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Most of all, differentiation would be welcome in dealing with the concern of the stockholder on one hand, that of the public on the other. Obvious as the need of this may seem to be, it has been somewhat lacking. The stockholder’s interest in the corporation is that of a property holder, his relation to the director is that of one of . several joint owners of property to their representatives and managers—representatives and managers who have very full powers indeed, who can help the stockholder or hurt him beyond repair. The stockholder's prime concern is that the director shall work always and all the time for the corporation, for that means he will work for the stockholder. The director may be, and if he is a big man in the business world, he is likely to be, a director in other corporations, perhaps in several of them. That of itself may mean nothing of importance to the stockholder. The corporations in which the director is interested as director may never come into commercial contact with his own, or their contact may be in its effect neutral or even beneficial. But once the director is interested as director in a competing corporation, or in a corporation which performs a service or produces a commodity or possesses property which the other corporation desires to buy, then the situation changes immediately. The director is at once in the position of one who seeks to serve two masters whose interests are or may easily become more or less conflicting and antagonistic. Can he maintain a perfectly even balance? Will he dot every i, cross every t, do equity like a Solomon? When contracts are made between the two corporations is there not danger that he will give one of them the better of it? The danger is a very real one, and the opportunity presented has tempted many men in just such situations to do gross fraud. Perhaps it will be said that the stockholder has himself to blame if he permits conditions which make such discrimination or dishonest dealing easy. That would be true if the stockholder's position were that of the ordinary employer or owner. But this is not the case. While in certain respects his rights and powers are like those of such an employer or owner, in others they are entirely unlike them. Unless he owns a working majority of the stock himself he cannot say who shall be the directors; he cannot say that a part or even all of the directors chosen shall not hold like positions in one or a dozen

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other corporations, any or all of which may be competitors of his own corporation; there is as yet practically no positive law against intercorporate directorates, intercorporate principals or intercorporate contracts between such directorates or principals. What means the stockholder has to protect himself are curative rather than preventive.

And there are impediments—sometimes exceedingly difficult to overcome—even in the way of administering the cures. Nowhere perhaps is this better illustrated than in the existing state of the law concerning the stockholder's right to inspect the books and papers of the corporation. It is laid down as a broad general proposition that one of the privileges incident to stock ownership is that of inspection of the books and papers of the corporation, and that this privilege in general becomes a right “when the inspection is sought at proper times and for proper purposes.” In many of the states this right has been expressly guaranteed by statute, in some by the constitution—but the right, such as it is, exists at common law, independent of legislative act or constitutional guarantee. Such as it is. For as a general thing it is a right which can be availed of only with difficulty even when the exercise of it seems almost imperative. In ordinary relations it often seems practically impossible to assert it effectively. Some Courts have been more liberal than others in permitting examination of the corporation’s books and papers by the stockholder. In certain cases the privilege has been granted when the only purpose of the stockholder appeared to be to acquire information to enable him to vote intelligently. But no one who looks into the matter can fail to be impressed with the character or apparent number of the instances in which the privilege has been refused. The corporation may cease to pay dividends; the market value of its shares may greatly decrease; the officers may discontinue their reports to the stockholders; the directors may decide to lease or dispose of a part of the property; they may decide to bring suit against one or more of the stockholders. In such cases the stockholder's anxiety will be very real and the only ways in which it can be allayed will be through the assurances of officers and directors whom he trusts or by an examination of the condition of the corporation itself. Yet in cases of precisely this character stockholders seeking information have gone away empty handed, and the Courts have refused relief.

Overmuch stress of course is not to be placed upon this condition of affairs. A fair balance must always be maintained. A corporation is a business enterprise and like most business enterprises it has a business privacy which cannot be invaded and business secrets which cannot be divulged without injury to the stockholders themselves. The director as a trustee of the corporation—and he is a trustee of the corporation first, of the stockholder only secondarily—is often under obligation to preserve these secrets even against the stockholder himself. These secrets may be secrets of process in manufacture; specialized and therefore more or less secret knowledge of markets, of when to buy or to sell to the best advantage; but they may also to some extent—to a reasonable extent—be secrets of business condition. It may for a time be as important to a corporation to keep its competitor in the dark concerning its profit and loss account or its borrowing power as it is to keep from that competitor all knowledge of the ingredients entering into the thing it sells. But admitting all this, the privilege of non-communication can easily transcend the bounds of fairness to the stockholders. It can easily be made to cloak a scheme to deceive the stockholder as to his holdings, to help directors working for their own private pockets or for their underground financial prestige. It is a sinister privilege at the best. When with a stoutly claimed privilege of silence, of noncommunication, there co-exists a situation facilitating and inviting intercorporate relations or contracts or alliances which may easily prove to be to the detriment of stockholders in one or more of the corporations concerned, who can doubt that the privilege should be subject to the closest scrutiny, that the presumptions of the law should favor the stockholder and lodge the burden of shéwing fairness upon the shoulders of the directors? Who can doubt that all contracts made between such corporations where the common directors of all constitute an acting majority or a powerful influence in each should be strictly voidable and that it should be possible for a very minor stockholding interest to set in motion the machinery which would determine whether the contract was fair or prejudicial? What the law has accomplished in this respect and what it may yet incline to accomplish deserve consideration and careful study. It will be found that the Courts have made much more than a beginning, that they have recognized and often protected the infirmities of the stockholders even if they have not often taken those final steps which would make the stockholder quite independent in his dealing with the corporation.”

A very few Courts have held that contracts between corporations which have common directors—under certain conditions at least—are void. Usually, however, in such cases the true reason why they have been held void is that the transaction was fraudulent. A considerable number of Courts are to be found at the other extreme. They hold that the contracts are valid, but usually they say that they are subject to strict scrutiny and must be fair. But the rule upheld by most Courts is that they are voidable. Some say that such contracts may be avoided “without regard to the question of advantage or detriment,” but the great majority permit avoidance only when in addition to the common directorship some element of adverse interest, agency or fraud is present.

The rule that declares all such contracts void seems oppressive. The rule that declares them valid, on the other hand, is much too liberal. It makes common directors feel that they have free rein, that the presumptions are in their favour. The true policy seems to lie between—where most of the Courts have located themselves. The contracts should be regarded as voidable whenever any advantage has been taken of the stockholders on either side. The utmost good faith should be required of those who make such contracts. And therefore to protect fully the interests of the minority and the individual stockholder does it not seem that the individual stockholder— provided he is not shewn to be a gratuitous trouble-maker– should have power to begin proceedings in the Courts which would lead to avoidance of the contract if any advantage had been taken of him or other stockholders? Then the mere shewing that the two corporations between which the contract is made have common directors should constrain the Court to look into the matter. The Courts have not yet given the individual stockholder or the small group of stockholders adequate powers of interference in such cases, And they have not yet allowed them that freedom in the examination of the books and papers of the corporation without which this right would often be empty and meaningless. It is in these two directions that improvement can be made—but improvement can be made in them without great difficulty, for the advance lies along a beaten track. There are no trails to blaze.

2 Some of the most important phases of this matter are discussed by the writer in an article entitled “The Validity of Contracts between Corporations I saving Common Directors,” published in the Michigan Law Review, June, 1906.

It follows as a natural conclusion that so far as the private interest—the interest of the stockholder—is concerned, legislation at this time prohibiting interlocking directorates— except in exceptional cases—or interlocking principals, would be premature. It is doubtful whether, from the private point of view alone, such legislation will ever be necessary, provided the Courts take good care of the intercorporate contracts, extending their good offices in the further strengthening of the stockholder's position.

The dividing line between the public and private or stockholder's interest and point of view in this group of problems is sharp. The public question is economic, to some extent political and social; the stockholder's problem is almost entirely one of profit and loss. In a word, the public problem is the anti-trust problem, the problem of competition and combination. It is not intended to discuss the trust question. It may be said at once that what is said here rests upon a belief in the economic expediency and the social advantage of a general competitive regime in which limited competitive combination or co-operation, in other words a reasonable as distinguished from a monopolistic modus operandi, is allowed to play a significant but an incidental and therefore subordinate role. The kind of combination or co-operation that is not allowed to block the movement and free development of equal economic opportunity, is but the logical evolution and expression of one form of highly developed competitive efficiency. What bearing then have intercorporate directorates, intercorporate ownership, and contracts between corporations having common directors or owners, upon the question of competition and combination?

It is at once obvious that if two or more corporations have boards of directors so constituted that an acting majority or even a highly influential minority of those on one board are members of the other board or boards these two or more corporations may with great facility be made to work together— almost as though they were one. This assumes of course that they are corporations which in their nature can work together. The presence on a local New England real estate corporation's board of a majority of the directors who con

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