Senator WILLIAMS. Mr. James J. O'Neill and Mr. Fred M. Zeder. Your committee, Mr. Zeder, is known to us, and very favorably so. We have had discussions and exchanged information and you have been a great help to the committee in much of our activity here. We are very grateful. STATEMENT OF FRED M. ZEDER, MEMBER, EXECUTIVE COMMITTEE, COMMITTEE OF PUBLICLY OWNED COMPANIES; ACCOMPANIED BY JAMES J. O'NEILL, EXECUTIVE DIRECTOR, AND B. M. SIEGEL, STAFF COUNSEL Mr. ZEDER. Thank you, Mr. Chairman. We appreciate that. Mr. Chairman and members of the subcommittee, I am chairman of Hydrometals. Our securities are traded on the New York Stock Exchange. I appear here on behalf of the Committee of Publicly Owned Companies. With me this morning are Mr. James J. O'Neill, executive director of COPOC, and Mr. B. M. Siegel, staff counsel. As the subcommittee knows, our members, representing 630 publicly owned companies in virtually every State of the Union, are suffering from a shortage of equity capital. Corporate underwritings of equity issues have dwindled to a trickle. Only 154 new issues of common stock were marketed in 1974 compared to 411 common stock issues in 1973, and 1,383 in 1972. The market value of stocks of many companies has declined sharply in recent years, notwithstanding, generally, high corporate earnings. The broadly based Value Line Industrial Average shows that listed stocks declined from a high of 199.99 in December 1968 to 63.7 on March 1, 1975-a decline of about 68 percent. As a result, many companies have become inviting targets for takeovers by foreign as well as domestic capital. Some companies have been targets of tender offers made at a premium above the present depressed market values, and they are great bargains at those prices. There were 24 tender offers filed with the SEC by foreigners in 1974, and 20 filed in 1973. This compares with only two tender offers filed with the SEC by foreigners during the last 6 months of 1972, the earliest period for which data is available. This does not include acquisitions, direct investments, other portfolio investments, real estate or agricultural purchases. We believe that the centerpiece of an effective program to remedy this equity capital crisis must be increased investment in the common stocks of corporate America by individual Americans. The alarming reduction in the shareholder base of 800,000 individuals during each of the last 2 years must be reversed. Before this subcommittee and various other committees of the House and the Senate, as well as in other forums, we have presented a series of recommendations to assist in bringing this about. We know of no more immediate or critical challenge than to revive and increase the interest of American citizens in direct investment in the common stocks of American companies. This is urgently needed to reduce the crushing burden of debt which many of our companies now carry; to restrain inflation; and to provide the goods and services that are needed for the future of our Nation. 49-480 - 75 31 A New York Stock Exchange study released this past week estimated that American business concerns will require an average of $20 billion to $35 billion a year in new equity capital over the next decademore than has ever been raised in a single year. In view of this staggering need for capital in our own Nation, we support foreign investments in U.S. companies as a general principle. However, if domestic capital markets are not functioning effectively, our Nation in the future may be as dependent on foreign capital for our economic needs as we are on foreign energy sources, with all the problems and dangers which that portends. We, nonetheless, believe that foreign investments in domestic companies can be helpful to the United States, to foreign countries, and to the cause of world cooperation and peace. We appreciate the fact that S. 425 reflects this objective: That is, while it is intended to encourage, or certainly not to discourage, foreign investments, it seeks to establish a system by which such foreign investments can be monitored so as to reduce or avoid the danger that they may be used to the prejudice of the security, foreign policy, or welfare of this Nation. The bill also requires all shareholders of record of registered securities to report to the issuer of such securities the identity, residence, and nationality of the beneficial owner of such securities at such times and in such form as the SEC, by rule, may prescribe. At the recent SEC hearings inquiring into the adequacy of rules relating to beneficial ownership, takeovers and acquisitions, the Committee of Publicly Owned Companies called attention to the problem which issuers face in communicating with the beneficial owners of their shares. Under present procedures, beneficial owners whose stock is in street name or nominee accounts frequently do not receive from the shareholder of record notice of proposed meetings, periodic reports, proxy material or other corporate communications without unreasonable delay. Many letters sent to the SEC by our members, other corporations, and shareholders attest to the widespread nature of this problem. The provisions of S. 425, although designed for another purpose. could be very helpful in overcoming this problem by providing issuers with a list of the real owners of their shares. We strongly believe that prompt, forthright corporate communication with shareholders is essential to investor confidence. Particularly in a time of economic uncertainty, we want to be able to communicate with our stockholders-with all of them, and not just some of them. We want to be able to do this promptly, frequently, and effectively. We are pleased that S. 425 would make it possible for all shareholders, including those whose shares are held in street name or by nominees, to have equal access to corporate information and developments. Thank you very much. I would be glad to answer any questions the chairman has. Senator WILLIAMS. The statement is pristine in its clarity and its illumination. It is a very good statement. We are faced with a bit of a dilemma, Mr. Zeder. I have before me the statement that you read. Staff had a different statement. Are you aware there were two statements? Mr. ZEDER. We filed an initial statement and I think this is a revision of it. I was not aware they had the early filing. Senator WILLIAMS. It was substantively the same, but the language differed and two or three things were added in this statement that you made today. One I would like to highlight, if I could: "However, if domestic capital markets are not functioning effectively, our Nation in the future may be as dependent on foreign capital for our economic needs as we are on foreign energy sources, with all the problems and dangers which that portends." That says a great deal and certainly it is the philosophy that is embodied in this legislation before us. Certainly, we are now trying to throw ourselves into gear to become independent in energy, and yet right here and now so many seem to be feeling that our salvation, economic salvation, is in foreign investment. We need it, and we want it, but let us not be dependent on it; and let it not be an investment that will be contrary to basic American objectives and policy. We are very grateful to you. Mr. ZEDER. Thank you. Senator WILLIAMS. This question arises out of the testimony given to us earlier today by the New York Stock Exchange spokesman. Would you comment on their statement that the operational burden far outweighs any benefits to issuers from such disclosure? Mr. ZEDER. I think Mr. O'Neill is probably a greater expert in that field than I am. Senator WILLIAMS. I think we are going to have to deal with this. Mr. O'NEILL. Senator, I am not sure there are any real experts in this area. There seems to be an absence of information, particularly when we have raised questions and sought information in this area. But I think it is fair to say that the underlying documents to provide to companies the lists and the information that both your bill and we, ourselves, seek are already in existence and are readily available to a brokerage firm. That material and those lists are already in existence. One of our members wrote to a number of New York Stock Exchange firms and to banks. It has about 80,000 shareholders. It knows, I think, literally less than 50,000 of those shareholders. And they requested the information from the brokers and the banks. The vast majority did not answer the request at all. Those that did said it was their policy to keep this information confidential. I do not believe there is an insurmountable burden to providing this information. The corporations have the legal responsibility to communicate with their shareholders and it seems to me, if there is a will to see that that is done, and done properly, that it certainly can be facilitated. I would like to submit for the record, if we may, a more technical statement that we made to the SEC regarding this specific problem, and also some letters, various letters from corporations around the country, in support of this position. They want to know who owns their stock. Just very briefly, Senator, if I may, this is a letter sent to us by the General Dynamics Corp. regarding this specific issue. It says: The present procedure for distributing shareholder communications to buyerowners of street name stocks is a disgrace to the free enterprise system. The present procedure is about one-third as efficient as direct communication from corporation to shareholder and at least three times more expensive. I think that sums it up pretty well. In so stating, I do not mean in any way to criticize the brokerage community. Over the years we have received excellent cooperation from brokerage firms. The problem does not stem from the people who are administering the system; the problem is the system itself which is inherently inefficient and costly. By and large, stock is held in street name for the convenience of the firm or the beneficial owner. In all but a few cases, confidentiality is not a factor. I fully support the view of the Committee that the SEC should require brokerage firms and custodial nominees to the issuing company to turn over names and addresses, together with a proxy of some form authorizing the voting of all stock for which proxies from beneficial owners are received. In my career, which goes back over 20 years, nothing has irritated me quite as much as the restrictions which have been imposed on corporate management in communicating with street-name holders. He goes on, but this is, I think, is representative of letters we have received and that have been forwarded to the SEC from all over the country. And I would like to submit this technical document, if I may. Senator WILLIAMS. We would appreciate that and it will be part of the record. Mr. O'NEILL. Nobody is suggesting that if your securities bill is passed, stocks will not then be able to be held in a central depository. That is put up at times as a strawman and I think it tends to blur the actual issue. If I may, Senator, just one other item which may be helpful to your staff. At our request the SEC has sent to us a list of foreign tender offers that have been made. I don't know if your staff has this or not. Senator WILLIAMS. Is this the last year-24 foreign tender offers? Mr. O'NEILL. It is for 1972-74. It lists the target companies and the foreign bidders. FOREIGN TENDER OFFERS-FISCAL YEAR 1974 No. and target Bidder 1. The Connrex Corp.. 2. Texasgulf Inc. 3. Dearborn Storm Corp... 4. The Signal Co., Inc..... 11. Russeks, Inc... July 10, 1973 Canada. July 24, 1973 Chloride Group Ltd. is a publicly owned English England.. Canada Development Corp. is a corporation in Trafalgar House Investments Ltd. is an English John L. Loeb Group consists of individuals and Trust Houses Forte, Ltd. is a publicly owned Eng- Toromont Industrial Holdings, Ltd. is a Canadian Kyokuyo Co., Ltd. is a Japanese corporation. England. Aug. 6, 1973 United States, Canada, Aug. 8, 1973 France and zerland. Thyssen, Bornemisza Group, N.V., a Netherlands Netherlands and Swit- Sept. 26, 1973 Oct. 24, 1973 Canada and England... Oct. 30, 1973 Equity Enterprises, Ltd. (London, England). England... 12. The Grand Union Co..... Cavenham Limited 34 percent owned by Generale Occidentale S.A. (France) which in turn 17 per- 13. Cutter Laboratories, Inc. Rhinechem Corp. (a Delaware corporation), wholly West Germany.... 16. Funk Seeds Interna- Ciba-Geigy Corp. which is wholly owned by Ciba- Netherlands and.. Feb. 21, 1974 |