Evening star., 1932-10-10
EASTMAN ASSA|LS
UTILITY LAWYERS
|. c. C. Commissioner Calls
Holding Company Situa-
ton "Poisonous."

ton "Poisonous."
Lashing out at the unhealthy and
even poisonous conditions" he said had
sprung from holding companies, Com
missioner Joseph B. Eastman of the
Interstate Commerce Commission today
told the section on public utility law
of the American Bar Association that
the legal fraternity "is largely respon-
sible" for the situation.
Commissioner Eastman applied the
appellation legal sharks" to the lawyers
in this practice, and he suggested that
the Bar Association might consider how
a change might be brought about. East
mans criticism came in his address of
welcome to this section, which is one
of a number holding meetings pre-
liminary to the convention of the Bar
Association, which opens here Wednes-
day.
The holding company was assailed
from another source also, George Otis
Smith, chairman of the Federal Power
Commission declaring for the fullest
publicity that would keep abreast OF
current developments in order properly
to regulate these set-ups in the utility
field
post Mortem" Publicity.
Dr. Smith said that too often the
publicity is of post mortem' nature.
To the contrary, holding company reg
ulation was opposed in report to the
section by its committee on the boun-
daries between State and Federal reg
ulatory power over public services. The
committee held attempts at regulation
would be ineffective.
In my humble judgment" Commis-
sioner Eastman said, the holding COM
pany working with its ally the dummy
or convenience corporation, has been
one of the most effective instruments OF
exploitation which this country has
known.
Under certain conditions, and prop
erly limited and safeguarded. there may
he legitimate pace for such corpora
tions, but when. instead Of a reasonably
simple corporate structure, one finds a
tangled maze of pyramided and inter-
locking companies. many OF them
strictly of the holding or dummy type,
it requires no great amount of intelli-
gence to know that some process OF
evasion or perversion is under way.
Legal Shark Necessary.
Furthermore, the creator or archi-
tect of every such corporate labyrinth
Is bound to be some legal shark"
Commissioner Eastman assailed also
the indiscriminate licensing of cor
porations, particularly in Delaware,
which he described as plague spot
polluting the entire country"
Il suggest" he continued, that in
sidious disease is attacking the business,
banking and financial practices of this
country and is an important factor in
our present troubles. I suggest that
this disease breeds in and feeds on the
gross license permitted in corporations
for any and all manner of purposes
without decent and restraint safeguards.
IT suggest that the legal fraternity
is largely responsible for these unhealthy
and even poisonous conditions. sug-
gest that the essentials of sound prac-
tice with respect to the organization Of
corporations through limitation of their
powers and the restrictions to be i'm
posed on them have been thoroughly
considered in the past, so that the ma
terial for a discussion of this forgotten
subject Is readily available.
Il suggest finally that the American
Bar Association furnishes most appro-
pirate forum for such discussion"
Frank Reid of New York, vice presi-
dent of the Electric Bond & Share Co.,
spoke.
DR.. Smith in his address called for
new deal" In utility regulation
through the medium of publicity that
keeps abreast with the current opera
tions of the power industry.
The business of public utility needs
to be done in the open, even to the
extent of requiring approval in advance
by some public authority for many Of
the plans now disclosed only years
afterwards" he said.
In amplifcation of his suggestion for
clared that "far too often" the publicity
of the present is "of a post-mortem
nature"
Revelation Of bad corporate condi-
tions, faulty business regimen, and even
unethical habits, as disclosed through
Federal Trade Commission investiga-
tions cannot take the place of plain
facts currently determined and prompt
Iy published" he said.
Using the financial pages of news
papers for publishing balance sheets
that explicitly set forth public utili-
tvs operations, has a practical value
to the public possessed by no expose of
past practices, however sensational the
headlines. Investors have a right to
know what is going on now. rather
than why something happened last
year, and customers of utilities likewise
should be told where the money goes
they pay for service"
Not Self Revealing.
Existing laws, both State and Fed
eral," the speaker said, may afford
stringent penalties for fraudulent use
of corporate funds and improper exer-
else of majority control, but, unfor-
tunately for those who are wronged by
such illegal acts, the crimes of high
finance are not self-revealing. Not
punitive but preventive measures are
required to protect the owners or credi-
tors, who Of themselves are powerless
to determine the fiscal policy or to
this true under the conditions of the
present, set-up in the power business,
where, through a chain Of holding
companies. actual control may be spread
across the continent.
"It is the facts Of sad experience,
rather than niceties Of jurisdictional
theory. that brings the holding company
problem imperatively before the public
Recent history furnishes the urge for
action. Almost daily there are astound-
ing disclosures of high-handed conduct
by chief executives Of top companies
that has played havoc with what the
humble and trusting owners regarded
as their securities The existing system
is itself supplying the strongest argu-
ments for new DEAL"
Continuing, Dr. Smith said "the call
for administrative agencies to take over
functions once considered more judicial
than executive is sign of the times
whether we lament it or not" and, he
argued. full publicity Of corporation S
daily life should be the working prin-
ciple" of this administrative control.
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