An analysis of early corporationlaw and modern corporate behavior

Item Type text; Thesis-Reproduction (electronic)

Authors Knipe, Edward Everett, 1937-

Publisher The University of Arizona.

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AN ANALYSIS OF EARLY CORPORATION LAW

AND MODERN CORPORATE BEHAVIOR

V ; by •

Edward E v e re t t Knipe

A T hesis Subm itted to th e F a c u lty o f th e

DEPARTMENT OF SOCIOLOGY

In P a r t i a l F u lf i l lm e n t o f th e Requirem ents F or th e Degree o f

MASTER OF ARTS

In th e G raduate . C o llege

THE UNIVERSITY OF ARIZONA

1 9 6 3

STATEMENT BY AUTHOR

This th e s is has been submitted in p a r t ia l fu lf i l lm e n t o f requirements for an advanced degree a t the U n iversity o f Arizona and i s deposited in the U n iversity Library to be made a v a ila b le to borrowers under ru les o f the Library*

B rie f quotations from th is th e s is are allow able w ithout sp e c ia l perm ission , provided th a t accurate acknowledgment o f source i s made. Requests fo r perm ission fo r extended quotation from or reproduction o f th is manuscript in whole or in part may be granted by the head o f the major department or the Dean o f the Graduate C ollege when in h is judgment the proposed use o f the m ateria l i s in the in te r e s t s of sch o la rsh ip . In a l l other in s ta n ce s , however, perm ission must be obtained from the author.

SIGNED; f 3 1^-

APPROVAL BY THESIS DIRECTOR

This th e s is has been approved on the date shown below:

WILLIAM C. LAWTOf A ssociate P rofessor o f S ocio logy

/D a te

ACKNOWLEDGMENT

I w ish to e x p re ss my s in c e re g ra t i tu d e and thanks to Dr0

W illiam C. Lawton f o r p la n tin g th e seed o f in q u iry in my mind,

f o r n u r tu r in g i t w ith h is p e rso n a l l i b r a r y and h is encyc loped ic

knowledge o f th e s u b je c t m a tte r , and in s u r in g t h a t th e flo w er o f

la b o r would be o bservab le th rough th e te d io u s ta sk o f p ro o f­

read in g th e f in is h e d m an u sc rip t.

i i i

ABSTRACT!

Ttip modern b u s in ess c o rp o ra tio n and i t s r e l a t i o n to law

form th e b a s is f o r a n a ly s is i n t h i s t h e s i s » By t r a c in g th e e a r ly

id e a o f c o rp o ra te n ess th rough to the New Je rse y c o rp o ra tio n law

o f 1 8 9 6 5 th e au th o r i l l u s t r a t e s th e l e g a l fo u n d a tio n s o f th e

modern b u s in e ss c o rp o ra tio n s t r u c tu r e « The behav io r o f th e modern ,

b u s in e ss c o rp o ra tio n i s th e n analyzed to e x p la in how th e law r e ­

l a t e s to t h i s phenomenon* In l i g h t o f th e a n a ly s t s s i t i s con­

cluded t h a t th e modern b u s in e ss c o rp o ra tio n resem bles more th e

c h a r a c te r i s t i c s o f a s t a t e w ith in , th e S ta te and, th e r e f o r e , .

should be. though t o f as a p p l ih ic n i i n s t i tu t io n *

i v

TABLE OF CONTENTS

PREFACE O O O O O O Q O O O O O O O O O o o o o o o o o o

Chapter

X INTRODUCTION O O O O O O O O O ' o o e o e o d t t o

I I THE IDEA OF CORPORATENESS 0 0 0 0 0 , 0 0 . 0 0 0

I I I THE CORPORATION IN NEW JERSEY" 0 0 0 0 0 0 . 0 0 .

P a r t A - New J e rs e y and i t s Law 1791 ™ 1875

P a r t B - New J e rs e y and i t s Law 1875 - 1900

H THE MODERN CORPORATION 0 . « » . o . . . . = . .

P a r t A - The I n t e r r e la t io n s o f the A sso c ia ted

P ersons 0 0 0 0 0 0 o o o o o o o . o o . o o

P a r t B = The R e la tio n to th e Community 0 . .

P a r t C - The R e la tio n to th e S ta te « . . . .

V CONCLUSION 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

O O O O O O O O O O O O O O O O O O O O O O O O■APPENDIX

Y A B X f l E S O O O O O O O O O O O O O O O O O O O O O O O O

TABLE OF NOTES o .o© © & © © © © © © © © © © © © © © © ©

BIBLIOGRAPHY @ © © © © © © © © © © © © © © © © © ©© ©

PREFACE

In th e p a s t e ig h t y e a rs th is w r i t e r has been employed in in ­

d ustry* He has been in in tim a te a s s o c ia t io n w ith people in bo th

management and la b o r and has observed p a t te r n s o f b e h av io r t h a t seemed

in c o n s i s te n t w ith th e expected b eh av io r o f s o c ie ty in general® A l­

though f r u s t r a t i n g a t f i r s t , i t became a c o n s ta n t source o f wonderment

to see t h a t th o se who h e ld b lin d d ev o tio n to th e o rg a n iz a tio n ro se to

a d m in is tra t iv e p o s ts w h ile th o se who m ain ta ined a q u e s tio n in g a t t i t u d e

were passed over® I t was n o t on ly th e p e rso n n e l s i tu a t io n th a t amazed

th i s w r i t e r , b u t th e i n t e r n a l o rg a n iz a tio n o f the company® The id e a

o f te rm in a tin g an employee and th en g iv in g him a h ea rin g d id n o t seem

to f i t in w ith th e t r a d i t i o n a l concep t o f j u s t i c e found in society®

The id e a s t h a t p r o f i t was th e on ly c r i t e r i a o f su ccess o f any o rg a n i­

z a t io n , th a t employees w ere, f o r a l l p r a c t i c a l p u rp o se s , m erely num­

b e rs in a system o f la r g e r numbers, and f i l l i n g o u t forms c o r r e c t ly

was more im p o rtan t than what g o a ls were a c tu a l ly be in g accom plished ,

a l l p re se n te d anomalies® These anom alies c o n tin u a lly a roused th e c u r­

i o s i t y o f th e w r i te r as to what t h e i r causes o r e x p la n a tio n s m ight b e .

As a s tu d e n t o f S ocio logy some o f the problem s became c le a r e r when

th e y were analyzed as a p ro d u c t o f s o c ia l in t e r a c t io n , b u t th e g e n e ra l

au ra o f th e o rg a n iz a tio n p re se n te d a problem® This th e s i s i s an a t ­

tem pt to seek some e x p la n a tio n o f th e se phenomena th ro u g h an in v e s t i ­

g a tio n o f th e corporation® A lthough th e ex p erien ces o f t h i s w r i te r

may seem un iq u e , i t i s f e l t t h a t t h i s th e s i s has s a t i s f i e d many o f

th e q u e s tio n s w ith which he has been faced in h is l im ite d ex p erien ce 0 ,

For t h i s reaso n t h i s p re s e n ta t io n should n o t be co n stru ed as a com­

p le te d s tu d y o f th e co rp o ra tio n ,, I f the re a d e r i s fa c ed w ith th e

problem o f f i l l i n g in some o f the ap p aren t v o id s in th e a n a ly s is , i t

i s n o t because th e y were n o t recogn ized b u t because th e w r i te r f e l t

t h a t th ey d id n o t c o n tr ib u te to h is p u rp o se„

v i i

CHAPTER I

INTRODUCTION

The s tu d y o f s o c ia l r e l a t io n s in in d u s try has been , on the

w hole, co n fin ed to a n a ly s is o f r e l a t io n s between w orkers and manage­

m ent, w orkers and w o rk e rs , o r in tra m a n a g e r ia l r e la t io n s h ip s „ The 1Hawthorne s tu d ie s were l im ite d to th e shop s e t t in g as a fu n c tio n o f

le v e l s o f p ro d u c tiv ity ? Jo n e s 1 L i f e , L ib e r ty , and P ro p erty ^ sough t

to d i f f e r e n t i a t e a t t i t u d e s tow ard p r iv a te p ro p e r ty by o c c u p a tio n a l o r• ■ 3

p ro f e s s io n a l s t a t u s . And W hytes1 The O rg an iza tio n Man p lu s Moore1siiThe Conduct o f th e C o rp o ra tio n tak e a c lo se lo o k a t the v a lu e s o f

managemento A ll o f th e se s tu d ie s have embraced B lak e1s in ju n c t io n to

irB ring o u t number, w eigh t & measure in a y e a r o f d earth " in t h a t th e y

f a i l to reco g n ize t h a t th e s o c ia l r e la t io n s th e y in v e s t ig a te d a l l took

p la c e w ith in th e i n s t i t u t i o n a l s e t t i n g o f th e c o rp o ra tio n . The co rp o r­

a t io n c o n ta in s a w orking community 4>f in d iv id u a ls who, in th e p ro cess

o f t h e i r employment, develop a t t i t u d e s , s o c ia l i d e n t i f i c a t i o n , p e rso n ­

a l in te r a c t io n , and s t r a t i f i c a t i o n which i s p e c u l ia r to th a t p a r t i c u ­

l a r system . The predom inant p la ce o f th e c o rp o ra tio n in American

s o c ie ty has p rov ided th e members o f i t s community —■ s to c k h o ld e rs , em­

p lo y ees , m anagers, and d i r e c to r s — w ith a ready-made system o f behav­

i o r a l p ro c e d u re s„ The co n c lu s io n s to th e above m entioned s tu d ie s

m erely r e f l e c t th e se p ro c e d u re s , b u t t e l l v e ry l i t t l e abou t how th ey

became w hat th e y a r e . These p rocedures have a t ta in e d th e s ta tu s o f

"fo lkw ays." They " a re th e ' r ig h t * ways to s a t i s f y a l l i n t e r e s t s .

because th e y a re t r a d i t io n a l^ and e x i s t in fa c to " In o th e r w ords, th e

r e l a t io n s we f in d in in d u s try r e f l e c t th e cum ulative folkw ays and t h i s

cum ulation c o n s t i tu te s th e i n s t i t u t i o n a l complex we c a l l th e co rp o ra ­

t i o n .

I f we assume t h a t th e c o rp o ra tio n i s made up o f v a r io u s f o lk ­

ways th en th e a n a ly s is o f th e se folkw ays becomes c l e a r e r e To quote

Sumner a g a in ; ,

A ll th e p r a c t i c a l and d i r e c t e lem ents in th e folkw ay seems to be due to common se n se , n a tu r a l re a so n , i n t u i t i o n , o r some o th e r o r ig in a l endowmente I t seems r a t io n a l (o r r a t i o n a l i s ­t i c ) and u t i l i t a r i a n . O ften in th e m ytho log ies t h i s u lt im a te r a t io n a l e lem ent was a sc r ib e d to th e te ach in g o f a god o r a c u l tu r a l h e ro . In modern mythology i t i s accounted f o r as " n a tu r a l ." o

The n a tu r a l id e a o f th e c o rp o ra tio n may be found in p r a c t i c a l l y any book

in economics o r law . The p o p u la r l i t e r a t u r e concern ing th e c o rp o ra tio n

i s f i l l e d ; w ith legends and myths concern ing th e b u s in ess o f th e past®

The G arneg ies, th e DuPonts, th e Morgans, th e R o c k fe lle rs have been a t ­

t r i b u te d w ith g o d -lik e powers t h a t have made them " fa th e r s " o f ou r mod­

e rn society® The c o rp o ra tio n , a s a d i r e c t descendan t o f th e se c u l tu r a l

h e ro e s , has in h e r i te d much o f th e fo lk lo re a t t r ib u te d to th e se e n t r e ­

p ren eu rs ® W eber's a n a ly s is o f th e r e la t io n s h ip between P ro te s ta n tism

stnd C ap ita lism i s r e f l e c t i v e o f t h i s n a t u r a l i s t i c p r in c ip le o f an e a r ­

l i e r p re -c o rp o ra te p e r io d . In s te a d o f th e c u l tu re h e ro , a God o r His

"works" i s found to be th e r a t io n a le f o r th e c a p i t a l i s t i c order® ,-

; The purpose o f t h i s th e s i s i s to in v e s t ig a te th e o r ig in s o f

\ tb e modern c o rp o ra tio n th rough i t s m a n ife s ta tio n s in law® , Law, in i t s

i n s t i t u t i o n a l form , may be s a id to be th e r e f l e c t o r o f s o c ie ty in t h a t

a law th a t i s n o t s e l f - in f o r e in g i s n o t a law a t a l l . B ut, th e re a re

d i f f e r e n t ty p es o f law . There i s common law , which i s based upon c e n tu r­

i e s o f ex p erien ce c r y s ta l l i z e d in to custom s and san c tio n ed p r a c t ic e s .

Common law i s th e c o d if ic a t io n o f folkw ays and a s such can be s a id to be

a m easure o f the b e l i e f s and id eas o f a s o c ie ty . B u t,what abou t c o n s t i ­

tu t io n a l law? C o n s t i tu t io n a l law d e fin e s the fundam ental p r in c ip le s o f

o rg a n iz a tio n . This o rgan ized e s ta b lish m e n t may o n ly be amenable to con­

t r o l by a sm all segment o f s o c ie ty , y e t i f c o n s t i tu t io n a l law p ro v id es

s a n c tio n s f o r i t s enforcem ent i t can fo rc e a m a jo r ity o f s o c ie ty to con­

form to i t s d i c t a t e s . T h e o re t ic a l ly , en ac ted o r s t a t u to r y law i s sup­

posed to tak e ca re o f t h i s c o n d itio n . I t i s th rough s t a tu to r y law th a t

m o d if ic a tio n i s made o f c o n s t i tu t io n a l law to make i t conform to " th e

w i l l o f the tim e ," Even here th e re may be m o d if ic a tio n th rough adm in is­

t r a t i v e o r j u d i c i a l law w hich d e te rm in e s , th rough case d e c is io n s , the7 .

a p p lic a t io n o f law .

These ty p es o f law a l l p layed an im p o rtan t r o le in th e develop ­

ment o f th e modern c o rp o ra tio n . In f a c t , i f we d e fin e th e c o rp o ra tio n

as a v o lu n ta ry a s s o c ia t io n endowed w ith autonomy and c o n t in u i ty o f8e x is te n c e th rough governm ent-granted l ic e n s e o r c h a r te r ," we see th a t

the e x is te n c e of th e c o rp o ra tio n i s c r u c ia l l y dependent on th e c h a r te r in g

fu n c tio n s o f s ta tu to r y law , ,

But why s tu d y th e c o rp o ra tio n ? P e te r Drucker has s a i d :

What we look fo r in a n a ly s in g American s o c ie ty i s th e re fo re the . i n s t i t u t i o n which s e t s the s ta n d a rd f o r th e way o f l i f e and modeo f l iv in g o f our c i t i z e n s j which le a d s , molds and d i r e c t s j whichdeterm ines our p e rs p e c tiv e on our s o c ie ty ; around which c r y s t a l ­l i z e our s o c ia l problem s and to which we look f o r t h e i r s o lu t io n . W h at.is e s s e n t i a l in s o c ie ty i s , in o th e r w ords, n o t th e s t a t i c mass b u t th e dynamic e lem en t; n o t th e m u ltitu d e o f f a c ts b u t th e symbol through which th e f a c ts a re o rg an ized in a s o c ia l p a t t e r n ; n o t , in o th e r w ords, th e average b u t th e r e p r e s e n ta t iv e , And 6

t h i s , i n our s o c ie ty to d ay , i s th e la rg e c o rp o ra tio n ,?

The c o rp o ra tio n s e ts the s tan d a rd f o r American s o c ie ty th rough i t s econ­

omic and s o c ia l in f lu e n c e , I t c r y s t a l l i z e s our s o c ia l problem s in t h a t

i t o f f e r s a c le a r - c u t c o n f l i c t between o ld e r system s o f though t concern­

ing p r iv a te p ro p e r ty , in h e r i ta n c e , ow nership and c o n tr o l , and re s p o n s i­

b i l i t y and th e new concepts o f th e same symbols embodied in i t s c h a r te r

p r in c ip le s . We look to i t f o r s o lu t io n s because we canno t look e l s e ­

w here.

Why s tu d y the r e la t io n s h ip betw een the c o rp o ra tio n and law?

The modern c o rp o ra tio n may be s a id to be an example o f c o n tr a c tu a l r e ­

l a t i o n s . The c h a r te r o f a c o rp o ra tio n as g ran ted by law i s a c o n tr a c t

between th e c o rp o ra tio n and th e s t a t e , th e s to ck h o ld e rs and th e c o rp o r­

a t io n , and between th e s to c k h o ld e rs . Under form er system s o f b u s in e ss

r e la t io n s h ip s a fo rm al, w r i t t e n c o n tr a c t was n o t n e c e s sa ry . P a r tn e rs

m erely agreed to c e r ta in r e la t io n s h ip s and r e s p o n s ib i l i t i e s and upon

th e d e a th o r w ithdraw al o f one o f th e p a r tn e r s th e p a r tn e r s h ip was d i s ­

so lv e d . Under modern c o rp o ra te law the d ea th o f one s to c k h o ld e r does

n o t a f f e c t th e c o n t in u i ty o f th e b u s in ess r e l a t io n s h ip s . This has been

guaran teed by a c o n tra c t and t h i s c o n tra c t i s a p ro d u c t o f law . These

c o n tra c tu a l r e l a t i o n s , im personal and " r a t io n a l ," a re th e s u b s t i t u t e s

fo r the o ld e r f a m i l i s t i c r e la t io n s h ip s found in p re c o rp o ra te s o c ie ty

and, in f a c t , a re th e r i g i d g u id ep o sts o f modern c o rp o ra tio n b e h a v io r .

The s tu d y o f th e r e la t io n s h ip t h a t e x i s t s betw een c o rp o ra tio n

law and c o rp o ra te b e h av io r does n o t and canno t be r e s t r i c t e d to the

a n a ly s is o f th e se two re s p e c tiv e d i s c i p l in e s . Law i s n o t m u tu a lly ex­

c lu s iv e from s o c ia l , econom ic, and p o l i t i c a l b e h a v io r . The d i f f e r e n t

ty p es o f law , common, c o n s t i tu t io n a l , e t c , , a re a l l th re a d s in th e

f a b r ic o f s o c ie ty . C orpora te b eh av io r in v o lv es n o t on ly economic and

s o c ia l b eh av io r b u t i s r e f l e c t i v e o f te c h n o lo g ic a l and p h ilo s o p h ic a l

a sp e c ts o f s o c ie ty . I f we assume t h a t s o c ie ty i s a moving e q u i l i ­

brium in th a t i t s p a r t s form a complex o f r e l a t io n s t h a t must be fu n c­

t i o n a l ly i n t e r r e l a t e d , we must view the c o rp o ra tio n and i t s growth as

be ing em ergent in n a tu re r a th e r than sp o n taneous. This means t h a t th e

c o rp o ra tio n , in i t s modern form , i s th e p ro d u c t o f o ld e r c u l tu r a l fo rm s,

b u t n o t in the same r e la t io n s h ip . In t h i s sense th e c o rp o ra tio n may

be though t o f as an in v e n t io n ; th e p a r t s th a t made i t s p re s e n t s t r u c ­

tu re have been a v a ila b le f o r a long p e rio d o f tim e , y e t th e r e l a t i o n ­

sh ip between th e se p a r t s i s on ly o f re c e n t o r ig in .

Keeping th i s in mind th e a n a ly s is of th e c o rp o ra tio n w i l l i n ­

volve th re e d i s t i n c t s t e p s . The f i r s t s te p i s to sea rch o u t th e e a r ­

l i e r i n s t i t u t i o n a l so u rces o f th e modem c o rp o ra t io n 5 s te p two w i l l in - ‘

volve th e s y n th e s is o f th e se p a r t s ; and s te p th re e w i l l be to show the

form th a t t h i s s y n th e s is has tak en in modern s o c ie ty . The f i r s t s te p

i s h i s t o r i c a l in n a tu re and the m a te r ia ls p re se n te d com prise a summary,

based on docum entary s o u rc e s , o f l e g a l though t and p h ilo so p h y ; the

second s te p w i l l be th e a p p l ic a t io n o f th e se le g a l and p h ilo s o p h ic a l

p rem ises to th e changing c ircu m stan ces o f th e b u s in e ss w o rld , S tep

th re e i s d e s c r ip t iv e in n a tu re , p re s e n tin g the s t r u c t u r a l a sp e c ts o f th e

modern c o rp o ra tio n . A lthough t h i s m a te r ia l cou ld be p re se n te d from

e i t h e r end o f th e h i s t o r i c a l spectrum , t h i s w r i te r has chosen to m ain ta in

h i s t o r i c a l c o n t in u i ty and fo llo w th e th re e s te p s in t h e i r c h ro n o lo g ic a l

o rd e r .

C hap ter I I , "The Idea o f C o rp o ra ten ess ," w i l l be an exam ination

6

of e a r ly id eas and concep ts concern ing th e id e a o f in c o rp o ra tio n ,. Chap­

t e r I I I , "The C o rp o ra tio n in New J e r se y ," w i l l i l l u s t r a t e th e se id e a s ini

t h e i r r e l a t i o n to a p p lie d problem s th a t faced New J e r s e y up to th e b e ­

g inn ing o f th e 2 0 th c e n tu ry . C hapter IV, "The Modern B u siness Corpor­

a t io n ," w i l l d e sc rib e th e modern c o rp o ra tio n s t r u c tu r e and i t s r e l a t i o n

to i t s communitye The co n c lu s io n w i l l a tte m p t to analyze th e r e l a t i o n ­

s h ip betw een th e law from id ea to a p p l ic a t io n , to t h i s modern s t r u c t u r e 0

CHAPTER I I

THE IDEA OF CORPORATENESS .

The id e a o f c o rp o ra te n ess ex tends a s f a r back in to h i s to r y as

man has formed groups and a s s o c ia t io n s . The c o rp o ra tio n i s n o t ai

unique form o f r e la t io n s h ip , b u t r a th e r a developed form o f a s s o c ia t io n ;

i t i s n o t so much a p a r t i c u l a r c la s s o f a s s o c ia t io n s as a s s o c ia t io n s o f

a l l k inds in a p a r t i c u l a r s tag e o f grow th. Law, as a system o f s o c i a l '

r e l a t i o n s , has r e in fo rc e d t h i s id e a o f c o rp o ra te n ess by reco g n iz in g as

s u b je c ts o f le g a l r ig h t s and d u tie s "persons" who a re n o t human beingsi"*"

S i r Henry Maine tr a c e d th e id e a o f co rp o ra te n ess back to p r im it iv e soc­

i e t i e s , w ith t h e i r view th a t s o c ie ty was composed o f an a g g re g a tio n o f2fa m ilie s whose l i f e was p e rp e tu a l and in e x tin g u is h a b le . These e a r ly

k in sh ip r e la t io n s assumed t h a t a c ts o f in d iv id u a ls cou ld n o t e x i s t a p a r t

from the a c ts o f the ag g reg a te s o . t h a t i f an in d iv id u a l e r re d i t was th e

t r i b e o r group th a t was punished o r h e ld re s p o n s ib le . . The group was th en

th e s m a lle s t s o c ia l u n i t capab le o f a c t in g in th e s o c ia l system ; in s te a d

o f p e rc e iv in g th e in d iv id u a l as s e p a ra te fu n c tio n in g u n i t s o f s o c ie ty

and capab le o f b e h av io r , a group whose c h a ra c te r was f i c t i t i o u s in na­

tu re was the on ly v e h ic le th ro u g h which s o c ia l b eh av io r cou ld ta k e p la c e .

The h a b i tu a l b e h av io r o f man and n a tu re became p a r t o f the

codes o f s o c ie ty . These codes su p p o rted th e id e a t h a t a s u p e rn a tu ra l

p re s id en c y i s supposed to c o n se c ra te and keep to g e th e r a l l th e c a rd in a l

i n s t i t u t i o n s o f those tim e s . The Fam ily, the R ace, and th e S ta te became

s u b je c t to cerem onies and r i t u a l s which re in fo rc e d th e id e a o f s a n c t i ty

and u n i ty o f the a s s o c ia t io n » In th e p h y s ic a l w orld and in th e w orld

o f man th e se r e c u r r in g forms o f b eh av io r cou ld on ly be accounted f o r by

assuming a p e rso n a l a g e n t. The wind blow ing and the s u n 's r i s i n g were “

p e r s o n if ie d as having d iv in e o r ig in . F ic t io n a l p e rso n s were c re a te d 1

who could accoun t fo r any re c u r r in g phenomena. Kings and c h ie f s were

assumed to be d iv in e ly in s p ir e d when th e y made d e c is io n s . The id e a o f

d iv in e a u th o rsh ip and in s p i r a t io n o f a c o rp o ra te r e p re s e n ta t iv e le d to

the e a r ly id e a o f " c o rp o ra tio n s so le" o r th e id e a t h a t th e c o rp o ra tio n

has e x is te n c e in th e p e rp e tu a tio n o f the e s ta b l is h e d le a d e r . A c tu a lly ,

th i s p e rp e tu a tio n i s in the form o f a p e rp e tu a l o f f ic e r a th e r th an a

p e rso n . A k ing o r b ish o p does n o t have u n lim ite d l i f e , b u t th e o f f ic e s

o f k ings and b ish o p s do . I t would be presum ptuous to assume t h a t the

b io lo g ic a l in h e r i ta n c e o f an o f f ic e would len d any c o n t in u i ty to th e

id e a t h a t k ings a l l had d iv in e in s p i r a t io n . K ings, as n a tu r a l p e rso n s ,

a re s u b je c t to a v a r i e ty o f human id io s y n c ra s ie s in b e h av io r as o rd in ­

a ry people so t h a t the judgment o f k in g s must be supplem ented by th e

d e c is io n s o f groups of men. These groups o f men - c o u n c ils , p r i e s t s ,

boards o f d i r e c to r s o r w hatever th e i r name m ight be - s t i l l con tinued

to use the id e a o f a d iv in e o r ig in as a v e h ic le of t h e i r d e c is io n s . The

k ing a s a c o rp o ra tio n was t h i s e a r ly v e h ic le and as such was a le g a l

f i c t i o n . The le g a l f i c t i o n id e a h e re i s used to s ig n i f y , "any assump­

t io n which c o n c e a ls , o r a f f e c t s to c o n c e a l, the f a c t t h a t a r u le o f law

has undergone a l t e r a t i o n , i t s l e t t e r rem ain ing unchanged, i t s o p e ra tio n3

b e in g m o d ified ." The f i c t i o n perform s two d u t ie s in s o c ie ty . I t s a t ­

i s f i e s th e d e s ir e f o r im provem ent, w h ile a t the same tim e does n o t

9

offend th e p ro p e n s ity th a t i n s t i t u t i o n s have to r e s i s t change. The f a c t

i s t h a t th e law has changed $ th e f i c t i o n i s th a t i t has rem ained th e

same.

The e a r ly use o f f i c t i o n s m ain ta ined th e id e a o f th e fa m ily as

th e s m a lle s t u n i t in s o c ie ty and as such may be co n sid e red th e f i r s t

c o rp o ra tio n . The id e a o f the " p e rso n a li ty " o f th e fa m ily may be observed

to d ay in th e C h r is t ia n id ea o f fa m ily as b e in g a u n i t , m arriage as a com­

b in a t io n of two p e rso n s in to one, and th e sac re d c h a ra c te r o f th e fam ily

u n ite This id e a sp read to th e C lan and th e - S ta te . The c la n i s a group­

in g o f f a m il ie s , and i f th e analogy o f c o rp o ra te n ess i s extended to

t h i s u n i t o f s o c ie ty , we see t h a t a c la n can be, re sp o n s ib le f o r a c t io n

on th e p a r t o f th e fa m ily . The id e a o f in h e r i ta n c e o f s in i s an a p p l i ­

c a t io n o f t h i s id e a o f c la n c o rp o ra te n e ss in th a t th e c la n can be h e ld '

re sp o n s ib le f o r a c t io n s i t committed th ro u g h th e agency o f one o r more

o f i t s members. The S ta te as a c o rp o ra tio n assumed many o f th e a t t r i ­

b u te s o f th e fa m ily . The Roman concept o f P a t r i a P o te s ta s o r power o f

th e f a th e r superim posed i t s a u th o r i ty over th e h i s t o r i c a l p a t r i a r c h i a l

a u th o r i ty o f th e fa m ily . I t was th rough th e mechanisms o f g ra n tin g c i t ­

iz e n sh ip t h a t members o f th e Roman S ta te became p a r t o f a la rg e fa m ily .

In f a c t , th e S ta te assumed th e r o le o f su rro g a te p a re n t whose a u th o r i ty

and " r ig h t" was to be ex tended to a l l fu tu re g e n e ra tio n s .

W ith the decay o f th e Roman system and the r i s e o f th e fe u d a l

system we no te an a tro p h y o f th e c o rp o ra te id e a . The S t a t e , based as

i t was on p r im it iv e u sag es , e x e r te d c o n tr o l and o rd e r on i t s members.

W ithout th e S ta te c i v i l i z a t i o n found i t s way to a s ta g e o f d is o rd e r and

10

la c k o f s e c u r i ty e Feudalism re p la ce d t h i s o ld e r form o f law and o rd e r

by im posing an in f l e x ib le system o f s e c u r i ty - f o r th e most p a r t p h y s i­

c a l s e c u r i ty , s a f e ty o f l i f e and limb* What i t cou ld n o t do was to in ­

c o rp o ra te expansion in to i t s system o f s o c ia l r e l a t io n s h ip s , I f we

assume th e c o rp o ra tio n to be an a s s o c ia t io n in a p a r t i c u l a r s tag e o f

developm ent i t i s obvious t h a t a system where developm ent has stopped

canno t su p p o rt th e id e a o f th e c o rp o ra te form of a s so c ia tio n *

The c o rp o ra tio n may be s a id to have been in s tru m e n ta l in th e

dow nfall o f feudalism * The co n cep t o f c o rp o ra te n ess i n th e form o f

th e S ta te broke th e in d iv id u a l autonomy o f th e fe u d a l manors® These

l o c a l u n i t s were re p la ce d by c o rp o ra te forms o f r e l a t io n s whose l i f e

was l im ite d to th e f u l f i l lm e n t o f i t s du ty to re p la c e th e fe u d a l units®

The c o rp o ra tio n was a t r a n s i t i o n a l in s tru m e n t t h a t was d e s tro y ed when

th e S ta te cou ld absorb th e se a c t i v i t i e s in to i t s own s t r u c tu r e . I t i s

here t h a t we n o te th a t th e e a r ly c o rp o ra tio n s o f England were o f l im ite d

l i f e and l im ite d scope o f a c t iv i ty * Some o f th e se c o rp o ra te a c t i v i t i e s

were to prove so e f f e c t iv e in t h e i r p ro v is io n a l d u t ie s t h a t th e S ta te

m odified i t s own s t r u c tu r e and made them a perm anent form o f a s s o c ia ­

tio n * '

The id e a t h a t the S ta te cou ld s a n c tio n c o rp o ra te b o d ies grew

o u t o f th e id e a o f c o n t r a c t . In p r i in i t iv e s o c ie ty th e members o f th e

fam ily cou ld n o t make a c o n tra c t w ith one a n o th e r . The fa m ily could

c o n tr a c t w ith o th e r f a m i l ie s , c h ie f ta in w ith c h i e f t a i n , and c la n w ith

c la n , b u t in e f f e c t th e se c o n tra c ts were n o t b in d in g on e i t h e r p a r ty .

One o f th e main f e a tu re s o f th e r i s e o f c i v i l i z a t i o n has been th e ob­

l i g a t i o n o f c o n tra c t* k The id e a o f c o n tr a c t i s found to be more

11

p re v a le n t In th o se c u l tu re s t h a t assume th e In d iv id u a l a s th e s m a lle s t

s o c ia l u n i t . This i s a s h i f t from s t a tu s to c o n t r a c t . Under p r im it iv e

system s, th e fa m ily , as th e s m a lle s t s o c ia l u n i t , bound th e in d iv id u a l

members th rough th e s t a tu s o f th e fa m ily . The assum ption o f in d iv id u a l

competence has changed th e a rc h a ic p o s i t io n o f s la v e s to a c o n tra c tu a l

r e l a t io n betw een s e rv a n t and m aster and in modern tim es to th e r e l a t i o n

between employee and em ployer. The s ta tu s o f women from tu te la g e to

f r e e c o n tra c tu a l members o f s o c ie ty su p p o rts t h i s same tendency o f s o c ia l

change. The c o n tra c t id e a i s one o f the e s s e n t i a l elem ents o f th e modern

c o rp o ra te form in t h a t the c o n tr a c t o f fo rm atio n o f t h i s a s s o c ia t io n i s

betw een th e s t a t e as a c o rp o ra tio n and a f i c t i o n a l p e rso n d e s ig n a te d as

a c o rp o ra te b e in g .

W hatever th e purpose o f i t s c r e a t io n , the b a s ic id e a in each

ease has been t h a t the c o rp o ra tio n i s a p e rso n d i s t i n c t from i t s members,

coming in to e x is te n c e as th e r e s u l t o f th e e x e rc is e o f th e S t a t e ’s sov­

e re ig n pow er. At f i r s t i t was alw ays c re a te d by th e k ing in th e e x e r­

c is e o f th e ro y a l p e ro g a tiv e , th e r i g h t to e s ta b l i s h c o rp o ra tio n s being

one o f th e m ajora r e g a l i a o f th e crown. In l a t e r days th e l e g i s l a tu r e

assumed th e r i g h t to c re a te c o rp o ra tio n s by s p e c ia l a c t , and a t a s t i l l

l a t e r day under g e n e ra l a c ts o f in c o rp o ra t io n . But w hatever th e mode o f

in c o rp o ra tio n , th e c o rp o ra tio n as c re a te d was a p erson in th e eyes o f

th e law , w ith th e r i g h t to own p ro p e r ty , to e n te r in to c o n tr a c tu a l r e l a ­

t io n s w ith o th e r p e rso n s and to sue in th e c o u r ts .

, The id e a o f co rp o ra te n ess i s perhaps b e s t known th rough th e

d e c is io n o f J u s t ic e M arsh a ll i n th e Dartm outh C ollege case (see Appen­

d ix ) . What M arsh a ll had decided was t h a t th e n a tu re o f th e c o rp o ra tio n

12

i n 1819 was th e same as i t was under E n g lish common law . Not o n ly had

he r e i t e r a t e d th e Greek and Roman th o u g h t on th e s u b je c t o f c o rp o ra te -

nesSj, b u t he re a ff irm e d th e p o s i t io n th a t th e c o rp o ra tio n e x is te d a p a r t

from th e members and i t s l i f e was u n lim ite d »

The ta s k now i s to i l l u s t r a t e how th e id e a o f c o rp o ra te n ess

was ex tended and a p p lie d to th e American b u s in e ss co rp o ra tio n ^ The

New J e rse y law w i l l be examined because i t s l e g a l p rem ises a re th e

s tan d a rd form o f c o rp o ra tio n law in th e U nited S t a t e s e

CHAPTER I I I

THE CORPORATION IN NEW JERSEY

P a r t A - New J e rse y and i t s Law 1791 - 187$

New J e rs e y c o rp o ra tio n law may be d iv id ed in to two g e n e ra l

c a te g o r ie s <, The f i r s t o f th e se covers th e whole p e rio d o f tim e b e fo re

1875 and th e second from 1875 to 1896. This f i r s t p e r io d may be

th o u g h t o f as th e s p e c ia l c h a r te r e r a . These s p e c ia l c h a r te r s were

g ra n te d by th e l e g i s l a tu r e w ith o u t c o n s id e ra tio n f o r c o n s is te n c y in

e i t h e r t h e i r im p lic a tio n s o r contents® Each s p e c ia l c h a r te r was

unique® The l im i t a t i o n s , pow ers, and p r iv i le g e s o f each b u s in e s s b e ­

in g in c o rp o ra te d were determ ined by one l e g i s l a t u r e . I t was th u s th e

job o f prom oters to secu re w hatever r ig h t s and p r iv i le g e s th e y could

f o r t h e i r c lien ts® The l e g i s l a t u r e , on the o th e r hand, f e l t th a t

through th e s p e c ia l a c t o f in c o rp o ra tio n th ey would be b e t t e r ab le to

s c r u t in iz e th e fo rm atio n o f companies in the p u b lic i n t e r e s t b e fo re

th ey could do b u s in e s s •

The f i r s t s p e c ia l in c o rp o ra tio n was "The S o c ie ty f o r E s ta b l is h ”1ing U sefu l M anufactures" in 1791. This company was conceived and

fin an ced p r in c ip a l ly by non-Jerseym en and was in ten d ed to be n a t io n a l

r a th e r th a n s t a t e in i t s scope. A lexander H am ilton, Tench Coxe, and

o th e rs were' a c t iv e ly in te r e s t e d in e s ta b l is h in g t h i s co n ce rn . In tu r n ,

th e s t a t e o f New J e rse y appeared in te r e s t e d in the developm ent o f t h e i r

own m anufactu ring " s o c ie t ie s " t h a t cou ld compete w ith th o se a lre a d y

13

lli

e s ta b l is h e d in New York and P en n sy lv an ia» H am ilton’s reaso n s a re ex­

p re sse d in th e p ro sp e c tu s c i r c u la te d in Septem ber o f 1791, a p o r t io n o f

which reads as fo llo w s ;

There i s s c a rc e ly a s t a t e which cou ld be in s e n s ib le to th e ad­v an tag es o f b e in g th e scene o f such an u n d e rta k in g . B ut th e re a re reaso n s which s t ro n g ly recommend th e S ta te o f New J e rs e y f o r th e p u rp o se . I t i s th ic k ly .p o p u la te d - p ro v is io n s a re th e re abundant and cheap . The S ta te having s c a rc e ly any e x te r n a l com­merce and no w aste lands to be peopled can f e e l th e im pulse o f no supposed i n t e r e s t h o s t i l e to th e advancement o f m an u fac tu res .I t s s i tu a t io n seems to in su re a c o n s ta n t f r i e n d ly d is p o s i t io n ." 2

The s t a t e was e v id e n t ly p le a se d w ith t h i s a tte m p t to compete w ith New

York and P ennsy lvan ia as th e c h a r te r p ro v ided th e company w ith th e o u t­

r ig h t ow nership o f t h i r t y - s i x square m iles o f lan d upon which i t founded

th e c i t y o f P a tte rs o n ) the r i g h t o f em inent domain over land o r p ro p e r ty

t i t l e s n e ce ssa ry f o r i t s p u rp o se s ) exem ption from tax es f o r te n y e a rs )3

and p e rp e tu a l tax exem ption s ta k e s f o r i t s goods, p r o f i t s , and c h a t t e l s .

Because o f New J e r s e y 's geographic lo c a t io n - c e n t r a l l y lo c a te d between

New York C ity , P h ila d e lp h ia , and W ashington, D. C. - i t was l o g ic a l to

th e fo re se e in g businessm an to assume th a t t r a n s p o r ta t io n was to become

th e key to fu tu re c o n tro l o f th e s t a t e . Because o f th e la rg e s s e given

to Mr, Ham ilton and h is a s s o c ia te s in th e s p e c ia l c h a r te r g ran ted in

I 8 0 I4 , i t became p o s s ib le f o r them to pu rchase lands a long th e New Je rse y

sho re and through th e use o f a s p e c ia l form hold th e f e r ry in g r i g h t to

th ese lan d s i f th e c o rp o ra tio n m ight l a t e r s e l l , ^ This company was

known as th e "A sso c ia te s o f New J e r s e y ," The a b i l i t y to ex tend o n e 's

c h a r te r became a v e ry im p o rtan t f a c to r i n l a t e r c o rp o ra tio n law con­

s id e r a t io n s in New J e rse y . S u ff ic e here to s t a t e t h a t t h i s a b i l i t y

gave l e g i s l a t i v e s a n c tio n to b u s in e ss p r a c t ic e s t h a t were n o t c l e a r ly

reco g n ized u n t i l th e l a t e r p e r io d o f c o rp o ra te developm ent.

In s p i te o f th e se " l i b e r a l ” in c o rp o ra tio n en ac tm en ts , any a t ­

tem pt to c r e a te i n d u s t r i a l o r b u s in e ss com binations appeared a b o r tiv e

u n t i l a f t e r th e War o f 1812. The S.U.M. f a i l e d in i t s m anufactu ring

a ttem p t a f t e r th re e y e a r s , and th e re w asn’t any ru sh on th e l e g i s l a ­

tu re to p ro v id e s p e c ia l c h a r te r s to o th e r b u s in e ss v e n tu re s in th e ;

s t a t e o f New J e r s e y . A lthough the l e g i s l a t o r s may have been w i l l in g ,

th e s ta g e o f f a c to ry developm ent was n o t ab le to u t i l i s e th e se l e g a l

means to f o s te r i t s grow th. During th e p e r io d from 1791 to 1812 on ly

' th re e m anufactu ring c h a r te r s were g ran ted w h ile 1*7 c h a r te r s were g ra n t-

ed f o r t r a n s p o r ta t io n and com m unication. In g e n e ra l th e laws o f t h i s

p e rio d resem ble th e e a r l i e r jo in t - s to c k companies found in England

t h a t were c re a te d and san c tio n e d by th e Crown f o r s p e c i f ic p u rp o se s .

In e f f e c t , th e se companies o r b u s in e ss v e n tu re s c a r r ie d o u t p la n s o f th e

governm ent, such as road b u i ld in g , c an a l d red g in g , e t c . , on a l im ite d

l i f e b a s is o r u n t i l th e p r o je c t had been com pleted . The g e n e ra l p o l ic y

t h a t encouraged th e in c o rp o ra tio n o f a l l ty p es o f b u s in e s s v e n tu re s

Continued u n t i l th e end o f th e 1830’s . There was a p p a re n tly l i t t l e

p re s su re f o r g e n e ra l l e g i s l a t i o n concern ing m anufactu ring e n te r p r i s e s ̂

because th e re was l i t t l e demand by businessm en. R e lig io u s and educa­

t i o n a l o rg a n iz a tio n s had had g en e ra l laws p e r ta in in g to t h e i r in c o r ­

p o ra t io n as e a r l y a s 1 7 8 6 because th e l e g i s l a tu r e had been p re sse d w ith

a number Of demands t h a t would have made i t in co n v en ien t f o r them t©

c o n s id e r each one s e p a r a te ly . G enera l in c o rp o ra tio n law was an innova­

t io n a t t h i s tim e . The o n ly s t a t e to have t h i s type o f s t a t u t e was

8New York in 1781*. As we s h a l l see l a t e r th e r e p e t i t io u s c h a r a c te r ;

16

o f l e g i s l a t i v e in c o rp o ra tio n in f lu e n c e d th e movement f o r g e n e ra l in c o r ­

p o ra t io n s t a t u t e s f o r b u s in e ss o r m anufactu ring o rg a n iz a tio n s in th e

l a t t e r p e r io d o f c o rp o ra te developm ent in New J e r s e y .

The War o f 1812 saw an in c re a se d demand f o r in c o rp o ra tio n as

fo re ig n tra d e had been c u t o f f 5. and in 1 8 1 6 a law was en ac ted e s t a b l i s h ­

in g a g e n e ra l in c o rp o ra tio n p rocedure f o r c e r ta in ty p es o f m anufacture o

ing com panies. T his law resem bled the New York law o f 1 8 1 1 in th a t i t

l im ite d the l i f e o f the c o rp o ra tio n to f iv e y e a r s . A lso th e type of

p ro d u c ts t h a t th e c o rp o ra tio n may m anufacture was l im ite d to woolen, ‘

c o tto n o r l in e n goods, g la s s , b a r i r o n , an ch o rs , m i l l i r o n s , s t e e l , n a i l

ro d s , hoop i r o n , and iro n mongery, s h e e t copper, s h e e t le a d , s h o t , w h ite

o r re d le a d . The d if f e r e n c e s betw een th e law o f New J e r s e y and New York

were t h a t th e New Je rse y law demanded a minimum o f te n p e rso n s who m ight

f i l e w h ile New York s e t th e minimum a t f iv e p e rso n s . On d is s o lu t io n ,

th e New York law l im ite d th e r e s p o n s ib i l i ty o f s to ck h o ld e rs " to th e ex­

te n t o f t h e i r re s p e c tiv e sh a re s o f s to c k in th e s a id company, and no

f u r th e r , " w h ile New J e rse y added an amount eq u a l to " th e d iv id en d and

p r o f i t s th ey may have re c e iv e d th e re o n ." One f u r th e r a d d i t io n to the

New J e rs e y law was th a t i t re q u ire d the p re s id e n t and d i r e c to r s o f the

company to see th a t c h ild re n employed by them were ed u ca ted one hour a

day and a tte n d ed r e l ig io u s w orsh ip on the S abbath .

The law drew l i t t l e a t te n t io n when i t became en ac ted and th re e

y ea rs l a t e r i t was re p e a le d , two y ears b e fo re i t s e x p i r a t io n . Because

o f th e dep ressed c o n d itio n s a f t e r th e w ar, i t i s d o u b tfu l th a t th e re

was much f a i t h l e f t in th e c o rp o ra tio n s t h a t had sprung up d u rin g th e

war p e rio d and now were in a s t a t e o f decay . A lthough th e re were no

17

s p e c ia l c h a r te r s g ran ted d u rin g t h i s p e r io d , th e re i s l i t t l e ev idence10t h a t any a p p l ic a t io n s had been madee

I t was d u rin g t h i s same p e r io d th a t we no te th e f i r s t in c o rp o r­

a t io n o f a r a i l r o a d e In 1815 the l e g i s l a tu r e g ran ted a c h a r te r to the11New J e rse y R a ilro a d Company„ This company, a lth o u g h s h o r t - l i v e d , ex­

p re s se d th e need fo r t r a n s p o r ta t io n th a t was n o t dependent upon w ater

as a means o f conveyance„ •

A nother in f lu e n c e o f th e New York G enera l In c o rp o ra tio n Act o f

1 8 1 1 was th e ad o p tio n o f th e double l i a b i l i t y c lau se in to New J e r s e y

law . A t e x t i l e concern a t P a tte r s o n was th e f i r s t m anufactu ring concern

c re a te d a f t e r th e New York law to in c o rp o ra te the concep t o f double l i ­

a b i l i t y in to i t s c h a r t e r . T his p r a c t ic e co n tin u ed u n t i l 182!* and , as

m entioned above, was in c lu d ed in th e g e n e ra l a c t o f 1 8 1 6 . From 1 8 2 1* to

1 8 3 U t h i s c lau se o n ly appeared in s ix o f th e 32 m anufactu ring compan­

ie s ' c h a r t e r s . In th e y ea rs to fo llo w th e is s u e o f double and ex tended

l i a b i l i t y became a p o l i t i c a l " f o o t b a l l , " v a s e i l i a t in g betw een double

l i a b i l i t y and l im ite d l i a b i l i t y . In g e n e ra l, a f t e r 1850 th e tendency

in New J e r s e y was away from im posing extended l i a b i l i t y on s to ck h o ld e rs1 2in non-banking c o rp o ra tio n s c h a r te re d by s p e c ia l a c t s . The purpose

o f t h i s l i a b i l i t y c lau se was to make th e s to ck h o ld e r an d /o r th e d i r e c ­

to r s re sp o n s ib le f o r a l l d eb ts in c u rre d by th e company. T h is , in e f ­

f e c t , p u t th e c o rp o ra tio n on e q u a l fo o tin g w ith p r iv a te n o n -co rp o ra te *

b u s in e s s e s , such as p a r tn e r s h ip s where each p a r tn e r i s re sp o n s ib le !

f o r th e combined d eb ts o f th e o rg a n iz a t io n .

In 1819 th e Dartmouth C ollege d e c is io n (see Appendix) made i t

c le a r t h a t th e c o rp o ra t io n 's c h a r te r m ight w e ll be examined more

c lo s e ly by th e l e g i s l a t u r e » This d e c is io n s e t the p ro p e r r e la t io n s be­

tween th e s t a t e and th e co rp o ra tio n * What i t e s ta b l i s h e s i s th e id e a

t h a t a c h a r te r o f in c o rp o ra tio n i s in th e n a tu re o f a c o n tr a c t between

th e s t a t e and th e in c o rp o ra to r s f and th a t , th e r e f o r e , s t a t e s a re p re ­

c luded from a l t e r in g o r amending c h a r te r s o f in c o rp o ra tio n - u n le ss

th e y e x p re s s ly re s e rv e t h i s power - by th e 10th s e c t io n o f A r t ic le I

o f the F e d e ra l C o n s ti tu t io n , which p ro v ided th a t "No S ta te s h a l l . .

p a ss any . , . law im p a irin g th e o b l ig a t io n o f c o n tra c ts* " T h is , in e f ­

f e c t , made th e a c t o f in c o rp o ra tio n a p a r i t y o f r ig h t s between th e a s ­

s o c ia te d in c o rp o ra to rs and th e s t a t e , which fo rm ulated the concep t th a t13

in c o rp o ra tio n i s in i t s e l f a r i g h t r a th e r th a n a p r iv i l e g e . In s p i t e

o f th e obvious c o n d itio n s t h a t could emerge from a c o n tra c t th a t cou ld

n o t be re p e a le d , the s t a t e d id n o t in c o rp o ra te th e re p e a l c la u se in a

c o n tr a c t u n t i l 1823* Of th e 130 c h a r te r s g ran ted from th e l8 2 lt-2 £ s e s ­

s io n o f l e g i s l a tu r e to th e l83!|.-35> s e s s io n , were n o t s u b je c t to a l ­

t e r a t i o n o r r e p e a l , w h ile some degree o f co n tin u in g power was re se rv e d

by th e lawmakers i n th e rem ain ing 7 6 . ^ This re p e a l c la u se d id n o t

e x h ib i t any c o n t in u i ty as f a r as ty p es o f b u s in e sse s were concerned 5

i t appeared to be a m a tte r o f in f lu e n c e on the p a r t o f th e p erson o r

p e rso n s w anting th e c h a r te r* But i t i s w orthy to n o te t h a t o f the 17

banks t h a t were g ran ted c h a r te r s d u rin g t h i s decade, on ly one d id n o t

have a c h a r te r s u b je c t to re p e a l w h ile 2 0 o f th e 2 2 r a i l r o a d s were f r e e .

o f l e g i s l a t i v e in te r f e r e n c e *

This l i b e r a l a t t i t u d e tow ard th e r a i l r o a d s was n o t w ith o u t

reason* A lthough th e f i r s t c h a r te r was g ran ted to a r a i l r o a d in 1815,

th e re were no more c h a r te r s is su e d u n t i l th e 1 8 2 9 - 3 0 l e g i s l a t i v e sessio n *

19

There seemed to b e , a t t h i s p o in t in h i s to r y , a g re a t d e a l o f a g i ta t io n

f o r th e c o n s tru c tio n o f a r a i l r o a d t h a t would l in k th e m e tro p o lita n

a re a s o f New York and P ennsy lvan ia w ith som ething more co n v en ien t th an

th e o ld s tag eco ach which had to change h o rses and d r iv e r s a t ten -m ile

i n t e r v a l s « B efore th e 1 8 3 0 ’s r a i l r o a d s were a cumbersome in v e s tm e n t|

th e y were e x p e n s iv e | th e s t a t e l e g i s l a tu r e m ight burden them w ith ex­

c e ss r e s t r i c t i o n s | and, in g e n e ra l, th e in v estm en t in v o lv ed a g re a t d e a l

o f m onetary r i s k . I t was perhaps f e l t by th e l e g i s l a tu r e t h a t th e on ly

in c e n t iv e t h a t was n e ce ssa ry to i n i t i a t e c o n s tru c tio n o f a r a i l r o a d was

to g ive i t f r e e re ig n in th e w r i t in g o f i t s c o n tra c t and a ls o l e g i s l a ­

t iv e g i f t s designed to in s u re th e c o n tin u a tio n o f th i s most v a lu ab le

a s s e t to th e s t a t e . They were r i g h t . The Delaware and R a r i ta n Canal

Company and th e Camden and Amboy R a i l Road and T ra n sp o r ta tio n CompanyXE>re c e iv e d t h e i r c h a r te r s i n 1830. These were companies t h a t f in a lly -

succeeded in c o n s tru c tin g th e m ajor t r a n s p o r ta t io n f a c i l i t i e s from New

York to P h i l a d e lp h ia .^ In th e 1830 c h a r te r th e se two companies were

re q u ire d to pay " t r a n s i t d u tie s " r a th e r than ta x e s o r im p o st. A lso th e

s t a t e re se rv e d th e r i g h t to su b sc rib e f o r o n e -q u a rte r o f the c a p i t a l17s to ck o f th e com panies. Soon a f t e r th e c h a r te r was g ran ted th e s t a t e

began to expand p r iv i l e g e s . In 1831, in r e tu r n f o r a g i f t to th e s t a t e

o f one thousand sh a re s o f s to c k , the Camden and Amboy re c e iv e d a guaran­

te e t h a t no o th e r r a i l r o a d would be a u th o r iz e d to t r a n s p o r t goods and

p assen g ers betw een New York and P h ila d e lp h ia u n le ss th e s t a t e su rre n d - T R

e red t h i s s to c k . During t h a t same y e a r th e l e g i s l a tu r e p assed an a c t

19o f "u n io n ," which allow ed th e se two companies to c o n so lid a te t h e i r

c a p i t a l s to ck in to a " jo in t s to ck " w ith e q u a l r ig h t s to p r o f i t s . The

20

companies m ain ta ined t h e i r s e p a ra te o rg a n iz a tio n a lth o u g h d i r e c t io n was

to come from a j o i n t m eeting o f d i r e c to r s . This union became known as

th e " J o in t Companies," This com bination p ro v id ed the J o in t Companies

w ith enough power n e c e ssa ry to secu re passage o f th e infam ous "monopoly

b i l l , " a b i l l which guaran teed th e l e g i s l a tu r e $ 3 0 , 0 0 0 a y e a r income

from 1 ,000 f u l l y p a id s h a re s . The $30,000 cou ld be su p p lie d from th e

ta x e s re c e iv e d from t h i s company. In r e tu r n f o r t h i s g u aran teed income

to th e s t a t e , th e Camden and Amboy were g iven i r r e v o c a b le monopoly p r iv ­

i le g e s in th e fo llo w in g p a ssa g e :

That i t s h a l l n o t be la w fu l, a t any tim e d u rin g th e s a id r a i l road c h a r te r , to c o n s tru c t any o th e r r a i l road o r r a i l roads in t h i s s t a t e , w ith o u t th e co n sen t o f th e s a id com panies, which s h a l l be in te n d e d o r used f o r th e t r a n s p o r ta t io n o f p a s ­sengers o r m erchandise between th e c i t i e s o f New York andP h ila d e lp h ia , o r to compete in b u s in e ss w ith th e r a i l roada u th o riz e d by th e a c t to w hich t h i s supplem ent i s r e l a t i v e .

In s p i te o f t h i s seeming monopoly, the New J e r s e y R a ilro a d and T ranspor­

t a t i o n Company re c e iv e d an in c o rp o ra tio n c o n tr a c t in 1832, b u t on ly a f t e r

a l e g i s l a t i v e b a t t l e . The R a ilro a d and T ra n sp o rta tio n Company now con­

t r o l l e d th e ro u te from New York to New B runsw ick. One dilemma faced

b o th th e Camden and Amboy and the New J e rse y R a ilro a d , In I 8 OI4 a c h a r­

t e r had been g ran ted to A lexander Ham ilton to form the A sso c ia te s o f

New Je rse y Company. In o rd e r to secu re th e f e r r y r i g h t s , th e New J e r ­

sey R a ilro ad had to gain c o n tro l o f th e A sso c ia te s , This was done by

p u rch as in g s to ck in th e company a t th e p r ic e o f $1*30 a sh are and th u s

g a in in g c o n t r o l . Once t h i s had been accom plished a r a i l r o a d bed was

b u i l t and p u t in to o p e ra tio n from th e sh o res o f New J e r s e y to New Bruns­

w ick , At abou t t h i s same tim e a road connec ting T renton to P h i la d e l­

p h ia was b u i l t by th e P h ila d e lp h ia and T renton R a ilro a d . T his p ro p e r ty

21 ,

was f i n a l l y secu red f o r th e J o in t Companies by buying th e s to c k and

th u s in s u r in g th e monopoly o f th e J o in t Companies. At t h i s same tim e

th e New J e rse y R a ilro a d was tucked under th e wing o f th e J o in t Compan­

i e s , and the th re e lin k e d roads became known as the U nited R a ilro a d21Companies o f New J e r s e y . This pow erfu l r a i l r o a d com bination , w ith

i t s in f lu e n c e over s t a t e p o l i t i c s , h e ld v i r t u a l l y d i c t a t o r i a l powers

over th e c h a ra c te r o f s p e c ia l c h a r te r s from 1835 to 1870. " I t was

t h i s d e ep -se a ted c o n tro l t h a t earned New J e r s e y i t s n in e te e n th cen -22tu r y name o f 'The S ta te o f Camden and Amboy.,n

Perhaps because o f t h i s monopoly th e s t a t e w itn essed th e a n t i ­

c o rp o ra tio n movement. A lthough t h i s movement was n o t l im ite d to New

J e r s e y , we can see w ith in th e s t a t e th e e f f e c t s o f i t . The a t ta c k s

began in 1835 and d u rin g th e 1837-U3 d e p re ss io n y ears th e v o ic e s be ­

came lo u d e r because o f th e u n p le a sa n t ex p erien ce s w ith in s o lv e n t c o r­

p o ra t io n s . The argum ents a g a in s t th e c o rp o ra tio n s were th a t i t was ex­

pen siv e to th e s t a t e because o f the tim e s p e n t by th e l e g i s l a tu r e in

th e draw ing o f c h a r t e r s ; c o rp o ra tio n s tend to f o s t e r monopoly and th e

in d iv id u a l l im ite d l i a b i l i t y o f s to ck h o ld e rs gave p re fe re n c e to th e

id e a s o f n o n - r e s p o n s ib i l i ty . P e te r D. Vroom, governor o f New J e r s e y .

in 1835, ex p ressed h is o p p o s itio n to ev ery kind o f e x c lu s iv e r i g h t by

s t a t i n g ;

Hence, c o rp o ra t io n s , o f any d e s c r ip t io n , should be s p a r in g ly c re a te d . I f th e y a re to compete w ith p r iv a te and in d iv id u a l e n te r p r i s e , th ey should be d isco u n ten an ced . Powers and p r iv ­i le g e s a re n e c e s s a r i ly co n fe rre d by them, which in d iv id u a ls do n o t p o sse ss and canno t e x e r c is e . The c o n te s t between the two i s an unequal c o n te s t , and th e r e s u l t i s alw ays in fa v o r o f th e c o rp o ra tio n . 23

On th e n a t io n a l l e v e l th e Loco-Foco o r Equal R ig h ts wing o f th e

22

Dem ocratic p a r ty p re se n te d i t s p h ilo so p h y o f h o s t i l i t y to a l l banks o f

i s s u e , to s p e c ia l c h a r te r s o f in c o rp o ra t io n , and to i r r e p e a la b le c o r -

2kp o ra te c h a r te r s o f any d e s c r ip t io n .

In s p i te o f t h i s o p p o s itio n to in c o rp o ra tio n th e number o f

c h a r te r s co n tin u ed to in c re a s e . The decade from 1825 to 1835 saw th e25in c o rp o ra tio n o f 3a m anufactu ring f irm s and a t o t a l o f 117 c h a r te r s

g ra n te d , w h ile the decade o f o p p o s itio n to in c o rp o ra tio n (1835 to

181(5) showed a r i s e o f a lm ost 100 p e rc e n t in the number o f m anufactur­

in g c h a r te r s (6 ? )^ ^ and a g e n e ra l in c re a s e o f a lm ost 50 p e rc e n t (T able .

I ) in th e t o t a l number o f c h a r te r s g ran ted (166 ), The e f f e c t s o f t h i s

movement were f e l t i n th e c h a ra c te r o f th e c h a r te r s is s u e d d u ring t h i s

p e r io d . The 1835-36 l e g i s l a tu r e acq u iesced to the p le a f o r more r ig i d

c o n tro l o f c o rp o ra tio n c h a r te r s by making a l l c h a r te r s s u b je c t to r e ­

p e a l , an example which was fo llow ed f o r th e n e x t te n y e a r s . A lso , d u r­

in g t h i s p e r io d , r e s t r i c t i o n s concern ing the amount o f lan d t h a t could

be h e ld by a c o rp o ra tio n and l im i t a t i o n o f c o rp o ra te d e b ts were in ­

s e r te d in to c o rp o ra te c o n t r a c ts .

The c o n s t i t u t i o n a l c o n v e n t io n o f iBliL a g a in ch arged th e a i r

w ith th e c o n f l i c t betw een th o s e who ad v o ca ted r e s t r i c t i o n s on in c o rp o r ­

a t io n and th o se who d id n o t . Those who fa v o r e d r e s t r i c t i v e l e g i s l a t u r e

a ttem p ted t o in c o r p o r a te a t h r e e - f i f t h s v o te o f b o th h o u ses i n g r a n t­

in g c h a r t e r s , r e p e a la b le c h a r t e r s , and p e r s o n a l l i a b i l i t y in t o th e con ­

s t i t u t i o n , The cou n ter-argu m en t con ten d ed t h a t to b in d th e hands o f

th e l e g i s l a t u r e in g r a n t in g c h a r te r s w ould ca u se econom ic i n t e r e s t s to

go e ls e w h e r e , The o n ly r e s t r i c t i o n t o in c o r p o r a t io n came i n A r t ic l e IV ,

s e c t io n 7 , o f th e new c o n s t i t u t i o n w h ich r e q u ir e d th e a c c ep ta n c e o f

23

t h r e e - f i f t h s o f b o th houses in th e in c o rp o ra tio n o f banks o r money c o r­

p o ra tio n s and l im i t in g such c h a r te r s to 20 y e a r s » R epealab le c h a r te r s

and p e rs o n a l l i a b i l i t y were a g a in l e f t to th e caprice o f th e l e g i s l a ­

tu r e ,

181̂ ,6 marks th e y e a r o f th e second g e n e ra l in c o rp o ra tio n law .

A lthough th e s p e c ia l a c ts were though t to be th e cause o f much o f th e

d isp u te betw een th e two f a c t io n s concern ing th e corporation^ the c o n s t i­

tu t io n a l conven tion o f l8ltlj made no m ention o f th e s u b s t i t u t io n o f a

g e n e ra l law f o r th e s p e c ia l law s. The I81j6 g e n e ra l in c o rp o ra t io n law

d id .n o t re p la c e th e s p e c ia l law s, b u t gave in c o rp o ra to rs an a lte r n a te

method o f in c o rp o ra tio n .

The 18l$.6 g e n e ra l in c o rp o ra tio n law was th e f i r s t law to con­

t a in th e g e n e ra l p ro v is io n concern ing l e g i s l a t i v e in v e s t ig a t io n o f th e

c o rp o ra t io n c h a r te r . I t s t a t e d $ '

T h a t the c h a r te r o f ev ery c o rp o ra tio n , which s h a l l h e r e a f t e r be g ran ted by th e l e g i s l a t u r e , s h a l l be s u b je c t to a l t e r a t i o n , su sp en sio n , and r e p e a l , -in the d i s c r e t io n o f the l e g i s l a t u r e ,27

I t i s i n t e r e s t in g to n o te t h a t t h i s p ro v is io n a p p lie d n o t o n ly to char­

te r s g ran ted under th e g e n e r a l - a c t , b u t a lso to th o se issu ed by s p e c ia l 28enactm ent. ' The o th e r r ig h t s t h a t co u ld be secured th rough th e use o f '

t h i s g en e ra l law were p e rp e tu a l su ccessio n u n le ss l im ite d in th e c h a r­

t e r s th e r i g h t to -b e sued and su e , com plain and defend in any c o u r t o f

law o r e q u i ty | th e r i g h t to use a common s e a l and a lt e r i t a t p lea su re ;

th e r i g h t t o htold, p u rch ase , and convey r e a l and p e rs o n a l e s t a t e r e ­

q u ire d by the ' b u s in e s s , b u t n o t exceed ing th e amount l im i t e d . in th e

c h a r t e r | the t i g h t to a p p o in t su b o rd in a te o f f ic e r s and agents; and f i n -

' a l ly , th e r i g h t to make by-law s n o t in c o n s i s te n t w ith th e c o n s t i tu t io n

21*

o r laws o f th e U nited S ta te s o r the s t a t e o f New Jersey® The a c t f o r ­

bade c o rp o ra tio n s to engage in banking a c t i v i t i e s and l im ite d a c t i v i ­

t i e s to th o se exp ressed in th e charter® S to ck h o ld ers were only resp o n ­

s ib le fo r th e amount o f s to ck n o t y e t p a id f o r o r th e p ro p o r tio n th e re -29o f n e c e ssa ry to s a t i s f y the d eb ts o f th e company. In s p i t e o f th e

f a c t t h a t t h i s law was p assed in hopes t h a t some o f th e burden o f th e

l e g i s l a tu r e would be r e l ie v e d , i t i s a p p a ren t from Table 2 t h a t th e de­

mand f o r s p e c ia l c h a r te r was s t i l l p r e v a le n t . One a v a i la b le ex p lan a ­

t io n o f t h i s comes from S to k e ^ when he ex p la in ed t h a t th e re were s t i l l

th o se perso n s who sought s p e c ia l p r iv i le g e s in th e form o f tax es and

l i a b i l i t y from th e l e g i s l a tu r e t h a t cou ld n o t be found th rough th e use '

o f th e g e n e ra l en ab lin g a c t . A lso th e law d id n o t p e r ta in to a l l ty p es

o f o rg a n iz a tio n s . In s p i te o f the obvious shortcom ings o f th e g e n e ra l

e n ab lin g a c t o f 181*6, i t was s ig n i f i c a n t i n t h a t i t was one o f th e f i r s t

o f th e s o -c a l le d g e n e ra l in c o rp o ra tio n a c ts o f wide coverage in th e

U nited S t a t e s „ I t s second im p o rtan t f e a tu re was the s e c t io n d e c la r in g

31a l l fu tu re c h a r te r s s u b je c t to a l t e r a t i o n and appeal®

Because th e 181*6 law proved in ad eq u a te in a number o f re s p e c ts r

th e l e g i s l a tu r e re p la ce d i t in 181*9 w ith a new g e n e ra l in c o rp o ra tio n

act® The purpose o f th e 181*9 r e v is io n o f th e 181*6 law was to l i b e r a l ­

iz e some o f th e b e n e f i t s , th u s making i t more d e s ir a b le to p ro sp e c tiv e

in c o rp o ra to rs ® In th e 181*9 a c t , s to ck h o ld e rs were no lo n g e r u n lim ite d -

l y l i a b l e f o r the d eb ts b e fo re th e amount o f c a p i t a l w ith w hich the

c o rp o ra tio n was to b eg in b u s in e ss was f u l l y p a id i n . The s to ck h o ld e rs

w ere , however, l i a b l e f o r the r e tu r n o f any i l l e g a l dividends® The 181*9

a c t co n tin u ed th e p r a c t ic e o f h o ld in g th e d i r e c to r s and o f f ic e r s o f a

25

c o rp o ra tio n l i a b l e f o r f a i l u r e to p u b lis h a c e r t i f i c a t e w ith in 30 days

a f t e r an in c re a s e o r d ecrease in c a p i t a l s to c k o r i f any f a l s e r e p o r ts 32

were f i l e d . T h is , in e f f e c t , made th e d i r e c to r s and o f f i c e r s l i a b le

f o r m isconduct v e ry much th e same as th e l i a b i l i t y o f perso n s who en­

te re d in to nonco rpo ra te b u s in e ss r e la t io n s h ip s .

The s ig n i f i c a n t a sp e c t o f b o th th e 181*6 and th e 181*9 g e n e ra l

laws was t h a t , f o r th e f i r s t tim e , the power to g ra n t in c o rp o ra tio n

c h a r te r s in d iv id u a l ly was taken away from th e l e g i s l a t u r e , In s p i te o f

t h i s tim e -sa v in g dev ice th e use o f th e s p e c ia l c h a r te r rem ained th e most

p o p u la r method o f in c o rp o ra tio n ( Table 2 ) , This ap p a ren t n e g le c t was

p robab ly due to th e e f f e c t iv e in c o rp o ra tio n o f sa feg u a rd s in to th e se two

a c ts t h a t p ro te c te d c r e d i to r s and th e g e n e ra l p u b l ic . The advoca tes o f

more r e s t r i c t i v e l e g i s l a t i o n concern ing in c o rp o ra tio n co n tin u ed t h e i r

f i g h t a g a in s t p r iv i le g e and monopoly by in c lu d in g r e s t r i c t i v e c la u se s in

th e g e n e ra l law s. The businessm an, on th e o th e r hand, looked to th e

s p e c ia l laws f o r a more l i b e r a l a t t i t u d e and l e s s l i a b i l i t y . In g e n e ra l ,

th e s p e c ia l laws became le s s r e s t r i c t i v e a f t e r 1850. Among th e se r e la x ­

a t io n s was the tendency away from s to ck h o ld e r l i a b i l i t y , l e s s sev ere o r

no p e n a l t ie s f o r exceed ing d e b t l im i t s , n o n - l im ita t io n o f r e a l e s ta te

h o ld in g s , and th e d ec rease i n re s id en c e req u irem en ts o f d i r e c to r s and33o f f i c e r s , A lso , th e se s p e c ia l c h a r te r s were b eg in n in g to a llo w l e g a l ­

is e d in te r c o rp o ra te s to ck h o ld in g ! p e rm iss io n was b e in g g ran ted to m ort­

gage p ro p e r ty , is s u e bonds and p re fe r re d s to c k , and is s u e s to ck in ex -

change f o r p ro p e r ty . There was l i t t l e re a so n to use th e g en e ra l a c ts

when a f a r g re a te r degree o f p r iv i le g e cou ld be o b ta in ed th rough spec­

i a l c h a r te r ,

26

One may ask a t t h i s p o in t why New J e r s e y was d e s tin e d to be

more ta rd y in e n ac tin g g e n e ra l laws o f in c o rp o ra tio n w h ile o th e r s t a t e s

such as New York and th e New England s t a t e s were f a s t becoming g e n e ra l

a c t s ta te s e Cadman l i s t s two p o s s ib le reasons® The f i r s t i s th e power

o f th e r a i l r o a d monopoly in th e s t a t e . The U nited R a ilro a d o f New

J e rse y which lin k e d New York C ity and P h ila d e lp h ia had become a power­

f u l lobbying group in New Je rs e y and one o f th e m ost f l a g r a n t examples

o f s p e c ia l p r iv i le g e in th e s t a t e . I t became a p p a ren t t h a t an a tte m p t

to e n a c t a g e n e ra l r a i l r o a d a c t would curb th e new g u a ra n te e d .p o s it io n

o f t h i s g ia n t c o rp o ra tio n , and i t threw i t s g ia n t t r e a s u r y open to

th o se p o l i t i c i a n s who would m a in ta in th e s t a tu s quo. I t became so pow­

e r f u l t h a t S a c k e tt w rote : 11. . , the S ta te t h a t had tak en th e co rp o ra ­te

t ip n t o i t s bosom a s a c h i ld began to f e a r i t a s a m a ster ," I t soon

became ap p aren t t o th o se l e g i s l a t o r s who pushed f o r a reform o f in c o r - ,

p o r a t io n law s and l o s t a t th e n e x t e l e c t i o n t h a t t h e i r hopes were

f u t i l e ,

The secon d r e a so n was a m a tter o f geograp h y . S in c e New J e r s e y

l a y betw een th e g r e a t f i n a n c i a l and com m ercia l c e n te r s o f New York and

P h ila d e lp h ia , New J e r s e y became a c o m p e tito r f o r l e g i s l a t i v e f a v o r s .

The e a r ly New Je rse y s p e c ia l c h a r te r s to o u t - o f - s t a t e c o rp o ra tio n s gave

p r iv i le g e s th a t would n o t have been approved by g en e ra l s t a t u t e s . S ince

th e New York c o n s t i tu t io n o f I 8 I4.6 made i t d i f f i c u l t f o r p rom oters to

g a in s p e c ia l c h a r te r s in t h a t s t a t e . New Je rse y m ain ta ined a c o m p e titiv e

advantage by r e ta in in g i t s system o f s p e c ia l a c ts o f in c o rp o ra t io n .

That a t t i t u d e o f New J e r s e y may be sum m arised i n t h i s s ta te m e n t b y New

J e r s e y G overnor Randolph in 1869$

27

" „ . o The community t h a t in v i te s la b o r and c a p i t a l w ith in i t s b o rd e rs by l i b e r a l l e g i s l a t i o n , adds to i t s own s t a b i l i t y and e n ric h e s i t s c i t i z e n s . . . I f e e l a ssu red you w i l l f u l l y a p p re c ia te th e p ro p r ie ty o f c o n tin u in g t h a t p o lic y which has h e re to fo re induced m anufactu ring e n te r p r i s e and c a p i t a l to seek our p r o t e c t io n .36

The 181*6 g e n e ra l a c t fo r m anufactu ring companies rem ained in

e f f e c t u n t i l 187$. The o th e r a c ts en ac ted in th e y ea rs 181*6 to 1875

m erely extended th e r ig h t s o f th e 181*6 a c t to in c lu d e o th e r b u s in e s s e s .

The p o l i t i c a l is su e o f th e g e n e ra l in c o rp o ra tio n laws w ent in to h ib e r ­

n a tio n and th e s t a t e o f New J e r s e y appeared to be doing b u s in e ss "as

u s u a l ." Except fo r a l u l l du ring th e C iv i l War y e a r s , th e number o f

in c o rp o ra tio n s showed a tendency to in c re a s e , an in c re a s e t h a t was in

fa v o r o f the s p e c ia l a c t ty p e o f c h a r te r . By th e l8 7 0 , s th e o n ly type

o f b u s in e ss o rg a n iz a tio n t h a t d id n o t come under th e g en e ra l a c t o f

181*6 and i t s amendments was th e r a i l r o a d . I t i s obvious from our p rev ­

io u s d is c u s s io n o f th e ro le o f th e r a i l r o a d s in New J e rs e y t h a t th e y

would n o t be i n fa v o r o f th e r e s t r i c t i o n s o f th e g e n e ra l la w s. What

happened to b reak th e ho ld o f th e Camden and Amboy on th e s t a t e o f New

J e rs e y i s a long and i n t e r e s t i n g s to r y in i t s e l f , b u t f o r th e purpose

o f t h i s p ap e r we w i l l b r i e f l y o u t l in e what happened th a t r e s u l te d in

th e g e n e ra l r a i l r o a d a c t o f 1873.

We spoke e a r l i e r o f th e a b so lu te monopoly t h a t th e Camden and

Amboy R a i l Road re c e iv e d under th e "monopoly b i l l " o f 1832 f o r t r a n s ­

p o r ta t io n between New York and P h ila d e lp h ia . A lthough o th e r r a i l r o a d s

had secu red c h a r te r s to o p e ra te sp u r l i n e s , none had succeeded in s e c u r­

in g r ig h t s to compete f o r th e New Y o rk -P h ilad e lp h ia t r a f f i c . In 1871

th e U nited R a ilro a d Company ( th e combined New J e rse y R a ilro a d , ,

P h ila d e lp h ia and T renton R a ilro a d , and th e Camden and Amboy R a i l Road)

was le a s e d to th e P en n sy lvan ia R a ilro a d f o r 999 y ears e The o ld a n t i -

c o rp o ra tio n group, in te r ru p te d from i t s h ib e rn a tio n , a ro se f ig h t in g

a g a in s t th e home-grown monopoly th a t had now f a l l e n in to th e hands o f

Mfo r e ig n e rs ," The r e s u l t o f t h i s was an a tte m p t to in c o rp o ra te the

New York and P h ila d e lp h ia R a ilro a d to compete w ith th e fo re ig n invad ­

e r s , The c h a r te r was vo ted o u t , b u t by 1873 th e a g i t a t io n f o r re a p ­

p r a i s a l o f the P ennsy lvan ia grew to s u b s ta n t ia l p ro p o r t io n s . The New

York and P h ila d e lp h ia R a ilro a d , s ta f f e d by prom inent Jerseym en, ag a in

made an a ttem p t to seek a c h a r te r . I t then became an open b a t t l e b e ­

tween th e Pennsy lvan ia and th e New York and P h ila d e lp h ia l i n e s . The

sen tim en t f o r the J e r s e y company became so s tro n g t h a t th e Pennsylvan­

i a re v e rse d i t s argum ent f o r c o n tin u a tio n o f p r iv i le g e s and now tu rn e d

to a p le a f o r a g e n e ra l a c t , which th e y hoped would s t i l l leav e them

w ith t h e i r h i s t o r i c a l monopoly in s te a d o f com peting w ith a n o th e r

" favored" l i n e . The New York and P h ila d e lp h ia , however, spoke ou t

a g a in s t a g e n e ra l a c t and sough t to become one of th e fav o red sons o f

J e r s e y through a s p e c ia l c h a r te r . W hile t h i s open a g i t a t io n c o n tin ­

ued , a b i l l was subm itted to th e Assembly by Assemblyman C a n f ie ld , This

b i l l a u th o riz e d any 13 perso n s to form a r a i l r o a d company under c e r t a in

a r t i c l e s o f a s s o c ia t io n to be f i l e d in th e S e c re ta ry o f S t a t e 's o f f i c e ,

when c a p i t a l s to ck to th e v a lu e o f $1,000 f o r every m ile o f r a i l r o a d37p ro je c te d by them had been su b sc r ib e d . The New York and P h ila d e lp h ia

i n t e r e s t s now saw the "h an d w ritin g on th e w a ll ," The o ld Camden and

Amboy lobby , now the P ennsy lvan ia lobby by in h e r i ta n c e , had succeeded

in swaying th e op in io n o f th e l e g i s l a tu r e to th e g e n e ra l law id e a .

P a r t i a l l y because o f t h i s and p a r t i a l l y because th e P ennsy lvan ia group

had u n earthed some "skulduggery" in th e p a s t b eh av io r o f th e l e g i s l a ­

tu r e , the New York and P h ila d e lp h ia changed i t s p o s i t io n and was now

read y to a c c e p t th e g e n e ra l law id e a . S ince C a n f ie ld ’s b i l l had been

subm itted and a g i ta t io n was so h ig h , th e b i l l was passed and became law

on th e tw e lf th o f March,

The passage o f t h i s b i l l marked the p a ss in g o f an e ra o f spec­

i a l p r iv i le g e s under th e s p e c ia l a c t method o f in c o rp o ra t io n . This a c t

gave r i s e to the im petus th a t r e s u l te d in th e c o n s t i tu t io n a l amendment

in 18?5 t h a t fo rbade th e is su an ce o f s p e c ia l c h a r te r s f o r in c o rp o ra ­

t i o n , 38

P a r t B - New J e rse y and i t s Law 187$ - 1900

In 1873 Governor P a rk e r proposed th a t " th e S ta te C o n s ti tu t io n

should re q u ire g e n e ra l laws and fo rb id th e enactm ent o f a l l s p e c ia l o r

p r iv a te laws em bracing s u b je c ts where g e n e ra l laws can be made a p p l i - 39

c a b le ," A s p e c ia l commission was s e t up to c o n s id e r th e m a tte r and

subm it i t s f in d in g s to th e Senate and th e House, The recommendations

were accep ted by th e l e g i s l a tu r e and in Septem ber, I 8 7 I1 , a s p e c ia l vo te

made the recommendations p a r t o f the New J e r s e y c o n s t i tu t io n . A r t ic le

I , p a rag rap h s 19 and 20 , s ta t e d th a t :

No coun ty , c i t y , borough, town, tow nship , o r v i l la g e s h a l l h e r e a f te r g ive any money o r p ro p e r ty , o r loan i t s money o r C re d it , to o r in a id o f any in d iv id u a l , a s s o c ia t io n , o r c o r­p o ra t io n , o r become s e c u r i ty fo r o r be d i r e c t l y o r i n d i r e c t ly th e owner o f any s to c k o r bonds o f any a s s o c ia t io n o r co rp o r­a t io n .

No d o n a tio n o f lan d o r a p p ro p r ia tio n o f money s h a l l be made by th e s t a t e o r any m u n ic ip a l c o rp o ra tio n to o r f o r th e use o f any s o c ie ty , a s s o c ia t io n o r c o rp o ra tio n whatever®

30

These two parag rap h s s tre n g th en e d th e l im i t a t io n imposed on governmen­

t a l a s s is ta n c e o f p r iv a te c o rp o ra tio n under th e l8i|lt c o n s t i tu t io n e

The most im p o rtan t a d d it io n s t h a t p e r ta in e d to th e c o rp o ra tio n

were found in A r t ic le IV, s e c tio n 7» Paragraphs 3# 8 , and 11 s ta t e d

t h a t :

The l e g i s l a tu r e s h a l l n o t p ass any law im pairing th e o b lig e - - t io n of c o n tra c ts o r d e p riv in g a p a r ty o f any remedy f o r e n fo rc in g a c o n tr a c t which e x is te d when th e c o n tra c t was made <,

In d iv id u a ls o r p r iv a te c o rp o ra tio n s s h a l l n o t be a u th o riz e d • to take p r iv a te p ro p e r ty f o r p u b lic u se , w ith o u t j u s t compen­

s a t io n f i r s t made to th e ow ners.

The l e g i s l a tu r e s h a l l n o t p ass p r iv a te , lo c a l , o r s p e c ia l laws in any of the fo llo w in g enum erated c a s e s , t h a t i s to says G ran ting to any c o r p o r a t io n , . a s s o c ia t io n o r in d iv id u a l , any e x c lu s iv e p r iv i l e g e , immunity o r f ra n c h is e w h a tev er.G ran ting to any c o rp o ra tio n , a s s o c ia t io n o r in d iv id u a l th e r i g h t to la y down r a i l r o a d t r a c k s . The l e g i s l a tu r e s h a l l p ass g e n e ra l laws p ro v id in g f o r th e cases enum erated in t h i s p a rag rap h , and f o r a l l o th e r cases w hich, in i t s judgm ent, may be p ro v ided f o r by g e n e ra l law s. The l e g i s l a tu r e s h a l l pass no s p e c ia l a c t c o n fe r r in g c o rp o ra te pow ers, b u t th ey s h a l l p ass g e n e ra l laws under which c o rp o ra tio n s may be o r­gan ized and c o rp o ra te powers o f ev ery n a tu re o b ta in e d , sub­j e c t , n e v e r th e le s s , to re p e a l o r a l t e r a t i o n a t th e w i l l o f th e l e g i s l a t u r e »

A lthough th e le g is la tu re :W a s; p ro h ib i te d from g ra n tin g s p e c ia l c h a r te r s

i t now had ex p ress powers to re p e a l and amend g e n e ra l a c ts p rov ided f o r

in t h i s amendment. As we s h a l l s e e , th e amendments t o . th e g e n e ra l a c ts

fo r in c o rp o ra tio n le d to a c o n d itio n where th e g ra n tin g o f a c h a r te r

under th e g en e ra l law became eq u a l in p r iv i le g e s to th o se g ran ted by

s p e c ia l a c t b e fo re 1875,

‘ As m entioned e a r l i e r , th e e a r ly r a i l r o a d c h a r te r s p ro v id ed f o r

a " t r a n s i t tax" r a th e r th a n a p ro p e r ty o r s t a t e ta x t h a t a p p lie d to

o th e r forms o f b u s in e s s . This t r a n s i t ta x was p a id on ly on goods o r

31

p erso n s mowed by th e r a i l r o a d s and was f a r below th e ta x r a t e p a id by

o th e r forms o f b u s in e s s 0 The r a i l r o a d pushed t h i s p r iv i le g e to i t s

l im it s , buying p ro p e r t ie s and land and th en c la im in g exem ption because

th e y belonged to the r a ilr o a d . In th e meantime th e s t a t e o f New

J e r s e y found i t s e l f in d ir e f in a n c ia l c o n d it io n . A lthough n in e te e n th

in p o p u la tio n , i t s to o d s ix th in in d e b te d n e ss , and c i t i e s such as

E l is a b e th , Rahway, and J e r s e y C ity were faced w ith th e p o s s i b i l i t y o f

r e c e iv e r s h ip . In 1882' Mr. C harles L. C orb in , a no ted lawyer and a n t i ­

monopoly su p p o rte r s t a t e d th e causes o f t h i s c o n d itio n in a p ap e r read

b e fo re th e Kent Club in J e rs e y C ity . He s a id :

The cause which f a r more th an any o th e r has g iven New J e r s e y such eminence in th e crowd o f p u b lic d e b to rs , can be s ta t e d w ith c o n fid e n c e .' More than one-fourth o f th e p ro p e r ty o f th e S ta te i s exempt from coun ty and lo c a l ta x a t io n . That exemp­te d p ro p e r ty be lo n g s to th e r a i l r o a d com panies. uO

Although th e c o n s t itu t io n a l r ev is io n o f 1875 contained the c lau se th a t

"property s h a l l be a ssessed fo r taxes under general law s, and by u n i-l i lform r u le s , according to i t s true value," i t did not apply to r a i l ­

roads incorporated before the 18^6 g e n e ra l act or the 1873 ra ilroad a c t

because A r tic le X, p arag rap h 1, o f the c o n s t itu t io n a l r e v is io n guaran­

teed that " a l l c laim s and r ig h t s o f in d iv id u a ls and b o d ies corporate,

and o f the s t a t e and a l l charters o f incorporation s h a l l continue."

The l e g i s l a tu r e was faced w ith th e dilemma o f re s o lv in g th e precarious

economic p o s it io n o f th e s ta te w h ile i t s hands were t ie d as to how to

do t h i s w ith o u t v io la t in g the Dartmouth d ec is io n (see Appendix.).

The 1881; gubernatorial ra c e saw the is su e o f "equal taxation"

as paramount. Leon A bbett, the Democratic c a n d id a te , was s u c c e s s fu l,X)

and the le g is la tu r e saw the in trod u ction o f many b i l l s aimed a t

e x tr a c t in g more ta x money from th e r a i l r o a d s . The Senate b i l l , known

as the G riggs b i l l , was f i n a l l y p a s s e d ,^ What t h i s b i l l d id was to

d i f f e r e n t i a t e betw een p ro p e r t ie s used f o r t r a n s p o r ta t io n - to be taxed

a t th e o ld r a te - and p ro p e r t ie s n o t used f o r t r a n s p o r ta t io n which now

were taxed a t eq u a l r a te s p a id by o th e r p ro p e r ty ow ners. This law

proved le s s th a n ex p ec ted , f i r s t , because o f l i t i g a t i o n w ith th e r a i l ­

roads concern ing i t s c o n s t i t u t i o n a l i t y , and seco n d ly , the problem s o f

assessm en t and c o l le c t io n o f ta x es proved d i f f i c u l t . In 1886 th e le g ­

i s l a t u r e had to pass a law fo rc in g th e c o rp o ra tio n s to d is c lo s e neededh3"inform ation as to v a lu e . An a l te r n a t e method o f f i l l i n g th e s t a t e

t r e a s u ry p assed th e l e g i s l a tu r e in 1882*, This measure le v ie d a f r a n ­

c h ise ta x upon a l l the c o rp o ra tio n s c h a r te re d in th e s t a t e ,

I t was s h o r t ly a f t e r th e e f f o r t to ta x th e r a i l r o a d s th a t

Governor A bbett c a l le d upon James B, D i l l , a young c o rp o ra tio n law yer

from New York, whose pam phlet " th e Advantage o f B usiness C orpo ra tions"

made him w ell-know n, to ask h is o p in io n on a p rocedure to take to in ­

c rease th e s t a t e rev en u e. D i l l suggested th a t th e s t a t e b roaden i t s

c o rp o ra tio n laws to make i t advantageous f o r c o rp o ra tio n s to lo c a te

th e re W ith th e sm a ll f ra n c h is e ta x p rov ided f o r in th e 1882* l e g i s ­

l a t io n the s t a t e would be a ssu red o f s u f f i c i e n t income. In 1890 D i l l ,

to g e th e r w ith Governor A b b e tt, S e c re ta ry o f S ta te K elsey , U nited S ta te s

D i s t r i c t A tto rney W hite and Mr, A llen McDermott had a conference in

which D i l l gave h is views in d e t a i l . T w o y e a rs l a t e r , in 1892, the

s t a t e adopted th e C o rp o ra tio n R e g is tr a t io n Law, This a c t re q u ire d

each c o rp o ra tio n to have an ag en t and to s t a t e th e name o f th e ag en t

in the c h a r t e r ; t h a t th e ag en t shou ld be a u th o riz e d to re c e iv e p ap ers

33

f o r th e corporation# and th a t th e a g e n t 's ad d ress should be th e p o s t -

o f f ic e ad d ress o f th e d i r e c to r s and s to ck h o ld e rs f o r th e purpose of

send ing l e g a l n o tices? and i t a ls o p ro v ided t h a t a l l s to c k and t r a n s f e r

books f o r th e in s p e c tio n o f th e s to ck h o ld e rs should be k ep t a t th e

a g e n t 's o ffice® I t i s in t e r e s t in g to no te t h a t D i l l ' s own company# The

C o rp o ra tio n T ru s t Company# a d v e r t is e d th a t i t would " a tte n d to ev ery

d e ta i l# inc lud ing# i f you d e s ire# the organ ization o f your company#”

th a t i t had ”employees . . . who a c t as in c o rp o ra to r s #” and th a t sine©

the law re q u ire d a t - l e a s t one d i r e c to r to be a r e s id e n t o f th e s ta te #

i t would a ls o supp ly him "w ith o u t e x t r a charge®" The C o rp o ra tio n T ru s t

Company a d v e r tis e d th e l i b e r a l c o rp o ra tio n laws o f New J e rse y f a r and

wide# and D i l l became# in fa c t# "a l e g a l p a r tn e r o f t r a d e e " ^ In i t s

o f f ic e a t 15 Exchange Place# J e r s e y City# was housed th e p r in c ip a l o f ­

f i c e o f more th an 1 ,200 corporations®

The n a tu re o f th e c o rp o ra tio n laws in th e 1 8 8 0 's and 1890 's

gave New J e r s e y th e name " home o f th e tru s ts® " Between th e y e a rs 1888

and 1903 New J e r s e y in c o rp o ra te d 192 t r u s t s , ^ more th an s ix tim es th e

number in c o rp o ra te d by i t s n e a r e s t com petito r# Pennsylvania® The popu­

l a r i t y o f New J e r s e y Had r e s u l te d from th e p o lic y o f keeping on th e ;

books th e k ind o f s t a t u te s which would be a t t r a c t i v e to in c o r p o r a to r s ,

Of p a r t i c u l a r im portance to t h i s a t t r a c t iv e n e s s were th e amendments to

th e g e n e ra l a c t made in 1888# 1891# and 1893® The 1888 amendment gaveho

th e c o rp o ra tio n s p e c i f ic power to hold s to c k in o th e r c o rp o ra tio n s ®

The 1891 amendment gave th e c o rp o ra tio n power to pay in s to ck f o r s to c k

o r p ro p e r ty o f a n o th e r c o rp o ra tio n , and th e 1893 amendment ex tended

th e above r ig h ts by g iv in g th e c o rp o ra tio n power to is s u e s u f f i c i e n t

3U

s to c k to pay f o r p u rc h a se s . These th re e amendments empowered th e c o r­

p o ra t io n now to become a "h o ld in g company" o r:

Any company, in c o rp o ra te d o r u n in c o rp o ra te d , which i s in a p o s i t io n to c o n tr o l , o r m a te r ia l ly to in f lu e n c e , th e manage­ment o f one o r more o th e r companies by v i r t u e , in p a r t a t l e a s t , o f i t s ow nership o f s e c u r i t i e s in th e o th e r companyo r com panies,52

These en ab lin g c la u se s gave s a n c tio n to p r a c t ic e s t h a t were in v io la t io n

o f th e Sherman A ct (see Appendix) ,

The income re c e iv e d by th e s t a t e from th e l i b e r a l in c o rp o ra ­

t io n laws was e v id e n t ly p le a s in g to th e law m akers. So much so , t h a t■ ■ - . i

i n 1 8 9 6 , under a R epublican governor and l e g i s l a tu r e th e g e n e ra l a c ts

were extended to g ive in c o rp o ra to rs even more f l e x i b i l i t y . This a c t ,5 3

a s e lf -a d m itte d work o f James B. D i l l now became th e o f f i c i a l p o lic y

o f New J e r s e y , ■ ;

The law o f 189 6 gave the c o rp o ra tio n seven expressed , p o w e r s ,^

I t had th e power to have su c c e ss io n , to sue and be sued , to make and

use a common s e a l , to h o ld , purchase and convey such r e a l e s t a t e and

p e rso n a l e s t a t e as the purpose o f th e c o rp o ra tio n s h a l l r e q u i r e , and to

mortgage any such r e a l o r p e rso n a l e s t a t e w ith i t s f r a n c h is e s , to ap­

p o in t o f f ic e r s and a g e n ts , to make b y -law s , and to wind up and d is so lv e

i t s e l f . The power o f su cc e ss io n gave th e c o rp o ra tio n p e rp e tu a l e x i s t ­

ence r a th e r than l im i t in g i t s l i f e to $0 y ea rs as d id th e 1875 a c t .

The power to sue a ls o im p lied th e power to compromise s u i t s , and the

power to be sued d id n o t give th e c o rp o ra tio n th e r i g h t to defend i t - ;

s e l f by u s in g th e p le a o f u l t r a v i r e s , The power to make and use a

common s e a l d id n o t im ply the o ld common law id e a th a t th e c o rp o ra tio n

can o n ly a c t under i t s c o rp o ra te s e a l , b u t exp ressed th e id e a t h a t a c ts

o f th e c o rp o ra tio n must stem from th e v e s te d a u th o r i ty o f th e o f f ic e r s

o f th e co rp o ra tio n * Under th e 1875 a c t th e c o rp o ra tio n was l im ite d in

i t s c h a r te r* A ll such l im i t a t i o n s , ex p ressed o r im p lie d , were removed

in the r e v is io n o f 1896. The g e n e ra l ru le f o r in d eb ted n ess i s s ta t e d

in B arry v . M erchant1s Exchange Company:

I t i s in v a in to look in our laws fo r any ex p ress r e s t r i c t i o n o f c o rp o ra tio n s , to th e amount o f t h e i r c a p i t a l i n th e use o f t h e i r c re d it*

The h is to r y o f th e se i n s t i t u t i o n s in t h i s co u n try shows th a t no such r e s t r i c t i o n e x i s t s . The L e g is la tu re has sometimes in te rp o se d i t s a u th o r i ty by e x p re ss ly l im i t in g th e use o f the c o rp o ra tio n c r e d i t , th u s showing t h a t u n le ss so r e s t r i c t e d i t was u n lim ite d * 55

The power to a p p o in t ag en ts and o f f ic e r s i s u s u a lly v e s te d in th e d i r e c ­

t o r s , b u t th e manner o f appointm ent may be and u s u a l ly i s p re s c r ib e d by

th e by-law s* The power to make and a l t e r by-law s assumes th a t th e by­

laws canno t be a l te r e d once s to ck has been is su e d on them and monies

p a id on th e s t r e n g th o f them* This would be a fundam ental v io la t io n o f

th e c o n tr a c t between s to c k h o ld e rs . The methods th e c o rp o ra tio n may use

to wind up and d is so lv e under th i s s t a t u t e a r e : by the l im i t a t io n o f56th e c e r t i f i c a t e o f in c o rp o ra tio n , by su rre n d e r o f th e c o rp o ra te f r a n -

57 58c h is e s , by unanimous co n sen t o f th e s to c k h o ld e rs , by th e l e g i s l a ­

t u r e , ^ by decree of th e C ourt o f Chancery in in so lv en cy p ro c e ed in g s , ^

by th e C ourt o f Chancery o r Supreme C ourt f o r f a i l u r e to obey o rd e rs

to b r in g books in to the s t a t e , ^ and by p ro c lam atio n o f th e Governor

f o r f a i l u r e to pay t a x e s . ^

C o rp o ra tio n s under th e 1 8 9 6 law may be formed f o r any law fu l t 4 63p u rp o se . They m ight c a r ry on t h e i r b u s in e ss in any s t a t e o f th e Unior^

o r in any fo re ig n c o u n try ® ^ I n - s t a t e c o rp o ra tio n s a re r e s t r i c t e d to

n o n -se rv ic e o r banking o p e ra tio n s w h ile fo re ig n c o rp o ra tio n s may c a r ry65>on th e se same a c t i v i t i e s o u ts id e th e s t a t e b o u n d a rie s«, C o rp o ra tio n s

66o f th e s t a t e m ight merge and c o n so lid a te and be regarded as one c o r - 67p o ra t io n . C o n so lid a tin g c o rp o ra tio n s cou ld s e l l o r m ortgage any

p ro p e r ty th e y m ight o b t a i n , ^ and any c o rp o ra tio n cou ld le a s e i t s f r a n -69e h i s e or h o ld in g s to an oth er*

What t h i s a c t d id was to g ive a code of g e n e ra l ru le s o f law

a p p lic a b le to a l l c o rp o ra tio n s , th u s e n ab lin g c e r ta in ty p es o f c o rp o r­

a t io n s to be formed* By g iv in g th e c o rp o ra tio n s th e power to w r i te

t h e i r own c e r t i f i c a t e s o f in c o rp o ra tio n and g iv in g them r ig h t s to be

formed f o r any la w fu l p u rp o se , i t was f e l t t h a t a l l p o s s ib le avenues

f o r a t t r a c t i o n o f in c o rp o ra tio n had been pursued® F orm erly , th e c o r­

p o ra tio n had reco u rse to th e l e g i s l a tu r e f o r a s p e c if ic g ra n t o f power

i f th e g e n e ra l a c ts were n o t s u f f i c i e n t to a f f e c t th e o b je c t o f th e

corporation® Under th e 1875 c o n s t i tu t io n a l amendment th e l e g i s l a tu r e

cou ld no lo n g e r pass s p e c ia l a c ts so t h a t th e g en e ra l a c t , a s i t now,

s to o d , "passed in obedience to th e mandate o f th e C o n s ti tu t io n , the

c e r t i f i c a t e re q u ire d by th a t a c t becomes th e c h a r te r o f the company,70and the e q u iv a le n t o f th e form er s p e c ia l a c t o f th e le g is la tu re ® "

As though to c a r ry t h i s id e a to i t s lo g ic a l co n c lu s io n , by an ̂ 71

amendment to s e c t i o n 8 p a sse d in 189 8 , c o r p o r a tio n s a re now a u th o r ­

i s e d t o i n s e r t in t h e i r c e r t i f i c a t e o f in c o r p o r a t io n p r o v is io n s " c r e a t ­

in g and d e f in in g th e powers o f th e corporation® " A ccord in g t o D i l l ,

T his i s perhaps an in n o v a tio n in g e n e ra l en ab lin g a c t s , and i f th e word 1c r e a t e 1 i s to be given i t s u su a l and o rd in a ry mean­in g i t i s as though the L e g is la tu re has endowed th e co rp o ra ­to r s w ith a lawmaking power, e n ab lin g them to g ive the co rp o r­a t io n such powers as th e y see f i t , p rov ided on ly t h a t such

37

powers a re n o t in c o n s i s te n t w ith the a c t i t s e l f . In o th e rw ords, u n le ss a power i s e x p re s s ly o r im p l ic i t ly fo rb id d enby th e s t a t u t e , i t may be c re a te d under t h i s s e c t i o n , 7 2

I t i s ap p aren t th a t in th e S ta te o f New J e rse y s p e c ia l oppor­

tu n i ty i s g iven f o r th e s k i l l o f co u n se l in draw ing a c e r t i f i c a t e o f

in c o rp o ra t io n , I t i s as though the l e g i s l a tu r e had la id o u t , f i r s t ,

seven e x p re ss powers which a l l c o rp o ra tio n s should p o sse ss and th en

had defin ed c e r t a in l im i t s beyond which c o rp o ra te powers could n o t go.

I t then p rov ided a method o f o b ta in in g th e e q u iv a le n t o f a s p e c ia l c h a r­

t e r co n ta in in g any and ev ery o th e r power which should be d e s i r e d , n o t

in c o n s is te n t w ith th e p ro v is io n s o f th e a c t i t s e l f .

Under t h i s a c t in c o rp o ra to rs had o n ly to f i l e a c e r t i f i c a t e o f

in c o rp o ra tio n w ith th e S e c re ta ry o f S ta te and upon the d a te o f f i l i n g

th e c o rp o ra tio n began i t s e x is te n c e . The c e r t i f i c a t e o f in c o rp o ra tio n

m ust c o n ta in :• i

1 , The name o f the in c o rp o ra tio n2 , The lo c a t io n , in c lu d in g p r in c ip a l o f f ic e in th e s t a t e3, The o b je c t o r o b je c ts o f fo rm atio nii. Amount o f t o t a l a u th o riz e d c a p i t a l s to ck5, The number o f sh a re s in to which th e same i s d iv id ed and th e

p a r va lue o f each s h a re j the amount o f c a p i t a l s to c k w ith which i t w i l l commence b u s in e s s •

6 , The names and p o s t o f f ic e a d d re sses o f the in c o rp o ra to rs and th e number o f sh a re s su b sc rib e d f o r by cash

7 , The p e r io d , i f any, l im ite d fo r th e d u ra tio n o f th e company8 , May c o n ta in p ro v is io n s th e in c o rp o ra to rs w ish to i n s e r t so

long as i t i s c o n s is te n t w ith th e a c t 737)

In a pam phlet is su e d b y th e C o rpo ra tion T ru s t Company, th e ad­

v an tag es o f th e New J e r s e y Law a re p re s e n te d , I t i s no tew orthy to quote

th e is s u e p re se n te d in t h i s pam phlet in d e t a i l so as to show th e re a d e r

w hat was being a d v e r t is e d to in c o rp o ra to rs a l l over th e U nited S ta t e s ,

I t s t a t e s t h a t " th e g re a t amount o f c a p i t a l a lre a d y r e g is te r e d in New

38

J e rs e y w i l l tend to p re v e n t any change in th e law o r in th e p o lic y o f

th e S ta te ," and w ith "such a b so lu te s e c u r i ty and freedom from i n t e r ­

fe re n ce , such a s ta b le and perm anent c o rp o ra tio n law i s a ffo rd ed by 7 5

no o th e r s t a t e , " I t f u r th e r s t a t e s th a t ;

The laws o f New J e rs e y in v o lv e no p u b l i c i t y 5 th e o n ly r e p o r t re q u ire d to be f i l e d w ith the S e c re ta ry o f S ta te b e in g the l i s t o f O ff ic e rs and D ire c to r s , f i l e d w ith in t h i r t y days a f t e r th e annual s to c k h o ld e rs ’ m eeting . The c o rp o ra tio n must keep a reco rd of th e s to c k h o ld e rs in New J e r s e y , which i s open to in s p e c tio n by the s to c k h o ld e rs , b u t i s n o t p u b lic p ro p e r ty .The books o f account and g e n e ra l re c o rd s o f th e company are n o t ’ re q u ire d to be k ep t in New J e r s e y , may be f r e e from in s p e c tio n even by th e s to c k h o ld e rs ,7 °

In b r i e f then th e advantages o f th e New J e r s e y law a r e ;

1 , Broad and com plete p ro te c t io n a g a in s t l i a b i l i t y

2 , S tock is su e d f o r p ro p e r ty i s f u l l y p a id and n o n -a sse ssa b le

3 , But one d i r e c to r need be a r e s id e n t o f New J e r s e y

Ue M eetings o f s to c k h o ld e rs may be h e ld in proxy

5 , C orporate p ro te c t io n i s n o t w ithdraw n in case o f f a i lu r e

to f i l e an n u al r e p o r t

6 , R eports a re b r i e f and re q u ire no s ta tem e n t o f p r iv a te a f f a i r s

7o There i s no l im i ta t io n on th e amount of c a p i t a l s to ck

8 , The in c o rp o ra tio n may be " f o r any la w fu l b u s in e ss o r purpose

w hatever"

9« S to ck h o ld ers a re n o t l i a b l e f o r c o rp o ra te d eb ts

1 0 , The p ro v is io n s o f th e law have been j u d i c i a l l y in te r p r e te d

and th e re a re no d o u b tfu l p o in ts o r u n c e r ta in t ie s

11, I t i s th e s ta n d a rd c o rp o ra tio n law o f th e w orld

12 <, The l i b e r a l p o lic y o f th e s t a t e has been unchanged f o r n e a r ly

s ix ty y e a rs and th e G eneral C o rp o ra tio n Act has s t a b i l i t y and

permanence e

The key to th e New Je rs e y c o rp o ra tio n p o lic y may be summed up

in two words - s e c u r i ty and s e c re c y » S ta r t in g .w i th an u n s tru c tu re d

le g a l p o s i t io n concern ing in c o rp o ra tio n , th e laws o f New J e rse y b e ­

came th e s tan d a rd form f o r a l l o th e r s t a t e s 0 This law , which i s th e

s ta n d a rd law o f c o rp o ra tio n s even to d a y , evolved o u t of an a tte m p t to

le s s e n th e burden o f the L e g is la tu re and decrease th e b an k ru p t co n d i­

t io n s o f a s ta te o

CHAPTER IV

THE MODERN CORPORATION

"The t e s t o f th e c o r p o r a te c h a r a c te r i s t r i p l e , in v o lv in g th e

i n t e r r e l a t io n s o f th e a s s o c ia t e d p e r s o n s # t h e ir r e la t io n s t o o th e r

in d iv id u a l members o f s o c i e t y and t h e i r r e la t io n s to th e s t a t e , 11 ̂ To

t e s t th e c h a r a c te r o f th e modern c o r p o r a tio n we m ust lo o k a t a l l th r e e

o f th e s e r e la t io n s h ip s t o f in d a com p osite p ic tu r e o f w hat i s in v o lv e d -

i n c o r p o r a te b e h a v io r . S in c e our s u b j e c t i s th e modern b u s in e s s c o r ­

p o r a t io n , o r th e c o r p o r a tio n f o r p r iv a te p r o f i t , we s h a l l a tte m p t t o

f in d a common denom inator o f b e h a v io r t h a t w i l l s e r v e t o i l l u s t r a t e

th e mode o f b e h a v io r found in modern c o r p o r a te l i f e *

K eeping th e above t e s t in mind we w i l l now lo o k a t th e i n t e r ­

r e la t io n s o f th e a s s o c ia t e d p e r so n s o f th e modern c o r p o r a t io n . The

c o r p o r a tio n in i t s in fa n c y in th e U n ited S t a te s was g e n e r a l ly th ou gh t

o f in term s o f th e c h a r a c te r o f i t s e n tr e p r e n e u r a l le a d e r s h ip * The

"great" names a s s o c ia t e d w ith th e b u s in e s s w orld becam e, in f a c t , a l ­

m ost c h a r is m a tic i n n a tu re * The C a m e g ie s , th e M e llo n s , th e Morgans

became th e im age t h a t was a s s o c ia t e d w ith b u s in e s s a c t i v i t y . W ith th e

r i s e o f c o n s o l id a t io n s , m erg ers , and th e h o ld in g company l e g a l formu­

l a , the law yer found h i s p la c e i n th e b u s in e s s s tr u c tu r e b ec a u se o f

h is know ledge o f th e l e g a l d e v ic e s t h a t w ere n e c e s s a r y to c a r r y o u t

th e s e a c t i v i t i e s . The e n tr e p r e n e u r o f th e p a s t became th e " n a t io n a l ,"

th e " u n ite d ," th e "Am erican," and th e " u n iv e r s a l ," and th e la w y er b e ­

came th e tr u e l e g a l o r g a n iz e r o f c o r p o r a te in d u s tr y ,. James B , D i l l ' s

ro le in the in c o rp o ra tio n o f many b u s in e ss firm s was n o t un iq u e , b u t ,

on the w hole, r a th e r ty p ic a l o f th e changing r e l a t io n s o f th e lawyer®

The p r a c t ic e o f law yers b e fo re the c o rp o ra tio n movement -in the U nited

S ta te s had been co n fin ed to r e l a t io n s w ith o th e r men5 t h e i r r e l a t io n s2

now changed in t h a t th e y had, as c l i e n t s , c o rp o ra tio n s and tru s ts®

As a r e s u l t o f t h i s changing r e l a t io n the s u c c e s s fu l c o rp o ra tio n law-?

y e r 's p r e s t ig e was in c re a se d as w e ll as h is incom e| in f a c t , d u rin g

t h i s p e rio d th e y were the most h ig h ly p a id o f a l l th e p ro fe s s io n s ®

The th i r d g e n e ra l p e rio d o f c o rp o ra te le a d e rs h ip may be s a id to be th e

11 en g in ee rin g p e r io d ." A lthough la rg e sums o f f lu id c a p i t a l were

needed to in su re th e con tinuance o f in d u s try , th e re was s t i l l a need

f o r someone to t r a n s la t e the work o f sc ie n c e in to p r o f i t a b l e , p r a c t i ­

c a l tech n iq u es o f p ro d u c tio n . In d u s try had reached a s tag e o f c a p i t a l ,

expansion where th e l in e s o f communication were no lo n g e r e f f e c t iv e

and th e expansion o f human muscle power no lo n g e r econom ical. The

r i s e o f th e s t e e l in d u s try , th e chem ical in d u s try , th e ru b b e r in d u s try ,

th e p ro d u c tio n o f th e au tom obile and th e use o f power tech no logy gen­

e r a l l y had l e f t a v o id i n command o f th e se fo rc e s t h a t had h e re to fo re

been handled d i r e c t l y by th e ow ners.o f in d u s try w orking them selves as

le a d in g te c h n ic a l c ra ftsm en . The e n g in ee r and th e te c h n ic ia n f i l l e d

t h i s gap by p ro v id in g methods o f p ro d u c tio n th a t d id n o t invo lve ex­

p an sio n b u t e f f e c t iv e n e s s . I t was t h i s r i s e in th e p r e s t ig e o f a

c la s s o f p e rso n s , h e re to fo re n o t even reco g n ized as a s e p a ra te p a r t o f3

s o c ie ty , t h a t Veblen saw th e c o n tro l o f in d u s try and s o c ie ty in th e

f u tu r e . The modern c o rp o ra te p e r io d o r th e e ra o f th e p ro f e s s io n a l ad­

m in is t r a to r does n o t f u l f i l l th e Veblen p red ic tion® The modern

c o rp o ra te s t r u c tu r e i s managed and c o n tro l le d by p e rso n s who, f o r th e

most p a r t , have re c e iv e d t h e i r p re lim in a ry t r a in in g on a u n iv e r s i ty

campus r a th e r th an in th e p la n t i t s e l f » They a re the p e rso n s who

work f o r wages o r s a l a r i e s in a w e l l - s t ru c tu re d system o f p r e s t ig e

and promotion® They a re p e rso n s whose l iv e s a re l iv e d w ith in r i g i d

codes o f b e h av io r w hether w r i t t e n o r u n w ritten and th e p o s s i b i l i t y o f

t h e i r be ing in n o v a to rs o r o f changing th e system i s p r a c t i c a l l y non­

ex isten t®

The r e l ig io u s analogy i s com pelling here in t h a t a s im ila r s e t

o f le a d e rs a re found in th e growth o f r e l ig io u s in s t i tu t io n s ® The e a r ly

le a d e r i s g e n e ra lly th e c h a r ism a tic ty p e , the g i f t e d o r s u p e rn a tu ra l

le a d e r whose fu n c tio n in th e s o c ia l system i s to p ro v id e a b u f f e r in *

t r a n s i t i o n a l p e r io d s o f s o c i e t a l growth® Upon h is d e a th th e law makers

and th e p reach e rs con tin u e h i s image, m olding i t to f i t th e n e c e s s i t i e s

o f th e h i s t o r i c a l epoch® Once th e lawmakers have p ro v id ed a s e t of

codes, r u l e s , and re g u la t io n s th e ta s k o f le a d e rs h ip i s l e f t in the

hands o f an o f f i c i a l b u reau cracy , o f f i c i a l l y t r a in e d to co n tin u e the

now i n s t i t u t i o n a l i z e d form o f re lig io n ® ^i

P a r t A - The I n te r r e l a t io n s o f th e A sso c ia ted Persons

The s o c ia l v a lu es and i n s t i t u t i o n s o f s o c ie ty mold in d iv id u a l

p e r s o n a l i ty and b eh av io r th rough th e s o c ia l i z a t io n process® Each in ­

s t i t u t i o n v a r ie s t h i s v a lu e scheme to meet i t s p a r t i c u l a r requirem ents®

The s o c ia l iz a t io n p ro cess in th e b u s in e ss c o rp o ra tio n in v o lv e s th e ac ­

cep tance o f th e v a rio u s r o le s w ith in th e system® The a u th o r i ty system

o f th e modem c o rp o ra tio n encourages members to a cc e p t u n c r i t i c a l l y th e

U3

le g it im a c y and r a t i o n a l i t y o f th e system . Thus, we f in d w hat may be

c a l le d a "co rp o ra te p e rs o n a li ty " which i s formed th rough th e p e re ep -

t io n o f o n e 's ro le s i n th e o rg a n iz a tio n . These ro le s may be s a id to

be s e lf - e n fo rc in g in th a t those who do n o t conform to th e system a re

" l e t go" w h ile th o se who rem ain , rem ain because o f t h e i r accep tance o f

th e ready-made r o le b e h a v io r . B e l l has s a id t h a t :

Our exam ination o f th e s o c ia l system in which th e c o rp o ra te a d m in is tra to r works and l iv e s re v e a ls t h a t he e x i s t s in a t i g h t l i t t l e s o c ia l is la n d a lm ost com plete ly i s o la te d from d i r e c t c o n ta c t w ith th e c u l tu r a l m a in lan d .&

This i s o l a t i o n i s g uaran teed by th e s e c re c y su rround ing c o rp o ra te a c t i - 7v i t i e s in t h a t th e re a re no i n s t i t u t i o n a l methods t h a t have been de­

veloped which p e rm its th e "owners" - s to ck h o ld e rs o f th e c o rp o ra tio n -

to e x e r t p re s su re and make management defend i t s e l f o r a d ju s t to p re s ­

s u re . This s ec re cy i s la r g e ly re sp o n s ib le f o r the myth th a t b u s in e ss

o p e ra tio n s a re e f f e c t iv e as opposed to governm ental o p e ra tio n s which

a re p e rce iv ed as b e in g w a s te fu l .

A nother a t t r i b u t e o f th e modern c o rp o ra tio n i s i t s b u re a u c ra tic

im p e rso n a lity . With th e r i s e o f m ass-p roduction th e w orker may know

only a sm all a sp e c t o f a p a r t i c u l a r job and may never know i t s r e l a t i o n

to th e f in is h e d p ro d u c t. Even th e s k i l l e d a r t i s a n who, in th e p a s t ,

d e a l t d i r e c t l y w ith the custom er has been re p la ce d by la rg e o rg an iza ­

t io n s whose p ro d u c ts go to u lt im a te custom ers whom th e w orkers in the

o rg a n iz a tio n canno t p o s s ib ly know. These o ld e r gem einschaft r e la t io n s

have been la r g e ly re p la c e d by im personal r e l a t io n s t h a t may lead to a8s t a t e o f anomie o r no rm lessness on th e p a r t o f the w orker. What has

happened i s t h a t fo rm al o rg a n iz a tio n has been superim posed on the

I

a

in fo rm al s t r u c tu r e t h a t can n o t fu n c tio n s o le ly on th e b a s is o f p rim ary

o r p e rso n a l r e l a t i o n s «, The o rg a n iz a t io n ’s r i g h t to e x i s t i s based on

de fa c to assumptions r a th e r th a n de j u r i p re m ises= The a l le g ia n c e to

o rg a n iz a tio n has produced a v a r i e ty o f o rg a n iz a t io n a l ’’ty p es" whose r e ­

l a t i o n to th e modern c o rp o ra tio n has been in v e s t ig a te d b y a number o f

s tu d ie s 6

9 'A rgyris m ain ta in s t h a t th e o rg a n iz a t io n a l s e t t in g i t s e l f i s

in c o n f l i c t w ith th e n a tu r a l tendency f o r human organism s to develop

tow ard m aturity® The th re e v a r ia b le s t h a t ten d to in c re a s e dependency

a re % th e n a tu re o f th e fo rm al o rg a n iz a tio n which d i f f e r e n t i a t e s b e ­

tween l in e mid s t a f f r e la t io n s , thus making a c l e a r - c u t d i s t i n c t io n be­

tween l in e s o f a u th ority w ith in the o rgan iza tion a l structure? the d ir ­

e c t iv e le a d e rs h ip e x h ib ite d by organ ization s th a t tends to Increase

dependency th rough th e o rd e rin g o f more d e f in i t e ta s k s .a n d m an ag eria l

co n tro ls which insure the organ ization o f continued e x is te n c e . There

i s a v a r ie ty o f b e h av io r p a t te r n s t h a t members o f th e o rg a n is a tio n s d i s ­

p la y in th e ir r e a c t io n to t h i s power s tru c tu re . They may a c t in d if f e r ­

e n t ly or a p a th e t ic a l ly climb toward g reater freedom, g e t out o f th e

system , r eb e l, crea te inform al groups, crea te fo rm al groups,, focus on

m ateria l rewards, or develop more maturity® In g e n e ra l , the rea ctio n s I

th a t q u estion the a u th o r ity o f the system tend to crea te a s itu a t io n - ,

where formal co n tro ls are tigh ten ed , thus widening the gap th a t the re ­

a c tio n attempted to rep lace in i t s formation®

W ilbert Moore has d is t in g u is h e d three types o f p erso n s in the10o rga n iza tio n a l hierarchy® The most su c c e ss fu l o f th ese i s the

" s t r a in e r o " The s tr a in e r s are those who a re ty p ic a l ly dep icted as

m an ag eria l fo lk* They a re th e s t a tu s s e e k e rs , th e sy co p h an ts , the

jo in e r s e They a re th e ones who m arry th e women who can e n t e r t a i n , who

a tte n d th e r i g h t ch u rch , jo in th e r i g h t c lu b , belong to th e r i g h t

p o l i t i c a l p a r ty , and a re ty p ic a l ly c a l le d th e " b r ig h t young men." For

th e se peop le th e la d d e r o f su ccess i s more l ik e an e s c a la to r ; once

th e y .have s u c c e s s fu l ly mounted th e bottom , i t would tak e p o s i t iv e e f ­

f o r t to avo id going to the n e x t l e v e l . They have in te r n a l i s e d th e

v a lu es o f th e o r g a n is a t io n a l system which g u a ran tee s them and th e o r - ,

g a n is a tio n a secu re f u tu r e . The "se c u re m obiles" a re th o se who l ik e

t h e i r jo b s . They do n o t a s p ir e f o r l in e p o s i t io n s and a c c e p t money as

payment f o r what th e y a re doing and n o t f o r som ething e l s e . T his

group i s ty p i f i e d by th e s c i e n t i s t working in in d u s t ry . A lthough th e re

may be some c o n f l i c t betw een th e s c i e n t i s t and th e a d m in is tr a to r as f a r

11as sec re cy o f work and type o f p r o je c ts i s concerned th e s c i e n t i s t -

in - in d u s t r y i s n o t concerned w ith upward m o b ili ty t h a t would ta k e him

away from h is p e rso n a l and p ro f e s s io n a l g o a ls . His concern i s n o t

w ith making money - th e g oa l o f in d u s t ry - b u t w ith doing re s e a rc h , and

doing re s e a rc h canno t be encumbered by a d m in is tra tiv e d u t i e s . The

" tre a d e r" i s th e person w ith in th e o rg a n is a t io n a l s t r u c tu r e t h a t has

l im ite d e x p e c ta t io n s . A lthough s o c ie ty demands th a t one should s t r i v e

f o r advancem ent, th e t r e a d e r see s t h a t f o r him th e advancement i s n o t

>. w ith in th e range o f h is e x p e c ta t io n s . The g re a te r th e d i s p a r i t y b e ­

tween a s p i r a t io n and ach ievem ent, th e g r e a te r chance f o r n e u ro tic o r

even p sy ch o tic b e h a v io r . On one hand, i t i s n o t p e rm issab le to "g ive

u p " o n th e o th e r , achievem ent i s n o t p o s s ib le .

P res th u s a ls o f in d s th re e ty p e s w ith in th e o rg a n is a t io n a l

U6

schemee*^ These a re th e "upward m o b i l e , t h e " i n d i f f e r e n t s , " ^ andX5th e " am b iv a len ts ." These ty p es a re co n sid e red to be a p ro d u c t o f th e

iad ap tiv e p rocess in v o lv ed when th e in d iv id u a l i s fa ced w ith re s o lv in g

th e a n x ie ty produced by th e s t r a i n betw een a u th o r i ty and in d iv id u a l i ty „

The am b iv a len ts , p ro p o r t io n a te ly th e s m a lle s t o f th e th re e p a t te rn s o f

accommodation, i s .e s s e n t ia l ly what W illiam James would c a l l a " te n d e r -

minded" persona He i s in t r o v e r te d i n th e sense t h a t th e im p o rtan t a s ­

p e c ts o f l i f e a re n o t to be found in th e s e c u r i ty o f th e o rg a n iz a t io n 0

He q u e s tio n s th e r a t i o n a l i t y .and le g itim a c y o f th e system and f in d s

h im se lf in th e p o s i t io n o f an o u ts id e r lo o k in g in® His needs a re

d ire c te d tow ard p e rso n a l autonomy r a th e r than c o l le c t iv e g o a ls and

he r e j e c t s o r to le r a te s th e system o f a u th o r i ty and s t a t u s «, In e s ­

sence h is i n a b i l i t y to assume th e re q u ire d ro le s o f th e o rg a n iz a tio n

p la ce him in a p o s i t io n as an ag en t o f change, b u t never as a func­

t io n in g bureaucrat®H

The in d i f f e r e n t s compose the m a jo r ity o f the o rg a n iz a tio n men®

This p e rso n n e l group i s c h a ra c te r iz e d by the g re a t mass o f waged and

s a la r ie d employees who work in th e b u re a u c ra tic s itu a tio n ® This group

" ten d s to r e j e c t the o rg a n iz a t io n a l b a rg a in which prom ises a u th o r i ty ,

s t a t u s , p r e s t ig e , and income in exchange f o r lo y a l ty , h a rd work, and

id e n t i f i c a t i o n w ith i t s v a l u e s , T h e i n d i f f e r e n t s 1 p sy ch o lo g ica l

p o s i t io n i s one o f "co m p artm en ta liza tio n " j he s e p a ra te s h is work s i t ­

u a tio n from h is o th e r a c t i v i t i e s . He p ro bab ly u n d ers tan d s t h a t h is

p a r t i c ip a t io n in th e o rg a n iz a tio n w i l l n o t have much e f f e c t on th e

o rg a n iz a t io n a l s t r u c tu r e because c o n d itio n s a re determ ined by remote

b o d ie s o f men n o t d i r e c t l y in f lu e n c e d by an a tte m p t on h is p a r t to

k 7 ,

change th e system . O lig a rch y b reed s t h i s a l ie n a t io n by ex c lu d in g th e

v a s t m a jo r ity o f employees from r e a l p a r t i c ip a t io n in th e o rg a n iz a t io n ,

The t h i r d p a t te r n o f accommodation, th e upw ard-m obile, i s com­

posed o f th e people who l ik e what th e y a re doing j th e y a c c e p t and

id e n t i f y w ith th e goa ls o f th e o rg a n iz a tio n . This i s th e group gener­

a l l y co n sid e red "b u sin ess le a d e rs " in t h a t th e members o f t h i s group

a re th e m ost l i k e l y to r i s e to p o s i t io n s o f a u th o r i ty w ith in th e s t r u c ­

tu r e o f th e o rg a n iz a t io n . They a re b a s ic a l ly th e "a u th o r i t a r ia n p e r ­

s o n a li ty " type in t h a t t h e i r o r ie n ta t io n to th e o rg a n iz a tio n i s d iv id ­

ed betw een th o se who a re weak and th o se who a re s t ro n g . This a u th o r i ­

t a r i a n p e rc e p tio n j u s t i f i e s t h e i r assum ption th a t th e o rg a n iz a tio n i s

a r a t io n a l system in w hich a u th o r i ty , s t a t u s , and income m ust be

u n eq u a lly d i s t r ib u te d . His a l le g ia n c e to th e o rg a n is a tio n r e f l e c t s■ ■ ' . '

much o f th e c h a ra c te r o f th e o rg a n iz a tio n i t s e l f . His p ro p e n s ity to

jo in c o n f l ic t in g i n s t i t u t i o n a l system s w ith o u t involvem ent may brand

him a " p ro g re s s iv e c o n se rv a tiv e ," y e t th e re appears to be l i t t l e s e l f ­

p e rc e iv e d c o n f l i c t in h is b e h a v io r . His p a r t i c ip a t io n in the o rg a n i­

z a t io n a l s t r u c tu r e m erely enhances h is p e r s o n a l i ty c h a r a c t e r i s t i c s .

The b u re a u c ra t ic s i tu a t io n n ic e ly accommodates a u th o r i t a r ia n n eed s ,

H ierarchy i s so c o n s tru c te d th a t a ch a in o f command runs th roughou t

th e o rg a n iz a tio n . And h is p e rc e p tio n o f a u th o r i ty i s a t t r a c t e d to a

system o f in te r lo c k in g su b h ie ra rc h ie s t h a t p e rm it th e indu lgence o f

many degrees o f a u th o r i ty a t many l e v e l s . This o r ie n ta t io n en ab les

him to submerge, d i f f u s e , o r r a t io n a l iz e any a t te n d in g m oral is s u e s

and appears to j u s t i f y what m ight be c a l le d the " r a t io n a l" c h a ra c te r

o f th e b u re a u c ra c y .

These o rg a n iz a tio n a l types on ly e x i s t as " id e a l ty p es" as each

c o rp o ra tio n has i t s unique c h a r a c t e r i s t i c s > What i s im p o rtan t h e re i s

, to reco g n ize th a t p a t te r n s o f b eh av io r a re la r g e ly determ ined by work

and i n s t i t u t i o n a l r e l a t i o n s . I f th e i n s t i t u t i o n or the work r e la t io n s

change th e re w i l l a ls o be a co rrespond ing change in th e c h a ra c te r o f

th o se who assume th e r o le s w ith in th e system . The c h a ra c te r o f th e

modern c o rp o ra tio n produced a d ap tiv e p e r s o n a l i t i e s w hich, in any i n ­

s t i t u t i o n a l s e t t i n g , ten d to enhance th e s t a tu s quo and m a in ta in an

e q u ilib r iu m which may in tim e become s im i la r to the r i g i d c la s s s t r u c -17tu re found in o ld e r i n s t i t u t i o n a l form s. This s e l f -p e rp e tu a t in g

c o n tro l o f c o rp o ra te s t r u c tu r e s w i l l make the c h a ra c te r o f co rp o ra ­

t io n managers more c l e a r in th e f u tu r e ,

P a r t B. - The R e la t ion to th e Community

A d e c is io n made by th e board o f d i r e c to r s of a la rg e c o rp o ra tio n

in New York C ity may a f f e c t the s o c ia l , economic, and p o l i t i c a l s t r u c ­

tu re o f a community as f a r away as W ashington, The e f f e c t o f t h i s

"o u ts id e" c o n tro l o f h e re to fo re l o c a l ly c o n tro l le d b u s in e s s i s i l l u s ­

t r a t e d i n Volume IV o f th e Yankee C ity S e r i e s I n Yankee C ity , th e

w orkers in th e shoe f a c to ry a t t r ib u te d u n d e s ira b le a c t i v i t i e s on ly to

19e th n ic and n o n -re s id e n t m anagers, Under th e c o n tro l o f r e s id e n t

managers and ow ners, u s u a l ly combined in t h i s f a c i l i t y , g riev an ces and

com plain ts rem ained w ith in the s a n c tio n s o f the community and were sub­

j e c t to p u b lic o p in io n . When ow nership becomes im p erso n a lized by r e ­

moval from th e community, th a t i s , owned th rough a h o ld in g company,

and managers a re b ro u g h t in from the o u ts id e , th e methods o f c o n tro l

become le s s p re d ic ta b le and le s s amenable to lo c a l p r e s s u r e s 0 The

h o ld in g company d i r e c to r s a re n o t concerned w ith th e f e e l in g s and

s t a tu s o f th e community. T h e ir main fu n c tio n i s to see th a t th e

lo c a l p la n t f a c i l i t y i s perfo rm ing in term s o f the goa ls o f th e l a r g e r !

b u s in e ss o rg a n iz a tio n . I f th e lo c a l f a c to ry canno t produce e f f e c t iv e ­

l y f o r a n a tio n -w id e m arket o r th e lo c a l f a c to ry does n o t f i t in w ith

th e o v e ra l l scheme of th e h o ld in g company, i t i s c lo sed o r i t s p ro ­

d u c t iv i ty i s in c re a se d by re p la c in g employees w ith new, more e f f i c i e n t

m achinery. I f th e f a c to r y i s c lo se d , th e f e e l in g a g a in s t " fo re ig n "

owners i s in c re a s e d . The rep lacem ent o f men by m achines u p se ts th e

employee s t a tu s system th a t com prises a p a r t o f th e community s t r u c ­

tu r e , h i s t o r i c a l l y . In th e face o f t h i s danger to th e s ta tu s system

o f Yankee C ity , th e w orkers r e f e r r e d many tim es to th e form er lo c a l20owner-managers who had long s in c e d ie d . The e le v a tio n o f th e se form er

owner-managers to a p o s i t io n o f "charism a" - was a p p a ren t in th a t b o th th e

fo re ig n managers and th e union used quo tes and d e c is io n s t h a t had been

made by them to f o s t e r t h e i r re s p e c tiv e c a u se s . The c h a ra c te r o f these,

men, as p o rtra y e d by myth and leg en d , p u t management a t a d isad v an tag e

as t h e i r ro le s were m erely th o se o f employees o f some l a r g e r e n te r p r i s e .

I t has been s a id t h a t we have c a p i t a l and c a p ita l is m , b u t th e re a re no

more c a p i t a l i s t s . These e a r ly c a p i t a l i s t s , as members o f the community,

p layed an im p o rtan t ro le in th e community s t r u c tu r e , Not on ly d id th e

p r o f i t s o f th e f a c to ry rem ain in th e community, b u t th e y l iv e d th e re

and supported lo c a l i n t e r e s t s . T h e ir a u th o r i ty was tem pered by com- -- . I

niunity s a n c tio n s and b ased upon th e p o s s ib le p e rso n a l re p e rc u ss io n s t h a t

m ight occur i f th e d e c is io n was wrong. The r e la t io n s betw een management

and th e w orkers was on a f a c e - to - f a c e o r p rim ary l e v e l o f in t e r a c t io n ,

and th e re was l i t t l e need f o r a un ion to r e p re s e n t th e w o rk e rs . When

th e o u ts id e managers came in to Yankee C ity , th e l in e s o f a u th o r i ty were

n o t known and th e o ld e r , e s ta b l is h e d methods o f communication proved

in e f f e c t iv e . The union p ro v id ed a means o f communication th a t cou ld

nev er be o b ta in ed by th e in d iv id u a l w orker. One knew th e union o f f i ­

c i a l because he was a member o f th e community and understood i t s

n eed s . One had l i t t l e chance o f knowing th e men who made th e f i n a l

d e c is io n s in m a tte rs r e la te d to management. The u n io n , as a re p re se n ­

t a t i v e body, co u ld make i t s w ishes known because i t had w ith in i t s

power th e a b i l i t y to w ith h o ld th e p roducing u n i t s o f th e f a c to r y ,

nam ely, w o rk ers .

What Yankee C ity i l l u s t r a t e s i s th e tendency f o r in d ependen t,

se lf-em p lo y ed , p ro f it-m a k in g in d iv id u a ls to be d isp la c e d by th e employ­

e e , The s k i l l e d a r t i s a n o f th e p a s t i s b e in g re p la ce d by th e "produc­

t io n w orker," and th e t r a in in g ground f o r employment in th e h i s to r i c

a p p re n tic e s h ip s h i f te d from th e fam ily u n i t to th e p u b lic i n s t i t u t i o n s

o f e d u ca tio n and in - p la n t t r a in in g . W ith the expansion o f in d u s try ,

th e s k i l l e d shoemaker became a s o le o r h e e l maker whose d u ty was to

produce component p a r ts o f shoes r a th e r than th e whole sh o e . The work­

e r s in th e shoe f a c to r y see management as a symbol o f s t a tu s r a th e r

than on th e human l e v e l . The in c re a se d d iv is io n o f la b o r r e s u l t s in

the d i s t a n t , im p e rso n a lized , " s c ie n t i f i c " c o n tro l o f b e h a v io r . This

s c i e n t i f i c c o n tro l in c re a se d th e use o f p lan n in g and reduced r i s k -

tak in g to th e p o in t where th e ro le o f o th e r i n s t i t u t i o n a l forms in

s o c ie ty i s secondary . The fam ily and th e community a re re p la c e d by th e

" r a t io n a l" p ro ced u res o f in d u s t ry w hich s u b s t i tu te a new s t a t u s system

and b eh av io r pattern® These have tended to re p la c e th e s k i l l s once

"owned" by employees to the s k i l l s p o ssessed by management in th e form

o f machinery®

P a r t £ ~ The R e la tio n to th e S ta te

W ith th e expansion o f th e c o rp o ra te form o f b u s in e s s , the

s t a t e s were unable to p ass r e g u la t in g a c ts t h a t were e ffe c tiv e® Once

c o rp o ra tio n s had begun o p e ra tin g in many s t a t e s and o p e ra tin g on an

i n t e r - s t a t e b a s is th e f e d e ra l government began i t s a tte m p t to r e g u la te

and c o n tro l the p r a c t ic e s o f b u s in e s s and businessmen® In s p i te o f

th e a tte m p t by governm ental decree and l e g i s l a t i v e e d i c t , th e co rp o r­

a t io n has co n tin u ed to m u ltip ly i t s c o n tro l,a n d expand i t s boundaries®

For a l l p r a c t i c a l p u rp o se s , th e c o rp o ra tio n may now be co n sid e red to

be a s t a t e w ith in th e State® W hether one c o n s id e rs B erle and Means'

to p 200 o r F o r tu n e 1 s E>0 0 , th e f a c t s t i l l rem ains t h a t th e b u s in e ss

c o rp o ra tio n has w ith in i t s power th e a b i l i t y to e x e r t more p o l i t i c a l ,

s o c ia l , and economic p re s su re th an any non-governm ental agency in

society®

The e a r ly c o n tro l o f c o rp o ra tio n s came from th e r i g i d c o n tro ls

found in the s t a t e charters® The s iz e and a c t i v i t i e s were l im ite d as

was th e l i f e o f th e corporation® When s t a t e s began to compete f o r

fe e s p a id by In c o rp o ra tio n , th e se r e s t r i c t i o n s were p r a c t i c a l l y e lim ­

in a te d and opponents o f b ig b u s in e s s tu rn ed to the f e d e r a l government

fo r help® As a resp o n se to t h i s o p p o s itio n to b ig c o rp o ra tio n s , th e

Sherman Act (see Appendix) was p assed in 1890® The a c t a ttem p ted to

52

make any c o n tra c t o r com bination in r e s t r a i n t o f t r a d e i l l e g a l . The

id e a o f monopoly p r a c t ic e s by b u s in e s s , o th e r th an b u s in e ss g ran ted

e x is te n c e by crown c h a r te r s , was n o t accep ted by common law . Under

th e te n e ts o f in d iv id u a l freedom and th e l a i s s e z f a i r e d o c tr in e , th e

l8 8 0 's and 189 0 's saw the r i s e o f many t r u s t s and com binations whose

o n ly c la im to in su ran ce o f e x is te n c e was th a t th ey had v i r t u a l c o n tro l

o f the m arket o f t h e i r p a r t i c u la r p ro d u c t. The t r u s t may be d e fin ed

a s :

o.o an o rg a n iz a tio n managed by a board o f t r u s te e s to whom a l l th e c a p i t a l s to ck o f th e c o n s t i tu e n t companies i s i r r e ­vocab ly a s s ig n e d .21

The purpose o f th e t r u s t was to c re a te a fe d e ra t io n o f c o rp o ra tio n s o r

p a r tn e r s h ip s under th e c o n tro l and s u p e rv is io n o f t r u s t e e s . I t was

th e job o f th e se t r u s te e s to determ ine th e o u tp u t, m ark e ts , and p r ic e s

o f th e c o n tr ib u tin g b u s in e ss o rg a n iz a t io n s . In g e n e ra l , th e se combin­

a t io n s occurred in b u s in e sse s t h a t had r a th e r h ig h ly s ta n d a rd iz e d

p ro d u c ts . S e t t in g th e s tan d a rd p rocedure f o r t r u s t fo rm atio n was the

S tandard O il T ru s t o f 1882. I t was fo llow ed by th e C o tton -seed O il

T ru s t o f iSSlj, the L inseed O il T ru s t o f 1885 and th e N a tio n a l Lead

T ru s t, the Whisky T ru s t and th e Sugar T ru s t o f 1887. A ll o f th e se

p ro d u c ts were s ta n d a rd iz e d . That i s , su g a r i s r e a d i ly c l a s s i f i e d

whoever produces i t , the same as w hisky and o i l . The on ly com peti­

t iv e a sp e c t o f th e se p ro d u c ts was th e p r i c e . Under th e t r u s t system

t h i s cou ld be c o n tro l le d by th e m an ip u la tio n s o f th e t r u s t e e s . The

v a rio u s adverse c o u r t d e c is io n s by in d iv id u a l s t a t e s , th e Sherman A ct,

and th e g e n e ra l dep ressed economic c o n d itio n s o f th e U nited S ta te s in

th e e a r ly 1 8 9 0 's promoted th e f a i lu r e o f th e t r u s t form o f com bination

The t r u s t was perhaps down b u t n o t o u t . In i t s p la c e ro se a new le g a l

e x p ed ien t - the ho ld ing company. This form o f b u s in e ss e n te r p r i s e ,

g iven s a n c tio n under th e New J e r s e y c o rp o ra tio n law , was formed to com­

b in e two o r more h i th e r to independen t companies under a c e n tr a l i s e d

management o r c o n tro l w ith a u n if ie d f in a n c ia l s t r u c tu r e . This, was

done by s u b s t i t u t in g th e f in a n c ia l s e c u r i t i e s o f th e h o ld in g company

22f o r th e s e c u r i t i e s o f th e s u b s id ia ry com panies. In 191i| th e C layton

Act (see Appendix) was p assed which p ro h ib i te d some o f th e s p e c i f ic

p r a c t ic e s t h a t la rg e c o rp o ra tio n s used a g a in s t sm a lle r co m p e tito rs

when t h e i r use was such as to " s u b s ta n t ia l ly le s s e n co m p e titio n ."

What t h i s a c t d id was to p r o h ib i t p r ic e d is c r im in a tio n , e x c lu s iv e

s e l l in g o r le a s in g c o n tr a c ts by independen t f i rm s . I t d id , however,

d e c la re t h a t la b o r i s n o t a commodity o r a r t i c l e o f commerce and ,

th e r e f o r e , la b o r unions a re n o t s u b je c t to th e a n t i - t r u s t law s. A lso

in 1911|. th e F e d e ra l Trade Commission (se e Appendix) was c re a te d to r e ­

p la c e th e Bureau o f C o rp o ra tio n s . This commission was g iven a u th o r i ty

to in v e s t ig a te c o rp o ra tio n s engaged in i n t e r s t a t e commerce and to r e ­

q u ire from them annual and s p e c ia l r e p o r ts and o th e r in fo rm a tio n .

The Sherman A ct, th e C layton A ct, and th e c r e a t io n o f th e

F .T .C . have been the f e d e r a l governm ent's e f f o r t to r e s t r i c t growth o f

monopoly power.

D esp ite th e se and r e la te d a c t i v i t i e s , governm ental r e s t r i c t i o n

o f th e growth o f monopoly has n o t been g e n e ra l ly s u c c e s s fu l . One o f

th e m ajor reaso n s f o r t h i s la c k o f su ccess i s t h a t th e c o rp o ra tio n s

have fo u g h t r e s t r i c t i v e l e g i s l a t i o n in th e name o f f r e e t r a d e . A nother

reaso n i s th e s e c re c y invo lved in c o rp o ra te a c t i v i t i e s which p e rm its

5U

v io la t io n s o f th e C layton and Sherman A c ts . The use o f in te r lo c k in g

d i r e c to r a te s j " p r ic e f i x i n g , " and m ergers i s p ro b ab ly as p re v a le n t23

today a s i t was a t th e tim e o f passage o f th e se b i l l s . The d i f f e r ­

ence in th e c o u r t 's r u le today i s th e f a c t t h a t the " ru le o f reason"

i s used as a c r i t e r io n , f o r judgm ent. Thus, the mere f a c t t h a t a

monopoly e x i s t s i s no reaso n f o r o rd e rin g i t s d i s s o lu t io n , so long as

th e methods by which i t has been e s ta b lish e d , seem f a i r and th e p r ic e

i t c h a rg es , though a d m itte d ly h ig h e r th an a p r ic e determ ined by com­

p e t i t i o n , i s n o t o u tra g e o u s . The C layton Act r e s t r a in s o n ly th ose

p r a c t ic e s designed to " s u b s ta n t ia l ly le s s e n c o m p e titio n ," and th e

F ed e ra l Trade Commission i s a u th o riz e d to ban only th o se p ra c t ic e s

t h a t i t c o n s id e rs " u n f a i r ." In s h o r t , i t shou ld be remembered th a t

governm ental a c t i v i t i e s a re n o t , f o r th e most p a r t , s e c r e t in n a tu r e .

The a c tio n o f government in a dem ocratic s i t u a t io n i s g e n e ra lly the

r e s u l t o f p u b lic o p in io n a n d /o r p re s s u re . I f a people b e l ie v e t h a t

b ig government i s e v i l , b u t b ig b u s in e ss i s good, i t i s p ro b ab ly be­

cause b ig b u s in e ss guards i t s a c t i v i t i e s , th u s p ro v id in g th e myth o f

e f f e c t iv e n e s s .

CONCLUSION

The modem la rg e c o rp o ra tio n may be s a id to be th e c e n t r a l

and most Im p o rtan t i n s t i t u t i o n o f ou r t i n e . I t s la rg e s iz e and ex ­

tended p o l i t i c a l boundaries a llo w i t to employ men as p roducers o f

goods which employees buy as consum ers; i t c lo th e s him and feed s him

and in v e s ts h is money| i t p ro v id es him w ith the in s tru m e n ts o f w ar.

I t s p r iv a te d e c is io n s , p r im a r i ly made in the i n t e r e s t s o f th e sm a ll,

c o o p e ra tiv e groups in c o n tro l o f c o rp o ra te o rg a n iz a tio n o f p r iv a te

p ro p e r ty and incom e, de term ines to a la rg e e x te n t th e s iz e and shape

o f . the n a t io n a l economy, th e l e v e l o f employment, the p u rch asin g

power o f th e consum er, th e p r ic e s t r u c tu r e f o r goods and s e r v ic e s ,

and th e c h a n n e llin g o f in v e s tm en ts . In s h o r t , the c o rp o ra tio n i s a

p o l i t i c a l s t a t e w ith in a s t a t e . The id e a t h a t th e c o rp o ra tio n i s

" p r iv a te " in n a tu re can no lo n g e r v a l id ly ap p ly to a system where

th e d e c is io n s handed down from those in power can a f f e c t more peop le

than d e c is io n s made by many p u b lic a d m in is tra tio n s and l e g i s l a t u r e s .

The newness o f t h i s i n s t i t u t i o n has p ro v id ed th e American scene w ith

a p r iv a te government w ith o u t e f f e c t iv e p u b lic c o n t r o l . Lacking ade­

quate p u b lic c o n tro l,, the unorgan ized w orker, the sm a ll b u s in e ss f irm ,

and th e p ro sp e c tiv e employee a re n o t p ro te c te d in th e i r l e g a l r ig h t s

by any due p ro cess in th e c o rp o ra te s t r u c tu r e because th e re i s none,

A s o c ia l i n s t i t u t i o n i s supposed to answer a l l q u e s tio n s p e r ta in in g

to i t s fu n c tio n s . The c o rp o ra tio n has n o t p ro v ided i t s body p o l i t i c

w ith answ ers«, This anomalous i n s t i t u t i o n a l s i tu a t io n r e s u l t s in p a th ­

o lo g ic a l b eh av io r o f th e i n s t i t u t i o n and i t s members a l i k e . S tock­

h o ld e rs s a s owners o f th e co rp o ra tio n ^ a re encouraged to r e l in q u is h

t h e i r one power o f c o n tro l - th e vo te - by accep tin g p roxy nom inations

t h a t r e s u l t i n f u r th e r in g th e schism betw een ow nership and c o n t r o le

The grow th of th e m erger and h o ld in g company id e a have r e s u l te d i n an

economy c o n tro lle d by a sm all h an d fu l o f businessm en . Because of th e

power o f th e la rg e c o rp o ra tio n , the d e c is io n s o f th e se le a d e rs have

been t r a n s f e r r e d in to p o l i t i c a l a c ts ) hence , th e se a c t io n s must have

le g it im a c y . A t th e p re s e n t tim e , the le g itim a c y f o r a c t io n i s two

concep ts w ide ly h e ld in th e fo lk lo re o f th e c o rp o ra tio n . One i s t h a t

th e c o rp o ra tio n i s th e p ro d u c t o f a c o n tra c t betw een th e s t a t e and th e

c o rp o ra tio n ) the o th e r i s th e id e a t h a t th e c o rp o ra tio n i s fu n c tio n in g

a s a u n i t o f p r iv a te p ro p e r ty .

The t r a d i t i o n a l fo lk lo r e o f p r iv a te p ro p e r ty has come to mean

th e in d iv id u a l ow nership o f p ro p e r ty w ith u n lim ited c o n c e n tra tio n o f

r ig h t s h e ld by th o se who were ow ners. This does n o t mean t h a t th e re

was u n c o n tro lle d use o f p ro p e r ty as "no p ro p e rty system g ra n ts l i m i t ­

le s s and e x c lu s iv e r ig h t s to v a lu ab le th in g s , f o r to do so would be to

d e s tro y the v e ry b a s is o f th e s o c ia l o rd e r which p ro p e r ty i n s t i t u t i o n s1serve to r e g u la te ." In th e m ain, t h i s t r a d i t i o n a l id e a m ain ta ined a

o n e-to -o n e r e l a t i o n betw een s u b je c t and o b je c t . The c o rp o ra tio n v io ­

l a t e s t h i s p r in c ip le in t h a t d i f f e r e n t u n i t s hold d i f f e r e n t r i g h t s in

th e same lo cu s o f v a lu e .

These t r a d i t i o n a l id e a s concern ing p r iv a te p ro p e r ty formed

th e b a s is f o r Adam S m ith 's concep ts of p r iv a te p ro p e r ty , p r iv a te

e n te r p r i s e , in d iv id u a l i n i t i a t i v e , th e p r o f i t m o tive , w e a lth , and com­

p e t i t i o n e The id e a o f p r iv a te p ro p e r ty in v o lv ed p o s s e s s io n 5 e n te r ­

p r is e was l im ite d to sm all in d iv id u a l businessm ens In d iv id u a l i n i t i a ­

t i v e , in the form o f "rugged in d iv id u a lism ," p e r ta in e d on ly to a la rg e

number o f in d iv id u a l businessm en com peting acco rd ing to th e "g u id in g

hand" concept o f th e m arket and economy w ith p r o f i t as a m o tive«

W ealth was a s s o c ia te d w ith th e e f f ic ie n c y and d il ig e n c e o f th e in d iv i ­

d u a l businessm an, h is r e p u ta t io n f o r honesty and i n t e g r i t y in b u s in e ss

d e a lin g s , and in th e q u a l i ty o f h is goods and s e r v ic e s . The law's

a g a in s t monopoly, p u b lic o r p r iv a te , were designed to p re v e n t in d iv i ­

d u a ls from o b ta in in g e x c lu s iv e c o n tro l o f any b u s in e ss o r in d u s try by

p o l i t i c a l means.

Much o f th e same te rm in o lo g y rem ains in th e b u s in e s s w orld

today in s p i te of the f a c t t h a t th e assum ption t h a t ow nership o f

p ro p e r ty and c o n tro l o f p r o p e r ty have long s in c e ceased to e x i s t . The

c o rp o ra te s t r u c tu r e has changed t h i s t r a d i t i o n a l lo g ic in to new i n s t i ­

tu t io n a l form s n o t y e t reco g n ized by the le g a l sy s te m 's a tte m p t t©

c o n tro l a c t i v i t i e s of la rg e b u s in ess c o rp o ra tio n s .

Legal though t r e s t s upon c e r ta in assum ptions t h a t cannot a l ­

ways be supported by th e r e a l i t y o f th e s i t u a t io n . The Dartmouth

D ec is io n , which gave th e c o rp o ra tio n c e r t a in a b i l i t i e s , r e s t s upon th e

assum ption o f the " n a tu ra l" c h a r a c te r o f c o rp o ra te n e ss found in a n c ie n t

law . ' I t assumed th a t th e c o rp o ra te f o r a was p a r t o f th e developm ent

o f a s s o c ia t io n s and in su re d the t r u t h o f th i s assum ption by c re a t in g

c o rp o ra tio n s t h a t po ssessed th e same c h a r a c t e r i s t i c s as th e se o ld e r

forms o f r e l a t io n s h ip s , i

New J e r s e y 1s law p e r ta in in g to th e c o rp o ra tio n i l l u s t r a t e s how

c e r ta in economics p o l i t i c a l , s o c i a l , and g eo g rap h ica l f a c to r s have i n ­

flu en ced th e growth o f th e c o rp o ra te form o f b u s in ess e n te r p r i s e »

The e a r ly in c o rp o ra tio n p e rio d fo llow ed v e ry c lo s e ly th e p rocedure

o f th e jo in t - s to c k company fo rm atio n found in c ro w n -ch arte red com­

p an ies in England„ The purpose here was to g ive l e g i s l a t i v e s a n c tio n

to l im ite d forms o f b u s in e ss e n te r p r is e t h a t th e s t a t e f e l t n e ce ssa ry

fo r th e w e lfa re o f i t s c itiz en s® W ith th e adven t o f th e g e n e ra l in ­

c o rp o ra tio n a c t s , . th e s t a t e d e le g a te d a la rg e p a r t o f i t s so v e re ig n ty

to th e c o rp o ra tio n , th e re b y g iv in g businessm en much g r e a te r autonomy

in developm ent o f c o rp o ra te powers and p r a c t i c e s 0 Businessmen were .

g iven th e power to c re a te f i c t i t i o u s persons c a l le d c o rp o ra tio n s , b u t

a ls o a n o th e r group o f f i c t i t i o u s p e rso n s was c re a te d in th e form of

s to ck h o ld e rs whose on ly c laim to ow nership o f a b u s in e ss was s l ip s

o f paper c a l le d s to ck s o r bondse The o ld e r r e la t io n s a ss ig n in g con­

t r o l to persons in ow nership p o s i t io n s ceased to e x i s t 5 y e t th e f i c ­

t io n m ain ta ined th a t th e se o ld r e l a t io n s s t i l l existed®

The f e d e ra l governm ent’s e n tra n ce in to th e c o n tro l o f co rp o ra ­

t io n a c t i v i t i e s fo llow ed the assum ption o f th e t r a d i t i o n a l concep t o f

b u s in e ss r e l a t io n s th a t e x is te d i n Adam S m ith 's day . What the f e d e r a l

government a ttem p ted to c o n tro l was the f i c t i t i o u s c h a r a c te r o f the

c o rp o ra tio n , n o t th e a c tu a l w orking r e a l i t y o f th e b u s in e ss world®

The f i c t i o n was t h a t m arkets and m arket r e la t io n s s t i l l in flu en c ed

co m p etitio n between b u s in e s s e s : th e r e a l i t y was t h a t c o m p e titio n had

ceased to ex ist® " R e s tr a in t o f tra d e " and " a c t i v i t i e s t h a t tended to

le s s e n com petition" d id n o t and could n o t curb th e growth o f the

59

business- c o rp o ra tio n b ecau se? under th e p ro v is io n s o f s t a t e laws such

as New J e r s e y 's , the c o rp o ra tio n s cou ld no lo n g e r be c o n tro l le d as

economic o rg a n iz a t io n s . They had become send-autonom ous, semi­

so v ere ig n in d u s t r i a l s t a t e s w ith t h e i r own c o n s t i tu t io n s and law-making

b o d ie s e

The r e s u l t a n t b e h av io r o f members o f the c o rp o ra tio n becomes

confused and p a th o lo g ic a l because o f th e c o n f l ic t in g s ta tu s o f th e o r ­

g a n iz a tio n i t s e l f » In g r e a te r American s o c ie ty d e c is io n s t h a t a f f e c t

th e p u b lic come about th rough i n s t i t u t i o n a l p ro ced u res t h a t a re d e fin ed

by law and san c tio n ed by th e p u b lic . In th e c o rp o ra te s e t t i n g , d e c i­

s io n s a re made w ith o u t re g a rd f o r th e owners o r o th e r members o f th e

c o rp o ra te s t r u c tu r e because no i n s t i t u t i o n a l means have been dev ised

to c o n tro l and in f lu e n c e th e d e c is io n making p ro c e s s . I f th e employee

. o r th e s to c k h o ld e r does n o t ag ree w ith th e p r a c t ic e s o f b u s in e s s he

may w ithdraw . The w ithdraw al o f one o r many o f th e members o f th e c o r­

p o ra te community has l i t t l e e f f e c t upon s t r u c tu r e , ex cep t i n r a r e cases,

when c o rp o ra tio n c o n tro l has been c h a lle n g e d . I f one c o n s id e rs the

c o rp o ra tio n as owned by many, y e t c o n tro l le d by a few , i t a t t a i n s the.

c h a ra c te r o f communism, a c o n f l i c t w ith th e American id e a o f r e p u b l i - 1

canism and democracy. The o l ig a r c h ic a l c o n tro l o f th e c o rp o ra te en­

t e r p r i s e and th e in te r lo c k in g d i r e c to r a te s have c re a te d a new c la s s

o f c i t i z e n s who i n t e r a c t beh ind th e w a ll o f sec re cy and form a p e rp e t­

u a l k in sh ip type o f r e l a t i o n th rough th e re c ru itm e n t o f new members to

the k in g roup . The new c la s s o f c i t i z e n s , which have ach ieved s ta tu s

a s p a r t o f "The Power E l i t e , " c o n s t i tu te a new o lig a rc h y o f c o n tro lI

whose invo lvem ents, in many c a s e s , exceed th e com pensation p a id to

60

th e h ig h e s t ran k in g p u b lic o f f i c i a l s who a re s u b je c t to p u b lic c o n tro l*

What has happened i s t h a t we have two c o n f l ic t in g p o l i t i c a l ,

o rg a n is a tio n s w ith in th e same s o c ia l system* One, th e fo rm a l, i n s t i ­

tu t io n a l iz e d , and reco g n ized o rg a n iz a tio n c a l le d the S t a t e | th e o th e r ,

the c o rp o ra tio n , n o t id e n t i f i e d as a p o l i t i c a l i n s t i t u t i o n , y e t ab le

to e x e r t p o l i t i c a l power w ith o u t ex p ress i n s t i t u t i o n a l a u th o r i ty . A

r a th e r s t r a in e d in te r p r e ta t io n o f c o n s t i tu t io n a l law , w ith i t s p ro te c ­

t io n o f c o n tr a c tu a l r e l a t i o n s , has p ro v id ed th e avenue f o r e s t a b l i s h ­

ment o f th i s u n o f f i c i a l p o l i t i c a l i n s t i t u t i o n , based upon th e assump­

t io n s o f t r a d i t i o n a l concep ts o f b u s in e ss r e l a t i o n s . The c o rp o ra t io n 's

a u th o r i ty fo r e x is te n c e i s b ased , th e r e f o r e , upon de fa c to assum ptions

r a th e r th an de j u r i r e a l i t y .

The a n a ly s is o f c o rp o ra tio n s as s o c ia l o r economic i n s t i t u t i o n s

m ust, th e re fo re , c o n s id e r i t s p o l i t i c a l n a tu re i f i t i s to be v a l id in

i t s a ssum ptions. The e m p ir ic a l in v e s t ig a t io n s o f th e modern b u s in e sss

c o rp o ra tio n have been , fo r th e most p a r t , based upon the t r a d i t i o n a l ,1

f i c t i t i o u s assum ptions t h a t th e c o rp o ra tio n i s m ain ly s o c ia l o r m ainly

econom ic. R are ly have th e r e l a t io n s found in in d u s try been assumed to

be p o l i t i c a l i n n a tu re . I f th e s tu d y o f the c o rp o ra tio n i s to be mean­

in g f u l i t must be w ith the id e a in mind t h a t c o rp o ra te r e la t io n s a re

p o l i t i c a l and, as p o l i t i c a l , do n o t conform to th e c l a s s i c a l id e a o f

p r iv a te o rg a n iz a tio n . ,

APPENDIX

CASES AND LAWS PERTAINING TO THE CORPORATION

THE DARTMOUTH COLLEGE CASE - T ru stee s o f Dartmouth C ollege v . Woodward,'U Wheaton 518 (US) 1819.

B r ie f ly , t h i s case in v o lv ed th e power o f a s t a t e to change o r

a l t e r a c o rp o ra tio n c h a r te r . In 1796 Reverend E le a z a r Wheelock

founded Dartmouth C ollege under a c h a r te r g ran ted by King George I I I

o f England. The c o n tr o l o f th e c o lle g e was th rough a bo ard o f d i r ­

e c to r s who were d e s ig n a te d by Mr. W heelock. The c o lle g e p ro sp ered

u n t i l 1816 when th e New Hampshire l e g i s l a tu r e p assed an a c t amending

i t s c h a r te r , changing i t s name to Dartmouth U n iv e rs ity and made i t a

s t a t e i n s t i t u t i o n s u b je c t to s t a t e c o n t r o l . The t r u s te e s took th e l

case to c o u r t a rg u in g t h a t fo r th e s t a t e to a l t e r a c o n tr a c t was a v io ­

l a t io n o f th e F e d e ra l C o n s t i tu t io n , S e c tio n X o f A r t ic le 1 , which

s ta t e d t h a t "No s t a t e s h a l l . . . p a ss any . . . a c t im p a irin g th e o b lig a ­

t io n o f c o n tr a c ts ." The s t a t e c o u r ts upheld th e a c t io n o f the New

Hampshire l e g i s l a tu r e and th e case f i n a l l y came b e fo re C h ie f J u s t ic e

John M arsha ll in 1819. J u s t ic e M arsh a ll was one o f th e "m idn igh t ap­

p o in te e s" o f John Adams, th e l a s t p r e s id e n t o f th e F e d e r a l i s t p a r ty

which demanded so l i b e r a l a c o n s tru c tio n o f th e c o n s t i tu t io n as to g ive

th e co u n try a s tro n g n a t io n a l governm ent. In making h is fa v o ra b le de­

c is io n f o r the t r u s t e e s o f Dartmouth C o lle g e , M arsha ll u t i l i z e d B lack -

s to n e 1s concep t o f th e n a tu re o f th e c o rp o ra tio n . B lackstone s ta te d

61

62

t h a t th e c o rp o ra tio n was "an a r t i f i c i a l pe rso n c re a te d f o r p re se rv in g

in p e rp e tu a l su ccess io n c e r ta in r i g h t s , w hich, be in g c o n fe rre d on

n a tu r a l p e rso n s on ly would f a i l in p ro c e ss o f tim e ," To quote in

f u l l . C hief J u s t ic e 'M a r s h a l l ’s d e c is io n s t a t e t h a t :

A c o rp o ra tio n i s an a r t i f i c i a l b e in g , i n v i s ib l e , in ta n g ib le , and e x is t in g on ly in th e co n tem p la tio n o f th e law . Being a mere c re a tu re of law , i t p o sse sse s on ly th o se p ro p e r t ie s w hich th e c h a ra c te rs o f i t s c r e a t io n co n fe rs upon i t , e i t h e r e x p re s s ly o r as in c id e n ta l to i t s v e ry e x is te n c e . These a re such as a re supposed b e s t c a lc u la te d to e f f e c t the o b je c t f o r which i t was c re a te d . Among th e more im p o rtan t a re im­m o r ta l i ty , and, i f th e e x p re ss io n may be a llow ed , in d iv id u a l­i ty ^ p ro p e r t ie s by which a p e rp e tu a l su ccess io n o f many p e rso n s a re c o n sid e red as th e same, and may a c t as a s in g le in d iv id u a l . They en ab le a c o rp o ra tio n to manage i t s own a f f a i r s , and to h o ld p ro p e r ty w ith o u t th e p e rp le x in g i n t r i c a c i e s , th e h azard ­ous and e n d le ss n e c e s s i ty , o f p e rp e tu a l conveyances f o r th e purpose o f t r a n s m it t in g i t from hand to hand. I t i s c h ie f ly f o r th e purpose o f c lo th in g b o d ies o f men, in su c c e ss io n , w ith th e se q u a l i t i e s and c a p a c i t ie s t h a t c o rp o ra tio n s a rein v e n te d , a n d .a re in u s e . By th e se means a p e rp e tu a l suc­c e s s io n o f in d iv id u a ls a re capab le o f a c t in g f o r th e promo­t io n o f th e p a r t i c u l a r o b je c t , l ik e one im m ortal b e in g .

THE SHERMAN ANTI-TRUST ACT - "An a c t to p r o te c t tra d e and-commerce a g a in s t un law fu l r e s t r a i n t s and m onopolies," P ub lic Law No. 190-5>lst C ongress, 1890 ( 2 6 S t a t . 209 ), .U.S.C, T i t le 1$, Sec. 1 -7 , 15 .

The problem s c re a te d by t r u s t s and com binations became so ap­

p a re n t t h a t by th e l 8 8 0 's bo th p o l i t i c a l p a r t i e s i n 1 8 8 5 in c o rp o ra te d &I

"p re v e n tio n o f monopoly" c la u se s in t h e i r p la tfo rm s . Beginning in

1888 th e f i r s t r e s o lu t io n was in tro d u ced to Congress to in v e s t ig a te

monopoly p r a c t ic e s in b u s in e s s e n t e r p r i s e s . On December It, 1889,

S en a to r Sherman in tro d u ce d an a n t i - t r u s t measure which was r e f e r r e d

to th e Committee on F in an ce» On Ju ly 2 , 1 8 90, a f t e r deb ate and r e ­

v is io n , the a c t was p assed w ith on ly one vo te c a s t a g a in s t i t in b o th

63

houses e This one v o te was c a s t by S en a to r B lo d g e tt, a r a i l r o a d man 2from New J e r s e y . The a c t co n ta in ed e ig h t s e c tio n s which s t a t e th e

fo llo w in g ?

S ec tio n 1: Every c o n t r a c t , com bination in th e form o f a t r u s to r o th e rw ise , o r co n sp irac y , in r e s t r a i n t o f tra d e o r commerce among the s e v e ra l S ta te s , o r w ith fo re ig n n a t io n s , i s hereby d e c la re d to be i l l e g a l . . , .

S ec tio n 2; Every p erson who s h a l l m onopolize, o r a tte m p t o f m onopolize, o r combine o r co n sp ire w ith any o th e r p e rso n o r p e rso n s , to m onopolize. . „ s h a l l be deemed g u i l ty o f a m isde­meanor . . •» .

S e c tio n 3s Every c o n t r a c t , com bination in th e form o f t r u s t or o th e rw ise , o r c o n sp irac y , in r e s t r a i n t o f t r a d e . . . i s hereby d e c la re d i l l e g a l . . .E very p erson who s h a l l make any such con­t r a c t , . . s h a l l be deemed g u i l ty o f a m isd em ean o r....

S ec tio n it: The s e v e ra l c i r c u i t c o u r ts o f the U nited S ta te sa re hereby in v e s te d w ith ju r i s d i c t i o n to p re v e n t and r e s t r a i n v io la t io n s o f t h i s a c t . . . .

S e c tio n . . . under s e c t io n fo u r o f t h i s a c t . . .p a r t i e s should be b rough t b e fo re the c o u r t . . .w hether th e y re s id e in th e d i s ­t r i c t in which th e c o u r t i s h e ld o r n o t j and subpoenas to t h a t end may be served in any d i s t r i c t by th e m arshal th e r e o f .

S e c tio n 6 : Any p ro p e r ty owned under any c o n tra c t o r by anycom bination , o r p u rsu a n t to any c o n s p ir a c y . . .m entioned in se c ­t io n one of th i s a c t . . .m a y be se iz e d and condemned by l ik e p ro ceed ings as th o se p ro v id ed by law f o r . . .p ro p e r ty im ported in to th e U nited S ta te s c o n tra ry to law .

S e c tio n 7: Any person who s h a l l be i n j u r e d . . .by reaso n o fan y th in g fo rb id d en o r d e c la re d to be un law fu l by t h i s a c t , may s u e . . .a n d s h a l l re c o v e r th r e e - f o ld th e damages by him s u s ta in e d , and the c o s ts o f s u i t , in c lu d in g a rea so n ab le a t ­to r n e y 's f e e .

S e c tio n 8 s That th e word "person" o r "p e rso n s ," w herever used in th i s a c t s h a l l be deemed to in c lu d e c o rp o ra tio n s and a sso ­c ia t io n s e x is t in g under o r a u th o riz e d by the laws o f e i t h e r th e U nited S ta te s , the laws o f any o f th e T e r r i t o r i e s , th e laws o f any S ta te , o r the laws o f any fo re ig n c o u n try .

6ii

THE E„ C. KNIGHT CASE - U nited S ta te s v . E» Ce K night C o ., 1$6 U ,S,1 , 1$ Sup. C t. 29k (1 8 9 5 ), .

F ive y e a rs a f t e r th e Sherman Act th e Supreme C ourt was c a l le d .

upon to make a d e c is io n on th e v a l i d i t y o f a s e r ie s o f m ergers in th e

su g ar r e f in in g in d u s try . The American Sugar R efin in g Company, a New

J e rse y c o rp o ra tio n and th e su cc e sso r o f th e Sugar R efin in g T ru s t , p u r­

chased w ith i t s own s to ck a l l the s to c k o f fo u r independen t r e f i n e r ­

ie s lo c a te d in P h ila d e lp h ia , which gave them c o n tro l o f 98 p e rc e n t o f

the su g ar r e f in in g in d u s try . P r ic e s advanced and a s u i t was i n i t i a t e d

by th e D epartm ent o f J u s t i c e , ask ing t h a t the c o n tr a c t fo r th e exchange

o f s to c k be v o id ed , th a t th e s to ck which had been exchanged be re tu rn e d ,

and th a t f u r th e r perform ance o f the agreem ents be e n jo in e d . The c o u r t

decided in fa v o r o f th e American Sugar R efin in g Company, a rg u in g th a t

th e ch a llen g ed t r a n s f e r s re la te d , m erely to th e c o n tro l o f m anufactur­

ing as d is t in g u is h e d from th e i n t e r s t a t e commerce and, hence, were b e ­

yond th e purview o f the Sherman A ct. This narrow d e c is io n based upon

th e id e a of " i n t e r s t a t e commerce"• was c r i t i c i z e d in th e d is s e n t o f

J u s t ic e H arlan . Had th e p ro se c u tio n a tta c k e d the t r u s t on th e b a s is '

o f i t s c o l le c t iv e a c ts o r th e e s s e n t i a l m o n o p o lis tic com bination in

r e s t r a i n t o f commerce, the case would p ro b ab ly have been decided in

fa v o r o f th e f e d e ra l governm ent, as were l a t e r cases o f t h i s same

n a tu r e .

THE NORTHERN SECURITIES CASE - N orthern S e c u r i t ie s Company v . U nited S ta te s , 193 U.S. 197, 21* Sup. C t. U36 (1 9 0 b )..

The im portance o f t h i s case l i e s in the f a c t th a t i t was the

f i r s t tim e the Supreme C ourt was c a l le d upon to decide d i r e c t l y the

65l e g a l i t y o f th e holding-com pany form o f com bination . The G rea t N orth­

e rn Railw ay Company, dom inated by James J , H i l l , and th e N orthern Pac­

i f i c R a ilro ad Company, dominated by J , P„ Morgan, owned and o p e ra ted

p a r a l l e l l in e s o f r a i l r o a d con n ec tin g D uluth and S t , P au l w ith S e a t t l e

and P o r t la n d , P r io r to 1893 the N orthern P a c if ic was owned o r con­

t r o l l e d and o p e ra ted by th e N orthern P a c if ic R a ilro a d Company, When

t h i s concern became in s o lv e n t th e f irm e n te re d in to r e c e iv e r s h ip ,

b u t b e fo re th e fo re c lo s u re and s a le a m a jo r ity o f i t s bondholders made

an arrangem ent w ith th e G reat N orthern Railw ay Company f o r a v i r t u a l

c o n so lid a tio n o f th e two system s which gave th e p r a c t i c a l c o n tro l o f

the N orthern P a c if ic to the G reat N o rth ern , This c o n so lid a tio n was3

h e ld i l l e g a l in P e a r s a l l v . G reat N orthern Railway Company, which up-I.

h e ld th e M innesota law t h a t fo rbade any r a i l r o a d c o rp o ra tio n from

owning o r having under t h e i r c o n tro l p a r a l l e l o r com peting r a i l r o a d

l i n e s •

U ndeterred by th i s d e c is io n , the two com panies, in 1901, a c ­

q u ire d j o i n t c o n tro l o f the C hicago, B u rlin g to n and Quincy R a ilro a d , .

a road ex tend ing westward from Chicago and se rv in g as a fe e d e r f o r b o th

o f th e se n o rth e rn ra ilw a y s , as w e ll as th e Union P a c if ic system which

was c o n tro l le d by Harrim an, The a c q u is i t io n of th e B u rlin g to n s to ck

by Morgan and H i l l so alarm ed Harriman t h a t he began to buy in to th e 1

N orthern P a c if ic Company. His pu rchases were so s k i l l f u l th a t he soon (

h e ld th e m a jo r ity o f common s to ck in th e N orthern P a c if ic b e fo re Mor­

gan became aware o f what was t r a n s p i r in g , I t soon became ap p a ren t

t h a t th e re m ight be a f i g h t f o r c o n tro l o f th e N orthern P a c if ic so a

compromise was reached on November 13, 1901, in th e form o f a

i

66

holding-com pany c h a r te r g ra n te d by th e s t a t e of New J e r s e y to th ed ,

N orthern S e c u r i t ie s Company. S ince th e N orthern S e c u r i t ie s had a

t o t a l su b sc rib ed c a p i t a l o f $3 0 , 0 0 0 , w h ile i t s a u th o riz e d c a p i t a l

s to c k was $U00,000 ,000 - th e t o t a l c a p i t a l o f th e G reat N orthern and

th e N orthern P a c if ic - i t became a p p a re n t, th rough th e i n v i t a t i o n o f -

s to ck h o ld e rs o f bo th r a i l r o a d s to exchange t h e i r s to c k f o r s to ck in

th e new h o ld in g company, t h a t th e u lt im a te o b je c t iv e was to s k i r t the'

P e a r s a l l d e c is io n and p u t th e c o n tro l o f th ese two l in e s under one

company. At the tim e of th e s u i t the N orthern S e c u r i t ie s had o b ta in ed

about n in e - te n th s o f th e o u ts ta n d in g N orthern P a c if ic s to ck and more

th an th re e -q u a r te r s o f th e G reat N o rth ern . On th e b a s is o f t h i s con­

t r o l the case was b ro u g h t b e fo re the" Supreme C ourt in 1901* 0

The s u i t by th e government was to re s c in d th e s to c k t r a n s f e r s

and to compel the h o ld in g company to d iv e s t i t s e l f o f th e s to c k o f

th e se com peting ro a d s . D esp ite the p r o te s ta t io n s o f the d e fe n d a n ts ,

th e c o u r t found th a t the purpose and e f f e c t o f th e fo rm atio n o f the

h o ld in g company was to sup p ress co m p etitio n between th e two system s,

.and. o rdered th e d is s o lu t io n o f th e com bination .

Two d is s e n tin g o p in io n s a re o f w orth a t th i s p o in t . The. f i r s t

by J u s t ic e H arlan , contended th a t :

. '' U nderlying th e argument in b e h a lf o f th e d e fen d an ts i s the id e a t h a t as the N orthern S e c u r i t ie s Company i s a s t a t e c o rp o ra tio n , and as i t s a c q u is i t io n o f s to ck o f th e G reat

' N orthern and N orthern P a c if ic Railway companies i s n o t in ­c o n s is te n t w ith th e powers c o n fe rre d by i t s c h a r te r , the en­forcem ent o f th e Act o f Congress (Sherman A ct),, a s a g a in s t th o se 'c o rp o ra tio n s , w i l l be an u n au th o rized in te r f e re n c e by th e n a t io n a l government w ith th e i n t e r n a l commerce o f th e S ta te s c re a t in g those c o rp o ra t io n s . " 6

The m a jo r ity o p in ion h e ld th a t no s t a t e co u ld , m erely th rough th e

c re a t io n o f a c o rp o ra tio n , p r o je c t i t s a u th o r i ty in to o th e r s t a t e s in

such a way as to p re v e n t Congress from e x e r t in g i t s power o f r e g u la t ­

in g i n t e r s t a t e commerce <, The second o p in io n came from J u s t ic e Holmes»

He s t a t e d ; "There i s no com bination in r e s t r a i n t o f t ra d e u n t i l som e-;i

th in g i s done w ith the i n t e n t to exclude s tra n g e rs to th e com bination

from com peting w ith i t e i A l t h o u g h no one had a ttem p ted to compete

w ith th e N orthern S e c u r i t ie s com bination , the c o u r t contended t h a t the

in e v i ta b le outcome o f th i s com bination would r e s u l t i n a r e s t r a i n t o f

t r a d e , and th e a c t o f 1 8 9 0 was designed to p r o te c t th e freedom o f i n ­

t e r s t a t e commerce•

One in te r e s t in g r e s u l t o f t h i s case was th a t th e c o u r t t h a t had

attem pted to s to p a com bination in r e s t r a i n t o f tra d e decreed t h a t th e

h o ld in g company e i th e r g ive the s to ck back to th e form er h o ld e rs or

d i s t r ib u te i t among i t s own s to c k h o ld e rs . I t chose th e l a t t e r so th a t

th e two r a i l r o a d s re tu rn e d to the o ld H ill-M organ community o f i n t e r ­

e s t s , thus n u l l i f y in g th e purpose of th e d e c is io n .

THE CLAYTON ACT - "An a c t to supplem ent e x is t in g laws a g a in s t u n la w fu l ' r e s t r a i n t s and m onopolies, and f o r o th e r p u rp o se s ," P u b lic Law No. ? 212-63rd C ongress, 1911}. (38 S t a t . 730) U .S.C . T i t le Ig , S ecs. 12-27 ,

• l } l w • - "

Under th e Shem an Act i n d u s t r i a l com binations co n tin u ed to grow

u n t i l , ' i n 1911}, under th e p re s id en c y o f Woodrow W ilson, Congress was

c a l le d upon to pass l e g i s l a t i o n to p r o h ib i t s p e c i f ic u n d e s ira b le p ra c ­

t i c e s le ad in g toward monopolyj p a r t i c u l a r ly in te r lo c k in g d i r e c to r a te s

and h o ld in g com panies. O ther recommendations were to make th e in d i ­

v id u a ls who v io la te d the a n t i - t r u s t laws p e rs o n a lly l i a b l e | to enab le

any p erson in ju re d by a t r u s t to base a s u i t f o r damages upon the

68

f a c t s proved by a governm ent p r o s e c u t io n and th u s f a c i l i t a t e th e c o l ­

l e c t i o n o f th o se t r e b le damages a llo w e d b y th e Sherman A ctj and, f i n ­

a l l y , t o e x te n d th e p o w er s . o f th e I n t e r s t a t e Commerce Com m ission to

in c lu d e th e r e g u la t io n o f th e is s u a n c e o f s e c u r i t i e s b y th e r a i l r o a d .

These recom m endations w ere embodied in f i v e b i l l s , prom ptly

c h r is te n e d th e "F ive B ro th er B i l l s , " n e x t - o f - k in to th e "Seven S i s t e r

A cts" t h a t were e n a c te d under th e W ilson g o v e r n o r sh ip o f New J e r s e y ,

These f i v e b i l l s w ere then c o n s o lid a t e d in t o two b i l l s . One b i l l r e ­

s u l t e d i n th e C layton A ct; th e o th e r e s t a b l i s h e d th e F e d e r a l Trade

Commission b y r e p la c in g th e Bureau o f C orp ora tion s e s t a b l i s h e d in

1903,

In th e C la y to n A ct fo u r k in d s o f m o n o p o lis t ic p r a c t i c e s w ere

s in g le d o u t: p r ic e d is c r im in a t io n "where th e e f f e c t o f su ch d is c r im ­

in a t io n may be to s u b s t a n t ia l ly l e s s e n c o m p e t it io n or ten d to c r e a te

a m onopoly in any l i n e o f commerce" ( s e c t io n 2 ) ; th e i s s u e o f t y in g

c la u s e s in s a l e s or l e a s e s "where th e e f f e c t may be to s u b s t a n t ia l ­

l y l e s s e n c o m p e t it io n o r ten d to c r e a te a m onopoly in any l i n e o f com­

merce" ( s e c t io n 3 ) I a c q u i s i t io n by a c o r p o r a tio n o f s to c k o f a n o th er

c o r p o r a tio n "where th e e f f e c t o f su ch a c q u i s i t io n may be t o su b sta n ­

t i a l l y l e s s e n co m p etitio n " betw een th e a c q u ir in g and th e a c q u ired c o r ­

p o r a t io n , o r " to r e s t r a in commerce in any s e c t i o n or com m unity, o r ten d

to c r e a te a m onopoly o f any l i n e o f commerce" ( s e c t io n 7)? and i n t e r ­

lo c k in g d ir e c t o r a t e s among c o r p o r a tio n s (above a c e r t a in s i z e ) w h ich

a r e , or have b e e n , c o m p e tito r s ( s e c t io n 8 ) ,

T h is a c t and th e F e d e r a l Trade Com m ission A ct w ere the f i r s t

r e c o g n it io n t h a t th e a n t iq u a te d id e a o f l a s s i z f a i r e r e la t io n s betw een

th e s t a t e and th e c o rp o ra tio n d id n o t w ork. They dem onstrated t h a t

th e re were no economic law s, p e r s e , and th e on ly i n s t i t u t i o n th a t

could e v e r hope e f f e c t iv e ly to c o n tro l the growth and in f lu e n c e o f

b u s in e ss e n te r p r is e was th e f e d e ra l governm ent.

A lthough the C lay ton Act was amended two tim es s in c e i t s b i r t h

- once in 1 9 3 6 and ag a in in 1 9 5 0 - the law rem ains in e f f e c t as an a t ­

tem pt to curb th e u n r e s t r ic te d growth o f c o rp o ra tio n s and encourage

c o m p e titio n .

TABLES

70

TABLE 1

CORPORATIONS CREATED BY SPECIAL CHARTER

(1791 - 18U5)

Y ear Number Year Number

1791 1 1819 2

1792 1 1 8 2 0 «*»1793 «• - 1 8 2 1 1

1791* 2 1 8 2 2 1*. 1795 1 1823 5

1796 2 1 8 2 1 * 131797 1 1825 1 0

1798 1 • 1 8 2 6 51799 1 1827 23

1 8 0 0 3 1 8 2 8 5. 1 8 0 1 2 1829 1 0

’ 1 8 0 2 3 1 8 3 0 1 2

1803 3 1831 131 8 0 U 8 1 8 3 2 1 2

1805 ' "'9 ' 1833 1 6

1 8 0 6 (39 183U 1 1

1807 h 1835 371 8 0 8 5 1 8 3 6 1*51809 : 5 ' 1837 1 2

1 8 1 0 1 1 1 8 3 8 151 8 1 1 1 0 1839 71 8 1 2 5 1 8 1 * 0 8

.1813 6 i s i a 8

iQlh ■ 15 ' . 1 8 1 * 2 1

1815 1 0 . 181*3 1 1

1 8 1 6 ' 2 ' 1 8 1 *1*1817 3 ‘ 181*5 2 2

1 8 1 8 . . . 3

"“"Full y e a r n o t a v a i la b le

"“'“"John ¥„ Cadman, J r . , The C orp ora tion in New J e r s e y . Cam-b r id g e : H arvard. U n iv e r s it y P r e s s , 191*9, p . 206.

71

TABLE 2

INCORPORATIONS BY SPECIAL CHARTER AND GENERAL

LAWS FOR THE STATE OF NEW JERSEY *

( 1 8 U6 - 1875)

Year ■ S p e c ia lC h arter

G en era lLaw

1 8 U6 2 4 418U7 2 0 51 8 U8 30 518U9 33 • ’ 1

1 8 5 0 2 0 71851 . 38 1 8

1852 40 131853 40 2 2

1854 49 231855 63 1 6

1 8 5 6 38 8

1857 43 1 1

1 8 5 8 29 2 1

1859 48 5i 8 6 0 47 71 8 6 1 34 2

1 8 6 2 19 1 1

1 8 6 3 . 2 8 71 8 6 4 51 151865 63 9

1 8 6 6 117 241867 135 2 8

1 8 6 8 143 151869 125 191 8 7 0 1 2 8 191871 1 2 2 2 8

1 8 7 2 1 1 8 291873 1 2 2 371874 8 6 36

• 1875 40 49

‘"John W„ Cadmans Jr<,9 The C o rp o ra tio n in New J e r s e y 0 Cam­b rid g e s H arvard U n iv e rs ity P re s s 9 19h% ppo' 207«8o

TABLE 3

INCORPORATIONS BY GENERAL ACTS

STATE OF NEW JERSEY -x-

(1876 - 1900)

Year Number

1 8 7 6 331877 391 8 7 8 561879 561 8 8 0 1 2 0

1 8 8 1 3301 8 8 2 2521883 1891 8 8 1 * 105

' 1885 1 2

1 8 8 6 1821887 1651 8 8 8 2191889 2 3 6

1890 279

1891 2 6 1 *1 8 9 2 2 6 7

' 1893 , 2 1 1

1891 1 9 6

1895 217

I 8 9 6 1 8 0

1897 2 8 0

1 8 9 8 . 3111899 71*01 9 0 0 770

'""New: Je rsey s S e c re ta ry o f S t a t e 0 C o rp o ra tio n s o f New J e r s e y : •„ L i s t o f C e r t i f i c a te s F i le d in th e D epartm ent o f S ta te t® December 31 0

1911o T ren tons 1912o

73

TABLE kHEM JERSEY GENERAL INCORPORATION LAWS

Date D e sc rip tio n

l 8 l 6 An a c t r e l a t i v e to in c o rp o ra tio n s f o r m anufactu ring p u rp o se s ,

l81j.6 An a c t to a u th o r iz e th e e s ta b lish m e n t, and to p re s c r ib e the

d u t ie s o f m anufactu ring com panies.

18U7 An a c t to encourage th e e s ta b lish m e n t o f m utual sav in g s

a s so c ia tio n s*

181*9 An a c t to encourage th e e s ta b lish m e n t o f m utual lo a n and

b u ild in g a s s o c ia t io n s .

181|.9 An a c t to a u th o r iz e th e e s ta b lish m e n t, and to p re s c r ib e th e

d u tie s o f companies f o r m anufactu ring and o th e r purposes *

1890 An a c t to a u th o r iz e the b u s in e ss o f banking .

1852 An a c t in c o rp o ra tin g homestead and b u ild in g com panies.

18$2 An a c t a u th o r iz in g th e in c o rp o ra tio n o f p lank road com panies.

1852 An a c t to p ro v id e f o r th e in c o rp o ra tio n o f in su ran ce com panies.

18$3 An a c t to in c o rp o ra te te le g ra p h com panies.

1891* An a c t f o r th e in c o rp o ra tio n o f companies to n a v ig a te la k e s ,

ocean, and in la n d w a te r s .

18$9 An a c t in c o rp o ra tin g v e s s e l b u ild in g a s s o c ia t io n s .

1899 An a c t to encourage th e a g r i c u l tu r a l developm ents o f th e s t a t e ,

and en ab le persons o f m oderate means to become land h o ld e rs ,

e t c .

7h

D ate D e s c r ip t io n

1857 An a c t to a u th o r iz e th e fo rm atio n o f a s s o c ia t io n s to a id th ose

who may w ish to e s t a b l i s h and c a r ry on u s e fu l b ranches o f i n ­

d u s try in e i t h e r th e c o u n tie s o f M ercer, H unterdon, o r Glou­

cester®

1865 An a c t to encourage and f a c i l i t a t e th e improvement o f lan d s

in t h i s state®

186? An a c t to a u th o r iz e and en cou rage th e im provem ent o f p r o p e r ty .

in t h i s sta te®

I 8 6 9 An a c t to f a c i l i t a t e th e fo rm atio n o f companies to d ig and

c u t p e a t , s to n e and o th e r a r t ic le s®

1873 An a c t to a u th o r iz e the fo rm atio n o f r a i l r o a d c o rp o ra tio n s and

re g u la te th e same®

187U An a c t to a u th o r iz e th e e s ta b lish m e n t and to p re s c r ib e the

d u tie s o f c o rp o ra tio n s f o r m anufacturing and s e l l i n g gas in

any o f th e c i t i e s and towns o f t h i s state®

1875 An a c t t o in c o r p o r a te b u i ld in g companies®

1875 An a c t fo r th e r e l i e f o f c o rp o ra tio n s o rgan ized under g e n e ra l

laws®

1875 An a c t c o n c e rn in g corp oration s®

i860 An a c t a u th o r iz in g c o rp o ra tio n s c re a te d by s p e c ia l c h a r te r o r

o therw ise to remove t h e i r p r in c ip a l o f f ic e from th e p lace d e s ig

n a ted i n t h e i r c h a r te r s to such o th e r p la ce as may be deemed

b e s t by th e corporations®

Date D escrip tion

1882

1882.

1882

188U

1886

1888

1888

1888

1888

1889

An a c t concern ing c o rp o ra tio n s =

An a c t f o r th e r e l i e f o f in s o lv e n t c o rp o ra tio n s

An a c t fo r th e r e l i e f o f h o ld e rs o f s to c k o f any c o rp o ra tio n

o f t h i s s t a t e whose c e r t i f i c a t e s o f s to c k have been l o s t o r

d e s tro y e d .

An a c t to p ro v id e f o r agreem ents betw een c r e d i to r s and i n ­

so lv e n t com panies.

An a c t r e l a t i v e to the f i l i n g o f c e r t i f i c a t e s o f in c o rp o ra ­

t i o n .

An a c t r e l a t i v e to th e t i t l e s o f c o rp o ra tio n s .

An a c t concern ing c o rp o ra tio n s o f t h i s s t a t e , and o f o th e r

s t a t e s doing b u s in e ss in t h i s s t a t e .

An a c t r e l a t in g to the c o n so lid a tio n o f c o rp o ra tio n s (A p ril 17)

Supplement to "An a c t concern ing in c o rp o ra tio n s" (1878).

An a c t to a u th o r iz e c o rp o ra tio n s formed under th e a c t e n t i t l e d

"An a c t concern ing c o rp o ra tio n s ," approved A p r il 7; 1875, and

th e a c ts amending and supplem enting th e same, f o r th e purpose

o f th e improvement and s a le o f la n d s , o r th e b u i ld in g , opera­

t io n and m aintenance o f h o te ls and c a r ry in g on th e b u s in e ss

o f an irm -k eep e r, o r o f th e t r a n s p o r ta t io n o f goods, merchand­

i s e o r p a ssen g ers upon lan d o r w a te r , to purchase and hold s to c k

in any one o r more o f s a id companies in c e r t a in c a s e s .

An a c t concern ing c o rp o ra tio n s .

76

Date D e sc rip tio n

1890 An a c t concern ing c o rp o ra t io n s e

1890 An a c t to p ro v id e a method f o r ap p o in tin g com m issioners in

th e p la c e o f o th e r com m issioners who have deceased o r who

s h a l l f a l l to a c t in c e r ta in cases touch ing th e o rg a n iz a tio n

o f com panies, and p ro v id in g f o r th e o rg a n iz a tio n o f companies

in c e r t a in c a s e s ,

1891 An a c t to a u th o r iz e c o rp o ra tio n s formed f o r th e purpose o f

c o n s tru c tin g o r r e p a ir in g e i t h e r r a i l r o a d s , w a te r , g a s , o r

e l e c t r i c w orks, tu n n e ls , b r id g e s , v ia d u c ts , c a n a ls , h o te ls ,

w harves, p i e r s , o r any o r a l l such works o f i n t e r n a l improve­

ment o r p u b lic use o f u t i l i t y , to su b sc rib e f o r , ta k e , pay f o r

in p ro p e r ty , m a te r ia ls o r s e r v ic e , h o ld , use and d isp o se o f

s to ck o r bonds in any c o rp o ra tio n formed f o r th e purpose o f

c o n s tru c tin g , m a in ta in in g and o p e ra tin g any such p u b lic w orkse

1892 An a c t r e l a t i v e to the re s id e n c e o f d i r e c to r s o f c o rp o ra tio n s

in t h i s s ta te *

1892 An a c t concern ing c o rp o ra tio n s .

l89li An a c t r e l a t i v e to c o rp o ra tio n s .

1892 An a c t to secu re to la b o re rs and workmen in th e employ o f c o r­

p o ra tio n s a p r io r l i e n fo r wages in cases o f in so lv e n c y .

I 8 9 6 An a c t concern ing c o rp o ra tio n s .

i

77 '■!

C hapter I . In tro d u c tio n

1 0 F . J . R o e th lisb e rg e r and W .J. D ickson, Management and th e W orker, Cambridge: H arvard U n iv e rs ity P r e s s , 1939,

2 , A lfred W, Jo n es , L ife , L ib e r ty , and P ro p e r ty , P h ila d e lp h ia s L ip p in c o tt , 19U1«

3» W illiam H, Whyte, Jr® JBhe O rg an iza tio n Man, New Y ork: Simonand S c h u s te r , I n c , , 19f>&,

it, W ilb e rt E , Moore, The Conduct o f th e C o rp o ra tio n , New York?Random House, 1962,

5 , W illiam Graham Sumner, Folkw ays, New York: The New American L ib ra ry , 1 9 0 6 , p , I t l ,

6 , I b id , p , UO,

7 , W illiam H, S pencer, Law and B u sin e ss , Chicago? U n iv e rs ity o f Chicago P re s s , 1921, V ol. I , p® 5.

8 , Henry R, S eager and C h arles A. Gulick® T ru s t and C orp o ra tio n Problem s. New York? H arper and B ro s ,, 1929, p» 10 ,

9 , P e te r F . D rucker, Concept o f th e C o rp o ra tio n , New York: JohnDay Company, 19U6® pp . o^7, ‘ '

C hapter I I , The Idea o f C orpora teness

1 . S i r F re d e ric k P o llo ck and F re d e ric k W illiam M aitlan d , The H is to ry o f E n g lish Law B efore th e Time o f Edward I , Cambridge? The Uni­v e r s i t y P re s s , 1898* V ol. I , p@ U'69,

2 , Henry Sumner M aine, A ncient Law, London: J , M urray, l 8 6 l ,.. p p . 1 2 1 - 1 2 2 * _ , ■

3* Ib id* p . 25 . :

it® I b id , pp . 302-303* '

: C hap ter I I I , The C o rp o ra tio n in New J e r s e y ‘

1 , N* J . Laws, 1791, p . 730*

2* A rth u r H arriso n C ole, ed* I n d u s t r i a l and Commercial Correspondence o f A lexander H am ilton* Chicago? A, W* Shaw Company, 1928, p* 193®,

' ! ' i

78

C hapter I I I * (C ontinued)

3« We P a t te r s o n « Laws o f th e S ta te o f New J e r s e y , New Brunswick: 1 8 0 0 , pp , 1 0 U -C -------- ----------------- --------------------

lie W.E. S a c k e t t , Modern B a t t le s o f T ren to n , T rentons John L ,Murphy, 1895» p , 10,

5e C liv e Day, "The E a rly Development o f th e American C otton Manufac­tu r e ," Q u a r te r ly Jo u rn a l o f Economics, XXXIX (May 1925)» pp , 2*5 0 - 6 8 , ;------

6 , John W, Cadman, J r , The C o rp o ra tio n in New J e r s e y , Cambridge s Harvard U n iv e rs ity P re s s , 191*9® pp , 206-7 ,

7 , I b i d , p , 37,

8 , Joseph S , D av is, E ssays in th e E a r l i e r H is to ry o f American Cor­p o ra tio n s , Cam bridge: H arvard U n iv e rs ity P re s s , 1917® V ol. I , p , 1 0 6 and V ol. I I , p . 1 6 *

9® N® U. Laws, 1 8 1 6 , p . 17.

1 0 * Cadman, op. c i t . , p . 2 5 ®

11, N. J . Laws, 1815, p , 6 8 ,

12 , Cadman, op. c i t . . C hapter X I,

13 , Seager and G u lick , op. c i t *, p . 31*

l 2*o Cadman, op. c i t . , p* 3 8 0 .

15 . N. J . Laws, 1830, p p . 73, 83.

16 , T his i s s a id to be th e f i r s t locom otive ev e r used f o r r a i l r o a d t r a f f i c in th e co u n try and was p u t upon th e t r a i l s i n Bordontcwn® f S a c k e tt , op . c i t , , p , 8 ,

17® This r i g h t was nev er e x e rc is e d , A lthough New J e rse y had w r i t t e nt h i s p ro v is io n in many c h a r te r s she nev er e x e rc ise d th e o p tio n d i r ­e c t l y , In t h i s manner she circum vented many o f th e problem s th a tfaced s t a t e s t h a t u t i l i z e d ta x funds to fin an ce p u b lic works®

18 . N* J . Laws, 1831, p . 72*,

1 9 . N. J . Laws, 1831, p . 122*.

20 . N. J . Laws, 1832, pp . 79-80 .

21 . S a c k e tt , ©g. c i t . , p . 13.

79

2 2 « Cadman5, opc cite „ p e 5 9 »

23. Votes and P roceedings o f th e G eneral Assembly. 1835), p . 20 .

2ti. F . B y rd s a ll . The H is to ry o f th e Loco-Foco o r Equal R ig h ts P a r ty . New York: Clement and P ackard , lB]j2.

20* Cadman, o p . c i t . . p . 2 0 6 .

2 6 . Cadman, op . c i t . , p . 2 0 6 .

27 . N. J . Laws, 181^6s p . 16.

2 8 . S to ry v . J e r s e y C ity and Bergen P o in t P lank Road Company, 16 New " J e r s e y E q u ity , 13 (1863) and The S ta te , The Warren R ailro ad Com­pany v . P erson , 32 New Je rse y Law, 13U (1866).

2 9 . N. J . Laws, 18U6, p . 61t.

30. H arold W. S to k e . "Economic In f lu e n c e s Upon th e C o rp o ra tio n Laws o f New Je rse y ." Jo u rn a l o f P o l i t i c a l Economy. 38 (O c t. 1930) p p . 550-79.

31. This r i g h t never appeared to be u sed , ex cep t in th o se o rg an iza ­t io n s th a t were, a lre a d y in s o lv e n t . Cadman, op. c i t . , p . 38It.

32. N. J . Laws, 181*6, p . 61*„ N. J . Laws, 181*9, p . 300.

3 3 . Cadman, o p . c i t . , p . 1*31*.

31*. Cadman, e g . c i t ® , p . 1*35.

35. S a c k e tt , og . c it® , p . 18 .

36. L e g is la t iv e docum ents, 1 8 9 6 , pp . 185 -6 .

37. S a c k e tt , og . c i t . , p . 51.

38. The fo reg o in g d is c u s s io n i s based upon read in g in S a c k e tt , op. c i t ®. S to k e , op. c i t . and L inco ln S te f f e n s . "New Je rse y : The T r a i to r S ta te ." M cClure' s M agazine. 21* (A p ril 1905) p p . 61*9-61*j 25 (May1 9 0 5 ) p p . T a ^ r ~

39. S a c k e tt , op . c i t . , p . 96.

1*0. S a c k e tt , og . c i t . , p . 1 8 6 .

1*1. A r t ic le IV, s e c tio n 7 , p a rag rap h 12 .

1*2. N. J . Laws, 181*1*, p . 11*2.

80

ii3o Ne Jo Laws, 1886, pp«, U03“Ua

hho No Jo Laws, 188U, p p e 233 ff«

k!i>» W illiam Ju s tu s B o is . 11 James B, D i l l , ” The W orld8s Work, 3 (March1902) p , 1 8 8 6 s,

1*6, I b id , p* 188 5 o

h7e Ivy Lee, "The Modern Lawyer,” W orld8s Work, 8 (June 190b) p@b873.

b 8 . T ru s t here i s used to in c lu d e companies w hich had c a p i t a l i s a t io n s o f over $1 , 0 0 0 , 0 0 0 and which had r e s u l te d from th e com bination o f two o r more in d iv id u a l f i rm s , R u sse ll C. Larcom* The Delaware C o rp o ra tio n , B a ltim o re : The John Hopkins P re s s , 1937, p . 12«

U9» N» J . Laws, 1888, p p . 385, bU5, .

50. N. J , Laws, 1 8 9 1 , p . 329.

5lo No J . Laws, 1893, p . 301o

James C« B onbrigh t and G ardner C, Means. The Holding Company0

New Yorks McGraw-Hill, 1932. p . 10®

53e U nited S ta te s I n d u s t r i a l Commission, P re lim in a ry R eport on T ru s ts and I n d u s t r ia l C om binations® W ashingtons Government P r in t in g O ff ic e , 1900. p . 1077.

5b® N, J , Laws, I 8 9 6 , C hap ter 185.

55® B arry v . M erchant8s Exchange C o., I Sanford Ch. Rep® (N.Y, ) , V ol.7 , 2 8 0 , 310®

56® No J , Laws9 1875, s e c t io n 53®

57o No J , Laws, 1875, s e c t io n 32®

58® N, J . Laws, 1875, s e c t io n 31® ,

59® N, J , Laws, 1875, s e c t io n b®

60® N. J . Laws, 1875, s e c t io n 6 9 ®

6 lo No J . Laws, 1875, s e c t io n bb«

62o N. J , Laws, 1875, s e c t io n 156®. ' f

63® N® Jo Laws, 1 8 9 6 , s e c t io n 6 ®

6 b® N0 J . Laws, 1 8 9 6 , s e c t io n 7 .

81

65o N0 Jo Laws9 1 8 9 6 # s e c tio n s 955 966

6 6 0 Ne Jo Laws * I 8 9 6 5 s e c t io n lOUo

6 7 e No Jo Laws9 1 8 9 6 5 s e c t io n 106®

6 8 . N. J . Laws9 1 8 9 6 5 s e c t io n 109o

6 9 e No J . Laws5 I 8 9 6 5 s e c t io n 133.

70 . EHerm an v 0 Chicago Ju n c tio n R y s ,, e t c 0 5 C o ., k9 N. J . E q ., 217, 2 I4.O, 2U10

Tie No J . Laws. 1 8 9 8 5 C hapter 172®

72e James B. D i l l . The S ta tu to r y and Case Law A p p licab le to P r iv a te Companies. New York: B aker, Voohis and C o ., 1902 0 p . 10®

73o I b id . p . 15®

7Ue Howard K. Wood. "Advantages o f th e G enera l C o rp o ra tio n Act o f New Jersey e" J e rs e y C ity : The C o rp o ra tio n T ru s t C o ., no d a te «

75«> I b id . p . 2 .

76. I b id . p . 3« . '

C hapter IV. The Modem C orpora tion

1* John P a tte rs o n D avis. C o rp o ra tio n s . New York: C apM com BooksE d itio n , 1897® p . 130.

2» Ivy Lee, op . c i t . , p . U875®

3. T h o rs te in V eblen. The E ngineers and th e P r ic e System . New York: B. W. H uebsch , 1921o

ko Rex D. Hopper. "The R ev o lu tio n ary P ro c e ss : A Frame o f R eferencef o r th e Study o f R ev o lu tio n ary Movements." S o c ia l F o rce s , 28 (March 1950), pp. 270-79®

5® The phenomenon i s c h a r a c t e r i s t i c o f a l l o rg a n iz a t io n a l forms and a p p lie s e q u a lly w e ll to r e l i g io u s , m i l i t a r y , and academic a sso ­c i a t i o n s . The c o rp o ra te p e r s o n a l i ty i s n o t on ly found in l e g a l ly formed c o rp o ra tio n s b u t in a l l c o rp o ra te forms o f s o c ia l re la tio n s !

6 . E a r l Ho' B e l l . S o c ia l F oundations o f Human B ehav io r. New York: H arper and B ro th e rs , 1961. p . 3lp.®

7® I t i s in te r e s t in g to no te t h a t in French and S panish th e co rp o r­a t io n i s t i t l e d an anonymous society®

8 e E lto n Mayo0 "The S o c ia l Problems o f an I n d u s t r i a l C iv i l i s a t io n s " The A d m in is tra to rB John G lover and Ralph Hewer. Homewood, I l l i ­n o is s R ichard;,D . I rw in , 19$lte p . l 6 ho

9» G ris A rg y r is . "F usion o f th e In d iv id u a l W ith in th e O rg a n isa tio n ." American S o c io lo g ic a l Review, 19 (June 195b) p p . 267-72 .

10 . Moore, op. G i t . , C hapter X IIe

1 1 . C larence B. R an d a ll. The F o lk lo re o f Management. Hew York: • M entor E xecu tive L ib ra ry , 1959, "Chapter 7 and R obert P re s th u s .The O rg a n isa tio n a l S o c ie ty . New York: A lfred A. Knopf, 1962.C hapter 9 .

12 . P re s th u s , op 0 c i t# «

13 . P re s th u s , I b id . , C hapter 6 ®

lb® P re s th u s , I b id . , C hapter 7 . ,

15. P re s th u s , I b id . , C hapter 8 .

1 6 . P re s th u s , I b id . , p . 25b»

17 . W. Lloyd W arner. "T he.C o rp o ra tio n Man." The C o rp o ra tio n in Modern S o c ie ty . Edward S . Mason, e d . Cam bridge: H arvard U n iv e rs ityP re s s , I 9 6 0 , p . 107.

18 . Lloyd W. W arner. The S o c ia l System o f the. Modern F a c to ry . .Yankee- C ity S e r i e s , V ol. IV®, New Haven: Y ale U n iv e rs ity P re s s , 19h7«

19 . I b i d . , p . 23®

20® I b id . , p . 5 .

21 . W illiam Z. R ip ley ( e d . ) . T r u s ts , P ools and C o rp o ra tio n s . New York: Ginn and Company, 1905®’ p» xii®

22® B onbrigh t and Means, ©p. c i t . , p . 10®

23. The re c e n t in v e s t ig a t io n s o f th e m ajor e l e c t r i c companies i l l u s ­t r a t e t h a t " p r ic e f ix in g " p la y s a m ajor r o le i n modem b u s in e ssp r a c t i c e s .

C hapter V. C onclusion

1 . W ilb e rt C. Moore. "The Emergence o f New P ro p e r ty C onceptions in Am erica." Jo u rn a l o f Legal and P o l i t i c a l S o c io lo g y . V ol. I (A p r i l 19b3) p." 36 ." “ ■

83

APPENDIX

lo Seager and G u lick , opa c i t o „ p a 1̂ 67 e

2o S a c k e tt j c i t o, p e 256 and Seager and G u lick , 0 £» c i t o , p e 372„

3e P e a r s a l l v«, G rea t N orthern R a ilro a d Company«, l 6 l U6S», 61*6, UO Lo e d e, 838, 1 6 Sup» Ct© Repo, 705*

u , M innesota G eneral Laws, 18?U, C hapter 29? 1881, C hapter 1090

5 , I t i s in t e r e s t in g to n o te t h a t D i l l ’s form 8U was used w o rd -fo r-word in th e c o n tra c t fo r t h i s companye R ip ley , opo c i t o, pp«267-8o

6 0 193 U.S. 332 (190U).

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