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proper subject for stockholder action. If it is not a proper subject for stockholder action, inspection to promote such a purpose will be denied. However, a recent federal opinion, Medical Committee for Human Rights v. SEC,124 persuasively criticized this line of reasoning and held that such policy decisions were proper subject matter for stockholder action.

The Minnesota court cites with approval the statement in Medical Committee that management should not be permitted to impose its personal, moral, and political prejudices upon the corporation. It concludes from this that if management should not be allowed to impose their personal prejudices, stockholders have even less justification for doing so.125 The court in Medical Committee drew the contrary conclusion from this premise. It declared that stockholders should be able to present to fellow stockholders the question of

whether they wish to have their assets used in a manner which they believe to be more socially responsible but possibly less profitable than that which is dictated by present corporate policy, 128

The facts in Medical Committee were remarkably similar to those of the instant case except that the case concerned an interpretation of federal proxy rules rather than state inspection law. Petitioner in Medical Committee sought to include a proposal in Dow Chemical's proxy statement that would prohibit the sale of napalm for use against humans. As in Pillsbury no indication of an investment intent existed, and although the Committee alleged ample economic advantages for ending such production, a socially oriented desire to end the use of napalm constituted the primary motivation.

On appeal, the Supreme Court127 determined that this aspect of the case was moot because of Dow's inclusion of a similar proposal in a subsequent year. As often occurs with stockholder proposals opposed by management, the proposal failed to receive the minimum vote necessary to permit inclusion of the proposal in proxy material

124. 432 F. 2d 659 (D.C. Cir. 1970).

125. 291 Minn. at 331, n. 7, 191 N.W.2d at 412, n. 7.

126. 432 F.2d at 681.

127. SEC v. Medical Committee for Human Rights, 404 U.S. 403 (1972).

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in the following year.128 In a dissenting opinion, Justice Douglas spoke directly to the issue by saying

enterprises [should] be held to a higher standard than that of the 'morals of the marketplace' which exalts a single-minded, myopic determination to maximize profits as the traditional be all and end-all of corporate concern. 129

In this regard, one should also note Senator Muskie's "Corporate Participation Act” which would have ended exclusion of stockholder proposals that "involve economic, political, racial, religious or similar issues unless the matter or action proposed is not a matter or action within the control of the issuer."130

Should such a proposal become law, or should such a concept gain judicial recognition, the decision in Pillsbury would be an anomaly. A proposal affecting the corporation, but motivated by a political belief, would be a proper subject for stockholder action. Inspection would therefore be appropriate since the purpose would be one in furtherance of a general stockholder interest. The personal nature of the political beliefs would be no more relevant than the personal nature of the stockholder's anticipated economic gain.

CONCLUSION

Consistent with the growing mandate that corporations respond to social necessity, shareholders have been accorded increased participation in corporate policy making. What may constitute a proper

128. See Gilbert, The Proxy Proposal Rule of the Securities and Exchange Commission, 33 U. DET. L. J. 191 (1955) in which the author, often called an "apostle of the small shareholder movement," discussed the probability of such proposals receiving a small percentage of votes.

129. 404 U.S. at 410.

130. S. 4003, 91 Cong.2d Sess. 52 (1970). Quoted by Douglas, J. in Medical Com mittee, 404 U.S. at 410, 411, n. 6. Also note Muskie's July 8th letter to the chairman of the SEC:

so as to make it clear that stockholders cannot be denied the
right to vote on a matter of policy within the control of the
corporation simply because it might have social or political im
plications. . . In particular, it seems to me that stockholders not
management, and certainly not the Commission ought to be
permitted the final say on the social responsibility of corporate
policy.

Cited in Garrett, Practicing Lawyer's Viewpoint, 26 BUS. LAW. 545, 546 (1970).

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subject for shareholder action has been construed to encompass not only economic decisions but even social and political determinations. To effectuate these policies, shareholders must have a chance to communicate with one another. Effective communication requires inspection of stock lists.

When considering other issues that vitally concern stockholders, courts have liberally granted the right to inspect. Decisions have subjected corporations of every genre to disclosure and have permitted owners with diverse interests the right to perform that inspection. Any motivation consistent with an applicant's role of stock ownership has satisfied the requirement of proper purpose.

The Court in Pillsbury concluded that social and political beliefs contradict legitimate shareholder perogatives and obligations. By holding that motivation based upon such beliefs does not constitute a proper purpose for inspection, the decision overly restricts the role allotted to shareholders and runs counter to current thought. Its rationale places all corporate activities that raise substantial moral issues beyond the purview of shareholder action.

SUSAN B. HOFFNAGLE
JOLYAN A. BUTLER

APPENDIX B-TRUST DEPARTMENT INVESTMENTS AND NATURE OF NOMINEES OF VARIOUS MAJOR BANKS

Trust Department Investments

[The following supplements data in part I (appendix B) of the previously printed hearings.]

Mr. VICTOR REINEMER,

MORGAN GUARANTY TRUST COMPANY

OF NEW YORK,

New York, N.Y., May 7, 1974.

Staff Director, Senate Subcommittee on Budgeting, Management, and
Expenditures, U.S. Senate, Washington, D.C.

DEAR MR. REINEMER: Copies of the third report of our Trust and Investment Division were sent to Senator Metcalf and to you last week. Subsequent to sending them, we have discovered errors in the computation of percentages of total outstanding stock in the case of three companies listed in the report.

In the three cases our recorded year-end holdings of shares did not reflect two-for-one stock splits that occurred either late in 1973 or in January 1974, while the shares-outstanding totals taken from reference sources and used in computing the percentages were on an after-split basis.

The discrepancies occur in the following stocks:

1. International Flavors & Fragrances Inc. (page 17 of report, additional copy of which is enclosed for your convenience in reference) - the dollar amount of market value and the number of shares are correct, since the split did not become effective until January 16, 1974; the percentages, however, should be 0.74% for employee benefit accounts, 2.02% for personal trust accounts, and 7.50% for investment advisory accounts.

2. National Chemsearch Corp. (page 17 of report) – the dollar amount of market value is correct, but the number of shares should be doubled to reflect the split which was effective December 28, 1973 (certificates for the additional shares were not received by us until January 4, 1974 and therefore our records at the year-end were still expressed in pre-split shares); the percentages should be 6.96% for employee benefit accounts, 0.95% for personal trust accounts, and 7.57% for investment advisory accounts.

3. Weyerhaeuser Co. (page 20 of report) - the dollar amount is correct, but the number of shares should be doubled to reflect the split which was effective December 11, 1973 (we did not receive certificates for the additional shares until January 8, 1974 and thus our records at the year-end were still expressed in pre-split shares); the percentages should be 0.04% for employee benefit accounts, 0.14% for personal trust accounts, and 0.12% for investment advisory accounts. Needless to say, we are instituting measures to avoid error in this kind of situation in future reports.

Sincerely,

JAMES R. BRUGGER,
Senior Vice President.

[Excerpt from Report III]

Trust and Investment Division

Morgan Guaranty Trust Company of New York

23 Wall Street, New York, N.Y. 10015

April 1974