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13.) "The Perils of the Multi-Market Corporation" by Gilbert Burck in Fortune, February 1967. (Notes: "Multi-market companies are probably the most portentous business phenomenon of the post-war era. FTC figures 70% of important acquisitions and mergers, 1960-1965, were conglomerate type. Problem of diversified company: if it stocks up with enough talent to deal simultaneously with many adversities, including recession, it could find itself with an unwieldy headquarters staff; but if headquarters talent inventory is too lean, it could find itself falling behind its competitors. Acquisitions can be "good deals:" by buying a company whose stock is selling for ten times earnings, and borrowing at 6% to do so, you pay 604 for every $10 borrowed (30¢ after taxes) and get $1 in earnings. Also, if a buyer's stock is selling at a high price earnings ratio, then potential sellers with low price-earnings ratios will "stand in line" in the hope of getting higher than market price. Reports on the debate over specialized versus generalized, management ability.

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Notes that one problem with diversified firms is that they don't report to stockholders how each division is doing. Many diversification schemes have flopped, lists a few.)

14.) "The Saga of American Tobacco: The Active Giant" in The Magazine of Wall Street, March 4, 1967, pp. 13-16. (American Tobacco has diversified into distilleries, colas, and crackers since the beginning of 1966. Moved by acquisitions, financed by cash and convertible preferred stock. Notes American was the last of the "big four" tobacco firms to make major diversification moves.)

15.) "Three Airlines of 'Big 5' Seek Diversification" by David Hoffman in the Washington Post, Sunday, August 6, 1967. (United Air Lines and American Air Lines have remained relatively specialized while Pan American, TWA and Eastern are diversifying. Pan American has most nonairline business, earning 15 percent of its gross income there. TWA is fast catching Pan American on this score. Business jets, "rocket base housekeeping," and hotels are the principle outside industries entered by the airlines. Criteria used in making a diversifying move: the new enterprise should make the company less sensitive to fluctuations in GNP; it should help the company hide excess cash; it should help polish a public image; it should exploit managerial competence; or, it should build traffic along long-distance routes in anticipation of high-capacity jumbo jets and supersonic transports now on order.)

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16.) "Why Companies Seek Greener Fields," in Business Week, March 12, 1966, pp. 59-60+. (Typically, good times for business breed merger waves. A Chicago consulting firm estimates that 67% of the acquisitions it studied in 1965 were for cash. The company's survey also showed that finance-bank-insurance led the acquisition wave, followed by the food industry, wholesale and retail operations, chemicals, and electronics. Many companies going into complementary fields--e.g., Mohasco, U. S. largest carpet manufacturer, is buying furniture companies. Partial acquisitions becoming more frequent--one reason is they "are less likely to raise Justice Dept. eyebrows." "The major conglomerates, meanwhile, are still interested in the financial plays involved they are basically looking for return on investment--and they are not all that restrictive about what businesses they will take--although each has set some guidelines." "As long as Justice does not frown on conglomerates, this sort of merger will go on.")

...

17.) "The Time of the Conglomerates," Harvey H. Segal, The New York Times Magazine, October 27, 1968. The differences between conglomerate mergers and firms with diversity of product lines (i.e., General Motors, Ford Motor, and General Electric) are distinguished. The diversification patterns of I.T.T. and, particularly, LingTemco-Vaught are discussed in detail. Other conglomerate firms (Glen Alden, Gulf & Western, Litton Industries) are analyzed with reference to special characteristics of the conglomerate movement. The author concludes that synergism (production efficiency of goods and services) is not the key motivation, but "it is to the stock market rather than the production line that one must look for an explanation of the conglomerate corporation."

Mr. TURNER. I have no further questions, Mr. Chairman.

Senator METCALF. I have no further questions at this time. Again, I applaud the new proposal for further search for information and the recent rulemaking decision. I want to give you all of the support that I can. I will accept your challenge in making comments ourseves as to the proposed rule as soon as possible.

I thank you for coming up here with the usual forthright and informative testimony and bringing members of your staff here to help us in this inquiry.

Thank you very much.

Mr. NASSIKAS. Thank you, Mr. Chairman, and Mr. Turner.

Senator METCALF. The next witness is Mr. Phillip S. Hughes, Assistant Comptroller General of the United States, who is also a longtime witness before this committee.

I know that in your new position, Mr. Hughes, you haven't had a great deal of opportunity to get a background of information on the inquiry that we directed to you, but I think it would be helpful if you would give us a little bit of your experience and then we will understand. Go ahead.

STATEMENT OF HON. PHILLIP S. HUGHES, ASSISTANT
COMPTROLLER GENERAL OF THE UNITED STATES

Mr. HUGHES. Thank you, Mr. Chairman. I am very happy to be helpful this morning or in the future in any way we can to the committee. I am here today at your request to participate in your inquiry into corporate disclosure and the collection and tabulation of information by Federal agencies. My brief prepared statement discusses: (1) Our new responsibilities relating to the collection of information by Federal regulatory agencies; (2) comments on disclosures in Senate Document 93-62 "Disclosure of Corporate Ownership" in the light of these new responsibilities; and (3) outlines our approach to the review of the Federal Trade Commission's line of business report in accordance with our responsibilities.

I hope that my statement will be helpful to the subcommittees and, of course, will be glad to respond to your questions either during the course of the statement or thereafter.

RESPONSIBILITIES GIVEN THE GENERAL ACCOUNTING OFFICE UNDER SECTION 409 OF PUBLIC LAW 93-153

This law, enacted November 16, 1973, revised the Federal Reports Act to require the General Accounting Office to review the collection of information by independent Federal regulatory agencies to assure that information is obtained with a minimum burden on those business enterprises and persons required to provide the information, particularly small businesses.

The revisions also seek elimination of data duplication and that information collected be tabulated so as to maximize its usefulness to other Federal agencies and the public. The law requires the General Accounting Office to review existing information-gathering practices of the independent regulatory agencies as well as requests for additional information.

We are now organizing our efforts to discharge our new responsi

bilities and are currently considering comments we have received on our proposed regulations which were published in the Federal Register on February 11, 1974, page 5201.1 We are hopeful of publishing the final regulations early next month.

In addition, we are meeting with agency personnel to explain our program and to develop plans for the general review of existing datagathering systems also required by section 409.

Since November 16, 1973, we have completed reviews of 50 forms, have 19 pending, and are essentially current on our individual reviews of agencies' information-gathering requests.

We believe it may be useful to outline for you our basic approach both to the review of individual forms and to the broader reviews of regulatory agencies' data-gathering systems. Our proposed regulations reflect this approach and we outlined it initially in letters sent to the independent regulatory agencies on February 12, 1974. We have a copy of the proposed regulations,' and the letter for the subcommittees' record, if you wish to include them.

Senator METCALF. Thank you. We will incorporate them in the record immediately after your testimony.

Mr. HUGHES. Basically, we are asking the regulatory agencies to establish controls to enable "them" to be sure of that. We emphasized "them," Mr. Chairman, because we think the proper procedure is to fix responsibility in the agency itself to do its job, subject to oversight and review by an agency such as the General Accounting Office.

The things we want to be sure of, and have the agencies sure of, are that:

1. Data sought is needed to accompilsh a specific agency function. 2. Suitable data is not available from other sources either in its present form or with reasonable modifications.

3. Adequate effort has been made to assess the relationship between the value of the data sought and the burden on the entities who must provide it.

4. Data collected is available in a form which will maximize its usefulness.

All of these things we see as inherent in the requirements of section 409 and I emphasize again that we think it important that the agencies collecting the information ascertain these facts and have procedures which will assure that they do.

Once we are assured that the agency has an adequate system to achieve these objectives, we can check on a sample basis to make sure the system functions as it should.

We have discussed our approach with a broad range of involved persons and groups and are encouraged by the acceptance it has received. We expect to initiate our general reviews of regulatory agency data-gathering systems by early summer.

CORPORATE OWNERSHIP DISCLOSURE

You have asked for our suggestions for a better system of collecting and publishing aggregated information concerning ownership and control of regulated corporations. The study prepared by your sub

1 See p. 865.

2 See p. 871.

committees and printed as Senate Document 93-62 pointed out that the information now in the public files does not clearly disclose ownership.

*** the real owners-the principal institutions or others empowered to buy, vote and sell stock-are often unidentified. Some of their holdings are listed in the names of nominees-"street names." And some of their holdings are not reported at all to the regulators, even though the institutional investor in some instances reports its aggregated holdings and voting rights to a commission in a distant State, or to the public * *

As you know, GAO staff helped develop some of the information upon which Senate Document 93-62 is based. This material was requested in Senator Metcalf's letter of February 9, 1973, and transmitted by the Comptroller General's letter of April 10, all a part of the Senate document-appendix A.

As was indicated in that document, the seven regulatory agencies with which the subcommittee was primarily concerned have broad authority to obtain whatever information they deem necessary to carry out their statutory responsibilities. This information is obtained through formal proceedings on a case-by-case basis, in periodic reports, and in applications requiring agency approval.

With the exception of the FTC, each of the regulatory agencies regularly receive data on the ownership regulated companies. However, the reporting requirements of the agencies vary considerably,

For example, some agencies require companies to submit information on a number of their larger stockholders, while others require information on all stockholders owning more than a given percentage of stock.

We have not had an opportunity to thoroughly examine and consider problems of disclosure of corporate ownership and control as they relate to our new responsibilities for reviewing regulatory agency reports.

However, we are not now aware of any reason why the information necessary for clear public disclosure of ownership and control of regulated corporations could not be collected in aggregatable form by regulatory agencies. Neither are we aware of any reason why it would not be in the public interest to do this.

On February 12, 1974, we received a request for clearance from the Civil Aeronautics Board to collect the names and addresses of the 30 largest voting stockholders of the air carriers, rather than those holding more than 5 percent of the capital stock, as at present.

The names and addresses collected would be the actual, not the nominee, names. CAB developed a methodology for the air carriers to use in developing this information to minimize the reporting burden. We approved the request on February 27, 1974.

In the next paragraph we bring attention to the matter that Chairman Nassikas mentioned, that the Federal Power Commission also is undertaking a similar approach.

Senator METCALF. That is a rulemaking approach. That wouldn't come through you, would it, Mr. Hughes? Do you have to approve that?

Mr. HUGHES. As part of our proposed rulemaking under the Alaska pipeline bill, we are attempting to work out with the regulatories what the metes and bounds of our responsibilities are.