flotation of securities by Crucible Steel in 1946. The CHAIRMAN. Does counsel for United States Steel also have one of its members a director of United States Steel? I refer to Mr. Irving S. Olds. You have him down as a partner of White & Case. Mr. Cook. White & Case has been counsel to United States Steel Corp. but I am not acquainted with the membership of the White & Case firm. The CHAIRMAN. You have him down as a partner of White & Case in your tabulation. Mr. Cook. Nathan L. Miller appears as a director of United States Steel, general counsel and member of the finance committee. The CHAIRMAN. Doesn't one of the applications filed with your Commission indicate Mr. Olds as counsel, as a member of White & Case, counsel for United States Steel? Mr. Cook. Yes; that is true. Mr. Olds appears as the president and director of the Essex Iron Co., the president and director of the Piloto Mining Co., director and chairman of the board and member of the finance committee of United States Steel Corp., and a partner in White & Case; yes, sir. The CHAIRMAN. White & Case also has acted as counsel for United States Steel Corp.? Mr. Cook. That is true. As a separate study the committee asked us to analyze the affiliations of the directors of J. P. Morgan & Co. In two tabulations similar to those prepared for the steel companies, we have prepared: (1) A list of the directors of J. P. Morgan & Co., giving for each the names of other companies in which he is also an officer or director; 1 (2) An alphabetical list of the principal companies having one or more directors in common with J. P. Morgan & Co.2 The second list has been divided into two parts: Rails and industrials, on the one hand, and banks and insurance companies, on the other. The CHAIRMAN. Where are those listed? Mr. Cook. Those lists appear as Nos. 5 and 6 in the folder. Mr. Cook. For the first group we have tabulated consolidated gross assets, consolidated gross sales, and net income; for the second, only admitted assets, since income figures are not available. It will be observed that the industrial concerns affiliated with J. P. Morgan & Co., through common directors had at the end of 1948 consolidated gross assets of $17,281,460,254; consolidated sales during 1 This list appears in exhibit S-201 in Steel Exhibits, pp. 477–480. * This list appears in exhibit S-202 in Steel Exhibits, pp. 481-483. 1948 or $15,969,588,656; and net income after taxes that year of $1,357,044,281. The banks and insurance companies had admitted assets of $8,374,858,811. Combining the two lists, we find that the directors of J. P. Morgan & Co. were affiliated with companies in this country having combined assets at December 31, 1948, of $25,656,319,065. The CHAIRMAN. Let's go back a bit on that. On page 455 you say that J. P. Morgan & Co., through common directors, had at the end of 1948-that is, the industrial concerns-affiliated by dictatorship or interlocking directorship with J. P. Morgan, consolidated gross assets of approximately $17,281,000,000, consolidated sales of those companies with which they have interlocking directorates during the same year was close to $16,000,000,000, net income after taxes was $1,357,000,000, that the directors of J. P. Morgan were affiliated with banks and insurance companies having admitted assets of $8,374,000,000. Combining the two lists, we find that the directors of the J. P. Morgan firm were affiliated with companies having combined assets as of December 31, 1948, of over 252 billion dollars. Has there ever been in the United States a company which through its directors has ever wielded such great financial power? Mr. Cook. Of course, I do not know of my own knowledge, but the amounts involved here are so large as I think reasonably to lead one to assume that this company is outstanding in that regard. The CHAIRMAN. Is what? Mr. Cook. Is outstanding in that regard. The CHAIRMAN. It leaves one almost breathless; does it not? Mr. Cook. It is a little difficult to visualize 2512 billion dollars. The roll of affiliations, of course, includes many of the substantial preeminent companies, industrial concerns, financial institutions, in the United States. The CHAIRMAN. And this is the company, J. P. Morgan & Co., which was responsible originally for putting into existence United States Steel? Mr. Cook. That is true, sir. The CHAIRMAN. And this company has always had at least two or more of its directors on United States Steel's board of directors ever since its inception? Mr. Cook. Mr. Arthur M. Anderson is, according to our information, the chairman of the executive committee and a director of J. P. Morgan & Co., and he is also a member of the finance committee and director of United States Steel Corp. The CHAIRMAN. Is there not another one, Mr. Myron Taylor? Mr. Cook. I believe that Mr. Taylor is no longer connected with United States Steel, although I would have to check to be sure. The CHAIRMAN. I am in error. I do not think Mr. Taylor is a director of J. P. Morgan, but you have him still as a director of United States Steel. Mr. Cook. Then that would be the fact. Oh, yes; it is the reverse. He is director of the Steel Corp., but not of J. P. Morgan & Co. The CHAIRMAN. Who replaced him as a director on United States Steel? Who did J. P. Morgan replace for Mr. Myron Taylor? Mr. Cook. I do not know, sir. |