A predominant
minority
as well as substantial and small minority control was exercised by many corporations, particularly in the railroad and electric utility fields.
Lundberg - The-Rich-and-the-Super-Rich-by-Ferdinand-Lundberg
]
As the study showed, the value of the twenty largest record holdings in 208 common stock issues as a percentage of total value was:
Per Cent
Manufacturing companies 26. 7
Railroads 24. 9
Electric, gas and water utilities 45. 3
Others 17. 3
The relatively small percentage in the fourth category is accounted for by the fact that it included AT&T with its widely dispersed comparatively small shareholders.
But for the twenty largest stockholders to own such large percentages, on the average, of the leading companies testifies to the extremes of concentrated ownership in the American economy.
Most of the millions of individual stockholdings in the hands of a variety of run-of- the-mill people made up only 6 per cent of the ownership and voting power. The general anonymous stockholders, although up to twenty million by count in 1965, all together own very little and have as much to say as the Russians have over their rulers in the Kremlin.
"The great bulk of the 8 to 9 million domestic stockholders own only small amounts of stock and the dividends they receive represent but a minor proportion of their total income. About half of all stock-holders have an annual dividend income of less than $100 and holdings worth less than $2,000. The group which depends economically to a large extent on the dividends from corporate stocks or the market value of these stocks is very small and probably numbers not much more than 500,000 people.
"The ownership of the stock of all American corporations is highly concentrated. For example, 10,000 persons (0. 008 percent of the population) own one-fourth, and 75,000 persons (0. 06 percent of the population) own fully one-half, of all corporate stock held by individuals in this country. " 2
Foreign investors, it was pointed out, own more than 6 per cent of the common and nearly 4 per cent of the preferred stock of these companies, and "Foreign ownership exceeds 10 per cent of total stock outstanding in about one-tenth of the 200 corporations. " [Note: These foreign holdings are held by comparable individual large European interests. ]
These patterns persist down to the present, as shown conclusively by the Lampman, University of Michigan, Federal Reserve and many other studies, and also in what I shall refer to as The Dartmouth Study: Corporate Concentration and Public Policy, by Professors Martin L. Lindahl and William A. Carter of Dartmouth College.
Noting that the patterns persist does not mean that the position of the owners has remained stationary. Although the percentage of ownership in the economy may conceivably be no greater than the concentration of control, owing to the steadily increasing concentration of assets, it is unquestionably greater now than it ever was before. The only dropouts from the upper strata of ownership have been produced by the ending of a family line. None of the big fortunes pinpointed in the TNEC study has gone bankrupt. Under the impetus of economic and technical change, of course, some of the minor big fortunes have lost ground relative to the leaders; but as other elements have thrust their way forward, the essentials of the panorama have scarcely changed.
While it might be of some interest to pinpoint changes for the better or the worse within some fortunes, it is not within the scope of this exposition to make such an attractive digression. We may, therefore, be spared the details of who is worth $100 million more or less. The Ford Motor Company is reported to have taken a $250 million loss on its unsuccessful Edsel model, but the Ford family remains in the leading quartet of wealth. These big fortunes can afford to take big losses, and they do have their ups and downs. What they lose one day in one place they make up another day in another place. What permits them to do this is: heavy reserves, affording maneuverability.
The TNEC study broke itself down into types of control, either by family or corporation, as follows:
a. By majority ownership b. By predominant majority c. By substantial minority d. By small minority
But in most cases control of one corporation by another saw the controlling corporation itself under single or multiple-family control.
The Thirteen Largest TNEC Family Interest Groups
As measured by market or calculated value at the end of 1937, the thirteen wealthiest family interest groups, led by the Du Ponts, Mellons, Rockefellers and Fords, also included the following: 3
Family
McCormick (Chicago)
Hartford (New York)
Harkness (New York)
Duke (North Carolina)
Pew (Philadelphia)
Pitcairn (Pittsburgh)
Clark
Reynolds (North Carolina)
Kress (New York)
Main Corporations
International Harvester
Great Atlantic & Pacific Tea
Standard Oil (New Jersey)
Standard Oil (Indiana)
Standard Oil of California and
Socony Vacuum Oil
Duke Power, Aluminum Co. of America
Liggett and Myers Tobacco
Sun Oil
Pittsburgh Plate Glass
Singer (sewing machines)
R. J. Reynolds Tobacco
S. H. Kress (variety stores)
To be sure, as the study warned, "Many members of these groups undoubtedly had stock investments in one or more of the 200 corporations which did not appear among the 20 largest record shareholdings. . . . Many also had investments in other corporations, particularly in large financial corporations which are not covered by the study, and investments in other forms such as corporate bonds, tax-exempt securities, real estate, and bank deposits. It is quite possible that for some groups these outside investments had a larger aggregate value than their identified holdings in the 200 largest corporations. " 4
A point never made by the TNEC study is that this same pattern of concentrated ownership and control extends below the 200 largest companies to the 500 largest, the 1,000 largest, the 10,000 largest, etc. What is remarkable about the TNEC showing is not that there were shown ownership and control by such tiny groups but that there were such concentrated ownership and control over such mammoth corporate entities, which standard propaganda insists are widely owned by the rank-and-file citizenry as stockholders. As enterprises get smaller and smaller there is even less public participation in their ownership than in the biggest companies until one soon runs into the 100 per cent family-owned or individually owned closed corporation. It is no exaggeration to say that all money-making enterprises of whatever size, including the widely owned AT&T, are owned by a very small class of proprietors, Whatever property is scattered among nearly 90 per cent of the populace is mostly nonrevenue- producing: much-used cars, TV and radio sets, furniture-in brief, chattels.
The Standard Oil branch of the Harkness family, now with few surviving members and its once vast funds largely distributed, mainly to leading educational institutions, was found to be among the twenty largest stockholders in no fewer than 24 of the 200
largest companies, apparently a record. 5 While this particular ownership is no longer concentrated, the fact that it recently existed shows what is possible within the system.
Single
Family
1. Dorrance
2. Duke
3. Ford
4. Hartford
5. James
6. Kress
7. Mellon
8. Mellon
9. Mellon
10. Pew
Multiple
Family
1. Anderson-Clayton
Main
Corporation
Campbell Soup
Duke Power
Ford Motor
Great Atlantic & Pacific 100
Western Pacific RR 61. 18
S. H. Kress 79
Gulf Oil 69. 5
Koppers 52
Pittsburgh Coal 50. 9
Sun Oil 69
Anderson, Clayton 94-plus
(Houston)
Family Control by Majority Ownership 6
2. Clarke-Bourne-Singer Singer 50-plus
3. Pbillips-Olmsted- Long Island Lighting 47-plus
Childs
4. Bell-Darby-Cooper American Cyanamid
Biddle-Duke etal.
88. 77
A peculiarity about this last holding was that while most of the Class A voting stock
was owned by eight senior officers-almost 29 per cent by W. B. Bell, president-most of
the equity was represented by the Class B nonvoting stock. The twenty-two leading
stockholders, with three tied for twentieth place, held 88. 77 per cent of the voting stock. 7
The holdings of the Hartford family in the Great Atlantic & Pacific Tea Company, which does more than 6 per cent of all retail grocery business in the United States, are not precisely ascertainable now on the basis of the TNEC report. The Hartfords owned at least 61 per cent of the old preferred stock, exchanged for three shares of common in the recapitalization of 1958, and all of the voting common, exchanged for one share of new common. In the old arrangement there were 935,812 shares of nonvoting common, also exchanged share-for-share for new common, but because the TNEC did not inquire into the Hartford ownership, if any, of this stock, its possible present ownership position (assuming no sales or purchases) cannot be completely deduced.
But, assuming the Hartfords owned none of the nonvoting stock and retained all their other stock in the exchange, they would now own very close to 70 per cent control of the company. At the end of 1964 all its outstanding common had a market value of $936,850,025, leaving the Hartford share at about $650 million. At the end of 1959, 33. 98 of this outstanding stock was held by the John A. Hartford Foundation. I conclude, then, that the Hartford family through nominees still retains majority controlling ownership of this huge company by a wide margin.
Predominant Minority Control 8
A predominant minority was defined in the TNEC study as consisting of the ownership of 30 to 50 per cent of the stock. 9
Single Family Corporation Percentage of
(approximate number of Ownership
income recipients)
Percentage of
Ownership
100 82 100
1. Du Pont
(about 250)
2. Mellon
(about 10)
Mellon
3. Cudahy
(about 32)
4. Deere (4)
5. Pitcairn
(4 or more)
6. Straus
(14)
7. Kresge (6)
Multiple Family 15
1. Field-Simpson-Shedd
E. 1. du Pont de Nemours
(controlling General
Motors by 23 per cent. )
Aluminum Co. of
America
Pittsburgh (Consoli-
dation) Coal
Cudahy
Deere
Pittsburgh Plate Glass
R. H. Macy
S. S. Kresge
Marshall Field
44
34. 4 50. 9 48. 71 10 34. 12 11 35. 34 12 38. 67 13 44. 24 14
2. Rosenstiel-Jacobi-Wiehe- Schenley Distillers
Schwarzhaupt-Gergross
3. Weyerhaeuser-Clapp-Bell- Weyerhaeuser
McKnight
The largest number of family interest groups was found to use the device of control by means of a substantial minority ownership of stock, which permits controlling positions to be taken in some cases in a wide spectrum of big companies. These were as follows:
Control by Substantial Minority 16
Single Family
1. E. I. du Pont de Nemours &
Co. (family controlled)
2. Crane
3. Colgate
4. Firestone
5. Gimbel
6. McCormick
7. Hanna
8. Palmer
9. Rockefeller
10. Levis
11. Mellon
12. Rosenwald
13. Avery
14. Du Pont
15. Williams
Multiple Family
Corporation
General Motors
Crane
Colgate-Palmolive-Peet
Firestone Tire & Rubber
Gimbel Brothers
International Harvester
National Steel
New Jersey Zinc
Ohio Oil (now
Marathon Oil)
Socony Vacuum Oil Co.
(now Socony Mobil Oil)
Standard Oil of Calif.
Standard Oil (Indiana)
Standard Oil (New Jersey) case
Owens-Illinois
Pullman
Sears, Roebuck
U. S. Gypsum
U. S. Rubber
North American Co. (since
dissolved into constituent
public utility operating
companies)
10
to
30
per cent
in
each
1. Walters-Jenkins-Newcomer
2. Stone-Webster
3. Davies-Woodward-Igleheart
4. Block-Ryerson-Jones
5. Rand-Watkins-Johnson-
Peters
6. Widener-Elkins-Dula-
Ryan
7. Hillman-Shouvlin-Chalfant
S. Miller-Volkman-Schilling
9. James-Dodge-Hanna
10. Procter-Gamble-
Cunningham
11. Lynch-Merrill
12. Kirby-Woolworth-
Donahue-McCann
13. Hochschild-Loeb-
Sussman
Hochschild-Loeb-
Sussman
Small Minority Control 17 Family
1. Moore
2. Zellerbach
3. Crawford
4. Moore
5. Cornish
6. Du Pont-Phillips
7. Swift
S. Warner
Atlantic Coast Line RR
Engineers Public Service Co.
(since dissolved into constituent
operating units)
General Foods
Inland Steel
International Shoe
Liggett & Myers Tobacco
National Supply (oil
well supplies)
Pacific Lighting
Phelps Dodge
(copper)
10
to
30
per cent
in
each case
Procter and Gamble
(soap)
Safeway Stores (groceries)
F. W. Woolworth
Climax Molybdenum
American Metal
Corporation
American Can
Crown Zellerbach
Lone Star Gas
National Biscuit
National Lead
Phillips Petroleum
Swift
Warner Bros. Pictures
We have named fifty-seven single families and combined, cooperating multiple- family groups that exercise control of the largest corporations by majority, predominant minority, substantial minority and small minority ownership. There were thirty-seven single-family-control entities, although some of these, such as the Mellons, Du Ponts and Rockefellers, each controlled several big companies. There were sixty-four single families in the multiple-family groups named, although in some cases the names are not given in this text. Perhaps as many as 400 families composed the various multiple- control groups in the 200 largest corporations.
Some of these companies, as noted, have changed their modus operandi, notably the public utility companies. Some have changed their names, like the Ohio Oil Company. Others have gone out of existence by the merger route. It is neither necessary nor expedient to trace here each company through various subsequent permutations and combinations, for equities are what concern us.
Have the percentage positions of these families remained the same in all these companies? Probably not. In some cases they have undoubtedly increased their holdings, in others they are known to have decreased. Some may even have closed out their holdings. But, as pointed out earlier, if anyone has sold out in one place he has reinvested elsewhere, and possibly to better advantage. He is, therefore, still rich.
Less
than
10
per cent
Knowing the value of the property from the inside, all these groups know when the stock is overpriced and when to sell. As the income-tax returns since the war show, the higher income groups have been steadily taking capital gains, which are taxed at a maximum of 25 per cent, a bargain in relation to the upper income taxes. Wealthy holders usually show a strong tendency to sell some holdings in rising markets and to buy again in declines, thus increasing their percentile position (Standard Doctrine). So their percentages of ownership change from time to time. Sales would not necessarily show on the books of a company. For a man can always sell the stock short.
With the exception only of two as far as I have been able to ascertain, all these families are still extant and still highly solvent. The exceptions are the Harknesses and Arthur Curtiss James (1867-1941), who died leaving no heirs. James left his money to a foundation with the fairly unusual stipulation that the principal was to be distributed in twenty-five years, which was done. 18 Like James himself, the foundation is now defunct.
There remains the case of one big company holding control of another big company. (Control of scores to hundreds of smaller companies by many of the big companies is the common pattern now in the American economy. ) Nearly all of the 200 largest nonfinancial companies of the TNEC study, like most of the 500 industrials regularly featured by Fortune, are in fact holding companies, not operating companies at all. just about all the big companies that are familiar household words in the United States are holding companies, contrary to the general public belief. AT&T, for example, is a holding company.
Corporate Control by Majority Ownership 19
Holding Company
Armour (Illinois)
Cities Service
Royal Dutch Petroleum
AT&T
AT&T
Chesapeake & Ohio Ry
Reading Company
Atlantic Coast Line RR
(under multiple Walters-
Jenkins-Newcomer control)
Many public utility holding
Companies
Operating Company
Armour (Delaware)
Empire Gas and Fuel
Shell Union Oil
Pacific Telephone
& Telegraph
New England Telephone
& Telegraph
New York, Chicago &
Per Cent
100 100 64
78. 17
65. 31
57
St. Louis RR
Central RailRoad of N. J. 55
Louisville & Nashville 51
RR
Many public utility 100
operating companies
now cut loose
In many cases, particularly in railroads and public utilities, two corporations shared control.
A predominant minority as well as substantial and small minority control was exercised by many corporations, particularly in the railroad and electric utility fields. In this latter field, long subject to gross manipulative abuses, the companies holding widely scattered properties were finally dissolved by congressional decree and the equities in operating companies were distributed to individual stockholders.
Until very recently the most salient instance of a predominant minority control of one mammoth corporation by another was that of E. I. du Pont de Nemours and Company of the General Motors Corporation (discussed in Chapter IV).
While there were some cases where the big owners were under-represented in the management by reason of "youth, old age, sex, preoccupation with other financial or nonfinancial interests or other considerations" heavy representation or even overrepresentation was "much more common. " 20 Thus, although members of the Swift family owned only 5 per cent of the voting stock, the remainder of the stock being distributed mainly in slices of 100 to 500 shares each, the Swift family held six of the nine directorships. In the Crown Zellerbach Corporation the Zellerbach family, owning 8-1/2 per cent of the stock, provided the president, a vice president and three directors out of a board of thirteen. It is not necessary, then, for a family to own a majority or near-majority of stock to control a company and the disposition of its total weight. A small family block of stock and many small general stockholders are enough to secure control of the board of directors and officers.
Nor did the revelations to the TNEC in all cases show the true center of control, owing to a complicated network of company ownerships. An example is the Tidewater Associated Oil Company which as of December 15, 1939, the date of the TNEC questionnaire, was already well in the pocket of J. Paul Getty, although unknown to the world. The TNEC report shows that 3. 07 per cent of the common was owned by George F. Getty, Inc. , which in turn was 43 per cent owned by J. Paul Getty in person and 57 per cent as trustee for his children. But Pacific Western Oil Corporation owned 3. 93 per cent, and was in turn owned 67. 9 per cent by George F. Getty, Inc. , and 2. 62 by the Mission Corporation. Again, the Mission Corporation owned 16. 52 per cent, and was in turn owned 46. 53 by Getty's Pacific Western Oil Corporation and, observe, 7. 39 per cent by the Tidewater Associated Oil Company!
Directly and indirectly J. Paul Getty at the time, undetected by the TNEC analysts, already owned 23. 52 per cent of the mammoth Tidewater enterprise. Actually, his percentage of control was somewhat higher than this because the South Penn Oil Company, of which Tidewater owned 17. 27 per cent, reciprocally owned 2. 77 of Tidewater. Mission Corporation was originally established to hold the interest of Standard Oil (New Jersey) in Tidewater but Getty, as he reports in his memoirs, talked John D. Rockefeller, Jr. , into selling him his Mission stock and then in a quiet campaign prevailed on other stockholders to follow the Rockefeller lead. At the time of the TNEC study Standard Oil (Indiana) owned 1. 05 per cent of Tidewater through the 98-per cent- owned Pan American Southern Corporation. 21
The TNEC made a supplemental study of 10 interesting large companies that were not included on the list of the 200 largest. Some of them were as follows: 22
Family
Dorrance family
(by trust indenture)
Woodruff-Nunnally-Stetson-
Candler-Illges
Twenty individuals
Mainly members of the Bell
family among twenty
stockholders
Haverneyer family, H. O.
Havemeyer estate, and the
Ossorio, Thatcher and
Boettcher families
Heinz family
Twenty individual stock-
Corporation Percentage
Owned
Campbell Soup
Coca-Cola International
(controlling Coca
Cola Co. )
Crucible Steel
General Mills
Great Western Sugar
H. J. Heinz
International Utilities
100
nearly 50
45. 55 20. 14
43. 34
82. 10 26. 71
holders, mainly invest
ment companies
Ajax Pipe Line
Rockefeller Foundation
Harkness-Flagler-Prentiss
(Rockefeller)-four other
individuals and 11 trust
companies and brokerage
houses for others
St. Regis Paper
(utility holding company)
American Superpower
J. P. Morgan & Co. , Brown
Brothers Harriman & Co. , and
16 brokerage houses and
investment firms
Standard Oil (Ohio)
Standard Oil (Ohio)
Standard Oil (Ohio)
United Corporation
United Corporation
United Corporation
24. 77
17. 63
10. 92
8. 332
6. 640 9. 846
The tenth company on this supplemental list was the Electric Bond and Share Company, then a utility holding company and now an investment trust. Its twenty-one largest stockholders were banks, brokerage houses and investment companies, and the names of the beneficial owners of the stock were not elicited.
Leading family names not yet mentioned that were strewn through the twenty largest stockholders in the 200 largest nonfinancial companies--in many cases appearing in more than one company-were as follows:
Adler, Astor, Cabot, Clapp, Doris Duke Cromwell, Cunningham, Doherty, Drexel, Fleischmann, Forstmann, Goelet, Goldman, Guggenheim, Hanna, Hearst, Hillman, Hutton, Jones, Laughlin (Jones and Laughlin Steel), Lynch, McClintic, Miller, Milbank, Palmer, Payson, Penney, Pillsbury, Rosenwald, Schott, Skaggs, Vanderbilt, Watkins, Whitney, Widener and Winthrop.
Names of wealthy families that did not appear because their stockholdings were not among the twenty largest and were probably widely distributed in smaller blocks, rentier-style, through many companies or were in real estate or bonds, were the following:
Baker, Bedford, Berwind, Curtis-Bok, Fisher, Frick, Gould, Green, Hill, Kahn, Lehman, Metcalf, Patterson, Pratt, Phipps, Taft, Timken, Warburg and others.
These omissions, not at all to be deplored, came about because the TNEC study was not directed to ascertaining the names of all wealthy families--what it gleaned here was a byproduct--but merely of determining who controlled the 200 largest nonfinancial companies. Anyone who was concentrated mainly in real estate, banking, insurance or in widely diversified, nonconcentrated investments the study necessarily missed. All the new Texas oil men were missing. Joseph P. Kennedy's name did not appear.
Even if one had before one an up-to-date list of all the largest income-taxpayers, names of some extremely wealthy people could readily elude us, such as anyone who, like Mrs. Horace B. Dodge, had converted all her holdings into tax-exempt state and municipal securities. One could, theoretically, own a billion dollars worth of these, drawing a tax-free income of $25-$30 million a year, and never show up on the income- tax list at all.
What the TNEC analysis made incontrovertibly clear was that the family, not the individual, is now the significant wealth-holding and wealth-controlling entity in the United States, a thesis I had antecedently asserted, for the first time as far as I know. 23 While the proposition may seem firmly established to some it is, curiously, often denied or blandly ignored even though the SEC continues to supplement the TNEC findings in
detail. One man may amass the fortune, as in the case of John D. Rockefeller, but if the fortune is to remain intact it must have heirs. Where the fortune-builder is a bachelor or fails to establish a family, the fortune simply disappears in a foundation or institutional grants. Heirs, then, are as important to a fortune as to a title of nobility. Most American fortunes, easily by a majority of 70 per cent, are in the hands today of heirs.
And, in saying that the family holds the fortune, one cannot suppose this to suggest that its members fend individually for themselves to all points of the compass. They must hold together, for their predecessors have in almost all cases entangled them in a network of trusts and family holding companies that assure unified action at all times.
No less than half of all these controlling corporate holdings were in "trust funds, estates, and family holding companies. " 24 Even if an heir wished to go away on his own, all be could take with him would be income; the holding itself would remain in a center, massed with other individual holdings and directed by some individual or small family committee. This circumstance puts all the holdings into a tight fist, generating power that is played out in the political and cultural arena. Anyhow, who would want to walk away from the goose that lays the golden eggs?
Family Holding Companies
There are thousands of personal and family holding companies, large and small, in the United States. In most cases their names have never been seen or uttered by 99. 9 per cent of the citizenry because these entities are private, are under no obligation to make any report to anyone except the tax authorities. No public compilation of them exists.
Their names usually only come to public attention through court proceedings or as the byproduct to certain government investigations, such as the TNEC inquiry. That particular inquiry did provide information about the existence of some extremely large family holding companies.
A family holding company may have a score or more participants of beneficial interest in it--infants, teen-agers, the superannuated, the mentally retarded, absent big game hunters, scholars and normal persons in the prime of life. But the slices of beneficial interest, apart from the income pay-out, are all managed as one entity by a single person or a family committee, which in turn is either adept in the management of large properties or has the benefit of expensive professional advice. An heir may seem deficient in business acumen to all who know him, but he may be the constant beneficiary of the best legal and investment advice available, perhaps even against his own wishes. He might prefer to take his stake and invest it in various attractive schemes, or spend it, but he is firmly deterred from this course by the family holding company. And it functions, up and down the line, according to Standard Doctrine.
We have already noticed, in connection with the Du Ponts, that the TNEC found a large role being played by the Christiana Securities Company and Almour Securities, Inc. , both family holding companies. But other huge family companies were also uncovered in the report.
There was, first, the Bessemer Investment Company, instrument of the Phipps (Carnegie Steel) family that included, among many persons named Phipps, such names acquired by distaff marriages as Douglas, Janey, Sevastopoulo, Martin, and Winston and Raymond Guest. In all, twenty or more Phippses were beneficiaries. All appeared to have the financial status of rentiers and were well known social registerites and polo players. Bessemer Investment Company was found to be a principal stockholder in New England Power Association, International Hydro-Electric System and International Paper Company, whatever else it held of lesser dimensions.
Oldwood, Inc. , was 66. 58 per cent owned by the Bessemer Investment Company and a group including the Chace, Gammack, Majes, Cox Brady and Phipps families. It was a leading stockholder, too, in the New England Power Association.
More than twenty Du Ponts had a participation large enough to list for Christiana Securities Company, which had among its stockholders other Du Pont family holding companies such as Delaware Realty and Investment Company, Archmere, Inc. , and Du Pont trust funds.
The Cliffs Corporation, the personal instrument of the Mather family, owned all the common stock of the Cleveland Cliffs Iron Company, which was among the principal stockholders of the Wheeling Steel Corporation and the Republic Steel Corporation.
The Coalesced Company was owned 50-50 by Paul Mellon and Ailsa Mellon Bruce, and in turn was among the top stockholders in Koppers United Co. , The Virginian Railway Co. , Pittsburgh Coal Company and General American Transportation Company.
The Mellon Securities Company, owned by Richard K. Mellon, Sarah Mellon Scaife and various Mellon trusts, was a leading stockholder in Aluminum Company of America and the Gulf Oil Corporation.
The Curtiss Southwestern Company belonged to Arthur Curtiss James and Harriet P. James and in turn was a principal owner of the Phelps Dodge Corporation, the Western Pacific Railroad Corporation and the Missouri-Kansas-Texas Railroad Company.
The Empire Power Corporation was the instrument of the Laurimore Corporation (owned by Ellis and Kathryn Phillips), the Delaware Olmsted Company (owned by the Olmsted family), the Eastern Seaboard Securities Corporation (a joint Olmsted-Phillips venture) and individual Olmsteds and Phillipses. Empire Power was a principal stockholder of the Long Island Lighting Company.
The Falls Company was a holding company for the very numerous Rosengarten family and was a principal stockholder of the United Gas Improvement Company, the Duquesne Light Company and the Philadelphia Electric Company.
The M. A. Hanna Company, monument to Mark Hanna of McKinley era fame, belonged to the Hanna family and its numerous inter-related genetic lines. It was a principal stockholder in Phelps Dodge, Lehigh Coal and Navigation and the National Steel Corporation.
The Illges Securities Company belonged to the numerous Illges-Chenoweth-Woodruff and other families and was a principal stockholder in the Coca-Cola Company.
The Illinois Glass Company was the holding company of the numerous Levis family and was a principal stockholder in Owens-Illinois Glass Company and National Distillers Products Corporation.
Light and Power Securities Corporation belonged to the Starling W. Childs family and was a principal stockholder in four large public utility companies.
The Miami Corporation, a holding company for the Deering estate, was a chief stockholder in International Harvester Company and the Chesapeake and Ohio Railway Company.
The New Castle Corporation, owned by Mr. and Mrs. Alfred P. Sloan, held the Sloan stock in the General Motors Corporation and the Phillips Petroleum Company, both among the big holdings.
The North Negros Sugar Company belonged to the Ossorio family and was a principal stockholder of the Great Western Sugar Company and the American Sugar Refining Company.
The Phillips family, quite numerous, owned the T. W. Phillips Gas and Oil Company, which in turn was the dominant stockholder of the Federal Water Service Corporation.
The Pitcairn Company, a leading stockholder in the Pittsburgh Plate Glass Company, the Consolidated Oil Corporation and the Columbia Gas and Electric Corporation, was owned by the Pitcairn family of Pittsburgh.
The Provident Securities Company was owned by William W. Crocker, Helen Crocker Russell, Charles Crocker and Ethel Mary de Limur and in turn was a leading stockholder of the Tidewater Associated Oil Company, General Mills, Inc. , Pacific Telephone and Telegraph Company, Pacific Gas and Electric Company and the Southern California Edison Company.
The Rieck Investment Company belonged to the Rieck-Woodworth families and was a principal stockholder in the National Dairy Products Corporation and the Firestone Tire and Rubber Company.
The Taykair Corporation, which held a large number of serially numbered trusts, belonged to the Benjamin family and was a big stockholder in The Virginian Railway Company, Gimbel Brothers, Inc. , and the Brooklyn Union Gas Company.
Serial and paralleling family holding companies are not uncommon. For example, the Colgate family, of the Colgate-Palmolive-Peet Company, reported a tangle of holding companies that with a few other relatively small interests made up 31. 85 per cent of the twenty largest Colgate-Palmolive stockholdings. There was the Beechwood Securities Company; the Oakbrook Company; the Bertco Company; the Holly Security Company, which was 100 per cent owned by the Filston Security Company, itself a holding company for family members; and the Orange Security Company, owned 100 per cent by the Beechwood Securities Company; and then there were individual holdings by individual Colgates and distaff descendants.
One could go on at great length exhuming the names of hundreds of additional family holding companies but nothing would be added except repetitive detail to the essentials of this report.
It is not usually the case, then, that a big fortune is subject to the ownership and direction of some single individual, some dominating Croesus. It is usually directed by a small family committee with access to expert professional advice, each member of this committee owning only a small percentage of the big pie. But the decisions respecting the big pie are the same as far as the world outside is concerned as if one man owning hundreds of millions made his will effective.
Under American law the entailment of estates is prohibited, but the prohibition has in effect been nullified through what may be termed serial entailment. For property owners of the third generation make provisions for placing property once again in untouchable trusts extending to three more generations, and so on ad infinitum. Boston is a particular center of such long-range serialized trusts. 25
As in England under legal entailment, in the United States huge properties are thus secured for generations unborn. The future beneficiaries can never have made any compensatory social contribution and may never make any after they are born. They are simply privileged by prescription as under the longstanding American-despised European system.
Trust Funds
Whereas private family holding companies are a favorite way of keeping big holdings intact and under central direction (even though the beneficial interest in income may be spread among scores or hundreds of cousins, aunts and in-laws), there are also individual trust funds, usually under the direction of a bank. The concentration of many trust funds in large banks, of course, concentrates just this much industrial voting power under the boards of directors of the banks. It makes them powers in the land.
Some of these trusts are relatively small. But, altogether, they add up to an enormously big financial punch. And, as the banks largely maneuver according to the same point of view, they in effect act in concert in voting these securities in various corporations. Indeed the size of the holdings they represent often enables them to name members of corporate boards of directors, which is one of the reasons so many bank officials are found strewn among the corporate boards. The large amount of stock that places them in position is not their own. But it gives them a great deal of veiled authority.
In some cases, various apparently unconnected members of the boards of directors of the corporations are like so many horses running out of the same stables, carrying the same ownership colors. The family that is the biggest stockholder in Corporation X, holding 20 per cent, is also the biggest stockholder in the bank with many trust fund holdings in relatively small amounts of stock of Corporation X, also perhaps adding up to 20 per cent. Another bank, also holding a great deal of trust stock, perhaps 12 per cent in hundreds of trust funds, may not be controlled by any of the first parties but is merely a friendly back-scratching ally. Together the two groups absolutely control the corporation, name its officers, determine its policies, apply its influence.
To what extent are funds now under trusteeship?
"At the end of 1964, trust departments of commercial banks bad investment responsibility for assets of approximately $150 billion, of which about $50 billion represented employee benefit accounts. In addition, bank trust departments provided investnment management for agency accounts with assets of at least $35 billion. " 26 In these last the banks acted as agents for other trustees. We see, then, that nonemployee or individual trust funds amount to at least $135 billion, although the true figure is actually larger than this, for there are nonbank trustees who do not make use of banks even as agents.
Of the trust holdings of national banks, "More than 59 percent of these assets were invested in common stocks; about 52 percent of the employee benefit accounts, and approximately 62 percent of the other accounts. " 27
Most of these trust funds were concentrated in a few large banks. "Twenty-one banks with investment responsibility for trust assets of more than $500 million held approximately 56 percent of the total, and the 100 largest trust departments held more than 80 percent of the trust assets of national banks. Asset concentration was greatest among employee benefit accounts for which the 21 largest national bank trust departments held almost 80 percent of the assets where national banks acted as trustee. Large trust departments, for the most part, are concentrated in the largest commercial banks, although there are many exceptions where moderate-sized banks have very large trust operations and vice versa. " 28
"National banks with trust assets in excess of $5 million reported having approximately 580,000 trust accounts, including 68,500 corporate accounts, and 340,000 accounts where they exercised investment responsibility. " 29 These figures indicate, excluding the corporate employee accounts, that there are at least 920,000 individual or private trust accounts in national banks alone. Some persons, of course, are the beneficiaries of many trust funds. Not all trust funds are large, may indeed be as
small as $5,000 or $10,000, but the larger banks will not accept these. The larger New York banks do not like to be named as trustee for anything under $100,000 even for inclusion in their collective trust funds, in which there is a mingling of many smallish trust funds with proportionate participations, as in an investment trust.
The average size of trust accounts where the bank exercised investment responsibility, excluding employee benefit accounts, was $173,000; but in the larger banks the average size was $300,000. Smaller banks carried trust accounts at an average size of $53,000. 30
But "Investment management accounts tend to be larger than the average for other trust accounts, since many banks set a relatively high minimum size or minimum fee on such accounts. " 31 Thus the average size of such accounts was $582,000, and in the bigger banks it was $735,000.
In addition to national banks there are the state-chartered banks to be considered.
"We estimate that state-chartered banks have investment responsibility for trust assets, apart from those of employee benefit accounts, of approximately $51 billion, bringing the total of such assets for all banks to approximately $105. 5 billion. " 32 Employee- benefit accounts in such state-chartered banks were estimated at $29. 5 billion, with the New York State Banking Department alone accounting for $23. 6 billion as a definite nonestimated figure. For all state-chartered banks, investment management accounts were estimated at $20 billion. 33
Total trust accounts for which banks have investment responsibility, then, amounted to $155. 8 billion at the end of 1964, of which $105.
As the study showed, the value of the twenty largest record holdings in 208 common stock issues as a percentage of total value was:
Per Cent
Manufacturing companies 26. 7
Railroads 24. 9
Electric, gas and water utilities 45. 3
Others 17. 3
The relatively small percentage in the fourth category is accounted for by the fact that it included AT&T with its widely dispersed comparatively small shareholders.
But for the twenty largest stockholders to own such large percentages, on the average, of the leading companies testifies to the extremes of concentrated ownership in the American economy.
Most of the millions of individual stockholdings in the hands of a variety of run-of- the-mill people made up only 6 per cent of the ownership and voting power. The general anonymous stockholders, although up to twenty million by count in 1965, all together own very little and have as much to say as the Russians have over their rulers in the Kremlin.
"The great bulk of the 8 to 9 million domestic stockholders own only small amounts of stock and the dividends they receive represent but a minor proportion of their total income. About half of all stock-holders have an annual dividend income of less than $100 and holdings worth less than $2,000. The group which depends economically to a large extent on the dividends from corporate stocks or the market value of these stocks is very small and probably numbers not much more than 500,000 people.
"The ownership of the stock of all American corporations is highly concentrated. For example, 10,000 persons (0. 008 percent of the population) own one-fourth, and 75,000 persons (0. 06 percent of the population) own fully one-half, of all corporate stock held by individuals in this country. " 2
Foreign investors, it was pointed out, own more than 6 per cent of the common and nearly 4 per cent of the preferred stock of these companies, and "Foreign ownership exceeds 10 per cent of total stock outstanding in about one-tenth of the 200 corporations. " [Note: These foreign holdings are held by comparable individual large European interests. ]
These patterns persist down to the present, as shown conclusively by the Lampman, University of Michigan, Federal Reserve and many other studies, and also in what I shall refer to as The Dartmouth Study: Corporate Concentration and Public Policy, by Professors Martin L. Lindahl and William A. Carter of Dartmouth College.
Noting that the patterns persist does not mean that the position of the owners has remained stationary. Although the percentage of ownership in the economy may conceivably be no greater than the concentration of control, owing to the steadily increasing concentration of assets, it is unquestionably greater now than it ever was before. The only dropouts from the upper strata of ownership have been produced by the ending of a family line. None of the big fortunes pinpointed in the TNEC study has gone bankrupt. Under the impetus of economic and technical change, of course, some of the minor big fortunes have lost ground relative to the leaders; but as other elements have thrust their way forward, the essentials of the panorama have scarcely changed.
While it might be of some interest to pinpoint changes for the better or the worse within some fortunes, it is not within the scope of this exposition to make such an attractive digression. We may, therefore, be spared the details of who is worth $100 million more or less. The Ford Motor Company is reported to have taken a $250 million loss on its unsuccessful Edsel model, but the Ford family remains in the leading quartet of wealth. These big fortunes can afford to take big losses, and they do have their ups and downs. What they lose one day in one place they make up another day in another place. What permits them to do this is: heavy reserves, affording maneuverability.
The TNEC study broke itself down into types of control, either by family or corporation, as follows:
a. By majority ownership b. By predominant majority c. By substantial minority d. By small minority
But in most cases control of one corporation by another saw the controlling corporation itself under single or multiple-family control.
The Thirteen Largest TNEC Family Interest Groups
As measured by market or calculated value at the end of 1937, the thirteen wealthiest family interest groups, led by the Du Ponts, Mellons, Rockefellers and Fords, also included the following: 3
Family
McCormick (Chicago)
Hartford (New York)
Harkness (New York)
Duke (North Carolina)
Pew (Philadelphia)
Pitcairn (Pittsburgh)
Clark
Reynolds (North Carolina)
Kress (New York)
Main Corporations
International Harvester
Great Atlantic & Pacific Tea
Standard Oil (New Jersey)
Standard Oil (Indiana)
Standard Oil of California and
Socony Vacuum Oil
Duke Power, Aluminum Co. of America
Liggett and Myers Tobacco
Sun Oil
Pittsburgh Plate Glass
Singer (sewing machines)
R. J. Reynolds Tobacco
S. H. Kress (variety stores)
To be sure, as the study warned, "Many members of these groups undoubtedly had stock investments in one or more of the 200 corporations which did not appear among the 20 largest record shareholdings. . . . Many also had investments in other corporations, particularly in large financial corporations which are not covered by the study, and investments in other forms such as corporate bonds, tax-exempt securities, real estate, and bank deposits. It is quite possible that for some groups these outside investments had a larger aggregate value than their identified holdings in the 200 largest corporations. " 4
A point never made by the TNEC study is that this same pattern of concentrated ownership and control extends below the 200 largest companies to the 500 largest, the 1,000 largest, the 10,000 largest, etc. What is remarkable about the TNEC showing is not that there were shown ownership and control by such tiny groups but that there were such concentrated ownership and control over such mammoth corporate entities, which standard propaganda insists are widely owned by the rank-and-file citizenry as stockholders. As enterprises get smaller and smaller there is even less public participation in their ownership than in the biggest companies until one soon runs into the 100 per cent family-owned or individually owned closed corporation. It is no exaggeration to say that all money-making enterprises of whatever size, including the widely owned AT&T, are owned by a very small class of proprietors, Whatever property is scattered among nearly 90 per cent of the populace is mostly nonrevenue- producing: much-used cars, TV and radio sets, furniture-in brief, chattels.
The Standard Oil branch of the Harkness family, now with few surviving members and its once vast funds largely distributed, mainly to leading educational institutions, was found to be among the twenty largest stockholders in no fewer than 24 of the 200
largest companies, apparently a record. 5 While this particular ownership is no longer concentrated, the fact that it recently existed shows what is possible within the system.
Single
Family
1. Dorrance
2. Duke
3. Ford
4. Hartford
5. James
6. Kress
7. Mellon
8. Mellon
9. Mellon
10. Pew
Multiple
Family
1. Anderson-Clayton
Main
Corporation
Campbell Soup
Duke Power
Ford Motor
Great Atlantic & Pacific 100
Western Pacific RR 61. 18
S. H. Kress 79
Gulf Oil 69. 5
Koppers 52
Pittsburgh Coal 50. 9
Sun Oil 69
Anderson, Clayton 94-plus
(Houston)
Family Control by Majority Ownership 6
2. Clarke-Bourne-Singer Singer 50-plus
3. Pbillips-Olmsted- Long Island Lighting 47-plus
Childs
4. Bell-Darby-Cooper American Cyanamid
Biddle-Duke etal.
88. 77
A peculiarity about this last holding was that while most of the Class A voting stock
was owned by eight senior officers-almost 29 per cent by W. B. Bell, president-most of
the equity was represented by the Class B nonvoting stock. The twenty-two leading
stockholders, with three tied for twentieth place, held 88. 77 per cent of the voting stock. 7
The holdings of the Hartford family in the Great Atlantic & Pacific Tea Company, which does more than 6 per cent of all retail grocery business in the United States, are not precisely ascertainable now on the basis of the TNEC report. The Hartfords owned at least 61 per cent of the old preferred stock, exchanged for three shares of common in the recapitalization of 1958, and all of the voting common, exchanged for one share of new common. In the old arrangement there were 935,812 shares of nonvoting common, also exchanged share-for-share for new common, but because the TNEC did not inquire into the Hartford ownership, if any, of this stock, its possible present ownership position (assuming no sales or purchases) cannot be completely deduced.
But, assuming the Hartfords owned none of the nonvoting stock and retained all their other stock in the exchange, they would now own very close to 70 per cent control of the company. At the end of 1964 all its outstanding common had a market value of $936,850,025, leaving the Hartford share at about $650 million. At the end of 1959, 33. 98 of this outstanding stock was held by the John A. Hartford Foundation. I conclude, then, that the Hartford family through nominees still retains majority controlling ownership of this huge company by a wide margin.
Predominant Minority Control 8
A predominant minority was defined in the TNEC study as consisting of the ownership of 30 to 50 per cent of the stock. 9
Single Family Corporation Percentage of
(approximate number of Ownership
income recipients)
Percentage of
Ownership
100 82 100
1. Du Pont
(about 250)
2. Mellon
(about 10)
Mellon
3. Cudahy
(about 32)
4. Deere (4)
5. Pitcairn
(4 or more)
6. Straus
(14)
7. Kresge (6)
Multiple Family 15
1. Field-Simpson-Shedd
E. 1. du Pont de Nemours
(controlling General
Motors by 23 per cent. )
Aluminum Co. of
America
Pittsburgh (Consoli-
dation) Coal
Cudahy
Deere
Pittsburgh Plate Glass
R. H. Macy
S. S. Kresge
Marshall Field
44
34. 4 50. 9 48. 71 10 34. 12 11 35. 34 12 38. 67 13 44. 24 14
2. Rosenstiel-Jacobi-Wiehe- Schenley Distillers
Schwarzhaupt-Gergross
3. Weyerhaeuser-Clapp-Bell- Weyerhaeuser
McKnight
The largest number of family interest groups was found to use the device of control by means of a substantial minority ownership of stock, which permits controlling positions to be taken in some cases in a wide spectrum of big companies. These were as follows:
Control by Substantial Minority 16
Single Family
1. E. I. du Pont de Nemours &
Co. (family controlled)
2. Crane
3. Colgate
4. Firestone
5. Gimbel
6. McCormick
7. Hanna
8. Palmer
9. Rockefeller
10. Levis
11. Mellon
12. Rosenwald
13. Avery
14. Du Pont
15. Williams
Multiple Family
Corporation
General Motors
Crane
Colgate-Palmolive-Peet
Firestone Tire & Rubber
Gimbel Brothers
International Harvester
National Steel
New Jersey Zinc
Ohio Oil (now
Marathon Oil)
Socony Vacuum Oil Co.
(now Socony Mobil Oil)
Standard Oil of Calif.
Standard Oil (Indiana)
Standard Oil (New Jersey) case
Owens-Illinois
Pullman
Sears, Roebuck
U. S. Gypsum
U. S. Rubber
North American Co. (since
dissolved into constituent
public utility operating
companies)
10
to
30
per cent
in
each
1. Walters-Jenkins-Newcomer
2. Stone-Webster
3. Davies-Woodward-Igleheart
4. Block-Ryerson-Jones
5. Rand-Watkins-Johnson-
Peters
6. Widener-Elkins-Dula-
Ryan
7. Hillman-Shouvlin-Chalfant
S. Miller-Volkman-Schilling
9. James-Dodge-Hanna
10. Procter-Gamble-
Cunningham
11. Lynch-Merrill
12. Kirby-Woolworth-
Donahue-McCann
13. Hochschild-Loeb-
Sussman
Hochschild-Loeb-
Sussman
Small Minority Control 17 Family
1. Moore
2. Zellerbach
3. Crawford
4. Moore
5. Cornish
6. Du Pont-Phillips
7. Swift
S. Warner
Atlantic Coast Line RR
Engineers Public Service Co.
(since dissolved into constituent
operating units)
General Foods
Inland Steel
International Shoe
Liggett & Myers Tobacco
National Supply (oil
well supplies)
Pacific Lighting
Phelps Dodge
(copper)
10
to
30
per cent
in
each case
Procter and Gamble
(soap)
Safeway Stores (groceries)
F. W. Woolworth
Climax Molybdenum
American Metal
Corporation
American Can
Crown Zellerbach
Lone Star Gas
National Biscuit
National Lead
Phillips Petroleum
Swift
Warner Bros. Pictures
We have named fifty-seven single families and combined, cooperating multiple- family groups that exercise control of the largest corporations by majority, predominant minority, substantial minority and small minority ownership. There were thirty-seven single-family-control entities, although some of these, such as the Mellons, Du Ponts and Rockefellers, each controlled several big companies. There were sixty-four single families in the multiple-family groups named, although in some cases the names are not given in this text. Perhaps as many as 400 families composed the various multiple- control groups in the 200 largest corporations.
Some of these companies, as noted, have changed their modus operandi, notably the public utility companies. Some have changed their names, like the Ohio Oil Company. Others have gone out of existence by the merger route. It is neither necessary nor expedient to trace here each company through various subsequent permutations and combinations, for equities are what concern us.
Have the percentage positions of these families remained the same in all these companies? Probably not. In some cases they have undoubtedly increased their holdings, in others they are known to have decreased. Some may even have closed out their holdings. But, as pointed out earlier, if anyone has sold out in one place he has reinvested elsewhere, and possibly to better advantage. He is, therefore, still rich.
Less
than
10
per cent
Knowing the value of the property from the inside, all these groups know when the stock is overpriced and when to sell. As the income-tax returns since the war show, the higher income groups have been steadily taking capital gains, which are taxed at a maximum of 25 per cent, a bargain in relation to the upper income taxes. Wealthy holders usually show a strong tendency to sell some holdings in rising markets and to buy again in declines, thus increasing their percentile position (Standard Doctrine). So their percentages of ownership change from time to time. Sales would not necessarily show on the books of a company. For a man can always sell the stock short.
With the exception only of two as far as I have been able to ascertain, all these families are still extant and still highly solvent. The exceptions are the Harknesses and Arthur Curtiss James (1867-1941), who died leaving no heirs. James left his money to a foundation with the fairly unusual stipulation that the principal was to be distributed in twenty-five years, which was done. 18 Like James himself, the foundation is now defunct.
There remains the case of one big company holding control of another big company. (Control of scores to hundreds of smaller companies by many of the big companies is the common pattern now in the American economy. ) Nearly all of the 200 largest nonfinancial companies of the TNEC study, like most of the 500 industrials regularly featured by Fortune, are in fact holding companies, not operating companies at all. just about all the big companies that are familiar household words in the United States are holding companies, contrary to the general public belief. AT&T, for example, is a holding company.
Corporate Control by Majority Ownership 19
Holding Company
Armour (Illinois)
Cities Service
Royal Dutch Petroleum
AT&T
AT&T
Chesapeake & Ohio Ry
Reading Company
Atlantic Coast Line RR
(under multiple Walters-
Jenkins-Newcomer control)
Many public utility holding
Companies
Operating Company
Armour (Delaware)
Empire Gas and Fuel
Shell Union Oil
Pacific Telephone
& Telegraph
New England Telephone
& Telegraph
New York, Chicago &
Per Cent
100 100 64
78. 17
65. 31
57
St. Louis RR
Central RailRoad of N. J. 55
Louisville & Nashville 51
RR
Many public utility 100
operating companies
now cut loose
In many cases, particularly in railroads and public utilities, two corporations shared control.
A predominant minority as well as substantial and small minority control was exercised by many corporations, particularly in the railroad and electric utility fields. In this latter field, long subject to gross manipulative abuses, the companies holding widely scattered properties were finally dissolved by congressional decree and the equities in operating companies were distributed to individual stockholders.
Until very recently the most salient instance of a predominant minority control of one mammoth corporation by another was that of E. I. du Pont de Nemours and Company of the General Motors Corporation (discussed in Chapter IV).
While there were some cases where the big owners were under-represented in the management by reason of "youth, old age, sex, preoccupation with other financial or nonfinancial interests or other considerations" heavy representation or even overrepresentation was "much more common. " 20 Thus, although members of the Swift family owned only 5 per cent of the voting stock, the remainder of the stock being distributed mainly in slices of 100 to 500 shares each, the Swift family held six of the nine directorships. In the Crown Zellerbach Corporation the Zellerbach family, owning 8-1/2 per cent of the stock, provided the president, a vice president and three directors out of a board of thirteen. It is not necessary, then, for a family to own a majority or near-majority of stock to control a company and the disposition of its total weight. A small family block of stock and many small general stockholders are enough to secure control of the board of directors and officers.
Nor did the revelations to the TNEC in all cases show the true center of control, owing to a complicated network of company ownerships. An example is the Tidewater Associated Oil Company which as of December 15, 1939, the date of the TNEC questionnaire, was already well in the pocket of J. Paul Getty, although unknown to the world. The TNEC report shows that 3. 07 per cent of the common was owned by George F. Getty, Inc. , which in turn was 43 per cent owned by J. Paul Getty in person and 57 per cent as trustee for his children. But Pacific Western Oil Corporation owned 3. 93 per cent, and was in turn owned 67. 9 per cent by George F. Getty, Inc. , and 2. 62 by the Mission Corporation. Again, the Mission Corporation owned 16. 52 per cent, and was in turn owned 46. 53 by Getty's Pacific Western Oil Corporation and, observe, 7. 39 per cent by the Tidewater Associated Oil Company!
Directly and indirectly J. Paul Getty at the time, undetected by the TNEC analysts, already owned 23. 52 per cent of the mammoth Tidewater enterprise. Actually, his percentage of control was somewhat higher than this because the South Penn Oil Company, of which Tidewater owned 17. 27 per cent, reciprocally owned 2. 77 of Tidewater. Mission Corporation was originally established to hold the interest of Standard Oil (New Jersey) in Tidewater but Getty, as he reports in his memoirs, talked John D. Rockefeller, Jr. , into selling him his Mission stock and then in a quiet campaign prevailed on other stockholders to follow the Rockefeller lead. At the time of the TNEC study Standard Oil (Indiana) owned 1. 05 per cent of Tidewater through the 98-per cent- owned Pan American Southern Corporation. 21
The TNEC made a supplemental study of 10 interesting large companies that were not included on the list of the 200 largest. Some of them were as follows: 22
Family
Dorrance family
(by trust indenture)
Woodruff-Nunnally-Stetson-
Candler-Illges
Twenty individuals
Mainly members of the Bell
family among twenty
stockholders
Haverneyer family, H. O.
Havemeyer estate, and the
Ossorio, Thatcher and
Boettcher families
Heinz family
Twenty individual stock-
Corporation Percentage
Owned
Campbell Soup
Coca-Cola International
(controlling Coca
Cola Co. )
Crucible Steel
General Mills
Great Western Sugar
H. J. Heinz
International Utilities
100
nearly 50
45. 55 20. 14
43. 34
82. 10 26. 71
holders, mainly invest
ment companies
Ajax Pipe Line
Rockefeller Foundation
Harkness-Flagler-Prentiss
(Rockefeller)-four other
individuals and 11 trust
companies and brokerage
houses for others
St. Regis Paper
(utility holding company)
American Superpower
J. P. Morgan & Co. , Brown
Brothers Harriman & Co. , and
16 brokerage houses and
investment firms
Standard Oil (Ohio)
Standard Oil (Ohio)
Standard Oil (Ohio)
United Corporation
United Corporation
United Corporation
24. 77
17. 63
10. 92
8. 332
6. 640 9. 846
The tenth company on this supplemental list was the Electric Bond and Share Company, then a utility holding company and now an investment trust. Its twenty-one largest stockholders were banks, brokerage houses and investment companies, and the names of the beneficial owners of the stock were not elicited.
Leading family names not yet mentioned that were strewn through the twenty largest stockholders in the 200 largest nonfinancial companies--in many cases appearing in more than one company-were as follows:
Adler, Astor, Cabot, Clapp, Doris Duke Cromwell, Cunningham, Doherty, Drexel, Fleischmann, Forstmann, Goelet, Goldman, Guggenheim, Hanna, Hearst, Hillman, Hutton, Jones, Laughlin (Jones and Laughlin Steel), Lynch, McClintic, Miller, Milbank, Palmer, Payson, Penney, Pillsbury, Rosenwald, Schott, Skaggs, Vanderbilt, Watkins, Whitney, Widener and Winthrop.
Names of wealthy families that did not appear because their stockholdings were not among the twenty largest and were probably widely distributed in smaller blocks, rentier-style, through many companies or were in real estate or bonds, were the following:
Baker, Bedford, Berwind, Curtis-Bok, Fisher, Frick, Gould, Green, Hill, Kahn, Lehman, Metcalf, Patterson, Pratt, Phipps, Taft, Timken, Warburg and others.
These omissions, not at all to be deplored, came about because the TNEC study was not directed to ascertaining the names of all wealthy families--what it gleaned here was a byproduct--but merely of determining who controlled the 200 largest nonfinancial companies. Anyone who was concentrated mainly in real estate, banking, insurance or in widely diversified, nonconcentrated investments the study necessarily missed. All the new Texas oil men were missing. Joseph P. Kennedy's name did not appear.
Even if one had before one an up-to-date list of all the largest income-taxpayers, names of some extremely wealthy people could readily elude us, such as anyone who, like Mrs. Horace B. Dodge, had converted all her holdings into tax-exempt state and municipal securities. One could, theoretically, own a billion dollars worth of these, drawing a tax-free income of $25-$30 million a year, and never show up on the income- tax list at all.
What the TNEC analysis made incontrovertibly clear was that the family, not the individual, is now the significant wealth-holding and wealth-controlling entity in the United States, a thesis I had antecedently asserted, for the first time as far as I know. 23 While the proposition may seem firmly established to some it is, curiously, often denied or blandly ignored even though the SEC continues to supplement the TNEC findings in
detail. One man may amass the fortune, as in the case of John D. Rockefeller, but if the fortune is to remain intact it must have heirs. Where the fortune-builder is a bachelor or fails to establish a family, the fortune simply disappears in a foundation or institutional grants. Heirs, then, are as important to a fortune as to a title of nobility. Most American fortunes, easily by a majority of 70 per cent, are in the hands today of heirs.
And, in saying that the family holds the fortune, one cannot suppose this to suggest that its members fend individually for themselves to all points of the compass. They must hold together, for their predecessors have in almost all cases entangled them in a network of trusts and family holding companies that assure unified action at all times.
No less than half of all these controlling corporate holdings were in "trust funds, estates, and family holding companies. " 24 Even if an heir wished to go away on his own, all be could take with him would be income; the holding itself would remain in a center, massed with other individual holdings and directed by some individual or small family committee. This circumstance puts all the holdings into a tight fist, generating power that is played out in the political and cultural arena. Anyhow, who would want to walk away from the goose that lays the golden eggs?
Family Holding Companies
There are thousands of personal and family holding companies, large and small, in the United States. In most cases their names have never been seen or uttered by 99. 9 per cent of the citizenry because these entities are private, are under no obligation to make any report to anyone except the tax authorities. No public compilation of them exists.
Their names usually only come to public attention through court proceedings or as the byproduct to certain government investigations, such as the TNEC inquiry. That particular inquiry did provide information about the existence of some extremely large family holding companies.
A family holding company may have a score or more participants of beneficial interest in it--infants, teen-agers, the superannuated, the mentally retarded, absent big game hunters, scholars and normal persons in the prime of life. But the slices of beneficial interest, apart from the income pay-out, are all managed as one entity by a single person or a family committee, which in turn is either adept in the management of large properties or has the benefit of expensive professional advice. An heir may seem deficient in business acumen to all who know him, but he may be the constant beneficiary of the best legal and investment advice available, perhaps even against his own wishes. He might prefer to take his stake and invest it in various attractive schemes, or spend it, but he is firmly deterred from this course by the family holding company. And it functions, up and down the line, according to Standard Doctrine.
We have already noticed, in connection with the Du Ponts, that the TNEC found a large role being played by the Christiana Securities Company and Almour Securities, Inc. , both family holding companies. But other huge family companies were also uncovered in the report.
There was, first, the Bessemer Investment Company, instrument of the Phipps (Carnegie Steel) family that included, among many persons named Phipps, such names acquired by distaff marriages as Douglas, Janey, Sevastopoulo, Martin, and Winston and Raymond Guest. In all, twenty or more Phippses were beneficiaries. All appeared to have the financial status of rentiers and were well known social registerites and polo players. Bessemer Investment Company was found to be a principal stockholder in New England Power Association, International Hydro-Electric System and International Paper Company, whatever else it held of lesser dimensions.
Oldwood, Inc. , was 66. 58 per cent owned by the Bessemer Investment Company and a group including the Chace, Gammack, Majes, Cox Brady and Phipps families. It was a leading stockholder, too, in the New England Power Association.
More than twenty Du Ponts had a participation large enough to list for Christiana Securities Company, which had among its stockholders other Du Pont family holding companies such as Delaware Realty and Investment Company, Archmere, Inc. , and Du Pont trust funds.
The Cliffs Corporation, the personal instrument of the Mather family, owned all the common stock of the Cleveland Cliffs Iron Company, which was among the principal stockholders of the Wheeling Steel Corporation and the Republic Steel Corporation.
The Coalesced Company was owned 50-50 by Paul Mellon and Ailsa Mellon Bruce, and in turn was among the top stockholders in Koppers United Co. , The Virginian Railway Co. , Pittsburgh Coal Company and General American Transportation Company.
The Mellon Securities Company, owned by Richard K. Mellon, Sarah Mellon Scaife and various Mellon trusts, was a leading stockholder in Aluminum Company of America and the Gulf Oil Corporation.
The Curtiss Southwestern Company belonged to Arthur Curtiss James and Harriet P. James and in turn was a principal owner of the Phelps Dodge Corporation, the Western Pacific Railroad Corporation and the Missouri-Kansas-Texas Railroad Company.
The Empire Power Corporation was the instrument of the Laurimore Corporation (owned by Ellis and Kathryn Phillips), the Delaware Olmsted Company (owned by the Olmsted family), the Eastern Seaboard Securities Corporation (a joint Olmsted-Phillips venture) and individual Olmsteds and Phillipses. Empire Power was a principal stockholder of the Long Island Lighting Company.
The Falls Company was a holding company for the very numerous Rosengarten family and was a principal stockholder of the United Gas Improvement Company, the Duquesne Light Company and the Philadelphia Electric Company.
The M. A. Hanna Company, monument to Mark Hanna of McKinley era fame, belonged to the Hanna family and its numerous inter-related genetic lines. It was a principal stockholder in Phelps Dodge, Lehigh Coal and Navigation and the National Steel Corporation.
The Illges Securities Company belonged to the numerous Illges-Chenoweth-Woodruff and other families and was a principal stockholder in the Coca-Cola Company.
The Illinois Glass Company was the holding company of the numerous Levis family and was a principal stockholder in Owens-Illinois Glass Company and National Distillers Products Corporation.
Light and Power Securities Corporation belonged to the Starling W. Childs family and was a principal stockholder in four large public utility companies.
The Miami Corporation, a holding company for the Deering estate, was a chief stockholder in International Harvester Company and the Chesapeake and Ohio Railway Company.
The New Castle Corporation, owned by Mr. and Mrs. Alfred P. Sloan, held the Sloan stock in the General Motors Corporation and the Phillips Petroleum Company, both among the big holdings.
The North Negros Sugar Company belonged to the Ossorio family and was a principal stockholder of the Great Western Sugar Company and the American Sugar Refining Company.
The Phillips family, quite numerous, owned the T. W. Phillips Gas and Oil Company, which in turn was the dominant stockholder of the Federal Water Service Corporation.
The Pitcairn Company, a leading stockholder in the Pittsburgh Plate Glass Company, the Consolidated Oil Corporation and the Columbia Gas and Electric Corporation, was owned by the Pitcairn family of Pittsburgh.
The Provident Securities Company was owned by William W. Crocker, Helen Crocker Russell, Charles Crocker and Ethel Mary de Limur and in turn was a leading stockholder of the Tidewater Associated Oil Company, General Mills, Inc. , Pacific Telephone and Telegraph Company, Pacific Gas and Electric Company and the Southern California Edison Company.
The Rieck Investment Company belonged to the Rieck-Woodworth families and was a principal stockholder in the National Dairy Products Corporation and the Firestone Tire and Rubber Company.
The Taykair Corporation, which held a large number of serially numbered trusts, belonged to the Benjamin family and was a big stockholder in The Virginian Railway Company, Gimbel Brothers, Inc. , and the Brooklyn Union Gas Company.
Serial and paralleling family holding companies are not uncommon. For example, the Colgate family, of the Colgate-Palmolive-Peet Company, reported a tangle of holding companies that with a few other relatively small interests made up 31. 85 per cent of the twenty largest Colgate-Palmolive stockholdings. There was the Beechwood Securities Company; the Oakbrook Company; the Bertco Company; the Holly Security Company, which was 100 per cent owned by the Filston Security Company, itself a holding company for family members; and the Orange Security Company, owned 100 per cent by the Beechwood Securities Company; and then there were individual holdings by individual Colgates and distaff descendants.
One could go on at great length exhuming the names of hundreds of additional family holding companies but nothing would be added except repetitive detail to the essentials of this report.
It is not usually the case, then, that a big fortune is subject to the ownership and direction of some single individual, some dominating Croesus. It is usually directed by a small family committee with access to expert professional advice, each member of this committee owning only a small percentage of the big pie. But the decisions respecting the big pie are the same as far as the world outside is concerned as if one man owning hundreds of millions made his will effective.
Under American law the entailment of estates is prohibited, but the prohibition has in effect been nullified through what may be termed serial entailment. For property owners of the third generation make provisions for placing property once again in untouchable trusts extending to three more generations, and so on ad infinitum. Boston is a particular center of such long-range serialized trusts. 25
As in England under legal entailment, in the United States huge properties are thus secured for generations unborn. The future beneficiaries can never have made any compensatory social contribution and may never make any after they are born. They are simply privileged by prescription as under the longstanding American-despised European system.
Trust Funds
Whereas private family holding companies are a favorite way of keeping big holdings intact and under central direction (even though the beneficial interest in income may be spread among scores or hundreds of cousins, aunts and in-laws), there are also individual trust funds, usually under the direction of a bank. The concentration of many trust funds in large banks, of course, concentrates just this much industrial voting power under the boards of directors of the banks. It makes them powers in the land.
Some of these trusts are relatively small. But, altogether, they add up to an enormously big financial punch. And, as the banks largely maneuver according to the same point of view, they in effect act in concert in voting these securities in various corporations. Indeed the size of the holdings they represent often enables them to name members of corporate boards of directors, which is one of the reasons so many bank officials are found strewn among the corporate boards. The large amount of stock that places them in position is not their own. But it gives them a great deal of veiled authority.
In some cases, various apparently unconnected members of the boards of directors of the corporations are like so many horses running out of the same stables, carrying the same ownership colors. The family that is the biggest stockholder in Corporation X, holding 20 per cent, is also the biggest stockholder in the bank with many trust fund holdings in relatively small amounts of stock of Corporation X, also perhaps adding up to 20 per cent. Another bank, also holding a great deal of trust stock, perhaps 12 per cent in hundreds of trust funds, may not be controlled by any of the first parties but is merely a friendly back-scratching ally. Together the two groups absolutely control the corporation, name its officers, determine its policies, apply its influence.
To what extent are funds now under trusteeship?
"At the end of 1964, trust departments of commercial banks bad investment responsibility for assets of approximately $150 billion, of which about $50 billion represented employee benefit accounts. In addition, bank trust departments provided investnment management for agency accounts with assets of at least $35 billion. " 26 In these last the banks acted as agents for other trustees. We see, then, that nonemployee or individual trust funds amount to at least $135 billion, although the true figure is actually larger than this, for there are nonbank trustees who do not make use of banks even as agents.
Of the trust holdings of national banks, "More than 59 percent of these assets were invested in common stocks; about 52 percent of the employee benefit accounts, and approximately 62 percent of the other accounts. " 27
Most of these trust funds were concentrated in a few large banks. "Twenty-one banks with investment responsibility for trust assets of more than $500 million held approximately 56 percent of the total, and the 100 largest trust departments held more than 80 percent of the trust assets of national banks. Asset concentration was greatest among employee benefit accounts for which the 21 largest national bank trust departments held almost 80 percent of the assets where national banks acted as trustee. Large trust departments, for the most part, are concentrated in the largest commercial banks, although there are many exceptions where moderate-sized banks have very large trust operations and vice versa. " 28
"National banks with trust assets in excess of $5 million reported having approximately 580,000 trust accounts, including 68,500 corporate accounts, and 340,000 accounts where they exercised investment responsibility. " 29 These figures indicate, excluding the corporate employee accounts, that there are at least 920,000 individual or private trust accounts in national banks alone. Some persons, of course, are the beneficiaries of many trust funds. Not all trust funds are large, may indeed be as
small as $5,000 or $10,000, but the larger banks will not accept these. The larger New York banks do not like to be named as trustee for anything under $100,000 even for inclusion in their collective trust funds, in which there is a mingling of many smallish trust funds with proportionate participations, as in an investment trust.
The average size of trust accounts where the bank exercised investment responsibility, excluding employee benefit accounts, was $173,000; but in the larger banks the average size was $300,000. Smaller banks carried trust accounts at an average size of $53,000. 30
But "Investment management accounts tend to be larger than the average for other trust accounts, since many banks set a relatively high minimum size or minimum fee on such accounts. " 31 Thus the average size of such accounts was $582,000, and in the bigger banks it was $735,000.
In addition to national banks there are the state-chartered banks to be considered.
"We estimate that state-chartered banks have investment responsibility for trust assets, apart from those of employee benefit accounts, of approximately $51 billion, bringing the total of such assets for all banks to approximately $105. 5 billion. " 32 Employee- benefit accounts in such state-chartered banks were estimated at $29. 5 billion, with the New York State Banking Department alone accounting for $23. 6 billion as a definite nonestimated figure. For all state-chartered banks, investment management accounts were estimated at $20 billion. 33
Total trust accounts for which banks have investment responsibility, then, amounted to $155. 8 billion at the end of 1964, of which $105.
