NAME FULL NAMES AND PRINCIPAL POSITIONS OF DIRECTORS, PAGES 1-7 (JMK-2) PRINCIPAL POSITIONS Ahern, John I. Allen, Donald G. Anderson, O. Kelley Clarke, T. Dexter Cochrane, F. Douglas Driver, Jr., William R. Farwell, Frank L. Fitzgerald, R. Leigh Galligan, Thomas J. Guild, Henry R. Hanify, Edward B. Healey, Joseph P. Johnson, Burdette A. Chairman, (Real Estate Investment Trust) Director, (Boston Edison Company) President, (State Mutual Life Assn. Co. of Am.) Director, (Massachusetts Electric Co.) Partner, (Rich, May & Bilodeau, Attys, Boston) President & Director (Narragansett Elec. Co) Vice-President, Secretary, Gen. Counsel (NEES! President & Director, (Boston Edison Company? President (Eastern Gas & Fuel Associates) Ketchum, Attys, Boston) Partner, (Ropes & Gray, Attys, Boston) Financial Vice-President, (New England Gas, & Mr. HARRINGTON. Through direct, secondary, and tertiary interlocks, New England Electric is connected with 31 other utility companies, and 37 banks, insurance companies, and law firms. Boston Edison is connected with 23 utilities, financial institutions, insurance companies, and law firms. Do these intricate interlocks have any adverse impact on the public? Professor Kuhlman testified that they do. He stated upon being questioned: Question. Can interlocking directors lead to something less than arm's length bargaining? Answer. Yes. It is certainly possible that a person serving as a director of two companies transacting business with one another will have information with respect to both firms that he should not have if bargaining is to take place in a proper environment. The same situation might prevail if two business associates served on the boards of companies transacting business with one another. Thus, two officers in a bank might have knowledge regarding a transaction between two companies of which they are directors which, if shared, would impair the bargaining process. Question. Can you give an example of an interlocking director and a conflict of interest? Answer. Yes. If officers or directors of a bank are also directors of a utility comany, for example, they may have access to information which might provide them with a strong incentive to change the portfolios in the bank's trust accounts. Question. Are you citing these as dangers of interlocking directors? Answer. Yes. I'm not saying they will happen. I am saying that interlocking directorates may create a conflict of interest. They may create instances in which one party has an unwarranted access to information. These dangers are in addition to the increased concentration of control. And certainly it was these dangers that led Congress to restrict interlocking directorates. An examination of the business practices of New England Electric and Boston Edison reveal that transactions are taking place between utilities and the banks they are interlocked with. New England Power, a NEES subsidiary, has two bank loans outstanding in 1973-$17.7 million from the First National Bank of Boston and $2.5 million from the Worcester County National Bank. Both of these banks have representatives on NEES' Board of Directors. Five of the 10 banks represented on Boston Edison's board loaned the company $40 million last year; $27 million of this total was lent by the First National Bank of Boston. The Chairman of the First National Bank of Boston, Richard Hill, himself admitted that bank utility interlocks create a potential conflict of interest, but maintained that the conflicts do not materialize because of the high level of integrity of the men involved. In an interview with David Rosen, of United Press International on August 7, 1974, Hill defended interlocking directorates as necessary because of the limited number of people in New England with financial abilities adequate to represent stockholders' interests. Having examined the two statutes, and having examined the situation as it actually exists, the question naturally arises: How can the two be reconciled? On July 3, 1974 I wrote Chairman John Nassikas of the FPC and the SEC to discover the answer. According to the answer I received from FPC Chairman John Nassikas, which I submit for the record,' the FPC has interpreted the interlock provision, which originally was contained in title II of the Public Utility Act of 1935, to mean that only directors of banks, trust 1 Letter to Chairman Nassikas and response may be found on p. 155. companies, and banking associations that are authorized by law to underwrite or participate in the marketing of securities of public utility are prohibited from serving on the boards of public utilities. On October 22, 1935, the FPC asked the Comptroller of the Currency to advise it what banks, trust companies, or banking associations were authorized by law to underwrite or market securities, and 2 days later, on October 24, 1935, the Comptroller of the Currency wrote back that no banks, trust companies, or banking associations in the United States are authorized by law to underwrite or market securities of utilities. Therefore, for 40 years, the Federal Power Commission has permitted all utility-commercial bank interlocks. The SEC on the other hand, whose prohibition was contained in title I of the same act, rejected the interpretation of its provision that only interlocks between underwriters or securities marketers were forbidden. However, beginning in 1936 and existing through 1966, the SEC has on 10 occasions, amended its rules to provide exemptions from the prohibition. Under the present SEC rule 70, the exemptions fall into the three main categories: (1) A full time employee of a utility may serve as a director of a bank. Thus, the Chairman of the Board of New England Electric, Robert Krause, who also serves on the board of the First National Bank of Boston, is exempt under the full time employee rule. (2) Board members of small banks with capital and surplus not in excess of $2.5 million are exempted from the prohibition. This is a relatively insignificant exemption which affects only 38 of the 240 holding companies interlocking directorates. (3) Directors of banks having offices within the service areas of the utility or its subsidiaries are exempt. This is the most significant exemption, accounting for 162 of the 240 exemptions granted by the SEC. Have the FPC and the SEC, in their interpretations of the prohibitions against bank-utility interlocks contained in the Public Utility Act of 1935, violated the mandate of the Congress? An examination of the legislative history of the act prepared by the SEC's Division of Corporate Regulation,' which I submit for the record, and a concurrent study by the Library of Congress, American Law Division, both reach the conclusion that the legislative history of the act is vague and ambiguous. While the debate over public utility abuses focused largely on the excesses of investment bankers, it is also clear that, at least the title I, prohibition addressed itself to commercial, as well as investment bankers. In my opinion, an effort should be begun to revise the FPC's and SEC's policies to restrict bank-utility interlocks, rather than broaden them as has been the case historically. This committee has done pioneering work in revealing the extent of corporate concentration in this country. We ought now to begin to move in the direction of broadening and diversifying economic control of major corporations. It is my intention to request the FPC and the SEC to hold public hearings on the interlock question and with an eye toward tightening up the restrictions and eliminating some of the exemptions. I would 1 See p. 161. 37-733 O 74 pt. 3 11 |