else, the accountability of a management must be commensurate with its responsibility and authority. Within a framework of broad accounting policy, the management of each of the Government's agencies should be free to make a complete accounting for the discharge of its responsibilities in the manner best suited to the peculiarities of the enterprise. The assignment of auditing responsibilities to an independent agency is necessary, of course, but it should be made only on a basis which does not interfere with the accountability of the operating management. 5. The relationship between a Government corporation salary and the responsibility with which it is associated must bear at least a resemblance to the scale of compensation in private enterprise. We believe that the adoption of our recommendations on organization will provide most of the instrumentalities and conditions for placing the management of Government lending and associated activities on a business basis. However, there is one further step necessary to the accomplishment of this objective. Under the present interpretation of the statutes, the civil service policies of the Government are administered by the Civil Service Commission in very extensive detail. The Commission performs many of the functions and makes many of the decisions which would ordinarily be considered part of the responsibility for managing the activities affected. It is a peculiarity of management responsibility that success or failure in its discharge depends more heavily on the factor of control over people than it does on any other factor. This being the case, the requirement that officials charged with top responsibility for managing a Government corporate activity forego the right to control the employment, discharge, promotion, demotion, or disciplining of their employees is a most serious impairment of their ability to manage their responsibilities effectively. It is an equally serious omission not to charge the officials with the full responsibility for effective management of the employees comprising their organizations. In the interest of a more effective management of the Government's business, we recommend that the corporations engaged in lending and in related pursuits be exempted completely from the provisions of the Civil Service statutes. If the lending activities were regarded primarily as governmental activities we might recommend instead that the interpretation of the civil service statutes be altered so as to grant greater authority to the agencies without granting them exemption. However, we regard lending as primarily a commercial activity, and we regard Government lending as primarily a temporary venture. The employees should be drawn from private industry as the activity passes from private to public administration, and they should be returned when the activity is returned. We do not believe that the employees of Government lending agencies should be primarily career Government employees. As a corollary to this recommendation, we propose that the charters of the corporations contain provisions stating that the board of directors is vested with full responsibility to select management and to fix their compensation, that it may delegate similar responsibilities to management in regard to employees, and that officers and employees of the Government corporations shall not be regarded as employees of the United States Government. The effect of the major changes proposed in all of the foregoing recommendations may be visualized from a comparison of the two charts presented at the end of this section of the report. It will be noted that under the recommended organization, the Export-Import Bank of Washington would be the only institution continuing in direct lending activities. We recommend that these activities also be discontinued as soon as international conditions will permit. The recommended transfer of ownership in the short-term farm credit banks and home loan banks to member institutions would leave the Farm Credit Board and Home Loan Bank Board as independent regulatory boards in their respective fields, somewhat comparable to the Board of Governors of the Federal Reserve System in the commercial banking field. As previously stated, we do not believe that the credit insurance institutions have reached the maturity of development which would permit them to become private institutions. In this connection, the Federal Housing Administration should be incorporated under Federal charter as "The Federal Home-Mortgage Insurance Corporation." Our recommendations form an integrated pattern which we think should be accepted in its entirety. We have attempted, however, to make a separate presentation of each item which can be accepted or rejected separately, and we have attempted, so far as possible, to attach to each separate presentation a comprehensive discussion of the reasons why the recommendation is made. In some instances where it seemed desirable, we have presented also the argument which might be given in support of a contrary view. We feel that our recommendations for discontinuance of RFC and the Farmers' Home Administration should be adopted, but we recognize the possibility that the Commission or the Congress may not agree with our viewpoint. Accordingly, in the appendix of the report, we have included a group of secondary recommendations to apply to each of these agencies if it is continued in existence. Before proceeding with the discussion of individual recommendations relating to necessity and organization, the report presents a section describing the scope of Government lending and containing an interpretative analysis of certain of the activities of the agencies. This section is intended to give a bird's-eye view of the ground covered more completely in the five volumes of factual reports previously delivered to the Commission and an interpretation of certain undesirable aspects of the lending activities as heretofore carried out. In concluding this summary report, we wish to express our appreciation for the constructive suggestions and counsel given by the members of the Advisory Committee on Lending Activities. Mr. PAUL BESTOR, president, the Trust Co. of New Jersey. Mr. DONALD D. DAVIS, president, Minnesota & Ontario Paper Co. Mr. WALTER J. CUMMINGS, chairman of the board, Continental Illinois National Bank & Trust Co. of Chicago. Mr. WALTER D. FULLER, president, the Curtis Publishing Co. Mr. GEORGE L. HARRISON, chairman of the board, New York Life Insurance Co. Mr. JAMES H. MCGRAW, Jr., president, McGraw-Hill Publishing Co., Inc. The appointment of this advisory committee by the Commission, in March 1948, made available to us a wealth of experience and judgment in the fields of banking, insurance, business and economics. While we are greatly indebted to the members of the committee for their helpful advice, it should be understood that they do not share any responsibility for our recommendations. Yours very truly, PRICE, WATERHOUSE & Co. |