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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

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INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 

HEARINGS 

BEFORE THE 

TEMPOEARY NATIONAL ECONOMIC COMMIHEE 
CONGRESS OF THE UNITED STATES 

SEVENTY-SIXTH CONGRESS 

FIRST SESSION 
PURSUANT TO 

Public Resolution No. 113 

(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION OF 
GOODS AND SERVICES 



PART 4 -5, 5 A 
LIFE INSURANCE 



METROPOLITAN LIFE INSURANCE CO. 

NEW YORK LIFE INSURANCE CO. 

ACACIA MUTUAL LIFE INSURANCE CO. 

MUTUAL LIFE INSURANCE CO. OF NEW YORK 

PRUDENTIAL LIFE INSURANCE CO. OF AMERICA 

NORTHWESTERN MUTUAL LIFE INSURANCE CO. 



FEBRUARY 6, 7, 8. 9, 10. 14. 15. 16. AND 17, 1939 



Printed for the use of the Temporary National Economic Committee 




UNITED STATES 
GOVERNMENT PRINTING OFFICE 
91 WASHINGTON : 1939 

inDTUrnCTCDM llfvMA/CDOJTX/ OOlinni ^*i mif i frtr« 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75tb Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM H. KING, Senator from Utah 

WILLIAM E. BORAH, Senator from Idaho 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THURMAN W. ARNOLD, Assistant Attorney General 

WENDELL BERQE, Special Assistant to the Attorney General 

Representing the Department of Justice 

WILLIAM O. DOUGLAS, Chairman 

•JEROME N. FRANK, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Chairman 

•EWIN L. DAVIS. Commissioner 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

•A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

•CHRISTIAN JOY PEOPLES, Director of Procurement 

Representing the Department of the Treasury 

RICHARD C. PATTERSON, Jr., Assistant Secretary 

Representing the Department of Commerce H j j 

LEON HENDERSON, Executive Secretary ^jr-pi 



i 



REPRINTED 
BY 

WILLIAM S HEIN & CO., INC 

BUFFALO, N. Y. 
1968 



CONTENTS 



Testimony of — Page 

Bampe, Nathan, agent, Metropolitan Life Insurance Co., Newark, 

N. J 1359-1360 

Bander, S. J., agent. Metropolitan Life Insurance Co., Somerville, 

Mass—, - 1337-1341 

Bell, Haughton, assistant general counsel, Mutual Life Insurance Co. 

of New York, New York City ._..,._. 1396-1399 

Bottome, Harry, general counsel. New York Life Insurance Co., New 

York City ... 1446-1451 

Brodis, Samuel U., agent. Metropolitan Life Insurance Co., Philadel- 
phia, Pa - - 1350-1352 

Buckner.'Thomas D., chairman of the board. New York Life Insurance 

Co., New York City 1417-1441 

Chubb, Hendon, director, Prudential Life Insurance Go. of America, 

West Orange, N. J J 1479-1490 

Cleary, Michael J., president. Northwestern Mutual Life Insurance 

Co., Milwaukee, Wis 1490-1508 

Davenport, Dr. Donald H., special economic consultant. Securities 

and Exchange Commission, Washington, D. C 1165-1197, 1400-1407 

Dorfman, Jacob, agent, Metropohtan Life Insurance Co., Philadel- 
phia, Pa-1 1357-1359 

Ecker, Frederick H., chairman of the board, Metropohtan Life Insur- 
ance Co., New York City _. 1235-1294 

Follansbee, Mitchell D., director, Metropohtan Life Insurance Co., 

Chicago, 111 1412-1416 

Ghckman, Meyer, agent, Metropohtan Life Insurance Co., Philadel- 
phia, Pa 1361-1363 

Goldberg, Samuel, agent, Metropohtan Life Insurance Co., Paterson, 

N. J 1363-1366 

Heitzer, Alexander, agent. Metropolitan Life Insurance Co., Philadel- 
phia, Pa 1355-1357 

Hilles, Charles D., director. New York Life Insurance Co., New York 

City 1472-1478 

Houston, David Franklin, president. Mutual Life Insurance Co. of 

New York, New York City 1453-1471 

Howe, Ernest, chief financial advisor to the Insurance Section, Securi- 
ties and Exchange Commission, Washington, D. C-.. 1198-1233 

Judson, Charles Everett, assistant secretary. New York Life Insur- 
ance Co., New York City ■_ 1371-1378 

Kurth, Wilfred, chairman of the board of directors, Home Insurance 

Co', of New York, New York City . 1442^1445 

Leshan, Samuel, agent. Metropolitan Life Insurance Co.j Boston, 

Mass....- .■ 1342-1345 

Lincoln, Leroy A., president, IVIetropohtan Life Insurance Co., New 
York City 1319-1328 

Mooers, Samuel E., secretary. Acacia Mutual Life Insurance Co., 

Washington, D. C .1 . 1378-1387 

O'Brian, Jonn Lord, special council, Metropolitan Life Insurance Co. 1312, 

1328, 1331, 1368 

Pettinelli, Dominic A., agent, Metropolitan Life Insurance Co., 

Philadelphia, Pa 134&-1350 

Schurr, Edward, agent, Metropolitan Life Insurance Co., New York 

City -.- 1313-1322 

Silbiger, Bruno, agent, Metropolitan Life Insurance Co., New York 

City 1322-1329 

Smith, Herbert S., legal department, Mutual Life Insurance Co. of 

New York, New York City 1387-1396 

m 



IV CONTENTS 

Testimony of — Continued. Page 
Steele, Earl, agent, Metropolitan Life Insurance Co., Paterson, 

N. J 1332-1337 

Tully, Cletis E., assistant secretary. Metropolitan Life Insurance Co., 

Ne\y York City 1294r-1313 

Weiss, Ernest, agent, Metropolitan Life Insurance Co., Philadelphia, 

Pa 1352-1354 

Statement of — 

Douglas, W. O., chairman, Securities and Exchange Commission, 

Washington, D. C 1161-1164 

Introductory statements and comment on size and importance of legal 
reserve life-insurance companies: 

Growth, income and expenditures, and general comparisons 1165 

Assets and investments 1198 

Metropolitan Life Insurance Co 1235 

Management aspects: 

Selection and attendance of directors in Metropolitan Life Insurance 

Co 1265 

Election of directors: 

Metropolitan Life Insurance Co 1294 

New York Life Insurance Co - 1371 

Acacia Life Insurance Co 1378 

Mutual Life Insurance Co. of New York 1387 

Analysis of recent elections in major companies 1400 

Transactions of Mitchell D. Follansbee, director. Metropolitan Life 

Insurance Co 1412 

Growth of New York Life Insurance Co. and the selection and attendance 

of its directors 1417 

Transactions involving interlocking directors and directors' affiliations: 

New York Life Insurance Co 1428 

Mutual Life Insurance Co 1453 

Selection of directors — Home Insurance Co 1 442 

New York law governing conduct of life-insurance directors 1446 

Transactions of Charles D. Hilles, director. New York Life Insurance Co 1472 

Transactions of Hendon Chubb, director, Prudential Life Insurance Co. 

of America . 1479 

The Northwestern Mutual Life Insurance Co., election and selection of 
directors, duties and standards of directors' conduct and policyholders' 

committee 1490 

Schedule and Summary of exhibits v 

Monday, February 6, 1939 1161 

T uesday, February 7, 1939 1235 

'/ednesday, Februarys, 1939 1265 

' hursday, February 9, 1939 1331 

J riday, February 10, 1939 - . 1367 

' uesday, February 14, 1939 1371 

' Wednesday, February 15, 1939 1409 

' hursday, February 16, 1939 1453 

1 riday, February 17, 1939 1479 

i ppendix 1511 

Supplemental data 1641 

J idex I 



SCHEDULE OF EXHIBITS 



sumniiry of exhibits 



215. 



216. 



217. 



Relative amounts of life insurance in force throughout the 
world 

Chart: Classes, of life insurance in force in United States for 
years 1900-38. Supported by statistical data on p. 1511 
in appendix ■ 

Chart: Amount of life insurance in foEce in United States for 
years 1890-1937. Comparatively illustrated by popula- 
tion growtli for same period. Supported by statistical 
data on p. 1512 in appendix 

218. Chart: Income and expenditures of life-insurance companies 

for years 1805-1937. Supported by statistical data on p. 
1512 in appendix 

219. Chart: Distribution of income and expenditures of life-in- 

surance companies for year 1937 

220. Chart: Comparative total income of life-insurance compa- 

nies and the national income for the years 1880-1938. Sup- 
ported by statistical data on p. 1513 in appendix 

221. Chart: Assets of formal savings institutions in the United 

States for years 1910-37. Supported by statistical data 
on p. 1513 in appendix 

Chart 1: Admitted assets of the 16 largest life-insurance 
companies in comparison with the assets of all 308 compa- 
nies reporting as of Dec. 31, 1937. Chart 2: Admitted 
assets of the 25 largest life-insurance companies in com- 
parison with the assets of all 308 companies reporting as of 
Dec. 31, 1937. Supported by statistical data on p. 1514 
in appendix 

Statement by Armstrong Committee that the business of 
some life-insurance companies has grown beyond reason- 
able limits 

224. Table: Assets and liabilities of all life-insurance companies as 
of Dec. 31, 1937 

Chart: Life-insurance assets by dollars for years 1906 to 1938. 
Supported by statistical data on p. 1518 in appendix 

Chart: Life-insurance assets by percent for years 1906 to 
1938. Supported by statistical data on p. 1519 in ap- 
pendix 

Charts: Corporate bonds and notes for years 1930 to 1938. 
Supported by statistical data on p. 1520 in appendix 

Chart: Growth of private placements of corporate security 
issues. Supported by statistical data on p. 1520 in ap- 
pendix 

229. Chart: Net investment income and interest required on re- 

serves. Supported by statistical data on p. 1521 in ap- 
pendix 

230. Table: Capital gain or loss, excess interest, and policy- 

holders' surplus - 

231. Advertisement of Metropolitan Life Insurance Co. to the 

effect that it is a mutual company 

232. Sec. 94 of the New York insurance law re provisions for 

election of directors in mutual life-insurance companies.. 

233. List of board of directors of the Metropolitan Life Insurance 



222. 



223. 



225. 
226. 



227. 
228. 



1165 
1168 

1172 



1176 


1177 


1180 


1181 


1182 


1183 


1188 


1189 



1194 

1197 
1201 
1211 

1213 
1221 

1225 

1227 
1230 
1265 
1266 
1266 



1511 
1169 

1173 



1195 

1515 
1517 
1212 

1214 
1222 

1226 

1228 

1521 

Facing 

1522 

1522 

1526 



VI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 



234. 



235. 



237. 



238, 
239, 



240. 



241. 



Schedule of business affiliations of the directors of the 
Metropolitan Life Insurance Co 

Table: Schedule of attendance at directors' meetings of the 

Metropolitan Life Insurance Co 

236. Letter, dated Feb. 9, 1934, from Charles M. Schwab, direc- 
tor, Metropolitan Life Insurance Co., to Frederick H. 
Ecker, president. Metropolitan Life Insurance Co., sug- 
gesting that Mr. Schwab might resign as a director of 
Metropolitan Life_e 

Letter, dated Feb. 15, 1934, from Frederick H. Ecker, presi- 
dent, Metropolitan Life Insurance Co. to Charles M. 
Schwab, director, Metropolitan Life Insurance Co., 
advising Mr. Schwab not to resign as a director of Metro- 
politan Life 

Charter and b3'laws of Metropolitan Life Insurance Co 

Letter, dated June 27, 1930, from John W. Davis of Davis 
Polk Wardwell Gardiner & Reed, to Frederick H. Ecker, 
president. Metropolitan Life Insurance Co., suggesting 
that Mr. Davis might resign as a director of Metropolitan 
Life 

Letter, dated July 1, 1930, from Frederick H. Ecker, presi- 
dent. Metropolitan Life Insurance Co., to John W. Davis 
of Davis Polk Wardwell Gardiner & Reed, advising Mr. 
Davis not to resign as a director of Metropolitan Life 

Letter, dated Apr. 20, 1938, from Frederick H. Ecker, 
president. Metropolitan Life Insurance Co , to L. A. 
Taschereau, director, Metropolitan Life Insurance Co., 
re Mr. Taschereau's lack of attendance at Metropolitan 
Life board meetings for the preceeding 16 years 

242. Letter, dated Apr. 27, 1938, from L. A. Taschereau, director, 

Metropolitan Life Insurance Co., to Frederick H. Ecker, 
president, Metropolitan Life Insurance Co., agreeing to 
any action Mr. Ecker might take as to Mr. Taschereau's 
continuance as a director of Metropolitan Life 

243. Letter, dated Mar. 18, 1935, from John H. Almy, superin- 

tendent of agencies for Metropohtan Life Insurance Co., 
to Leroy A. Lincoln, vice prCvSident, Metropolitan Life 
Insurance Co., suggesting that agents be given some in- 
formation as t(5 directors of Metropolitan Life. Letter, 
dated Mar. 22, 1935, from L. A. Lincoln to J. H. Almy, 
acknowledging Mr. Alm3'^'s suggestion 

244. Letter, dated Jan. 24, 1939, from F. R. Jewett, vice president, 

American Telephone & Telegraph Co., to Senator Joseph 
C. O'Mahoney, chairman, Temporary National Economic 
Committee, containing information on the long-life 
vacuum tube. Appears in Hearings, part III, appendix, 
p. 1158 - 

245. Tables: Votes cast for directors of Metropolitan Life Insur- 

ance Co 

246. Letter, dated Jan. 8, 1937, from Leroy A. Lincoln, president, 

Metropolitan Life Insurance Co., to ^Louis H. Pink, 
superintendent of insurance of the State of New York In- 
surance Department, submitting rules and regulations for 
the conduct of the biennial election of directors of the 
Metropolitan Life Insurance Co. Letter, dated Jan. 12. 
1937, from Louis H. Pink, to Leroy A. Lincoln accepting 

the rules submitted 

Copies of proxies and ballots for Metropolitan Life Insurance 
Co. director election.. 



■^47. 



1266 
1267 



1271 



1271 
1273 



1277 



1277 



1281 



1281 



1283 



1294 
1296 



1297 
1300 



1526 
1529 



1529 



1529 
1530 



1539 



1539 



1540 



1540 



1541 



1541 



1542 
1544 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



vn 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on 
page 



248. 



249. 



Letters, dated Jan. 25, and Jan. 21, 1937, from Leroy A. Lin- 
coln, president. Metropolitan Life Insurance Co., to 
managers and detached assistant managers, re elections of 
directors 

Letter, dated July 27, 1938, from J. Almyk Lieberman, a 
policyholder of Metropolitan Life Insurance Co., to Metro- 
politan Life, requesting a copy of the company constitution 
and bylaws. Letter, dated July 29, 1938, from C. E. TuUy, 
Metropohtan Life Insurance Co., answering Mr. Lieber- 
man. Data slip on Mr. Lieberman from Metropolitan Life 

files 

250. Post card, dated Sept. 29, 1936, from C. L. Fontaine, a policy- 
holder of Metropolitan Life Insurance Co., to Metropolitan 
Life requesting information on votes for election of directors. 
Letter, dated Oct. 9, 1936, from C. E. TuUy, assistant 
secretary of Metropolitan Life Insurance Co., to C. L. Fon- 
taine in response to his post-card request. Letter, dated 
Oct. 9, 1936, from C. E. TuUy, to Henry V. Party, manager 
of the Penway (Mo.) district of Metropolitan Life, request- 
ing information on C. L. Fontaine. Letter, dated Oct. 13, 
1936, from H. V. Party to C. E. Tully, giving information 

on C. L. Fontaine 

Duplicate of "Exhibit No. 247" 

Schedule prepared by C. E. Judson of New York Life In- 
surance Co., showing number of votes cast for board of 

directors for years 1908 to 1938- -.-• 

253. Acacia Mutual Life Insurance Co. board of directors and 

notice for nominations and qualifications for directors 

Acacia Mutual Life Insurance Co. proxies and ballot 

The 12 largest mutual life-insurance companies with table 
of policyholders, possible votes and votes actually cast in 

elections of directors 

Methods employed by the 12 largest mutual life-insurance 
companies in notifying policyholders of meetings for the 

election of directors 

Schedule of methods employed by mutual life-insurance- 
companies in notifying policyholders of meetings to be 
held for the election of directors and by proprietary life- 
insurance companies in notifying stockholders of similar 

meetings ---- 

Statements by authorities re the subject of mutuality in life- 
insurance companies: 

1. Elizur Wright, Politics and Mysteries of Life Insur- 

ance (1873). 

2. Report of joint committee of the Senate and As- 

sembly of the State of New York to investigate 
and examine into the business and affairs of life- 
insurance companies (vol. X (Armstrong Com- 
mittee) 1906). 

3. Effort of the Commission to recodify the insurance 

laws under ch. 11 of the Resolves of 1906 made to 
His Excellency Curtis Guild, Jr., Governor of the 
Commonwealth of Massachusetts, June 1906. 

4. Report of the committee appointed pursuant to House 

Re.'olutions 429 and 504 to investigate the concen- 
tration of control of money and credit, 1913, pp. 
146-147 (Pujo Committee). 

5. New York State Insurance Report, 1927, pt. 1, pp. 

8-9, superintendent of insurance, James A. Beha. 

6. Life insurance, A Critical Examination, by Edward 

Berman, pp. 179, 180 (1936) - 

< On file witb the committee 



251. 
252. 



254. 
255. 



256. 



257. 



258. 



1301 



1307 



1546 



1547 



1309 
1341 



1373 



1380 
1381 



1400 
1405 



1406 



1548 



1549 



1550 
1551 



1552 
1553 



1555 



1407 



1555 



VIII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number i 



summary of exhibits 



Intro- 
duced 
at page 



259. Sec. 38 of New York insurance law on "Officers and directors 

not to be pecuniarily interested in transactions" 

260. Letter, dated May 7,-1932, from Mitchell D. Follansbee of 

FoUansbee, Shorey & Schupp. to Leroy A. Lincoln, vice 
president and general counsel. Metropolitan Life Insurance 
Co., asking that Metropolitan Life consider Mr. Follans- 

bee's firm in possible future litigation 

26 L Directors of New York Life Insurance Co 

262. Schedule of business affiliations of the directors of the New 

York Life Insurance Co 

263. Memorandum, dated Oct. 11, 1937, from Charles R. Van 

Anden, real estate department of New York Life Insurance 
Co., to G. S. Van Schaick, vice president, New York Life 
Insurance Co., on fuel-oil contracts 

264. Letter, dated June 7, 1938, from Alfred E. Smith, chairman 

of the board, Meehan Oil Co., Inc., to Thomas A. Buckner, 
president, New York Life Insurance Co., on fuel-oil con- 

265. Letter, dated May 14^1935^ from Alfred" E^Smith'orEmpire 

State, Inc., to .Alfred L. Aiken^ vice president, New York 
Life Insurance Co., on fuel-oil contracts 

266. Letter, dated Oct. 7, 1937, from M. D. Shulkin of John F. 

James & Sons, Inc., to Mr. Cotter of the real estate depart- 
ment of New York Life Insurance Co., on subject of fuel- 
oil 

267. Letter, dated Oct. 14, 1937, from Ridley Watts, to Walton 

P. Kingsley, vice president of New York Life Insurance 
Co., with enclosure of letter, dated Sept. 13, 1937, from. 
E. A. Henne, vice president, to B. M. Culver, president, 
both of American Fore a group of fire insurance com- 
panies, relative to fire insurance that New York Life was 
able to place 

268. Letter, dated Nov. 12, 1937, to Ridlev Watts from G. S. Van 

Schaick, vice president of New York Life Insurance Co., on 
New York Life distribution of fire insurance. Letter, 
dated Nov. 16, 1937, to Ridley Watts, from G. S. Van 
Schaick, assuring Mr. Watts that American Fore would 
share in fire insurance New York Life might distribute 

269. Memorandum, dated Oct. 18, 1G37, from Harry Bottome, 

general counsel. New York Life Insurance Co., to Mr. G. 
S. Van Schaick, vice president, New York Life Insurance 
Co., on interpretation of sfec. 36 of the New York insurance 
law 

270. Board of trustees, the Mutual lAfe Insurance Co. of New 

York, with date of election of each member 

271. Schedule of business affiliations of the trustees, Mutual 

Life Insurance Co. of New York 

272. Letter, dated Sept. 7, 1933, from John K. Ottley, president, 

the First National Bank of Atlanta, to David F. Houston, 
president, the Mutual Life Insurance Co. of New York 
enclosing letter of same date from John K. Ottley to G. C. 
Turner, treasurer, the Mutual Life Insurance Co., on sub- 
ject of an account with First National Bank of Atlanta 
from Mutual Life. Letter, dated Sept. 16, 1933, from 
John K. Ottley to David F. Houston, acknowledging a 
check for $500,000 to First National Bank of Atlanta from 
Mutual Life..--^ 



1411 

1414 
1426 

1426 

1437 

1437 
1437 

1437 

1438 

1438 

1448 
1454 
1454 



1411 

1558 
1558 

1558 

1562 

1563 
1563 

1563 

1564 
1564 



1565 
1566 
1567 



1455 1571 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



IX 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 



273. Letter, dated Aug. 29, 1935, from John K. Ottley, president, 

First National Bank of Atlanta, to George C. Turner, 
treasurer, the Mutual Life Insurance Co., on subject of 
additional deposits by Mutual Life with First National 
Bank of Atlanta ■ 

274. Letter, dated Sept. 10, 1935, from George C. Turner, treas- 

urer, the Mutual Life Insurance Co., to John K. Ottley, 
president, First National Bank of Atlanta, enclosing check 
of $250,000 for deposit 

275. Letter, dated Sept. 13, 1933, from Stanley Field, chairman 

of the board. Continental Illinois National Bank & Trust 
Co., to David F. Houston, president, the Mutual Life 
Insurance Co. of New York, requesting consideration of a 
larger account by Mutual Life. Letter, dated Sept. 20, 
1933, from George C. Turner, treasurer. Mutual Life 
Insurance Co., to Stanley Field, replying to request bv 
Mr. Field. Letter, dated Sept. 22, 1933, from Stanley 
Field to George C. Turner, acknowledging receipt of 
previous letter ■ 

276. Letter, dated Dec. 16. 1932, from S. Sloan Colt of Bankers 

Trust Co. of New York, to David F. Houston, president, 
the Mutual Life Insurance Co. of New York, acknowledg- 
ing negotiations for opening of an account with Bankers 
Trust by Mutual Life 

277. Schedule showing the highest bank balance and rate of 

interest paid on Mutual Life Insurance Co.'s deposit 
accounts in 12 banks for the years 1928 to 1938 

278. Letter, dated Oct. 19, 1931, from James M. Beck to David 

F. Houston, president, the Mutual Life Insurance Co. of 
New York, requesting business for Abbott, Hoppin & 
Co., through its agent H. E. Mitchell, Mr. Beck's brother- 
in-law. Also schedule of amounts involved in Mutual 
Life, Abbott, Hoppin & Co. transactions 

279. Letter, dated May 1, 1933, from Charles D. Hilles, director. 

New York Life Insurance Co., resident manager for the 
State of New York of the Employers' Liability Assurance 
Corporation, New York, N. Y., to Alfred L. Aiken, vice 
president. New York Life Insurance Co., requesting New 
York Life place its fidelity and surety lines of insurance 
with Employers' Liability Assurance Corporation 

280. Letter, dated May 10. 1933, from Alfred L. Aiken, vice 

president, New York Life Insurance Co., to Charles D. 
Hilles, resident manager for the State of New York of the 
Employers' Liability Assurance Corporation informing 
Mr. Hilles that a liability policy on a hotel would be 
turned over to Employers' Liability Corporation and that 
more would follow 

281. Letter, dated Aug. 2, 1938, from Charles D. Hilles, resident 

manager of New York State for the Employers' Liability 
Assurance Corporation, Ltd., to Charles R. Van Anden, 
real estate department of New York Life Insurance Co., 
on subject of low-pressure boiler inspection 

282. Letter, dated Aug. 31, 1938, from Edw. C. Stone, president, 

the Employer's Fire Insurance Co., to Charles D. Hilles, 
director, New York Life Insurance Co., asking Mr. Hilles 
for favorable consideration of Employers' Fire Insurance 
Co., to handle solely New York Life's fire insurance 



1456 



1456 



1573 



1573 



1459 



1461 
1464 



1466 



1477 



1477 



1477 



1477 



1574. 



1575 
1576 



1578 



1578 



1579 



1579 



1580 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summnry of exhibits 



Intro- 
duced 
at page 



Appears 



283. Letter, dated Sept. 14, 1938, from Charles D. Hilles, direc- 

tor, New York Life Insurance Co., to Edward C. Stone, 
president, the Employers' Fire Insurance Co., informing 
Mr. Stone that New York Life would not consider placing 
all their fire insurance with one company 

284. Memorandum, dated Nov. 9, 1933, from W. T. Hadley to 

Alfred L. Aiken, vice president, New York Life Insurance 
Co., with reference to the bonding of residential loan 
correspondents 

285. Letter, dated Feb. 6, 193G, from Claude W. Shimmon to Mr. 

Alfred L. Aiken, vice president. New York Life Insurance 
Co., advising that Employers' Liability Assurance Corpo- 
ration be used for coverage on some Dayton, Ohio, prop- 
erty 

286. Schedule showing premiums paid by Prudential Insurance 

Co., to U. S. Guarantee Co., Federal Insurance Co., and 
American Insurance Co., for years 1930 to 1938 

287. Schedule of the trustees of the Northwestern Mutual Life 

Insurance Co., with business affiliations 

288. Transcript of Wisconsin State law re procedure to be followed 

in contested elections of directors or trustees in mutual life- 
insurance companies 

289. Table, dated Feb. 10, 1939, showing Northwestern Mutual 

Life Insurance Co.'s average daily bank balances in 8 banks 
for years 1933 to 1938 

290. Table of lawyers' fees, to firms whose members were directors 

of Northwestern Mutual Life Insurance Co. for years 1929 
to 1 938 - - 

291. Schedule prepared by Northwestern Mutual Life Insurance 

Co., showing the members of the policyholders' examining 
committee since 1929, their occupations, their address, their 
age, and by whom suggested 

292. Northwestern Mutual Life Insurance Co., annual statement 

for the year 1938 

293. Minutes of the meetings of the examining committee of 

policyholders of the Northwestern Mutual Life Insurance 

Co. for 1938 

Unnumbered. Table: Income of life insurance companies and 

United States national income, 1850-1938 

Unnumbered. Chart: Total income of life insurance companies 

and the national income, 1880-1938 

Unnumbered. Table: Assets of formal savings institutions in 

United States, 1910-37 

Unnumbered. Chart: Assets of formal savings institutions in 

United States, 1910-37 

304. Letter dated Feb. 16, 1939, from George S. Van Schaick, vice 
president of New York Life Insurance Co., to Gerhard A. 
Gessell re "Exhibit No. 263", entered in the record on 
Feb. 28, 1939 . 



1477 
1478 

1478 

1481 
1491 

1492 

1499 

1499 

1505 
1505 

1506 



1580 
1581 

1581 

1582 
1583 

1588 

1591 

1591 

1592 
1595 

1635 
1641 
1642 
1643 
1644 

1645 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



MONDAY, FEBRUARY 6, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee m.et at 10:20 a. m. pursuant to adjournment on 
Friday, January 20, 1939, in the Caucus Room, Senate OfRce Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman) and King; Representa- 
tives Reece and Williams; Messrs. Henderson, Arnold, Douglas, 
Ferguson, Patterson, Lubin, Berge, and Peoples. 

Present also: Gerhard A. Gesell, Special Counsel, Securities and 
Exchange Commission. 

The Chairman. The committee will please come to order. 

I might say tliat Monday is a particularly difhcult day for some 
members of this committee, some of the congressional members, 
because the Judiciary Committees in both the Senate and House 
have a standing order to meet on Mondays. The vice chairnian, 
Congressman Sumners, is undoubtedly at work in the Judiciary 
Committee, and I know that both Senator Borah and Senator King 
as well as the chairman, are members of the Judiciary Committee of 
the Senate. I want those who are here to understand the absence of 
Senators. It isn't particularly necessary for the record. 

The committee has been assembled today for the purpose of hearing 
the Securities and Exchange Commission under section 3b of the 
resolution by which this committee was created. Chairman W, O. 
Douglas, of the Securities and Exchange Commission, and a member 
of this committee, is present. Do you care to make a statement, Mr. 
Douglas? 

STATEMENT OF W. 0. DOUGLAS, CHAIRMAN SECURITIES AND 
EXCHANGE COMMISSION 

Mr. Douglas. Mr". Chairman, today, if the committee please, the 
Securities and Exchange Commission commences the presentation of 
facts relating to certain aspects of the insurance business. 

The President, in his message to the Congress, spoke of the tre- 
mendous investment funds controlled by our great insurance com- 
panies and asked that authorization be given to investigate the man- 
ner in which these investments are used as "an instrument of economic 
power." It is on this broad problem that we will present to the 
committee facts concerning the insurance business. 

Our study to date has had the cooperation of the insurance com- 
panies. The Commission has already assembled much factual infor- 
mation for its study. Part of this has been supplied from answers to 

llGl 



1162 CONCENTRATION OF ECONOMIC POWER 

questionnaires; much of it has come from the files of the companies, 
and we have also gathered certain facts from public reports and docu- 
ments. We are now at a stage where additional information must be 
sought from officers, directors, and others who formulate and carry- 
out the policies of the uisurance companies. This information is of 
such a character that necessarily it lies only in the minds of those who 
have been called to testify. 

At the outset, Mr. Chairman, I want to make clear that this inquiry 
does not attack and in no way questions the adequacy of the reserves 
of any insurance company within its scope. Under State laws the legal 
reserve companies are required to set aside in restricted investments, 
funds sufficient to assure that each policyholder will receive the amount 
of his policy when his risk matures. No policyholder need have any 
concern that an}-- fact brought out in this inquiry will in any way 
jeopardize the protection which he counts upon through his insurance 
policy. 

The last comprehensive analysis of the life-insurance business by an 
agency of the Government was the study made by the so-called Arm- 
strong committee, of which Charles Evans Hughes, now Chief Justice 
of the United States, was counsel. 

This conimittee, functioning under authority of the New York State 
Legislature, inquired in 1905 into the practices of companies chartered 
or authorized to do business in the State of New York. That study 
was broad in scope. It covered the activities of insurance companies 
from such details as the provisions of insurance policies to the methods 
by which companies were organized and the manner in which they 
participated in investment syndicates. The Armstrong committee 
recommended certain reforms, some of which were translated into leg- 
islation. Following the hearings conducted for the Armstrong com- 
mittee, similar inquiries were begun in other States and there resulted 
a general tightening of State regulation of insurance companies. Lead- 
ers of the life-insurance business have likewise recognized the salutary 
effect of the Armstrong report on insurance in the United States and 
the lasting importance of the contribution which was then made. 

I earnestly recommend to each member of. this committee a careful 
reading of the Armstrong report. The work of the Armstrong com- 
mittee, its findings, and its report, have over the years been recognized 
as an outstanding contribution to an understanding of the problems 
of finance. Its thoroughgoing fairness and competence are well known. 

It has been the desire of the Securities and Exchange Conmiission 
in conducting the present inquiry to adhere to the standards estab- 
lished by the Armstrong committee and to follow insofar as changed 
conditions permit the pattern so ably laid down by that committee. 

It is our present task to survey the economic power inherent in the 
vast investment funds controlled by the insurance companies and to 
study the impact of that power upon our national economy. The 
scope of our problem is as broad as the sphere of ififluence of the in- 
surance companies themselves. Inquiry into that problem of neces- 
sity takes us from Wall Street to Main Street, from the capital 
markets and financial centers of the East into the farm lands of the 
West and South. It \yill properly bring us in time to a consideration 
of the extent to wliich insurance company influence permeates areas 
of national importance, such as the capital markets, the supply of 
mortgage funds available to farmers, railroad reorganization, and per- 
haps the financing of low-rent housing. It will of necessity demand 



CONCENTRATION OF ECONOMIC POWER ^gg 

inquiry as to the future of investment banking in this country, and, 
iudeed, the extent to which insurance companies have come to domi- 
nate security issuers, underwriters and investors. These are not 
boundaries of our making. They inhere in the character of the in- 
surance business. 

We take as our starting point a consideration of insurance company 
managements and how they are elected. This is a logical point of 
approach, since management formulates investment policy. That, 
incidentally, was one of the principal problems of the Armstrong 
committee. It studied the responsibility of Ufe insurance company 
managements to their policyholders, and the extent to which the 
policyholders were really able' to control the managements of their 
companies. The Armstrong committee particularly considered the 
election machinery of mutual life insurance companies. We, too, will 
be concerned with this problem. Nearly 90 percent of the assets of 
our life insurance companies are controlled by mutual companies. 

This question of how insurance company managements come into 
power is itself of great significance. Yet, in a study as broad as this 
one, it constitutes but a beginning. But it will be a significant first 
chapter of our total stud}'. 

As you loiow, a mutual life insurance company is a company which 
is legally owned and theoretically controlled by its policyholders. In 
such a company the policyholders combine to insure each other against 
death with the understanding that such savings as result from the 
mutual operation of the company will be equitably distributed among 
the policyholders. The control of a mutual company rests legally 
with the policyholders who are given the opportunity of voting for 
the directors, and, through the directors, of appcinting those who are 
to run the affairs of their company. The Armstrong committee re- 
ported that the election machinery of the mutual companies was such 
as to prevent any independent expression of policyholder viewpoint. 
Notwithstandmg their theoretical rights, policyholders were found by 
that committee to have no effective control over the management of 
their companies. Through the device of proxies and otherwise, the 
then ofiicials of such companies were found to occupj^, as the Arm- 
strong report put it, "unassailable positions," and to exercise "des- 
potic powers" over the companies. Only an extremely insignificant 
number of policyholders exercised their right to vote, and the Arm- 
strong committee stated that the most fertile source of abuses in life 
insurance administration had been the sense of irresponsibihty of the 
officials then in power. That was in 1906, 

Since 1906 there has been a tremendous and spectacular growth of 
insurance. At that time there were 138 legal reserve companies with 
aggregate assets of about $2,900,000,000. That was on December 31, 
1906. On December 31, 1937, there were 308 legal reserve companies 
with aggregate assets of about $26,200,000,000, and by the end of 
1938 the amount of those total assets had further increased by nearly 
$1,500,000,000. 

Three individual companies in 1906 each commanded approxi- 
mately one-half bilHon dollars in assets. The Armstrong Committee 
recommended that they should not be permitted to grow beyond one- 
half billion in size.^ Yet today each of these three companies com- 

'Mr. Douglas subsequently clarified this statement, see infra, p. 1197. See also "Exhibit No. 223", 
appendix, p. 1515. 



1164 CONCENTRATION OF ECONOMIC POWER 

mands well over a billion dollars in assets. One of them, the New 
York Life Insurance Co., has grown from approximately $474,000,000 
in assets to about $2,500,000,000 in assets. The MetropoUtan Life 
Insurance Co., wliich then had assets of about $176,000,000, now has 
assets totaling close to $5,000,000,000. This tremendous growth is 
itself cause for inquiry. It provides also ample occasion for taking 
stock of the changes which have occurred in the three decades since 
the Armstrong Committee made its survey. To that end, we shall 
reexamine many of the problems studied by the Armstrong Committee, 
including the methods by which the management of these companies 
is elected and thereafter continued in office and the extent to which 
the democratic principles of mutuality are in fact preserved in 
operation. 

During these first hearings we will concentrate upon testimony 
indicating the Extent to which poUcyholders actually exercise control 
over the management and policies of the large mutual life insurance 
companies which they are said to own and control. 

This inquiry will of necessity demand some examination of indi- 
vidual directors with a view to determining the facts and motives 
lying behind their nomination and election to the board of their 
respective companies and their continued participation on such boards 
following election. 

The fiist day of the hearings will be devoted to the testimony of 
members of the staff of the Commission who will present to this com- 
mittee, through graphs and schedules, background information indi- 
cating the size and growth of the life insurance business and its im- 
portance in our national economy. We believe that this background 
material will become of increasing significance hs the hearings progress. 

There is one word more, Mr. Chairman. Throughout tho course of 
these hearings, it will be our endeavor to present the committee with 
facts and facts alone. From the start it has been our desire to con- 
duct this inquiry in as scientific a spirit and in as objective and im- 
partial a manner as possible. The material which we will present to 
the committee either will rest on incontrovertible fact or will be proven 
in the course of the hearings. 

Our sole interest at this stage is the facts, a thorough and complete 
examination and presentation of all the facts pertinent to this vital 
problem, facts to indicate the manner in which insurance companies 
employ the economic power they hold. 

Mr. Gesell, representing the Commission, who will conduct the 
examination of the witnesses on behalf of the Commission, is ready 
to proceed. 

The Chairman. Thank you, Mr. Douglas. Mr. Gesell, are you 
ready to proceed as the chairman indicated? 

Mr. Gesell. I am, Senator. 

The Chairman. The committee will be very glad to heat you. 

Mr. Gesell. The first witness is Dr. Donald H. Davenport. 

The Chairman. Dr. Davenport, do you solemnly swear the testi- 
mony you are about to give in this proceeding shall be the truth, the 
whole truth and nothing but the truth, so help you God? 

Dr. Davenport. I do. 



CONCENTRATION OF ECONOMIC POWER J 165 

TESTIMONY OF DR. DONALD H. DAVENPORT, SPECIAL ECONOMIC 
CONSULTANT TO THE INSURANCE SECTION, SECURITIES AND 
EXCHANGE COMMISSION, WASHINGTON, D. C. 

GROWTH, INCOME AND EXPENDITURES AND GENERAL COMPARISONS 

Mr. Gesell. Dr. Davenport, you are special economic consultant 
to the insurance section of the Securities and Exchange Commission, 
are you not? 

Dr. Davenport. I am. 

Mr. Gesell. You are on leave of absence from the Harvard School 
of Business Administration where you are associate professor in 
business statistics? 

Dr. Davenport. That is right. 

Mr. Gesell. Previous to this time you have prepared various 
statistical monographs and done work as chief statistician for the 
California State Tax Commission and the joint legislative committee of 
New York State on the study of taxation and retrenchment in 1922? 

Dr. Davenport. That is right. 

Mr. Gesell. Have you ever published other monographs and work 
on similar studies? 

Dr. Davenport. I have. 

Mr. Gesell. Will you please tell generally the type of charts and 
information which you have assembled, to present to the committee 
this morning? 

Dr. Davenport. I have been at work preparing statistical informa- 
tion in the form of exhibits and charts which reveal the factual back- 
ground of the development of the life insurance industry in the United 
States. I should like to point out the development of life insurance 
in the United States has proceeded to a far greater extent in this 
country than it has in any other country of the world. At the present 
time we have in force in the United States approximately 110 
billions of dollars of life insurance. This is over 60 percent of the 
total amount of hfe insurance in force throughout the entire world. 
The problem of life insurance, therefore, is pecuhar to the United 
States. 

Mr. Gesell. Have you prepared a schedule which shows . the 
relative amounts of life insurance in force throughout the world? 

Dr. Davenport. I have. 

Mr. Gesell. Is this the schedule? 

Dr. Davenport. It is. 

Mr. Gesell. I should like to have it introduced into the record. 

The Chairman. It may be so ordered. 

(The schedule referred to was marked "Exhibit No. 215" and is 
included in the appendix on p. 1511.) 

The Chairman. You don't want to have this read, Mr. Gesell? 

Mr. Gesell. It is just basic statistical material which may be of 
interest. 

The Chairman. Very well. 

Mr. Gesell. What is your first chart, Dr. Davenport? 



1166 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. The first chart is entitled "Classes of Life Insur- 
ance in Force." ^ It shows the total amount and classes thereof of 
insurance in force in the United States in 1900, 1910, 192C, 1930, and 
1937. The chart, as you will see, is prepared on a grid that runs from 
zero as the base to 120 billions at the top. The first bar, that showing 
the amount of life insurance in force in 1900, indicates that there were 
at that time $8,600,000,000 of life insurance in force in 1900. 

Mr. Gesell. The majority of that was ordinary insurance, was 
it not? 

Dr. Davenport. At that time 82.6 percent was ordinary insurance, 
and 17.4 percent was insurance that is known as industrial insurance. 

The Chairman. What is the source of your statistics? 

Dr. Davenport. These statistics are based upon the oflBcial reports 
presented each year by the Spectator Publishing Co. in the Insurance 
Year Book, a book that has been published now for 66 years, and is 
regarded by the insurance industry as the bible of the industry. 

The Chairman. That is received in insurance circles as an authori- 
tative report upon the matters which are published in it? 

Dr. Davenport. It is, Mr. Chairman. 

Mr. Patterson. Mr. Chairman, couldn't the witness point to the 
chart so it will be a little clearer to the committee? 

The Chairman. I am sure he can, but the microphones are so 
arranged 

D;'. Davenport (interposing). I shaU be glad to attempt to do 
I. at if my voice carries, and proceed in that fashion. If not, I will 
have to go back to the microphone. 

The Chairman. Each member of the committee has his chart 
before him. 

Dr. Davenport. In 1937 the figures revealed on the bar at the 
extreme right of this chart show that there was at that time a total 
amount of $109,600,000,000 in force in the United States companies. 
Seventy-six billion dollars of that amount was ordinary insurance, 
$20,600,000,000 of that amount, the amount represented by the 
yellow section of the bar, was industrial insurance. 

Mr. Gesell. Will you explain what ordinary and industrial in- 
surance are? 

Dr. Davenport. I should like, in explaining the distinction between 
ordinary insurance and industrial insurance, to read the following: 

Industrial insurance differs from ordinary insurance in important ways. 
Industrial insurance is sold generally without medical examination, in small 
amounts, but at costs that appear high in comparison with the costs of ordinary 
insurance. Ordinary insurance, by contrast, is almost always written for amounts 
larger than $1,000 and is sold to individuals who are in the higher income classes. 
The premiums on ordinary insurance policies are payable annually, semiannually, 
quarterly, or sometimes monthly, and are usually paid by means of checks mailed 
to the companies' offices. On the other hand, the premiums on industrial insur- 
ance are generally collected weekly by the companies' agents, who call for the 
purpose at the homes of the policyholders. 

Most of the life insurance companies do not write industrial insur- 
ance. Only 66 companies that do are listed in the Spectator for 1938. 
The size of the industrial part of the business, however, is considerable. 
At the end of 1937 there were 88,000,000 industrial policies in force — 
88,000,000 industrial poUcies out of a total of 124,000,000 policies of 
all kinds. On the other hand, the amounts involved in industrial 

• Entered later as "Exhibit No. 216". See p. 1169. 



CONCENTRATION OF ECONOMIC POWER HQJ 

insurance are relatively smaller than those involved in the ordinary 
type of insurance. 

The Chairman. Does each industrial policy cover one individual? 

Dr. Davenport. Each industrial policy covers one indivic'i;; . 
Perhaps I should clarify that by saying that many holders of ina as- 
trial policies hold more than one policy. It is estimated that there 
may be as many as four policies in force in the average family holding 
industrial insurance. Sometimes this insurance is written on the 
lives of children. 

At the end of 1937 the amount of industrial insurance in force was 
$20,591,000,000 out of a total of $109,572,000,000. It is undoubtedly 
true that industrial insurance directly affects the lives of more individ- 
uals than is the case with ordinary insurance. 

Mr. Gesell. You said there were approximately 66 companies 
writing industrial insurance in 1937, according to the Spectator. 
How many companies account for that total 1937 bar? 

Dr. Davenport. There were 308 companies represented in the 
total of approximately $110,000,000,000 of insurance. Of the 308 
companies, legal rtiserve life insurance companies for which we have 
comparable and authentic figures, only 66 companies write industrial 
insurance. 

Mr. Gesell. Your chart does not take into account the assessment 
companies or fraternal benefit companies? 

Dr. Davenport. That is right, Mr. GeseU. 

Mr. Gesell. It is based entirely upon the legal reserve hfe insur- 
ance figures? 

Dr. Davenport. That is right. 

Mr. Gesell. Now we have not yet discussed group insurance, 
Dr. Davenport, the brown portion of the chart. 

Dr. Davenport. Perhaps it might be well at this time to define 
group insurance, because it is the class of insurance that has become 
increasingly more important in recent years. 

The Chairman. You were about to make some qualifying remark 
with respect to these 66 companies when the question interrupted you. 

Dr. Davenport. I was, Mr. Chairman. I can at this time indicate 
that the bulk of industrial insurance is written by three companies, 
the Metropolitan Life Insurance Co., the Prudential Insurance Co., 
and the John Hancock Insurance Co. Of the total amount of indus- 
trial insurance in force in 1937, that is as of December 31, 1937, 
$20,591,000,000, $16,770,000,000 was in force in these three large 
companies. In other words, 81.4 percent of all industrial insurance 
in force had been written by the Metropolitan Life Insurance Co., the 
Prudential Co., and the John Hancock Co. together. 

With your permission, I will now describe the characteristics of 
group insurance. The best definition of group insurance is given in 
Mr. John H. Magee's book entitled "Life Insurance," pubhshed by 
Business Publications, Inc., of Chicago, in 1938. On pages 514 and 
515 we find the following: 

The Chairman. Who is the author? 

Dr. Davenport. Mr. John H. Magee. 

The Chairman. Where is he from? 

Dr. Davenport. Mr. Magee was formerly assistant professor of 
economics and sociology at the University of Maine; president of the 
J. F. Singleton Co., insurance agency; State director of Maine for the 

124491— 3&—pt. 4 2 



1168 CONCENTRATION OF ECONOMIC POWER 

Federal Housing Administration; fellow of the Insurance Institute of 
America; insurance consultant and adjuster. 

Group life insurance is that form of life insurance covering not fewer than 50 
employees with or without medical examination, written under a policy issued to 
the employer, the premium on which is to be paid by the employer or by the 
employer and the employees jointly, and insuring all of his employees or all of any 
class or classes thereof, determined by conditions pertaining to the employment 
for amounts of insurance based upon some plan which wiU preclude individual 
selection, for the benefit of persons other than the employer, provided however' 
that when the premium is to be paid by the employer and the employee jointly, 
and the benefits of the policy are offered to all eligible employees, not less than 75 
percent of such employees may be so insured. 

Mr. Gesell, You have just read the definition of group insurance 
adopted in 1918 by the National Convention of Insurance Commis- 
sioners, have you not? 

Dr. Davenport. That is right, Mr. Gesell. 

Mr. Gesell. Now are there any other facts you want to point out 
with respect to that chart? 

Dr. Davenport, The growing importance of group life insurance 
should be indicated. The first group policy was written in 1911. 
UntU 1920, however, the figures on my chart do not show group life 
insurance separately. They were previously grouped together, or 
classed together with ordinary insurance, but we can see by looking 
at the brown section of the chart the increasing importance in absolute 
amount of this type of policy. 

The Chairman. When did that begin to appear? 

Mr. Gesell. In 1911. 

Dr. Davenport. The first group policy was written in 1911. 

The Chairman. And when did it begin to appear in such amount 
that the statisticians classified it separately? 

Dr. Davenport. Some time after 1920. 

Mr. Gesell. I would like to introduce into the record at this time 
a copy of the chart which Dr. Davenport has just discussed, together 
with a schedule containing the basic figures from which it has been 
prepared. These figures, as the chart indicates, come from the Statis- 
tical Abstract and Spectator Year Book. 

(The chart referred to was marked "Exhibit No. 216" and appears 
on p. 1169. The statistical data on which this chart is based are 
included in the appendix on p. 1511.) 

The Chairman. Without objection, that Avill be so ordered. 

Mr. Gesell. That will be "Exhibit No. 216." 

The Chairman. It would not interrupt you if I should remark at 
tliis point that, having glanced over the first exhibit which you 
handed in,^ it struck me that there was a comment which might be of 
interest at this point. ' This table shows, as Dr. Davenport testified, 
that the amount of insurance in force in the United States on Decem- 
ber 31, 1936, amounted to 104 million plus. 

Dr. Davenport. Billion plus. 

The Chairman. Billions plus, and that the total throughout the 
world at that same time was only $164,000,000,000, so that by far 
the great proportion of world insurance was carried by American 
companies. The nation which approaches the United States the 
most closely is the United Kingdom, and the total insurance in the 
United Kingdom was only $16,209,000,000. 

' See "Exhibit No. 216", Infra, p. 1511. 



CONCENTRATION OF ECONOMIC POWER 



1169 



Exhibit No. 216 



CLASSES OF LIFE INSURANCE 
IN FORCE 




1170 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What is your second chart, Dr. Davenport? 

Dr. Davenport. With your permission I should liice to make a^ 
few remarks before I turn to my second chart. 

It probably should be obvious to all that the business of selling life 
insurance is one that spreads throughout the United States. The 
largest companies, typically, have licenses to operate in every State 
in the Union, and do so operate. The Metropohtan Life Insurance, 
for example, operates in every State; the Prudential operates in 
every State; the New York Life Insurance Co. operates in every 
Stnte except Texas; the Equitable operates in every State; the Mutual 
Life operates in every State except Texas. The Northwestern Mutual 
operates in 42 States, and the Travelers operates in every State. 
There are very few companies that are strictly intrastate companies. 

Mr. Gesell. When you say "operate" you mean are licensed to- 
do business in those States, do you not? 

Dr. Davenport. They are authorized to do business by the Statea 
within the boundaries of the State. 

The second chart I have prepared is entitled "Life Insurance in 
Force and Population in the United States."* 

Mr. Gesell. From what sources has that chart been prepared? 

Dr. Davenport. The population figures are obtaineci from the 
Bureau of the Census as published in the Statistical Abstract of the 
United States. The figures for amounts of fife insurance in force are 
obtained from the Spectator Insurance Year Books. The chart runs 
from 1890 to 1937, and figures for individual years have been plotted, 
although figures for the decennial years ojily are presented up to 
1930, after which we have individual figures presented in the table. 

I would call your attention to the fact that the scale is in millions 
for population and runs from 1 at the base to 200 at the top. When we 
are reading the amounts of life insurance in force, we should read these 
amounts in billions of dollars. 

The population in 1890 was 62,900,000 people in continental United 
States. That curve rises to a peak of 129,300,000 in 1937, an in- 
crease of 105 percent. Roughly our population now is slightly more 
than two times as large as it was in 1890. 

The insurance in force in 1890 was $4,100,000,000; the insurance 
in force in 1937 is $109,600,000,000. The increase in insurance in 
force is 2,500 percent. In other words, while population grew 100 
percent, the amount of insurance in force increased 2,500 percent, 
and we may say, therefore, that the amount of insurance in force 
grew 25 times as rapidly as the population of the United States. 

The Chairman. Well, would that follow. Dr. Davenport? Have 
you any figures to show the number of policies or the number of 
persons, rather, who are insured now, as compared with the earlier 
years? 

Dr. Davenport. It is a rather difficult thing, Mr. Chairman, ta 
estimate the number of persons who are covered by insurance. 

The Chairman. But an increase in population, of course, is an 
actual increase. That is based upon the number of individuals. The 
increase in the amount of insurance, however, cannot be measured 
by the same standard, because one person may have several policies. 

Dr. Davenport. That is right, sir. It is estimated on competent 
authority that the number of individual lives covered by the lega^ 

« Entered later as "EihlMt No. 217", see infra, p. 1173. 



CONCENTRATION OF ECONOMIC POWER 1171 

reserve life insurance companies in the United States at the present 
time is about 64,000,000. 

The Chairman. But your statement was that insurance had in- 
creased about 25 times as rapidly as the population. Now, if one 
considers the fact that one individual may have several policies, and 
that the amount of the policy carried by individuals varies, would 
you not say upon second thought that the proportion is probably 
considerably less than 25 to 1? 

Dr. Davenport. I was merely calling attention to the rates of 
absolute growth between the two periods, but I do not think it is 
unfair to compare the rate of growth of the amount of insurance in 
force. 

The Chairman. Then your statement is merely as to the amount 
of insurance— it has increased 25 times as rapidly as the amount of 
the population? 

Dr. Davenport. That is right, sir. 

Mr. Gesell. The black line on the chart represents the amount 
of life insurance m force and not the amount of policyholders. 

Dr. Lubin. Is it exactly 25 times? In other words, if the popu- 
lation increased 100 percent and the volume increased 2,500 percent, 
then the volume of insurance increased 12}^ times as fast as population? 

Dr. Davenport. The comparison is of a 100 percent increase "with 
a 2,500 percent increase — the amount of insurance increased 25 times; 
the total of population increased about once. 

Dr. Lubin. Twenty-five times faster? 

Dr. Davenport. That is right. 

The Chairman. Do you have figures on the increase of policy 
holders? I don't want to interrupt the continuity of your presenta- 
tion, Dr. Davenport. 

Dr. Davenport. I have figures that I can lay my hands on readily, 
but they are not in my notes. 

The Chairman. All right, we will pass the question for a moment. 

Representative Williams, Did I understand you to say there were 
approximately 64,000,000 of them? 

Dr. Davenport. Mr. Julian Price, president of one of the large 
life insurance companies, estimated before one of the life insurance 
company presidents' meetings that the amount of insurance in force 
in the United States covered approximately 64,000,000 separate lives. 

Mr. Gesell. That is the most authoritative statement that you 
can find, is it not? 

Dr. Davenport. It is the statement that the insurance industry 
itself gives. My own personal opinion is that that is a little optimistic. 

Mr. Gesell. The difficulty in getting the exact figures arises from 
the fact that the companies do not publish year to year the number 
of policy-holders in tlieir company but rather pubUsh the amount of 
insurance in force and the amount of new business written and not 
the increase in policyholders from year to year. ' 

Dr. Davenport. There is no way I know of without going to great 
trouble to eliminate the duplications because many hldividuals hold 
policies in two or more companies, and the companies themselves do 
not take the trouble to elimanate those dupUcations. 

Mr. Gesell. Have you any further comments to make on the 
chart? 



1172 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. I should point out at this time perhaps that there 
is inchided in this total figure the amount of insurance written by 
American companies, by tlie United States companies, on the lives 
of people living abroad. The total amount of that insurance in 1937 
was, only $2,000,000,000. On the other hand, this does not include 
the amount of life insurance in force in the United States written 
by such companies as the Sun Life Assurance Co. of Canada and 
other foreign life insurance companies doing business within our 
borders, nor does it include the amount of legal reserve life insurance 
written by the United States Government, so-called converted war- 
risk insurance. That amounted to $2,590,000,000 in 1936, so the 
two would practically offset each other as far as total amount is 
concerned. 

I should also like to call attention to the fact that at one time, in 
1919, the United States Government had outstanding approximately 
$40,000,000,000 of war-risk insurance and the $40,000,000,000 out- 
standing at that time was greater than the total amount of insurance 
outstanding by all of the legal resei*ve hfe-insurance companies in the 
United States. 

The Chairman. What was that year? 

Dr. Davenport. That was May 1919. 

Representative Reece. It might be well to remark there, however, 
all the Government insurance outstanding was not voluntarily taken. 

Dr. Davenport. As an ex-member of the A. E. F, I can attest to 
the accuracy of that. There were at that time 4,529,000 policies 
written and we can say with assurance that they covered 4,529,000 
lives, and that was approximately the total number of enlisted men. 

(Mr. Arnold assumed the chair during Senator O'Mahoney's* tem- 
porary absence.) 

Mr. Gesell. Does your black line include the insurance in force 
through fraternal organizations and assessment organizations? 

Dr. Davenport. No, Mr. Gesell. This black line is based upon 
legal reserve life insurance written by the so-called old-line companies, 
the 308 companies at the present time. 

Mr. Gesell. Like the previous chart, it is confined to the legal re- 
serve companies? 

Dr. Davenport. That is right. 

Mr. Gesell. Have you any further comments to make on this 
chart? 

Dr. Davenport. No. 

Mr. Gesell. I would like to have introduced in the record a copy 
of the chart concerning which Dr. Davenport has just given some in- 
formation, and the supporting schedules prepared from the Statistical 
Abstract and Spectator Year Book. 

Acting Chairman Arnold. It may be admitted. Do you want it 
printed? 

Mr. Gesell. Yes; as part of the record. That applies with respect 
to all the charts that have been introduced this morning. 

(The chart referred to was marked "Exhibit No. 217" and appears 
on p. 1173. The statistical data on wliich this cliart is based are 
included in the appendix on p. 1512.) 



CONCENTRATION OF ECONOMIC POWER 



1173 



Exhibit No. 217 

LIFE INSURANCE IN FORCE 

AND 

POPULATION IN THE U.S. 





POPUL 

(IN MIL 


ATION v^ 

LIONS) X 


^^^ 


, ■ 




^ 






7 










/ 


/ 










/ 












/ 








y 


AMOUNT 


OF LIFE INSUR/ 

I IN BILLIONS OF OC 


kNCE IN FORCE 

llahs ) 






^ 





































1690 

SOURCC: 



CSTIU*TeO DS-IIOI fil>€PAR£D BY $CC. a tXCM. COMM. 

census rcAH 



1174 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What is your next chart? 

Dr. Davenport. The next chart shows the income and expenditures 
of hfe insurance companies from 1865 by years to 1937.* The scale 
of this chart runs from zero at the base to $6,000,000,000 at the top. 

Mr. Gesell. May I interrupt a moment and ask you from what 
sources the figures on this chart have been prepared. 

(The chairman, Senator O'Mahoney, resumed the chair.) 

Dr. Davenport. The figures for this chart come from the ofHcial 
reports of the Hfe-insurance companies rendered to their respective 
State insurance commissioners as reported in the Spectator Insurance 
Year Book, and available in the Statistical Abstract of the United 
States. 

The top curve on the chart shows the tptal income from all sources. 
That is the income which comes in from the premiums received each 
year, plus the income they may receive as returns from their invest- 
ments, rents from the properties that they hold, dividends that are 
paid on any stock that they hold, or any capital gains that they may 
make on the disposition of their assets. 

The total income curve rises from $25,000,000 in 1865 when the 
industry was small to a total of $5,257,000,000 in the year 1937. 

The next curve just below the total income curve shows the amounts 
received from premiums paid on insurance in force. 

Mr. Gesell. That total premium income is already included in 
the top black line of total income. 

Dr. Davenport. That is right. 
. Mr. Gesell. And you have simplj^ taken it out for special emphasis 
and shown it in the dotted line. 

Dr. Davenport. Yes; Mr. Gesell. 

The premium income in the year 1865 was $22,000,000. The 
premium income in 1937 was $3,762,000,000. 

Tlie curve that appears at the bottom is the curve that shows the 
total expenditures of these legal reserve life insurance companies, the 
total expenditures for all purposes — death claims, annuity payments, 
wages, salaries, commissions, taxes; the total payments for all purposes. 

I should like to point out that, in the last fifty years, there were 
two different occasions when the premium receipts of these life. insur- 
ance companies were insufficient to meet their total expenditures for 
all purposes. The first occasion was in the year 1918, at the time 
of the influenza epidemic, when the total expenditures for all pur- 
poses amounted to $999,000,000. The premium receipts that year 
amounted to $994,000,000. In other words, premium receipts that 
year failed by $5,000,000 to meet the total expenditures of the com- 
panies. 

Their total income from all sources, however, in 1918 was $1,325,- 
000,000, and left the life insurance companies with an excess of 
$326,000,000, by which amount their assets increased that year. 

The other occasion when premium receipts were insulhcient to 
meet total exponditu?es occurred in the years 1932, 1933, and 1934, 
when you can see from the chart that the red curve ("total expendi- 
tures") rose above the dashed curve. 

Mr. Gesell. Now your dotted line showing total premium income 
represents, to state it another way, money taken in from the policy- 
holders, is that correct? 

I gee "Exhibit No. 218," infra, p. 1512. See also comments of Mr. Frederick H. Ecker, infra, p. 123« 
fit seq. 



CONCENTKATION OF ECONOMIC POWER 1175 

Dr. Davenport. That is right. 

Mr. Gesell. And the red line (bottom curve) represents money 
paid out to policyholders, plus money paid out for any other expenses. 

Dr. Davenport. Wages, salaries, commissions, taxes, and that 
sort of thing. 

Mr. Gesell. Then your conclusion is, is it not, that except in the 
years 1918, 1932, 1933*^ and 1934, the companies took in from policy- 
holders more money than they needed to pay out all claims to policy- 
holders and to cover all additional expenses. 

Dr. Davenport. That is right. 

The Chairman. Have you ever made any calculation to show the- 
relationship from year to year between the total income and the total 
expenditures? In other words, what is the spread? Is the spread 
increasing or decreasing? 

Dr. Davenport. The spread. Senator, is increasing, as can be 
seen by the widening band between the two curves (top and bottom 
curves). 

The Chairman. That is what impressed me as I looked at the 
chart and I thought it might be well to have that developed in a 
statistical manner if you have not already done so. 

Dr. Davenport. I have taken the last 20 years, a span of time 
that includes the influenza epidemic of 1918 and the 3 bad years of 
the recent depression, 1932, 1933, and 1934. The sum of the excesses 
of total income over total expenditure in that 20 years amounts to 
$20,927,000,000, by wliich amount the total assets of these life 
insurance companies have increased in the last 20 years. 

Mr. Arnold. In other words, had there been no reserves at all, all 
of the policyholders would have been paid; is that a correct statement? 

Dr. Davenport. The answer to that question, Mr. Arnold, is one 
that would require a greftf deal of elaboration and I should prefer 
that you reserve the question until we are prepared to answ or it 
adequately. 

Mr. Arnold. Just for my own understanding, your statement 
would indicate that out of current premiums over tliis period the 
policyholders could have been paid. 

Dr. Davenport. That is true, excepting 

Mr. Arnold (interposing). And while I recognize the reserves had 
a certain necessity in view of possible contingencies, as a matter of 
fact, in view of what actually happened the current income was suffi- 
cient to pay without reserves; that is true, isn't it? 

Dr. Davenport. That is perfectly true. 

Mr. Arnold. And what you are referring to as the use of reserves 
had reference to contingencies which might have arisen but didn't. 

Dr. Davenport. In part. 

The Chairman. Stated in another way, it might be inferred that 
apparently the life-insurance companies have not been compelled to 
operate on a deficit. 

Dr. Davenport. Taking the industry as a whole, they certainly 
have not. There have been life insurance coinpanies that have 
failed, that have been liquidated., They have been small companies. 
Since 1930, 68 companies have been liquidated or absorbed by stronger 
companies, but they represent in the aggregate a small percentage 
because they were small companies. 



1176 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. The total picture is one of great strength and sta- 
bihty, is it not? 

Dr. Davenport. There is no doubt about that. 

Dr. LuBiN. Dr. Davenport, I take it you have the table upon which 
these are based, but for my own convenience could you tell us what 
the total income was in 1929? 

Dr. Davenport. Yes, sir; in 1929 the total income from all sources 
was $4,337,000,000. 

Dr. LuBiN. And with a national income of 80 billion, that meant 
about 6 percent of the total national income went to the insurance 
companies. 

Dr. Davenport. I have a chart wliich will presently be presented 
wliich shows the comparison of life insurance income with the total 
income of the United States.^ I have not the figures for 1929, but in 
1930 the Ufe insurance income represented 6.7 percent of total national 
income.^ 

Mr. Gesell. Your next chart will cover that in some detail, will 
it not? 

Dr. LuBiN. Excuse me; I am sorry. 

Mr. Gesell. Now, one other reservation wliich you had in answer- 
ing Mr. Ai"nold's question was the fact, was it not, that of that pre- 
mium income received, it is necessary to set aside a certain portion 
every year against the future claims which may arise as risks mature? 

Dr. Davenport. Yes, the life-insurance contract is a long-term 
contract and may run for 60 or 70 years, and the reserves accumulated 
on individual policies have to be adequate to meet the contingency 
that may arise when the policy is terminated, either by death, with- 
drawal or expiring, and that may be a long time after the policy is 
written. 

Mr. Gesell. I would like to offer for the record at this time a copy 
of the chart which Dr. Davenport has just discussed, together with a 
schedule of supporting figures which are obtained from the Spectator 
Insurance Year Books, to be printed as part of the record. 

(The chart referred to was marked "Exhibit No. 218" and appears 
on p. 1177. The statistical data on which this chart is based are 
included in the appendix on p. 1512.) 

Mr. Gesell. Dr. Davenport, what is your next chart? 

Dr. Davenport. The next chart, Mr. Gesell, shows some of the 
detail of income and expenditure for the sole year 1937.^ It shows a 
bar on the left-hand side which represents the total income of 
$5,257,000,000. On the right-hand side it represents total expendi- 
tures. 

The Chairman. How many companies are included in this chart? 

Dr. Davenport. This chart, Senator, is based upon the same 308 
companies that we have used throughout, based upon the official 
figures sworn to by the companies in their statements to the individual 
State insurance commissioners, and as collected and published by 
Spectator in the Insurance Year Book. 

That year the total income was $5,257,000,000. Their total 
expenditures for all purposes amounted to $3,610,000,000. That year 
the premiums received from policyholders amounted to $3,73 1 ,000,000, 

> Si-e "Exhibit No. 220," infra, p. nS3. 

> I'oid, ai'.pendix, p. 1 .M?. 

» See "Exhibit No. 219," iufra, p. U81. See also comments of Mr. Frederick 11. Etker, iufra, p. 1236 et 
seq. 



CONCENTRATION OF ECONOMIC POWER 



1177 



Exhibit No. 218 



INCOME & EXPENDITURES 

OF 

LIFE INSURANCE COMPANIES 




166% IS70 tseo 1690 

souKcc: specrtroD ycar books 



1910 1920 1930 1940 

OS -nor pKEPAKCD er sec. a cxcm comh. 



1178 CONCENTRATION OF ECONOMIC POWER 

which as you can see, was in excess of their expenditures for all 
purposes. 

Other revenues of $1,245,000,000, represented by the blue bar, 
came from earnings of their investments, interest, dividends, rent, 
and so forth. Supplementary contracts brought in in that year 
$281,000,000, 5.3 percent of their total income. Supplementary 
contracts to a certain extent are similar to premiums received from 
polic3'^holders. They represent the amounts that are left with the 
company by beneficiaries of policies that have m.atured, left with the 
companj^ to assure a payment, usually a monthly payment to them 
over a period of years into the future. 

Senator King. So that the contingent liabilities of the companies 
are very great. 

Dr. Davenport. They are. 

The total expenditures can be broken up into the payments to policy- 
holders or to the beneficiaries of policyholders. In 1937 the com- 
panies paid out $2,603,000,000 to policyholders or beneficiaries. 
That amount was 72.1 percent of their total expenditures. 

Expenses for commissions, salaries, and expenses of agents, officers 
and employees, amounted to $555,000,000, 15.4 percent of their total 
expenditures. Other expenditures amounted to $452,000,000, 12.5 
percent of their total expenditures. 

Senator King. What would come within that category? 

Dr. Davenport. The repairs and expenses in maintaining the real 
estate they have taken over by foreclosure, insurance, taxes, license 
fees, profits and losses, real estate taxes paid on real estate that they 
either own as their office buildings or that tlmy own because they have 
taken them over by foreclosure, rents. Dividends to stockholders 
amount to $18,000,000 only. The stock insurance companies are a 
relatively unimportant element in the total. Medical fees and 
inspection accounted for another $18,000,000. 

Mr. Douglas. Are there included in payments to policyholders 
and beneficiaries loans on insurance company policies? 

Dr. Davenport. No; those constitute assets, investment upon 
which an interest is earned. 

The Chairman. Would it be proper to add other expenses to the 
expenses designated there as commissions, salaries, and so forth, and 
call the sum the administrative cost? 

Dr. Davenport. I should think that that would be a perfectly 
fair thing to do. 

The Chairman. As I notice, the other expenses constitute 12.5 
percent of all expenditures, and commissions, salaries, expenses of 
agents, etc., constitute 15.4, so that the administrative expense on 
that computation would be 27.9 percent of all the expenditures. 

Dr. Davenport. I think that is right. 

The Chairman. Is that a correct assumption, sir? 

Dr. Davenport. Yes.' 

Mr. Arnold. Do you intend elsewhere to separate the cost of 
selling jrad the commissions? 

Dr. Davenport. That will be done in great detail in our later work. 

Senator King. Did you discover in your investigations any very 
great losses by reason of the depreciation in the values of real estate? 

Dr. Davenport. Mr. Howe, who is to follow me this afternoon, 
will go into that in considerable detail, sir. . 



CONCENTKATION OF ECONOMIC POWER 1179 

Senator King. There have been very heavy losses there, have there 
not, but not sufficient to impair the strength of the institutions or the 
solvency of the policies? 

Dr. Davenport. The strength of the institutions is unimpaired. 

Senator King. So that those persons who have policies may be 
perfectly reassured as to the solvency of their policies. 

Dr. Davenport. I have policies myself, Senator, and I am under 
no fear of their insolvency. 

Mr. Gesell. Dr. Davenport, one reservation on the question that 
the chairman asked you. In "other expenses" is included capital 
losses, is that not correct? 

Dr. Davenport. That is right. 

Mr. Gesell. And in a sense you would not call capital losses an 
administrative expense. Wha. do those capital losses amount to? 

Dr. Davx^nport. The total capital losses in 1937 were put down at 
$74,000,000, 2.1 percent of their total expenditures.' 

Mr. Gesell. Just in passing, have you made any comparisons 
between income received by certain individual companies and, let's 
say, the income or revenue of an important State? 

Dr. Davenport. I have. It is interesting to compare the premium 
income alone, the premium income collected by certain large com- 
panies, with the total taxes collected by the States in which they are 
located. For example, in 1935 the Metropolitan Life Insurance Co. 
collected as premiums solely from the residents of New York State 
a total of $147,826,000. In that year the sum total of all taxes col- 
lected by the State of New York amounted to $315,590,000. The 
Metropolitan's premium income from New York State was, therefore, 
47 percent as large as the State tax collection. The entire premium 
income of the Metropolitan Life Insurance Co. in 1935 amounted to 
$939,000,000. This amount was almost three times the entire tax 
collections of the State of New York, the State by which th& Metro- 
pohtan Life Insurance Co. is regulated. 

The largest life insurance company in Wisconsin is the Northwestern 
Mutual Life. In 1936 this company collected a total of $130,000,000 
in premiums. That same year the total tax collections of the State of 
Wisconsin were only 86 million. 

Mr. Gesell. Were those premiums from the residents of the State 
of Wisconsin? 

Dr. Davenport. They were total premium receipts from all 
their business and they operate in 42 States. In other words, the 
Northwestern Mutual Life Insurance Co. collected in premiums $1.53 
for every dollar of taxes collected by the State of Wisconsin, the State 
by which it is regulated. 

I have one other similar comparison If we have time I would be 
glad to give that. 

The Chairman. Proceed. 

Dr. Davenport. There are two large Pennsylvania companies, 
the Penn Mutual and the Provident Mutual. Together in 1935 they 
collected in total premiums $122,000,000. In that same year the total 
tax collections of the State of Pennsylvania amounted to $157,000,000. 

' Dr. Davenport subsequently corrected this statement as follows; "On the disbursement side of the 
summary statement contained in The Spectator Insurance Year Book for 1938, p. 416, appears an item of 
"Profit and loss, etc., $73,610,821." This amount was erroneously taken to reflect capital losses. Instead 
of showing capital losses in 1937, the combined statements of the 30S companies show $31,739,582 as a net 
"profit on the sale or maturity of ledger assets." 



1180 CONCENTRATION OF ECONOMIC POWER 

The Chairman. What year was that? 

Dr. Davenport. This was 1935, the only year for which we could 
obtain the State tax figures for Pennsylvania. 

Thus it appears that these two companies collected as premiums 
78 percent as much as the State of Pennsylvania collected in taxes. 

Mr. Gesell. What is the source for those figures which you have 
just given us, Dr. Davenport? 

Dr. Davenport. These figures are obtained in the case of the 
insurance compnies from the official reports made to the individual 
State insurance commissioners as pubHshed in the Spectator Insur- 
ance Year Book, and in the case of the State tax collections direct 
auditors' reports to the Social Security Board. 

Senator King. These various companies to which you referred 
make public annually or semiannually the activities and condition of 
their companies? 

Dr. Davenport. Yes, Senator. All of their figures become piibHc 
property after the State commissioners of insurance publish their 
reports. 

Senator King. You found, did you not, that the reports were 
accurate, that is to say there was no concealment but they revealed 
very fully their assets and habilities and receipts and disbursements? 

Dr. Davenport. Senator, the statements are sworn to by the 
oflEicers of the company. 

Senator King. Did you discover in your investigations that more 
and more people who want a little investment or a little nest-egg take 
out policies in insurance companies, expecting their families upon their 
death will be provided for? 

Dr. Davenport. Yes, Senator, to an increasing extent. 

Senator King. That accounts for the large premiums, because so 
many take out insurance pohcies rather than deposit their funds in 
banks. 

Mr. Gesell. We are coming to some very interesting comparisons 
on that in just a moment. 

The Chairman. It might, however, be proper to remark here in 
the light of the comparison which Dr. Davenport has made between 
the income of certain insurance companies and the tax revenue of the 
States, that it is a common behef among citizens that the taxes are 
too high anyway. [Laughter.] 

Mr. Ge5ei-l. I would like to have introduced in the record at this 
time a copy of the chart which Dr. Davenport has just discussed, to 
be marked as "Exhibit 219." 

(The chart referred to was marked "Exhibit No. 219" and appears 
on p. 1181.) 

Mr. Gesell. Now what is your next chart? 

Dr. Davenport. The next chart, Mr. Chairman, carries the title 
"Total Income of Life Insurance Companies and the National In- 
come."^ This chart is based upon figures released by the United 
States Department of Commerce on the total national income and rep- 
resents the amounts produced in the years that are represented. The 
total income of the life-insurance companies is the same set of figures 
that I gave you before in another connection and is based upon the 
official figures released by the individual companies to the respective 
commissioners of insurance. The chart runs from $10,000,000 at the 



I See "Exhibit No. 220", infra, p. 1183. 



CONCENTKATION OF ECONOMIC POWER Ugl 

Exhibit No. 219 

DISTRIBUTION OF 

INCOME AND EXPENDITURES* 

1937 



DOLLARS BILLIONS 

INCOME EXPENDITURES 

TOTAL $ 5.297 TOTAL $3,6 10 




\ SUPPLEMENTARY V 
•^ CONTRACTS ss» V 




$ 1.249 



$ 0.281 



\/////////////A 




COMM.. SAL. a EXP 

OF AGENTS. OFFICERS 

SN - a EMPLOYEES X 



$ 3.751 




$ 0.452 



$ 0.555 



\ $ 2.603 



« loe Leeti FCseRve Lire insu/iANce companies 

fOUKCt: SPCCTATOH TEAR BOOK gS-UOS PFEPAREO BY SEC. a EXCH COMM. 



1 182 CONCENTRATION OF ECONOMIC POWER 

base to $100,000,000,000 at the top, and shows the figures from 1880 
through 1937. 

The total income of Ufe-insurance companies in 1880 was $80,- 
000,000. In 1937 the total income of life-insurance companies was 
$5,257,000,000. The income of the life insurance companies in this 
period increased 6400 percent. The national income in 1880 was 
$7,400,000,000 and in 1937 $69,800,000,000, an increase of 840 percent. 

Mr. Gesell. What were the years when the total income of the life 
insurance companies accounted for the greatest percentages of the na- 
tional income? 

Dr. Davenport. The percentage ratio of life insurance income to 
total national income rose from one-tenth of 1 percent in 1880,1.6 
percent in 1890, 2.2 percent in 1900, 2.5 percent in 1910, 2.8 percent 
in 1915, 2.6 percent in 1920, 4.1 percent in 1925, 6.7 percent in 1930, 
■9 percent in 1931, 11.6 percent in 1932. That Mr. Gesell, was the 
peak. 

Mr. Gesell. Since then it has fallen off imtil in 1937 the figure was 
7.5 percent, is that correct? 

Dr. Davenport. That is right. 

Dr. LuBiN. Could we get the same figures into the record based on 
premium income? 

Dr. Davenport. I do not have those figures at hand, but I can pre- 
pare them for you and shall do so.' 

Mr. Gesell. Have you any further comments you wish to make on 
the chart? 

Dr. Davenport. One or two observations might throw these fig- 
ures into some perspective. In 1937 the entire total income of life 
insurance companies amounted to $5,257,000,000, an amount which 
Avas one and one-half times as great as the value of our exports that 
year and only slightly less than the total ordinary receipts of the 
United States Government. 

Mr. Gesell. I should like to introduce into the record at this time 
a copy of the chart which has just been discussed, together with a 
schedule containing the supporting statistics, to be marked as "Ex- 
hibit No. 220." 

The Chairman. Without objection, it may be so ordered. 

(The chart referred to was marked "Exhibit No. 220" and appears 
on p. 1183. The statistical data on which this chart is based are 
included in the appendix on p. 1513.) _ 

Mr. Gesell. Now your next chart is entitled "Assets of Formal 
Savings Institutions in United States," ^ is it not? 

Dr. Davenport. This is the chart with that title. 

Mt. Gesell. From what sources of information has it been prepared? 

Dr. Davenport. This chart is based on figures which' were pub- 
lished in the Statistical Abstract of the United States for 1937. 

The Chairman. What is meant by the phrase, "formal savings 
institutions"? 

Dr. Davenport. The formal savings institutions include the life- 
insurance companies, the mutual savings banks, the building and loan 
associations or institutions of that type, including at the present time 
the Federal savings and loan associations, and the savings depart- 

i Dr. Davenport subsequently submitted premium income figures and a revised chart. Both are in- 
cluded In the appendix on pp. 1642 and 1643. 
» See "Exhibit No. 221", infra, p . 1189. 



CONCENTRATION OF ECONOMIC POWER 



1183 



Exhibit No. 220 



TOTAL INCOME OF 

LIFE INSURANCE COMPANIES 

& THE NATIONAL INCOME 



DOLLARS 
BILLIONS 



100.00 
90.00 








/ 




\A 


^^ 






™/ 


;OME 


\f 


J 0.00 
5.00 

1.00 
.SO 


^«A1 


lONAL IN 


<^^^ 


















y 


/ 








y^ 


y^ 






y 


^ TOTAL 


INCOME OF L 


IFE INSURANC 


E COMPANIES 






y^ 












.01 















1910 1920 1930 1940 

OS-no* fKenKCD er see. a exeH. a 



124491— 39— pt. 



1184 CONCENTRATION OF ECONOMIC POWER 

ments of the commercial banks. It does not include postal savings, 
Christmas funds, credit unions, the amounts that you may have 
saved in the old tin box or corporate surpluses that are piled up. It 
is not a picture of total savings in your economy; merely the formal 
institutions that are employed by individuals in accumulatiug a nest 
egg. 

The Chairman. Thank you, Doctor. 

Mr. Gesell. Will you explain each of those lines rather carefully 
because there are so many of them on the chart. 

Dr. Davenport. I first point out that the chart starts in 1910, 
the first year for which we may obtain comparable and authentic 
figures, and it runs through 1937. The figures for individual years 
are plotted. The red curve shows the savings deposits in the hands 
of the State and National banks, the so-called commercial banks. 
The heavy black curve represents the total assets of life-insurance 
companies. The dashed curve appears under the previous two and 
represents the total assets of mutual savings banks, and the bottom 
curve represents the total assets of building and loan associations. 

The Chairman. Have you compared the assets of the fife insurance 
companies with the postal savings deposits? 

Dr. Davenport. The postal savings deposits at the present time 
amount to about a billion and a half. 

Mr. Gesell. As compared with what figure for the insurance com- 
panies? 

Dr. Davenport. As compared with $26,249;000,000 for the life 
insurance companies. 

The Chairman. It is probable that a chart which would plot the 
two lines of life-insurance company assets and postal-savings deposits 
during this period covered by this chart would be very LHuminating.^ 
I may say that I had occasion several years ago to become acquainted 
with the Postal Savings System, and I was very much interested to 
note that the increase of postal savings foreshadowed the banking 
crisis. The people were turning in greater and greater number away 
from the banks and to the postal savings system as the fear of the 
economic status grew, and I think a similar comparison would be of 
great interest to this committee if you could make it. Dr. Davenport. 

Dr. Davenport. I shall see that that is made. I can say that 
between 1930 and 1937 the postal savings deposits in the tJnited 
States increased approximately $1,000,000,000. That was over the 
troubled period to which you referred. 

Senator King. I suppose you discovered that many of these 
savings to which you referred, whether they be in postal banks or in 
commercial banks, consisted of Government bonds, did you not? 
Were they cash savings or were those cash savings converted into 
Government bonds? 

Dr. Davenport. You mean by the individual institutions them- 
selves — they invested them in Government bonds? 

Senator King. Yes. 

Dr. Davenport. I have no way of speaking authoritatively about 
that at the present time, Senator.. I kno.w that the savings banks, 
for example, are subject to about the same restrictions in their assets 
that govern the life insurance companies. In Massachusetts the 

' Dr. Davenport subsequently submitted flgures and a chart showing postal savings deposits. Both 
we Included in the appendix on pp. 1044 and 1645. 



CONCENTRATION OF ECONOMIC POWER. 1185 

savings banks have approxiniately 50 percent of their deposits in- 
vested in mortgages and, to their sorrow at the present time, real 
estate. 

Senator King. The point I was trying to make is that these figures 
which you have given do not indicate that these various corporations 
have cash on hand to the extent that you have indicated. 

Dr. Davenport. No; they are the assets. 

Senator King. They are invested in mortgages and in Government 
bonds and in other securities. 

Dr. Davenport. They are permitted to invest in securities of 
municipalities, of States, of the United States Government, in mort- 
gages, real estate, public utility bonds. 

Mr. Gesell. We wiU come to that in some greater detail through 
the next witness. 

Dr. Davenport. The chart based on the aggregates reflecting the 
growth. of these four principal types of savings institutions in the 
United States raises certain questions to which we cannot give final 
answer at this time; however, it is apparent that the life insurance 
companies have never shown a decline. Every year for which figures 
are available total assets of life insurance companies show an increase 
over the assets of the year before. This was true in 1918, the year 
of the influenza epidemic when death losses were exceptionally high. 
It was also true throughout the depcession years of 1932, 1933, and 
1934. In this respect the life insurance companies are unique among 
financial institutions. The reasons for the momentum which has 
carried the life-insurance companies ever upward are many. Among 
them may be mentioned the fact that premium receipts, which con- 
stituted about 72 percent of their total income in 1937, have been 
almost always more than sufficient to meet expe^ditures for all pur- 
poses. This was not so in 1918; the amount of the deficiency then 
was $5,000,000. 

The Chairman. And would it be proper to say that this steady 
increase of the assets of the life insurance companies, while the assets 
of other institutions have varied up and down, accounts, in part at 
least, for the condition which was represented on your chart entitled 
"Income and expenditure of life insurance companies";' namely, the 
increasing spread of the other income of life insurance companies as 
compared with the ex-penditure? 

Dr. Davenport. That is certainly a very important factor. 

The Chairman. In other words, as the assets of the insurance com- 
panies accumulate, a greater and greater proportion of the income of 
the insurance companies is derived from their investment in the eco- 
nomic affairs of the Nation, 

Dr. Davenport. And as has also been the case, their total income 
is always greater than their total expenditure; their assets must 
increase. 

Senator King. They constitute a reservoir to which many enter- 
prises of merit resort for their capital needs. 

Dr. Davenport. Public utilities, municipalities. State, and United 
States Government, people who have real estate and want to borrow 
on their real estate — all go to life insurance companies. 

1 See "Exhibit No. 218", supra, p. 1177. 



1186 CONCENTRATION OF ECONOMIC POWER 

Mr. Arnold. Will you clear something up for me? I had thought 
that this chart, "Income and Expenditures,"' indicated that the 
premiums themselves, without recourse to either the reserves or the 
interest on the reserves, would have been sufficient to take care of the 
total expenditures except for those three times shown on the chart. 
Isn't thai true? 

Dr. Davenport. That is correct. 

Mr. Arnold. So that the increase in the reserves and the interest 
on the reserves would have nothing to do with that spread between 
those two black lines? Am I right about that? 

Dr. Davenport. The top line on the chart entitled "Income and 
Expenditures of Life Insurance Companies" represents their total 
income from all sources and includes the figure for the premium income, 
and the spread between the premium income and the total income 
represents what they have earned that year and received as income 
from their investments. 

Mr. Gesell. This chart that we are discussing now relates to assets, 
does it not? 

Dr. Davenport. That is right. 

Senator King. That is, assets of formal savings institutions. 

Mr. Gesell. That is correct. 

Dr. Davenport. And the growth in assets is represented by the 
difference between total income and total expenditures. Even in the 
3 years of the depression, 1932, 1933, and 1934, total income of life 
insurance companies was $326,000,000 greater than their total expen- 
ditures, and their total assets grew by that amount, while the assets 
of other formal savings institutions were being drawn off and reduced. 

May I correct that statement? I would like to clarify one point. 
During these 3 years the excess of income over expenditures amounted 
to almost 2)4 billion dollars by which their assets increased in the 
worst years of the depression. 

Mr. Gesell. Can you give us any reasons for this growth of life 
insurance assets, Dr. Davenport? 

Dr. Davenport. There are two important reasons for the persist- 
ent growth of hfe insurance assets which may be mentioned. Both 
are deeply rooted in the very nature of the institution of life insur- 
ance. First, it may be pointed out that in thinking of his life insur- 
ance, the policyholder regards the face amount of his insurance as 
the primary measure of his protection. The actual cash surrender 
value of his policy may be extremely small, as it is in the case of 
policies that have been in force only a short time. It is always sub- 
stantially less than the face value of the insurance. The overall 
average of all policies in force shows that the cash surrender value is 
less than one-fifth of the amount of the insurance in force. Thus an 
individual who has a $1,000 life insurance policy that has been in 
effect an average period of time would be able to obtain by surren- 
dering it not more than $200. In his mind he would have to sacrifice 
the protection which $1,000 would represent to his family in case of 
his death for only $200 in cash. Undisr these circumstances it is 
easy to understand why he would hesitate to withdraw his savings 
on such a policy and why he would first turn to other resources. 

Second, the insured person knows that by reason of the increase in 
his age or the possible impairment in his health since he first took out 

1 See "Exhibit No. 218", supra, p. 1177. 



CONCENTRATION OF ECONOMIC POWER Hg'J 

his policy, it might be difficult or even impossible for hiia to take out 
a new life insurance pohcy. In any event, he is sure that a new in- 
surance policy would certainly cost him a great deal more money. 
Policyholders, therefore, regard their life insurance policies as their 
last resource and hold on to them until other forms of resources have 
been exhausted. Even then the policyholder will generally seek a 
loan on his policy or give notes to the company for his premiums 
rather than actually surrender his policy. 

The other types of savings institutions stand in a less advantageous 
position in this respect. .Age and health have nothing to do with 
the possibility of opening or closing a savings account in a mutual 
savings bank or a savings account in a commercial l^ank. 

Senator King. I assume that the life insurance companies do not 
encourage the surrender of the policies but rather encourage a 
continuity of them. 

Dr. Davenport. That is correct, Senator. Moreover, the protec- 
tion that is offered by savings deposits in savir ^s banks can never 
be greater than the amount on deposit, wheref^s in the (^se of the 
life insurance company the protection that is offered is fiVe times as 
great on the average as the amount of cash that could be obtained. 

Savings entrusted to the life insurance companies are, therefore, 
the last to be withdrawn. It is natural, therefore, that the assets 
of the savings banks and the commercial banks and even the building 
and loan associations should be reduced in iperiods of depression. 

Another feature of life insurance shared to only a limited extent 
by building and loan associations is the systematic, routinizod method 
of premium collections that tends to main tarn income to the life 
insurance companies even in the condition of great hardships to the 
policyholders. The failure to continue premium payments carries 
with it penalties which in time result in the lapse of the insurance 
and the loss of protection. This feature of life insurance intensifies 
the tendencies of policyholders to cling to their insurance and to 
maintain their premium payments until other resources fail. 

The Chairman. Your testimony tends to strengthen the statement 
made by Chairman Douglas at the outset, that outstanding policies 
are very firmly based upon the present assets of these companies. 

Dr. Davenport. Exactly. 

Mr. Gesell. You would say, then, really, that the life insurance 
companies are a unique form of sa\angs institution, are they not? 

Dr. Davenport. That is the conclusion that comes inevitably from 
this analysis. life insurance is a unique form of savings institution. 
Its basic characteristics are such that it continues to grow even in 
times of great economic'depres^ion . The implications of this tendency 
toward the concentration of savings and the control thereof by Ufe 
insurance companies raises questions for the consideration of this 
committee, and they constitute a basic subject for our inquiry. But 
the final answer cannot be -given at this time. 

Senator King. One inquiry may I make: Did you find that the 
State laws under which these corporations exist tend to maintain the 
institutions and to prevent fly-by-night organizations from obtaining 
charters to engage in life insurance business? 

Dr. Davenport. Senator, with respect to the large States in which 
the large life insurance comp)anies are incorporated and do business, 
I can answer that definitely in the affirmative. The companies that 



1188 CONCENTRATION OF ECONOMIC POWER 

have failed, were small companies, were companies that were young 
companies and were not companies that were organized and doing 
business where the great bulk of the life insurance is done. 

The Chairman. In other words, it is your testimony that the in- 
surance laws of the States in which the bulk of, or the largest propor- 
tion of, life insurance companies are incorporated, are well calculated 
to protect the poHcyholders, 

Dr. Davenport. Mr. Chairman, I am not a lawyer and I do not 
presume to say that I am competent to answer that question. We 
intend to go into that in great detail. 

The Chairman. Then I didn't quite understand your -answer to 
Senator IGng. 

Dr. Davenport. My general impression. Senator — perhaps I 
should say it is a personal opinion 

Senator King (interposing). Well, from your examination of these 
various institutions about which you have testified, it would seem to 
me you would have some conclusion as to whether the laws under which 
they are organized afford reasonable protection to the pohcyholders. 

Mr. Gesell. Your studies have been entirely statistical, have they 
not? 

Dr. Davenport. They have. 

Mr. Gesell. You have made no inquiry into the working of any 
individual companies? 

Dr. Davenport. No. 

Mr. Gesell. And the opinion you have expressed is simply your 
personal opinion, which you have derived from a reading of the 
literature? 

Dr. Davenport. And from a study of the assets of these institutions. 

Mr. Gesell. But it has not been a particular objective of your 
study to examine the activities of insurance companies as they relate 
to regulations by State authorities? 

Dr. Davenport. That is perfectly true. 

Senator King. However, your study shows these large assets, the 
solvency- — -more than solvency, if I may use that expression- — ^and 
indicates these institutions have been well managed, and that they 
'must have been organized upon a sound and satisfactory law. 

Dr. Davenport. One cannot help but be impressed by the con- 
tinued growth in the assets of these companies. 

Mr. Douglas. We will present, Mr. Chairman, considerable 
evidence, facts relative to that line of inquiry at subsequent session? 
of the hearings. 

Mr. Gesell. I would like to introduce into the record at this time 
the chart which Dr. Davenport has just been discussing, together 
with a schedule showhig the supporting statistical data and the 
sources from which it has been obtained. 

The Chairman. Without objection, it may be admitted. 

(The chart referred to was marked "Exhibit No. 221" and appears 
on p. 1189. The statistical data on which this chart is based are 
included in the appendix on p. 1513.) 



CONCENTRATION OF ECONOMIC POWER 



1189 



Exhibit No. 221 



ASSETS OF 

FORMAL SAVINGS INSTITUTIONS 

IN U.S. 




1910 I9IS 

SO'JRC€: STATISTICAL ABSTKACT 



1920 IS25 



930 1935 1940 

Ds-iioi PRCPAKCD By sec a cxch. comm. 



1190 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The next chart is your last one, is it not? 

Dr. Davenpout. Before I turn to the last chart, Mr. Gesell, if 
I may I should like to state the value of the assets of these companies 
so that we may obtain some perspective on their relative size. The 
total assets of life-insurance companies in 1937 were equal to 85 percent 
of the total assets of ail national banks in the United States. Another 
cornparison that might illuminate their relative importance is that 
their assets are twice as great as the total assets of the Federal Reserve 
banks. 

The Chairman. Are you now referring to the same number of 
companies? 

Dr. Davenport. The same number of companies, 308' • 

The Chairman (interposing). Out of how many? 

Dr. Davenport. We had replies from about 327 companies to 
which we sent questionnaires. Many of them, those that are not 
included in the 30S, were insignificant small companies for which 
complete returns couldn't be obtained, so that you can say the 308 
companies constitute the life insurance business of the United States. 

Mr. Gesell. The legal reserve life insurance business, is that not 
correct? You have not included the assessment companies or the 
fraternal benefit companies. 

Dr. Davenport. As yet our inquiries have not progressed to the 
state where we include the fraternal companies that also write life 
insurance, or the assessment companies. 

Mr. Gesell. Statistical material with reference to those companies 
is not readily available in published manuals, is it, to the extent that 
it is with regard to the legal reserve companies? 

Dr. Davenport. No. 

The total assets of life insurance companies in 1935 were equivalent 
to 70 percent of the value represented by the total of all land atid 
buildings in the farms of the United States. 

The Chairman. Wliat percentage? 

Dr. Davenport. Seventy percent of the value of lands and buildings 
together on the farms in the United States. 

The Chairman. All farms? 

Dr. Davenport. All farms. That is for 1935, the latest date for 
which we can obtain the figures of agricultural industry valuation. 

Another interesting comparison can be made with the total assessed 
valuation of the real estate and special franchises of New York City, 
which were announced on February 2 of tnis year, and printed in 
the New York Times as of that date. The official assessed value of 
all the taxable real estate in New York City was reported as $16,736,- 
000,000. This includes all real estate as well as the valuation of 
special franchises. Comparing the figure with the admitted assets 
of life insurance companies, $26,249,000,000, indicates that the life 
insurance company assets are equivalent to 1 }^ times the total assessed 
value of all^^xable real property in New York City. 

Mr. Gesell. Those comparisons that you have made are made 
simply to give some basis for judging the size of these companies, 
and not on any theory that the two matters compared are in all 
respects comparable? 

Dr. Davenport. Merelj^ to give perspective. These figures are in 
astronomical tenns and it is rather difficult to appraise their relative 
importance unless we do throw them up against something which 
wo can visualize. 



CONCENTRATION OF ECONOMIC POWER ^9]^ 

Mr. Gesell. What is your last chart, Doctor? 

Dr. Davenport. The last chart, Mr. Gesell, is the one that is 
entitled, "Assets of Life Insurance Companies as of December 31, 
1937." ^ 

Mr. Gesell. From what sources has it been prepared? 

Dr. Davenport. This chart is based upon the official figures 
obtained from the reports that the companies make to the individual 
State life insurance commissioners as published in the Spectator 
Year Book on Insurance. It is a chart, the intention of which is 
to show the relative magnitudes of the largest life insurance companies 
doing business in the United States. The 16 largest companies in 
1937 held 80.6 percent of the total assets of all of these life insurance 
companies. 

Mr. Gesell. What were the top 5 companies, in order of their 
size, of these principal 16 companies? 

Dr. Davenport. The largest life insurance company in the United 
States and in the v/orld is the Metropolitan Life Insurance Co., which 
had assets of $4,700,000,000 in 1937. This amount accounted for 
18 percent of the total assets of these companies. 

Mr. Gesell. It is a mutual company, is it not? 

Dr. Davenport. It is a mutual company, Mr. GeseH 

Mr. Gesell. What is the next largest? 

Dr. Davenport. The next largest company is the Prudential 
Insurance Co., with assets of $3,500,000,000, accounting for 13.7 
percent of the total. 

Mr. Gesell. Now, is the Prudential a mutual company or a mixed 
company? 

Mr. Davenport. Technically, the Prudential is known as a mixed 
company. It still has stock outstanding. The amount of stock not 
held in the hands of trustees for the benefit of pohcyholders, however, 
is an insignificant amount. All policies now sold by the Prudential 
Life Insurance Co. are on a participating basis, therefore, to all in- 
tents and purposes we may refer to the Prudential Life Insurance Co. 
as a mutual company. 

Mr. Gesell. What is your next company? 

Dr. Davenport. The next company is the New York Life Insur- 
ance Co., $2,500,000,000, accounting for 9.6 percent; the Equitable, 
$2,100,000,000, comes next, \vith assets of 8 percent, and the Mutual 
of New York, with $1,300,000,000, accounting for 5.1 percent. 

M.r. Gesell. Those major five companies with the exception of the 
Prudential, which is subject to some qualification, are all mutual com- 
panies, are they not? 

Dr. Davenport. They are all mutual companies. 

Mr. Gesell. And what percentage of the total assets of the legal 
reserve life insurance companies do they account for? 

,Dr. Davenport. These five largest companies control 54.4 percent 
of the total assets of all life insurance companies. 

M.r. Gesell. That is over half? ^ 

Dr. Davenport. Fifty-four point four percent. There are 11 more 
large companies. In the aggregate they have assets of $6,800,000,000, 
accounting for 26.2 percent. The 16 companies, the 5 big ones in the 
New York area and the IT next largest companies, account for 80.6 

I See "Exhibit No. 222", infra, p. n95. '/' 



1192 CONCENTRATION OF ECONOMIC POWER 

percent of all life insurance company assets. The remaining 292 
companies have total assets of $5,100,000,000 and account for 19.4 
percent of the total. 

Mr. Gesell. How many of those 11 companies which come be- 
tween the 292 and the top 5 are mutual companies, and can you give 
us the names of the companies and indicate whether they are mutual 
or stock? 

Dr. Davenport. The 11 companies are as follows: Northwestern 
Mutual 

Mr. Gesell (interposing). This is in order of their size? 

Dr. Davenport. This is in order of their size. 

Northwestern Mutual Co., Milwaukee, Wis., with assets of 
$1,178,000,000. 

The Travelers Insurance Co., of Hartford, Coim., is a stock com- 
pany. It does not sell participating insurance, and has assets of 
$914,000,000. 

Next is John Hancock Mutual Life, of Boston, Mass., a mutual 
company with assets of $855,000,000. 

The Penn Mutual Co., of Philadelphia, Pa., comes next, with assets 
of $668,000,000. 

The Mutual Benefit Life of Newark, N. J., comes next with assets 
of $646,000,000. 

The Massachusetts Mutual of Springfield, Mass., comes next, with 
assets of $610,000,000. 

The Aetna Life, of Hartford, Conn., comes next, with assets of 
$577,000,000. 

Mr. Gesell. That is a stock company, is it not? 

Dr. Davenport. That is right. The Aetna Life Insurance Co. is 
a stock company, but it sells both participating and nonparticipating 
life insurance policies. 

The New England Mutual of Boston, Mass., has assets of 
$402,000,000. 

The Union Central, of Cincinnati, Ohio, has assets of $359,000,000. 

Mr. Gesell. Is it a stock or a mutual company? It is a stock 
company, is it not? 

Dr. Davenport. That, I believ3, is a stock company. Yes; it is a 
stock company; but it sells both participating and nonparticipating 
policies. 

The fifteenth company in size is the Provident Mutual Life of 
Philadelphia, with assets of $331,000,000. 

Mr. Gesell. Then, just to recapitulate for a second, except for the 
Travelers, Aetna, Union Central, and the Prudential, concerning 
which there is some qualification, the companies constituting the top 
16 companies are all mutual in character, are they not? 

Dr. Davenport. That is right, Mr. Gesell. 

Mr. Gesell. How do these companies distribute themselves in 
terms of their home office locations? That is shown by the right-hand 
bar of your chart, is it not? 

The Chairman. Before you go to that, Dr. Davenport, may I ask 
you to make a computation and insert it in the record at this point 
as to the percentage of the assets of all companies controlled by these 
mutual companies which you have just listed, which are included 
among the 16 largest companies? 



CONCENTRATION OF ECONOIMIC POWER II93 

Dr. Davenport. I shall be happy to do that, Senator. I have such 
a tabulation which I can read to you now, if you would care to have 
the information. 

The Chairman. I think that would be well. This would be the 
proper place for it. 

Dr. Davenport. This relates to the degree of mutuality in the 
25 largest life-insurance companies. Of the 25 largest companies 
owning 87.1 percent of all life-insurance company assets, reporting in 
1937, only two, the Travelers and Western & Southern, are purely 
proprietary companies, now selling ■' iily nonparticipating life in- 
surance. These two companies together account for only 4 1 percent 
of the total life insurance company assets. 

In addition, there are 5 of the largest 25 companion that are stock 
companies but which are mutualized to the exter aat they have in 
force both participating and nonparticipating insurance policies. 
These companies are as follows: The Aetna, ti o Union Central, the 
Connecticut General, the Equitable of Iowa, and the Lincoln National, 
and I have the figures of insurance in force both on a participating 
basis and a non participating basis, which siiows that for the^s 5 com- 
panies, taken 'ogether, they have five billion, five of nonparticipating 
insurance and two billion, two of participating insurance. 

Mr, Gesell. When you say five billion five and two billion two, 
you mean 

Dr. Davenport. May I state that over again? 

These five companies which are stock companies, but which sell 
both participating and nonparticipating life insurance, had nonpar- 
ticipating life insurance in force to the extent of $5,575,000,000, and 
the participating, where the stockholder gets a share of the divi- 
dends 

The Chairman (interposing). You mean where the policyholder. 

Dr. Davenport. V\ liere the policyholder gets a share of the divi- 
dends, the participating insurance in force in these five companies 
amounted to $2,176,000,000. From this it appears that in the case of 
these five stock companies comprising 28 percent of the insurance — 
let me state that over again ; from this it appears in the case of these 
five companies 28 percent of the insurance they have in force was 
written on the participating plan. 

Mr, Gesell. Does that cover what you wanted, Mr. Chairman? 

The Chairman. Yes. 

Mr. Gesell. Can you give us very briefly the facts concerning the 
geographical location of these principal companies? 

Dr. Davenport. Another aspect of this concentration of control is 
revealed in the bar on this chart that appears to the right. Six of the 
largest 25 com.panies are in the New York City area, 4 in New York 
City proper, 2 in Newark, N. J., approximately 10 miles away from 
New York City. These 6 companies control 56.9 percent of the total 
assets of all fife insurance companies. There are 10 of the 25 largest 
companies in the United States that have their home offices located in 
New England. These 10 companies control 17.2 percent of the total 
assets. If we take the total 25 largest companies in the United States, 
we include 1 in California, 1 in Wisconsin, 2 in Iowa, 2 in Philadelphia, 
3 in Ohio and Indiana. Those 25 companies control 87.2 percent of 
the total assets of all life insurance companies. 



1194 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And companies operating in the New York area and 
in New England, that is, having their home offices there, account for 
74.1 percent of the total assets of all of the 308 companies to which 
that chart relates. 

Dr. Davenport. That figure is correct, Mr. Gesell. 

The Chairman. What is that percentage? 

Mr. Gesell. 74.1, if my figures are correct. It is a combination of 
the 17.2 for New England 

Dr. Davenport (interposing). The sum of these 6 in the New York 
area and the 10. 

Senator King. Did you find that loans were made quite generally 
throughout the United States? 

Dr. Davenport. Yes. Policy loans are made regardless of State 
lines. 

Senator King. There seems to be no discrimination m favor of 
loans in New York or Pennsylvania or some of these liighiy indus- 
trialized States 

Dr. Davenport. You are spealdng now of policy loans, Senator, 
or other forms? 

Senator King. Other forms of loans, loans for capitalistic purposes, 
loans upon" real estate, loans for railroad corporations, and so on. 

Mr. Gesell. We are making studies of the distribution of invest- 
ments now. Some reference will be made to it by the next witness. 

The Chairman. It is probable tiiat thev don't discriminate against 
Utah. 

Senator King. I am sure they wouldn't, because their loans in 
Utah would be so sound and secure. 

The Chairman. I knew you would have some good answer. 

Senator King. They would seek loans there. 

Mr. Gesell. Have"^ you any further comments to make on this 
chart, Doctor? 

Dr. Davenport. It might be interesting to throw the size of the 
Metropolitan Life Insurance Co. into some perspective. It will take 
just a moment. The Metropolitan Life Insurance Co. is the largest 
life-insurance company in the world, but it should be noted than it 
1937, with a single exception of the American Telephone and Tele- 
graph Co. the Metropolitan had aggregate assets greater than tliose 
held by any other single industrial or banking concern in the ignited 
States, not excepting the United States Steel Corporation, Pennsyl- 
vania Railroad, General Motors, New York Central Railroad, or the 
Chase National Banlv. 

The Chairman. What was tlie total figure? 

Dr. Davenport. I have no comparison on the total figure. 

The Chairman. You know what the total assets of the Metro- 
politan are? 

Dr. Davenport. They are $4,700,000,000. 

Mr. Gesell. I would like to introduce in the record at this time a 
copy of the chart which Dr. Davenport just discussed, together with 
two schedides which give further information concerning the assets 
of the companies involved. 

The Chairman. It may be so ordered. 

(The chart referred to was marked "Exliibit No. 222" and appears 
on p. 1195. The statistical data on wliich this chart is based are in- 
cluded in the appendix on p. 1514.) 



CONCENTRATION OF ECONOMIC POWER 



1195 



Exhibit No. 222 



ASSETS OF 
LIFE INSURANCE COMPANIES 




DECEMBER 3 1. 1937 



sec a cxcn 



1196 CONCENTRATION OF ECONOMIC POWER 

The Chairman. These schedules which you have offered with each 
one of these charts were, I presume, prepared in the S. E. C. under 
the direction of Dr. Davenport or some member of the staff. 

Mr. Gesell. That is correct, and the source of the figures is in- 
dicated on each schedule, and they have been checked. 

Dr. Davenport. Mr. Chairman, the full significance of such large 
amounts of assets is not revealed by merely stating the figures. The 
assets of railroads and other industrial corporations consist mainly of 
fixed assets, plant and equipment. On the other hand, as Mr. Howe 
will show this afternoon, over 50 percent of the assets of life insurance 
companies are cash and marketable securities, consequently these 
companies exert a far greater influence on our financial markets and 
on our general economy than industrial concerns of similar size. 

The charts that I presented point to the conclusion that a very 
unusual degree of public interest attaches to the management of the 
life Insurance companies. Not only is insurance a business of great 
size, but it directly affects the stability of our society. Millions of 
families regard their life insurance policies as their principal protection 
in the case of the death of the breadwinner. The assets of life insur- 
ance companies, now totaling over $27,000,000,000, have been accumu- 
lated out of the savings of these families. 

Not only is the business important because of the responsibility 
that attaches to the custody of the savings of these millions of persons, 
but the investment of such large sums of money makes the insurance 
companies a power to be reckoned with in the capital market. 

Senator King. One question. Will you state the number of policy- 
holders in these companies to which you have been referring? 

Dr. Davenport. At the present time there are about 125,000,000 
policies in force. The exact number of individual lives insured by 
those policies is something that has been estimated, but it has not 
been counted. Mr. Julian Price, president of one of the large Ufe 
insurance companies, recently stated that the number of individual 
lives insured was approximately 64,000,000. That would mean 
rouglily one out of every two people in the United States had a policy 
on his life. 

Senator King. Of course, those policies would protect their fami- 
lies, and the families might be from two to half a dozen or more, also 
their estates might be protected by the policies. 

The Chairman. And the testimony indicates not only that one 
individual out of every two in the entire population of the United 
States, including men, women and children, carries a policy, but that 
most of these policies by far are in mutual companies, which are sup- 
posed to be— and which are in fact — organizations in which the 
policyholders themselves are the owners of the company. 

Dr. Davenport. That is right. 

The Chairman. In other words, much more than 50 percent of the 
adult population of the United States are participating in companies 
which they themselves, in law, own and through wliich they endeavor 
to provide security for their families. 

Dr. Davenport. That is correct, Mr. Chairman. 

The Chairman. And the mutual conipanies have gradually been 
taking over a larger and larger proportion of the life insurance work 
as compared with the stock companies. 



CONCENTRATION OF ECONOMIC POWER HQ'J 

Dr. Davenport. The extent of mutualization proceeded rather 
rapidly after the Hughes investigation. 

Senator King. We don't have any Hydes running them now. 
Remember that episode? 

Mr. Douglas. Mr. Chairman, in the interest of fairness and 
accuracy, I should like to clarify one comment that I made in my 
opening remarks. I stated that the Armstrong Committee had 
recommended that the insurance companis should not be permitted 
to grow beyond a half billion dohars in size.^ The Armstrong Com- 
mittee did not put it that way. Tho Armstrong Conomittee said, 
on page 392 of its report: 

The business of the Mutual," the- Equitable and the New York Life has grown 
beyond reasonable limits. * * * The growth of the three companies haa 
long been a matter of grave concern to students of insurance conditions. No 
useful purpose will be served by their becoming larger. 

And the specific recommendation that the committee came to on 
page 394 was that the desired result can be obtained by limiting the 
amount of the new business which each company may take to 
$150,000,000 a year. 

I think that, m the interest of accuracy and fairness, that should be 
in the record, and I would suggest that there be included in the record 
this short sunmaary of the Armstrong committee, pages 392 to 396, at 
this point. 

The Chairman. Isn't it also a fact, Mr. Douglas, that the law of 
the State of New York was later changed permitting a size greater 
than that which was fixed in the first law? 

Mr. Douglas. That is all very true,^ Mr. Chairman. This is just 
of historical interest. 

The Chairman. In other words, there was no desire to give the in- 
ference that these companies have grown beyond the size fixed by law. 

Mr. Douglas. That is correct. No inference such as that was in- 
tended. 

The Chairman. The statement may be admitted to the record. 

(The summary referred to was marked "Exhibit No. 223" and is 
included in the appendix on p. 1515.) 

The Chairman. Do any members of the committee desire to ask 
Dr. Davenport any questions? I think we will probably have to take 
a recess now. 

(The witness was excused.) 

The Chairman. The committee will stand in recess imtil 2:30 this 
afternoon. 

(Whereupon, at 12:20 noon, a recess was taken until 2:30 p. m. of 
the same day.) 

afternoon session 

The committee resumed at 2:40 p. m., on the expiration of therecess. 

The Chairman. The committee will come to order. Mr. GeseU, 
are you ready to proceed? 

Mr. Gesell. I am. The next witness is Mr. Ernest Howe. 

The Chairman. Mr. Howe, do you solemnly swear the testimony 
you are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Howe. I do, 

' Supra, p. 1163. 



1 198 CONCENTRATION OF ECONOxMIC POWER 

TESTIMONY OF ERNEST HOWE, CHIEF FINANCIAL ADVISER TO 
THE INSURANCE SECTION, SECURITIES AND EXCHANGE COM- 
MISSION 

ASSETS AND INVESTMENTS 

Mr. Gesell. Mr. Howe, you are Chief Financial Adviser to the 
Insurance Section of the Securities and Exchange Commission? 

Mr. Howe. I am. 

Mr. Gesell. You were formerly with the Federal Housing Admin- 
istration as special representative? 

Mr. Howe. That is correct. 

Mr Gesell. You are a graduate of Columbia University in 1923? 

Mr. Howe. Yes. 

Mr, Gesell. You have beefi^with various investment companies, 
including Blyth.& Co. and Lehman Bros.? 

Mr. Howe. I have. 

Mr. Gesell Have you prepared figures and charts giving infor- 
mation concerning the amount and character of legal reserve life 
insurance company assets, investments, income, yield, capital loss, 
and valuation? 

Mr. Howe. I have. 

Mr. Gesell. What is the first matter that you wish to bring to the 
attention of the committee? 

Mr. Howe. A brief outline of the material which I had thought 
might be the subject of consideration this afternoon is first the compo- 
sition of the assets of legal reserve life insurance companies, then 
some discussion of supply and demand for investments of this type; 
finally earnings, gain and loss, and methods of valuation of life insur- 
ance assets. 

As a point of departure I have taken from the Spectator Insurance 
Year Book, to which reference was made this morning 

The Chairman (interposing). That is a standard work? 

Mr. Howe. That is a standard work which is taken from the annual 
reports wjiich insurance companies furnish to various state commis- 
sioners of insurance, and compiled by an organization of long standing 
and having, I believe, general acceptance in the business. 

So that to understand this problem, it seemed reasonable to start 
with the combined balance sheet of the 308 companies whose figures 
are reported by Spectator, and to compare the figures in this bal- 
ance sheet as of December 31, 1937, with the balance sheet of the 
companies whose figures are reported for the year ended December 31, 
1906, immediately following the famous Armstrong investigation in 
New York.^ 

As Dr. Davenport said this morning, the total assets of legal- 
reserve life-insurance companies in the United States aggregated on 
December 31, 1937, $26,249,000,000. In 1906, the assets of com- 
panies which then composed the legal reserve life insurance business 
amounted to $2,924,000,000. That is an increase of almost 800 
percent. 

In comparing the two'sets of figures, that is, those for 1937 and those 
for 1906, the growth has been so great that unless we reduce our 
consideration to percentages of total assets owned, it is difficult to 

I See "Exhibit No. 224", appendix, p. 15)7. 



CONCENTRATION OF ECONOMIC POWER 1199 

tell the change in the rektive importance of the various items which 
make up the balance sheet. So that in terms of percentage, we find 
that in 1937 cash- amounted to 2.77 percent of total assets. This 
stood at 2.38 percent in 1906. 

The Chairman. Just give those figures again. 

Mr. Howe. Cash held by these 308 legal reserve life insurance com- 
panies amounted to 2.77 percent of total assets in 1937. 

Mr. Gesell. And that was how much in actual cash? 

Mr. Howe. That was $725,000,000, whereas in 1906 cash consti- 
tuted 2.38 percent of total assets and amounted to $69,000,000. 

The Chairman. That means a 0.39 percent difference? 

Mr. Howe. That is correct, sir. 

The Chairman. Can you give us the valuation of that 0.39 in 
dollars? 

Mr. Howe. Of course the total increase has amounted to in excess 
X)f $600,000,000. 

The Chairman. One-tenth of one percent means a good deal more 
in 1937 than it did in 1906. 

Mr. Howe. Yes, sir, very much more. 

Mr. Gesell. It is the difference, is it not, between $725,000,000 
approximately and $69,000,000? 

Mr. Howe. That is correct, Mr. Gesell. 

The Chairman. That would be the actual statistical measure of 
0.39. 

Mr. Howe. Yes, in relation to the assets at the end of 1937. 

The next item which appears on the balance sheet is bonds. At the 
end of 1937 these insurance companies are shown to hold $13,182,000,- 
000 of bonds; in 1906 this was $1,200,000,000. Stocks in 1937 were 
held to the extent of $512,000,000 whereas in 1906 they amounted to 
$159,000,000. Mortgages were $5,000,000,000 as compared with 
$926,000,000 in 1906. 

The Chairman. Five what? 

Mr. Howe. $5,229,000,000. 

The Chairman. As compared with? 

Mr. Howe. With $926,000,000 in 1906. 

The Chairman. Have you any figures on the comparative distri- 
bution of these mortgages as between 1906 and 1937 geographically? 

Mr. Howe. You mean the geographical distribution. Senator? 

The Chairman. Yes, sir. 

Mr. Howe. We do not have here the complete figures on the 
geographic distribution of those mortgages. In the convention blanks, 
as they are referred to — that is, the statements which the companies 
give to the various insurance commissioners — those figures are broken 
down by companies, but ^s yet we have not compiled those on a 
national basis with respect to real estate, or rather to mortgages 
alone. 

The amount of real estate owned in 1937 amounted to $2,190,- 
000,000; in 1906 this figure was $170,000,000. Pohcy loans and pre- 
mium notes at the end of 1937 amounted to $3,399,000,000 as com- 
pared with $265,000,000 in 1906. 

The Chairman. Have you any computation of the amount of 
policy loans and premium notes as of 1929? There might be a reason 
for using that figure because of the depression. 

124491— 39— pt. 4 — —4 



1200 CONCENTRATION OF ECONOMIC POWER 

Mr. Howe. In a moment, Senator, we will show much more com- 
plete data with respect to 49 companies, and I can tell you the amounts 
of these various classes of assets which they owned at any particular 
time between 1906 and 1937. 

The Chairman, I beg your pardon. 

Mr. Howe. The remaining item on the asset side of the balance 
sheet is classified as "All Other Assets" and in 1937 amounted to 
approximately $1,000,000,000, as compared with $133,000,000 at the 
end of 1906. "All Other Assets" include collateral loans, interest 
accrued on bonds and mortgages, due and deferred premiums, and 
so forth. 

The Chairman. Have you made any computation to compare the 
percentage, let us say, of bonds held by kisurance companies in 1906 
to the total number of bonds of a similar character outstanding as 
compared with the same figures for 1937? 

Mr. Howe. We have not been able to determine with any degree 
of accuracy the amount of' all the various types of securities which 
were outstanding in 1906. However, I have prepared and will present 
in a moment the percentage of the various classes of securities out- 
standing which are now held by the 49 companies with respect to 
which we have somewhat more detailed information. 

Now on the liabilities side of the balance sheet, the largest item of 
course is reserves. Life insurance reserves at the end ot 1937 aggre- 
gated $21,100,000,000; other policy reserves amounted to $2,480,- 
000,000; liability for policy claims," $126,000,000; dividend liability, 
$425,000,000; and all other liabilities, $571,000,000. That left a 
surplus of $1,542,543,000. 

Now surplus, it should probably be emphasized at this point, is not 
the same type of figure which one ordinarily finds in a railroad, 
public utility, or other balance sheet. In this case, surplus includes 
capital, that is capital of stock companies, and it indudes with 
respect to mutual companies other special earmarked categories, 
•contingency funds, special voluntary reserves, other reserves not re- 
Xjuired by law, which the companies have set up, and the remaining 
figure of surplus as we ordinarily imderstand it 

Mr. Gesell. To go back a moment over what you have just covered, 
is it correct to say that during the period from 1906 to 1937, cash, 
bonds, real estate, policy loans, all increased? 

Mr. Howe. That is correct. 

Mr. Gesell. Have you figures prepared on the basis of the 49 
largest companies which will give us more detail with respect to these 
And the other items it would cover? 

Mr. Howe. Yes, I have; and possibly it would be usefulin connec- 
tion with emphasizing the items which have relatively increased, also 
to mention the items which have relatively declined in importance 
since 1906. Cash, bonds, real estate, and px)licy loans have increased 
relatively in the total composition of the assets, whereas stocks, 
mortgages, and other assets have declined. On the liabilities side of 
the balance sheet, whereas surplus stood at 12.56 percent of total 
assets in 1906, in 1937 it aggregated but 5.88 percent of total assets. 

The Chairman. What is that last figure? 

Mr. Howe. 5.88 percent of total assets in 1937. 

The Chairman. As against 12 point what? 

Mr. Howe. 12.56 m 1906. 



CONCENTRATION OF ECONOMIC POWER 1201 

The Association of Life Insurance Presidents supplies each year in 
the form of an address figures with respect to the growth of invest- 
ments of 49 large legal reserve hfe insurance companies. 

Senator King. Do they speak for the others? 

Mr. Howe. I am sure I am not quaUfied to say whether they speak 
for the others, but they certainly represent a large proportion of the 
assets, because these 49 companies in 1906 had 98 percent of the assets 
of all insurance companies, whereas in 1938 they had about 92 percent 
of aU of the assets of the legal reserve Ufe insurance companies. 

The Chairman. So that when you are deaUng with these 49, to all 
intents and purposes you are dealing with all of them. 

Mr. Howe. From the point of view of assets, you are deahng with 
the overwhelming preponderance of the assets in the business. 

Mr. Gesell. Now before discussing these 49 companies in greater 
detail, I would like to introduce into the record the figures which Mr. 
Howe has just reviewed, set up in balance-sheet form. 

The Chairman. These are the figures to which he has just testified? 

Mr. Gesell. That is correct, yes. 

The Chairman. Without objection this table may be admitted . 
an exhibit. 

(The table referred to was marked "Exhibit No. 224" and is in- 
cluded in the appendix on p. 1517.) 

Dr. LuBiN. Mr. Chairman, before we proceed may I ask the witness 
about this $21,000,000,000 reserve. That is the legal reserve against 
pohcies? 

Mr. Howe. That is correct. That is the hfe-insurance reserve. 
There are other reserves which aggregate $2,480,000,000. 

Dr. LuBiN. In view of what Dr. Davenport said this morning, 
namely that over a period, in fact throughout the whole history of 
these insurance companies, their total income, that is income from pre-* 
miums plus other income, has always been sufl5cient to meet theii 
needs, is it fair to conclude that this reserve which has been gradually 
increasing and now aggregates $21,000,000,000 has never been touched? 

Mr. Howe. Yes; I say that is a very difficult question to answer, 
when you say it has never been touched. It is used continually, and 
with respect to certain policies, and other funds are paid in. It cer- 
tainly, in my opinion, is unfair 

Dr. LuBiN (interposing). Let me put it this way: In order to meet 
the liabilities of the companies as they occur, this $21,000,000,000 
theoretically could have been nonexistent and the insurance companies 
could still have met their liabilities. 

Mr. Howe. Well, with respect to the period under review, that is, 
historically in this period when life insurance has grown at such a 
rapid rate, that has been the condition. I do not think that it is fair 
. to assume that the reserves are not a necessary part of the institution. 

Mr. Gesell. It also takes the business as a whole, anil not any in- 
dividual company, does it not? 

Mr. Howe. Yes. 

Senator King. And if they had had no reserves the companies 
wouldn't have prospered, and the policyholders would have diminished 
instead of increasing in number. They would have had apprehension 
as to the solvency of the insurance companies. 

Mr. Howe. Senator, I think that is quite clearly indicated in view 
of the experience of many years ago with insurance companies which 



1202 CONGB^^TRATION OF ECONOMIC POWER 

operated without reserves. It was found that as the policyholders 
increased in age the premiums increased, the thing didn't work quite 
as well as was anticipated, and that is why the development has taken 
its present form. I think that reserves are an essential part of the 
business. 

Senator King. A prospective purchaser of a policy wants to know 
that the insurance company from which he obtains the policy is not 
a fly-by-night, but is there as a sort of Rock of Gibralter to protect 
him and his children and his grandchildren and his estate. 

Mr. Gesell. I imagine Mr. Howe can only speak for himself as a 
policyholder, and not for all pohcyholders. 

Senator King. I think a person who has any sense wants to invest 
in an organization that has reserves and stability, rather than one 
that is unstable and lacks reserves. 

Mr. Howe. Another point which is of great Interest to each indi- 
vidual policyholder is his own reserve, because of the fact that the 
amount of money which he may obtain by surrendering his poUcy 
bears a definite relationship to the reserve upon that policy. 

The Chairman. As I look at these figures, Mr. Howe, it would 
appear that the reserves in 1906 were $2,473,000,000 a,s compared 
with total assets of $2,924,000,000, whereas in 1937 the reserves are 
$21,100,000,000 as compared with total assets of $26,249,000,000.* 

I would judge that the reserves in 1906 were a larger percentage of 
the total assets than they were in 1937. 

Mr. Howe. In 1906, Senator, the life insurance reserves aggregated 
84.57 percent of the total assets, whereas in 1937 they aggregated 
80.38 percent of the total assets. 

The Chairman. Eighty-four point what? 

Mr. Howe. Fifty-seven. 

The Chairman. As compared with? 

Mr. Howe. Eighty point thirty-eight. 

The Chairman. So that there has been a decrease of a Uttle bic 
more than 4 percent? 

Mr. Howe. That is correct. 

Mr. Gesell. You were about to turn to your charts, I believe. 

Mr. Howe. The charts, as has been stated, are based upon informa- 
tion with respect to 49 companies which have been continuously in 
existence from 1906 to 1938.^ 

The Chairman. And it may still be said that the figures with respect 
to these 49 companies represent the aggregate picture? 

Mr. Howe. We believe that they certainly represent the over- 
whelming preponderance of these assets. It perhaps may not be true 
that they are typical of every company in the business, but they are 
certainly indicative of the condition. 

The Chairman. But if all the companies which were operating were 
added to this picture it would not be materially changed, because they 
don't have assets enough to change them. 

Mr. Howe. Probably you couldn't see them on the chart, with the 
exception of the fact that in this chart this total goes to $25,454,000,- 
000, whereas otherwise it would go to $26,000,000,000. 

The Chairman. So that the mere fact that you are now dealing with 
the returns of 49 companies, whereas there are more than 300 com- 

I See "Exhibit No. 224", appendix, p. 1517. 

« "Exhlbiljs Nos. 22o and 226", infra, pp. 1212 and 1214. 



CONCENTRATION OF ECONOMIC POWER 1203 

panies doing business, does not in any degree affect the story which is 
told by these charts? 

Mr. Howe. That is my opinion, Senator. 

It may be interesting, before getting down to the detail of the charts, 
to indicate as well as can be told from the inaccurate figures with 
respect to aggregates of all securities outstanding, the amount of 
various obHgations which are held by these 49 leading insurance 
companies. As of December 31, 1938, about 11 percent of all debt, 
direct and guaranteed, of the United States Government, was owned 
by these 49 companies. 

Of all the State, county, municipal, and pohtical subdivisional 
bonds, excluding bonds held in municipal and State sinking fimds, 
these companies held about 9.93 percent of the total amount out- 
standing. 

With respect to the net railway debt, these companies held 22.95 
percent of all railway bonds. 

Senator King. Any stocks? 

Mr. Howe. They held a small amount of stocks. Senator. 

Senator King. Those are losses, aren't they? 

Mr. Howe. No, no; the stocks which are owned by life insurance 
companies 

Senator King (interposing). I am speaking only of railroad stocks. 

Mr. Howe. No; they are not universally losses by any means. 

The Chairman. Union Pacific, for example, woidd not be charac- 
terized as a loss. 

Mr. Howe. That is correct, and most of these stocks are preferred 
and guaranteed stocks and some of them underlying preferred where 
they are amply secured. 

With respect to public utilities, the companies owned about .22 
percent of the total public utility debt outstanding. 

The Chairman. Slightly less than the percentage of railroads? 

Mr. Howe. Slightly less than the percentage of railroads. 

Senator King. One percent. 

Mr. Howe. With respect to industrial debt, estimates of the total 
amount outstanding are less reliable than they are in the case of rail- 
roads and public utilities, but it is estimated that the holdings of these 
49 companies amounted to about 15 percent of the total industrial 
debt. 

The Chairman. What is the basis of that estimate, Mr. Howe? 

Mr. Howe. The estimate was obtained from the United States 
Department of Commerce, "Survey of Current Business," but they 
specifically exclude from that estimate the debt of finance companies. 
Insurance companies hold rather substantial amounts of obligations 
of companies like General Motors Acceptance and Commercial 
Credit. 

The Chairman. You mean they are not included in this 15 percent? 

Mr. Howe. No; they are included in the industrial and miscel- 
laneous holdings of the insurance companies, but the debt of those 
concerns is not included in the national total which is published by 
the Department of Commerce, so to that extent, whereas that figure 
of 14.90 percent gives a fair general picture of the situation, it is 
subject to some statistical objections. 

The Chairman. Let me ask, to what extent, for example, do the 
insurance companies hold the obligations of General Motors Accept- 
ance Corporation? 



1204 CONCENTRATION OF ECONOMIC POWER 

Mr. Howe. I have no figures which would show the aggregate 
amounts of holdings of the debt of General Motors Acceptance. The 
only way that that could be obtained would be to make a special 
study and go through all these 49 convention blanks and add it up 
which we have not done. 

The Chairman. Well, then, when you speak of industrial debt 
do you mean to include obligations which are given by individuals for 
the purchase of automobiles, radios 

Mr. Howe (interposing). No, I mean corporate 

The Chairman (interposing). Electric refrigerators and anything 
of that sort. 

Mr. Howe. No, sir; this is purely corporate industrial debt. 

Senator King. You don't include any part of about $55,000,000,000 
of indebtedness of private individuals? 

Mr. Howe. No; this is purely corporate debt. 

Senator King. The last statement I saw was about $55,000,000,000 
of individual indebtedness. 

Mr. Howe. Oh, yes; that is a very large figure, Senator. With 
respect to farm mortgages, these 49 legal reserve life insurance com- 
panies held about $800,000,000, which aggregated about 11.30 percent 
of the total farm mortgages outstanding. 

Mr. Gesell. That is just simply mortgages; it doesn't take into 
account the actual farm real estate owned and operated by the 
companies? 

Mr. Howe. No; that is simply the mortgages. The same apphes 
with respect to urban mortgages of wliich these companies held about 
14 K percent. 

Senator King. That would be mortgages upon real estate, for 
instance, in New York City. 

Mr. Howe. Yes, sir; office buildings, apartment houses, one-family 
to four-family houses. 

Senator King. What is the amount? 

Mr. Howe. Fourteen and one-half percent, Senator. 

Mr. Douglas. What was the first percentage you gave on bonds? 

Mr. Howe. Eleven percent. The figure accurately is 10.97 per- 
cent. 

Mr. Gesell. Now on these two charts,* am I correct in saying that 
the "Life Insurance Assets, 1906 to 1938" chart, which shows an upward 
trend, is one expression of the growth of the assets, and the other 
chart, similarly labeled, shows the assets in their absolute relationship? 

Mr. Howe. Yes ; the first chart is m terms of dollars, $26,000,000,000 
being the top line of the chart, and it shows the absolute dollar 
amounts of investments as they have grown from year to year. 

The second chart is in terms of percentages, showing how the 
relationships of the investments at any given time stood in com- 
parison with the total assets then held. 

The Chairman. In other words, on chart No. 2, as we look at the 
beginning of the chart over the figure 1906 we are given a picture of 
the percentages of approxiaiatcly $3,000,000,000. 

Mr. Howe. That is correct. 

The Chairman. And under the column of 1938 we are given the 
percentages in terms of about $23,000,000,000. 

Mr. Howe. $25,450,000,000, that is correct. 

""Exhibits Nos. 225 and 226", Infra, pp. 1212 aud 1214. 



CONCENTRATION OF ECONOMIC POWER 1205 

Now in order to visualize easily the composition of these assets, it 
should first be borne in mind that policy loans are assets of a some- 
what different character than the others which are shown in the chart. 
PoUcy loans are not voluntary investments to the extent that the other 
assets are. They are the result of a contractual obligation which the 
company has inserted in its policy, so that from time to time the 
amount of policy loans is a reflection of the desire of policyholders to 
borrow money. 

The Chairman. Do you have any comment to make upon the fact 
that the amount of policy loans according to the first chart appears to 
have been steadily increasing up to the year 1925? What is the picture 
with respect to percentages of poHcy loans? 

Mr. Howe. Policy loans in 1906 constituted 8.9 percent of total 
assets. The figure has grown from that level to 1932 when policy 
loans aggregated 17.9 percent of total assets. 

The Chairman. Much more than- double. 

Mr. Howe. Much more than double. By the end of 1938 policy 
loans aggregated 12.1 percent. 

The Chairman. So there has been a substantial decrease. 

Mr. Howe. There has been a substantial decrease in relative terms 
and there has been an absolute decrease of approximately $300,000,000. 

The Chairman. Of course policy loans reflect the economic condi- 
tion of the country. 

Mr. Howe. That is correct. 

In understanding the assets of the companies, then, we recall the 
fact that policy loans aggregated about 12 percent ol total assets at the 
end of 1938. The remainder of the assets may be divided into three 
approximately equal amounts: that is, cash, government bonds, and 
municipal bonds as one subdivision; corporate bonds, that is utilities, 
rails, and industrials as the second division; and real estate and mort- 
gages as the third, and those three groups of assets each account for 
about one-third oif the assets of the companies after deducting the 
policy loans. 

Senator King. Are the policy loans regarded as protected by reason 
of the existence of the poHcy as the basis of the loan? 

Mr. Howe. PoUcy loans, Senator, are based, I mean the aniount 
which a policyholder may borrow; the maximum amount which a 
poHcyholder may borrow on his policy is determined by the amount 
of his participation in the reserve, less a surrender charge. 

Mr. Gesell. In other words, a policy loan is just a loan back to the 
policyholder of some of the money he has paid in. 

Mr. Howe. That is correct. 

Mr. Gesell. What rate of interest do they charge on policyholders' 
loans? 

Mr. Howe. In general the rate has been 6 percent. There are some 
qualifications about that which I wish to explain more in detail when I 
come to the question of yields on investments. 

The Chairman. Are you going to put into the record a statement 
showing the percentage of the total assets as of 1937 of all of these 
various bonds? 

Mr. Howe. I had planned to do so. Senator. 

Senator King. Twelve percent, then, as I understand it, of the assets 
of these corporations consist of obUgations secured by assignments, 
transfer, partial assignment of poHcies. 



1206 CONCENTRATION OF ECONOMIC POWER 

Mr. Howe. That is right. 

Having sketched the broad composition of these assets, perhaps it 
will be interesting to start at the top with cash and run briefly down the 
list of the assets to show the trends which have been in effect with res- 
pect to each individual asset over the period from 1906 to the end of 
1938. 

At the end ol 1906, so far as these 49 companies are concerned, cash 
stood at 2.3 percent. Holdings of cash relatively declined from 1906 
to 1930, when cash constituted only 0.7 of 1 percent of total assets. 

The Chairman. As of what year? 

Mr. Howe. As of 1930, 0.7 of 1 percent at that point. Since 1930, 
cash holdings have increased rather rapidly, as at that time companies 
held only $126,000,000" in cash, and at the, end of 1938 their holdings of 
cash amounted to $750,000,000, or about 3 percent of total assets. 

Mr. Gesell. That is well illustrated- by the top blue line on the 
second chart, is it not? 

Mr. Howe. It is. 

Mr. Gesell. Gradual!}^ tapering off to '32 and then bulges out. 

Mr. Howe. That is righi', ahd then bulges out. 

Senator King. That increase in cash reserves is occasioned by fail- 
ure to find good loans, or people are not seeking loans? 

Mr. Howe. Do you mean people are not seeking policy loans? 

Senator King. Yes. 

Mr. Howe. Well, people are not seeking policy loans to the extent 
that they were in 1932, but policy loans still represent a substantial 

Eroportion of total assets, and I imagine that there is some desire for 
quidity on the part of companies. 

Senator King. There is no fixed policy, so far as is ascertainable, of 
maintaining a static condition with respect to the entire reserves, a 
stationary amount of reserves in cash? 

Mr. Howe. I have never heard that there was any such policy. 

vSenator King. No formula as to the amount of cash reserve with 
respect to the assets of the company? 

Mr. Howe. I have nev6r heard of such. 

Mr. Gesell. That would be a matter of the management policy 
of each company, would it not? 

Mr. Howe. I believe it would. 

Mr. Patterson. Have you found that the cash goes up>or down in 
proportion to the policy loans? 

Mr. Howe. Well, I don't think that that is true, no, for in 1930 
when cash reached its lowest point, of course the amount of policy 
loans was smaller in proportion than it was in subsequent years, but 
the policy of accumulating cash really became more manifest after 
the peak of policy loans in 1932 and although policy loans have de- 
creased, cash has increased. 

Mr. Patterson. Well, that really then has no relation; they can 
sell all their real estate and cash will go up. I just wondered if in 
your experience and study you had found any relationship whatso- 
ever. 

Mr. Howe. No, there seems to be no correlation, if one may use 
i^At word, between those two figures, although there probably may 
^e some relationship in the minds of the management. That we 
can't see from the figures. 

Mr. Gesell. Your next line is the Governments, is if ♦^o+'i* 



CONCENTRATION OF ECONOMIC POWER 1207 

Mr. Howe. The next line is United States Government bonds. 

Mr. Gbsell. I notice there that the Governments seem to reflect 
themselves for the first time on both charts at some time about 1916. 
Will you explain that to us as a starting point? 

Mr. Howe. Yes. In 1906 these companies held only $2,900,000 
of Government bonds, which aggregated 0.1 of 1 percent of their 
total assets. 

Mr. Gesell. Such a small percentage that it can't reflect itself on 
these charts. 

Mr. Howe. That is right; it can't be graphically shown. By 1930 
they owned $303,000,000 of Government bonds, wliich accounted 
for 1.8 percent of their assets. Since that time there has been a rela- 
tively rapid increase in Government holdings, as is shown by both 
charts, until at the end of 1938 Government obligations to the extent 
of $4,551,000,000 were held. This constituted at that time 17.9 
percent. 

Mr. Douglas. Are you including municipals in that? 

Mr.'HowE. No. This is only the direct and guaranteed debt of 
the United States Government. 

Mr. Gesell. Your municipals show in the next Une entitled 
"Political Subdivisions." 

Mr. Howe. That is right. 

The Chairman. So that these 49 insurance companies according 
to these charts at this moment hold more than one-tenth of the entire 
United States Government debt. 

Mr. Howe. Both direct and guaranteed, yes; sir. 

Senator King. If you consider inflation as the result of further 
appropriations, the Government bonds with respect to property 
might not possess the same value. 

Mr. Howe. That is — — 

Mr. Geqell (interposing). Mr. Howe is not an expert on inflation. 

Senator King. Are you? 

Mr. Gesell. No, sir. 

Senator King. You know the experts know more and more about 
less and less. 

The Chairman. Proceed, Mr. Howe. 

Mr. Howe. With respect to the debt of political subdivisions, the 
companies held $103,000,000 in 1906, which accounted for 3.6 percent 
of their assets, and this amount has in absolute terms increased rather 
steadily throughout the years. In 1927 it reached a low point in 
terms of percentages of 2.7 percent, from which point there was a rela- 
tively rapid increase until about the end of 1935, when 5.5 of total 
assets was represented by these State, county, and municipal bonds. 
At the end of 1938 ■ 

Senator King (interposing). That includes school districts, I 
suppose. 

Mr. Howe. School districts, water districts. 

Senator King. Sewers and so forth. 

Mr. Howe. All types of bonds, including some revenue bonds. 
The amount of these obligations held at the end of 1938 was $1,475,- 
000,000 and constituted 5.8 percent of total assets. 

It will be noticed that the red line on both charts is designated 
"Foreign governments." This is made up almost entirely of obliga- 
tions of the Dominion of Canada. 



1208 CONCENTRATION OF ECONOMIC POWER 

Senator King. Any South American bonds? 

Mr. Howe. Very, very few if any. I know of no cases where insur- 
ance companies carry those among their assets. 

Senator King. No Bolivian or Peruvian bonds, are there? 

Mr. Howe. No; and Russian bonds have all been charged off since 
1906, too. 

Senator King. Charged to profit and loss? 

Mr. Howe. Well, surplus. 

In 1906 railroad bonds and stocks (and by that of course I mean 
primarily bonds) constituted the largest single investment of life 
insurance companies, aggregating 34.8 percent of total assets. 

The Chairman. What year was that? 

Mr. Howe. 1906. The rails amounted to 34.8 percent of total 
investments, whereas holdings of railroad bonds from 1906 to 1938 
have increased from approximately $1,000,000,000 in 1906 to over 
$3,000,000,000 in 1938. The relative importance of these securities 
has declined from 34.8 percent to 12.1 percent in 1938. 

The Chairman. In other words, although the insurance companies 
now hold three times as much of the railroad securities as they did in 
1906, they constitute less than one-half of the same proportion. 

Mr. Howe. Proportion? 

The Chairman. Of the total insurance «. apany assets. 

Mr.PTowE. That is right. 

Senator King. I am not quite clear. In dollars and cents, then, 
there has been a decrease in the amount of rail bonds? 

Mr. Howe. No ; an increase. 

The Chairman. In other words, $1,000,000,000 of railroad bonds 
in 1906 constituted 34.8 percent of the total amount of insurance com- 
pany assets, but $3,000,000,000 of railroad bonds in 1938 constitutes 
only 12.1 percent. 

^'"r. Howe. That is correct, Senator. 

V'ith respect to public utility bonds and stocks, we find that in 
1906 these constituted 4.7 percent of the total assets of the companies. 
Although the absolute amounts of these bonds increased some, up to 
1921, we find that in 1921, when the companies held $223,000,000 
worth of public utility bonds and stocks, they constituted only 3 
percent of total assets. From this point on public utility bonds and 
stocks have been somewhat favorite investments of life insurance 
companies, as shown by the fact that, whereas they constituted 
3 percent of totiil assets in 1921, they constituted 12.8 percent of total 
assets in 1938, and in 1938, for the first time, public utility bonds were 
held in absolute amounts larger than rails; that is, public utility bonds 
were held to the extent of $3,2.54,000,000 in 1038, as compared with 
holdings of rails aggregating $3,082,000,000, roughly the same amount. 

Other bonds and stocks — that is, industrials and miscellaneous 
bonds — constituted 1.4 percent of total assets in 1921 as compared 
with 3.7 in 1906. Since 1921 the holdings of these industrial securities 
have increased rather rapidly, and at the end of 1938 insurance -com- 
pany holdings aggregated $1,453,000,000. or 5.7 percent of total 
bonds and stocks owned. 

Senator King. You are speaking of "other corporations" now? 

Mr. Howe. "Other corporations." That is the dark green line in 
both case, and the aggregate amount "^of holdings of obligations of 
other corporations is about half of the holdings of either utilities or 
rails. 



CONCENTRATION OF ECONOMIC POWER 1209 

The Chairman. What is the total of rails and utihties as of 1938? 

Mr. Howe. The total holdings of rails and utilities as of 1938 is in 
excess of $6,300,000. 

The Chairman. And what is the total of "other corporations" as 
of 1938? 

Mr. Howe. $1,453,000,000. 

The Chairman. And that $1,453,000,000 represents a larger per- 
centage of the total assets of the companies now than it ever has 
befpref 

Mr. Howe. That is true. 

The Chairman. In other words, the recourse which corporations 
engaged in interstate commerce have had to insurance companies for 
capital investment has been steadily increasing since 1906. 

Mr. Howe. That is correct, and particularly emphasized in the 
field of utilities, where the growth has been great, and in the field of 
industrials, that is, other corporations, where the growth has been 
relatively great. 

The next section on the chart refers to farm mortgages. 

Senator King. Before you leave the other part, is not the conclu- 
sion warranted that the insurance companies have furnished a reser- 
voir to which railroads, public utilities and corporations have resorted 
for capital? 

Mr. Howe. A very important source of long-term capital. Senator. 

The Chairman. Of increasing importance as the years have passed? 

Mr. Howe. Of greatly increasing importance, as we shall emphasize 
a little later. 

Senator King. All of wliich argues for the importance of wise 
management of these insurance companies, for the purpose of having 
this reservoir available and for the purpose of maintaining the 
stability of corporations with which they have financial dealings. 

Mr. Howe. It is our belief that this is a very important factor in 
our economy, sir. 

Senator King. I think that belief is justified. 

Mr. Howe. With respect to farm mortgages, the msurance com- 
panies held $268,000,000 in 1906. This accounted for 9.3 percent of 
their total assets. There was a very rapid increase in the amount of 
farm mortgages held by insurance companies between 1906 and 1924. 
In 1924 these companies held $1,814,000,000 of farm mortgages which 
at that time represented 18.7 percent of their total assets. 

Senator King. Eighteen? 

Mr. Howe. 18.7 percent of their total assets. Since 1924 the 
relative amount of farm mortgages held has declined. 

Mr. Gesell. I noticed in connection with the decline, particularly 
after 1931, there seems to be, skipping down to the dark orange line 
of real estate, a great increase in that line. Is the diminishing of the 
farm mortgage line and the mcrease of the real estate hne connected 
in any way? 

Mr. Howe. Of course, whenever a mortgage — and this applies to 
both city mortgages and farm mortgages — is foreclosed, an asset is 
transferred from the form of a mortgage into the form of real estate, 
so that there is a flow from the mortgage account into the real estate 
account and also back- again as the real estate is sold, particularly if 
it is sold with a purchase money mortgage attached the real estate 
passes out as an asset and is represented in part by the purchase 
money mortgage which is sold. 



1210 CONCENTRATION OF ECONOMIC POWER 

The Chairman. So that the broadening of the real estate layer after 
1932 is more likely to represent foreclosure of city niortgages and 
farm mortgages than it is to represent new investment in real estate? 

Mr, Howe. Yes; very much more likely to represent foreclosures 
than new investments. 

Mr. Gesell. And since your city mortgage line appears not to 
have diminished nearly as much as the farm mortgage line, would it 
be a safe thing to say that much of the increase in the real-estate 
account has resulted from the foreclosure of farm land which was 
held under mortgages? 

Mr. Howe. Well, that conclusion might seem to be justified in 
view of the fact that the holdings of city mortgages are more than 
five times as great as the holdings of farm mortgages. I think it 
will be found, when we have an opportunity to analyze this, that the 
largest percentage of this real estate is represented by urban property. 

The Chairman. As a matter of fact, there has been a considerable 
decrease in the percentage of cit}^ mortgages, has there not? 

Mr. Howe. Yes; I show from these figures. 

Mr. Douglas. In 1938 what was the percentage of farm mortgages 
to total assets? 

Mr. Howe. In 1938, 3.1 percent; in absolute dollars $800,000,000. 

With respect to city mortgages, these constituted 19.2 percent of 
total assets in 1906 and were represented by the sum of $551,000,000; 
by 1929 the companies held $4,816,000,000 of city mortgages which 
represented 30 percent of their total assets. 

Senator King. That was what year? 

Mr. Howe. Since 1929 there has been a- steady relative decline in 
holdings of city mortgages, so that at the end of 1938 holdings of 
$4,142,000,000 constituted 16.3 percent of total assets. 

The Chairman. Wliat was the figure for 1929 in dollars? 

lU: Howe. $4,816,000,000. 

The Chairman. So there has been a reduction of almost $700,- 
000,000 in the total investment in city mortgages? 

Mr. Howe. Since 1929; yes. Real estate held accounted for 5.4 
percent of total assets in 1906. From that point on there was a 
relative decline in real estate holdings until the years 1924, 1925, 
and 1926, for each of wliich 3 years 1.8 percent of the total assets of 
legal reserve life insurance companies was represented by real estate 
holdings. From that time on there has been a steady increase in 
holdings of real estate, both in terms of absolute dollars and in terms 
of relative amounts. 

Senator King. Both farm and city? 

Mr. Howe. Yes; both farm and city real estate. 

The Chairman. The chief expansion has been in city mortgages. 

Mr. Howe. That is my belief because of the larger amounts of city 
mortgages. 

The Chairman. That is the way it seems to be represented on your 
chart. As a matter of fact, I would say from the chart that it cor- 
rectly reflects the census figures which show the drift from the farm 
to the city. The city is proportionally more important from the 
point of view of population today than it was 30 years ago. 

Mr. Howe. Yes. 

The Chairman. And likewise there appears to have been a similar 
large increase in the investment of insurance companies in city 
mortgages. 



CONCENTRATION OF ECONOMIC POWER 1211 

Mr. Howe. That is correct. The real estate account reached a 
relative peak of 8.3 percent in 1936, but at the end of 1938, with hold- 
ings of $1,982,000,000 in real estate, the companies held the largest 
aggregate amount of real estate at any time in their history, at which 
point this holding constituted 7.8 percent of their total assets. 

Senator King. State that figure again. It doesn't quite harmonize 
with some figures I have before me. 

Mr. Howe. $1,982,000,000. 

Senator King. The figure I have is $1,964,000,000. 

Mr. Howe. The figures of $1,964,000,000, Senator King, are for 
October 30, 1938, whereas the other figure is the estimated one for 
December 31. 

With respect to poUcy loans and premium notes, as we mentioned 
before, the amount outstandmg at the end of 1906 was $254,000,000, 
constituting 9.8 percent of total assets. The importance of policy 
loans and premium notes increased from that point until 1932 when, 
at a figure of $3,419,000,000, premium notes and policy loans consti- 
tuted 17.9 percent of total assets. 

Senator King. Will you state that figure again? 

Mr. Howe. 17.9. At the end of 1938 policy loans outstanding to 
the extent of $3,089,000,000 aggregated 12.1 percent of the total assets. 
The line for other admitted assets indicates collateral loans, accrued 
interest on bonds and mortgages, due and deferred premiums, and so 
forth. This item accounted for 1.4 percent of total assets at the end 
of 1938. 

Mr. Gesell. Does that conclude your comments on these charts? 

Mr. Howe. That concludes my comments on these charts with one 
exception, Mr. Gesell, and that is I wish again to point to the very 
large growth of these assets, and I wish to emphasize that, as was 
pointed out this morning, the growth of these assets has been very 
much larger than the growth of the population of the United States. 

So that the assets of these companies have constituted a largely 
increasing importance during the years, and it is easy to understand 
that with a rate of growth of this kind, a time may come when the 
supply of investments of a cahber suitable for life insurance companies 
ma^ become somewhat restricted in relation to the amount of funds 
wluch the companies have for investment. 

Senator King. That depends on whether there should be expansion 
of business, does it not, upon technological development and the genius 
and "go-aheaditiveness" if I may express myself that way, of the 
American people? 

Mr. Howe. The next chart shows 

Mr. Gesell (interposing). May I introduce these first. I believe 
the next chart will assist in answering Senator King's question. 

I should like to offer for the record a copy of both of the charts 
which have been considered, together with the supporting data for 
those charts, the first chart showing the growth and the supporting 
schedule to be marked as "Exhibit No. 225." 

The Chairman. The exhibit may be received. 

(The chart referred to was marked "Exhibit No. 225" and appears 
on p. 1212. The statistical data on which this chart is based are 
included in the appendix on p. 1518.) 



1212 



CONCENTRATION OF ECONOMIC POWER 



Exhibit No. 225 



LIFE INSURANCE ASSETS 
1906-1938 




1986 1991 1996 1940 

0$-iiot fKtfAKtt tr sec. » tnn eomm 



CONCENTRATION OF ECONOMIC POWER 1213 

Mr. Gesell. And the second chart to be marked, with the sup- 
porting data as "Exhibit No. 22Q." 

(The chart referred to was marked "Exliibit No. 226" and appears 
on p. 1214. The statistical data on which this chart is based are 
included in the appendix on p. 1519.) 

Mr. Gesell. Now Senator King was asking you about this supply 
and demand question, Mr. Howe. 

Mr. Howe. This chart gives some indication of the supply and 
demand for corporate bonds and notes. ^ 

Mr. Gesell. Where do the figures come from upon which that 
chart is based? 

Mr, Howe. The figures upon which that chart is based come, with 
respect to total new issues, from the Commercial and Financial 
Chronicle, and with respect to the acquisitions by the 10 largest life 
insurance companies the data was compiled from annual reports of 
the companies to the various insurance commissioners. 

Mr. Gesell. This chart simply shows the relation between the 
total new issues and the purchases by the 10 largest companies, and 
does not show the purchases of the entire 308 companies. 

Mr. Howe. That is correct. This represents only the purchases 
of the 10 largest companies. 

The Chairman. Is that characteristic, do you think, of the entire 
group? 

Mr. Howe. I think it is characteristic of the entire group; yes. 

Senator King. It is a good sample, anyway. 

Mr. Howe. Yes; it is a very good sample. It represents about 70 
percent of the assets of the business. 

The Chairman. I was about to ask with respect to the charts 
which have been taken down whether you had made any study to 
determine what percentage of the total investment field the insurance 
company assets represented in 1906, and in 1938, respectively. 

Mr. Howe. With respect to 1906 I do not have the figures, Senator. 
They have been quite difficult to obtain and the statistical sources 
for that period are not as satisfactory as they ought to be. 

The Chairman. They were rather inadequate at that period? 

Mr. Howe, They were. 

The Chairman. When did they become fairly adequate? 

Mr. Howe. Of course, there has been an improvement all along. 
I think that probably after the war would be a period in which the 
figures could be compiled with some degree of adequacy. 

The Chairman. Would it be proper to say that prior to the war 
so large a percentage of industrial and commercial financing was 
purely local, that is to say by local banks and local capitalists, that 
it was impossible to keep any adequate record of them, whereas since 
the war financing of such enterprises has to an increasing degree been 
centralized in the investment market? 

Mr. Howe. That is very true, it has, and therefore the figures are 
more representative and less subject to qualification. 

The Chairman. What we are dealing with, then, is a constantly 
concentrating capital market. 

Mr. Howe. Very definitely. 

Senator King. However, there are very many capital investments 
in local communities, in states, counties, and so on, and resort is not 

• Sm "Exblbit No. 227". Infra, p. 1222. 



1214 



CONCENTRATION OF ECONOMIC POWER 



Exhibit No. 226 



UFE INSURANCE ASSETS 
1906-1938 




I9e« 1931 1936 1940 

o$-iio» f^efAtieo tr sec a txen. conn. 



CONCENTRATION OF ECONOMIC POWER 1215 

had to insurance companies or to what might be called the general 
markets for capital for the investment. 

Mr. Howe. Are you speaking of requirements of individuals, 
Senator? 

Senator King. Both individuals and industrials, corporations, 
small industrial plants and small business concerns, perhaps partner- 
ships. 

Mr. Howe. Well, partnership obligations are not purchased by 
life insurance companies, and the obligations of small corporations 
have in general not been purchased to anj^ substantial extent by life 
insurance companies. 

Senator King. What I meant to say was that there are in the aggre- 
gate very large investments in business activities, what might be called 
activities calling for capital, where resort is not had to. the big markets. 

Mr. Howe. Oh, yes; there are substantial amounts of these small 
investments: 

Senator King, It absorbs the local capital which is available for 
investment. 

Mr. Howe. That is right. 

The Chairman. I rather think. Senator King, the statement that it 
absorbs the local capital is an expression of hope rather than fact, 
because the banks — ■ — 

Senator King (interposing). It is available. 

The Chairman. It is available but not used. 

Senator King. What I am trying to say, and I put it in the form 
of a question, is that there are many investments caUing for capital 
in local communities and states in remote parts of the United States 
and resort is not had to the big centers for capital for such invest- 
ments and for the development of local business concerns. 

Mr. Howe. Yes; particularly small companies. 

Mr. Gesell. Many of those small companies are financed through 
the sales of common stock, are they not, which under a great number 
of state laws the insurance companies themselves are not allowed to 
invest in? 

Mr. Howe. Yes; they are financed in various ways, by smaU groups 
and to some extent by banks and individuals. 

Mr. Douglas. May I ask a qiiestion, Mr. Howe, about the chart 
entitled "Corporate Bonds and Notes."' When you say total new 
issues, do you mean total new issues of corporations whose securities 
are publicly held? 

Mr. Howe. No. The columns representing the total new issues 
represent all new issues of corporate bonds and notes, whether placed 
publicly through bankers or whether privately negotiated with insti- 
tutional purchasers. 

The Chairman. What is the source of that figure? 

Mr. Howe. The source of this figure is the Commercial and Fiiiari- 
Chronicle which assembles data on all of these matters and publishes 
it regularly. 

The Chairman. And that is substantially accurate? 

Mr. Howe. It is as accurate as any source we know, and it is gener- 
ally accepted as a fair index of the situation. 

The ChaiIvMAN. It is accepted by all financial institutions? 

Mr. Howe. Yes; it is generally regarded as a good source. 

' "Exhibit No. 227", infra, p. 1222. 
124491— 39— pt. 4 5 



1216 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. That wouldn't include mortgages issued by com- 
panies to banks. You wouldn't include that? 

Mr. Howe. No; especially small mortgages. This Une, which of 
course is large operations which would be taken notice of, is one of 
which there would be some pubhc notice or public information about. 
I mean, if a corporation goes in and executes a short-term mortgage 
to secure some bank debt, it wouldn't appear. These are capital 
obUgations, long-term. 

The Chairman. When you use the word "note," what do you mea^ 
by "note" in this chart? 

Mr. Howe. With respect to that chart the word "note" simply 
means, in common Wall Street hngo, a relatively short-term bond or a 
bond which is perhaps not specifically secured by mortgage hen or 
collateral. 

The Chairman. Then these charts refer actually to public financing? 

Mr. Howe. They refer to pubUc financing and large financing 
which has been privately placed with institutions. 

The Chairman. But of which pubhc notice is taken, by financial 
institutions. . 

Mr. Howe. That is right — not confidential bank loans Which don't 
get into the press at all. 

The Chairman. I think that is clear. 

Senator King. But would those charts represent, for instance, an 
obhgation of a corporation engaged in mining operations, to build 
a smelter or to open a mine? Would that be included? 

Mr. Howe. Oh, yes. 

Senator King. In those figures which you have given? 

Mr. Howe. These total new issues are not to be construed as being 
of a character which life insurance companies can purchase in all 
respects. In this total are included obligations of corporations 
which might not be considered to be suitable investments for life- 
insurance companies, as well as those which would be suitable for 
that purpose. 

Mr. Douglas. And also items other than obligations, such as 
stocks? 

Mr. Howe. No; in this case this is restricted purely to bonds and 
notes. There is no stock included in these totals. 

We see first this line, which indicates total flotations of corporate 
bonds and notes of $3,431,000,000. This is sort of the last shadow of 
the activity of the securities markets which characterized the 1920's. 
But at that time these 10 largest life insurance companies purchased 
the significant amount of 10 percent of all new issues of every kind 
and type. 

Senator King. Of bonds and notes. 

Mr. Ho^TE. In 1931, total flotations were $2,000,000,000; in 1932, 
1933, and l934v-wben the effects of the depression were most keenly 
felt, the volume of flotations fell off to, respectively, $620,000,000, 
$227,000,000, and $455,000,000. 

Subsequent to that period the flotations, as the chart will show, , 
increased, standing at $2,117,000,000 in 1935, $4,026,000,000 in 1936, 
$1,676,000,000 in 1937, and $1,980,000,000 in 1938. 

Mr. Gesell. Now, what was the year in which the 10 largest 
companies took the greatest percentage of the total new issues reflected 
on that chart? 



CONCENTRATION OF ECONOMIC POWER 1217 

Mr. Howe. In 1937 these 10 companies purchased 62.1 percent of 
all corporate bonds and notes issued. 

Mr. Gesell. That is, just 10 companies? 

Mr. Howe. Ten companies purchased 62.1 p^cent of all corporate 
bonds and notes issued. 

The Chairman. Suppose you give us the percentage for each of 
these years, Mr. Howe. Let's mark them on the chart. 

Mr. Gesell. They will be on a supporting schedule which will be 
introduced into the record at the conclusion of the testimony on this 
chart. 

Senator King. May I interrupt. Looking at 1936, where the 
flotation was the largest on your chart 

Mr.' Howe (interposing). Yes. 

Senator King. The volume of total new issues was the largest, and 
as I understand, the smaller column adjoining that is the total amount 
of the flotation which was taken by the insurance companies. 

Mr. Howe. By the 10 largest legal reserve hfe insurance com- 
panies. 

Senator King. And you said that is 60 percent^ 

Mr. Howe (interposing). I said that in 1937, of a total of $1,676,- 
000,000 of flotations- 
Senator King (interposmg). I misunderstood you. I thought you 
said 1936, and those columns then would need readjustment. 

Mr. Gesell. In 1936 it was only 27.1 percent, 

Mr. Howe. Yes; in 1936 the total purchases were only 27 percent 
of the total available. 

The Chairman, This probably is a little bit outside of your study, 
but do you know why it should appear that in 1936 there appeared 
to be a much larger new issue than in any other year on this chart? 
That shows new issues for 1936 in excess of $4,000,000,000, whereas in 
1930 new issues amounted to 3K biUion dollars. 

Mr..HowE. That is correct. 

The Chairman. Do you know of any reason for that? 

Mr. Howe. No; except that that was the period, or that is the 
period since the depression, when the security markets were the most 
active. 

Mr. Douglas. We were in the middle of the great refunding period 
then. 

Mr. Howe, That was the initiation, practically, of the great 
refunding period. 

Senator King. Those were not new issues, they were refunding in 
large part? 

Mr. Howe. That is true of all of these. . There is no analysis of 
what the funds were used for. Large amouts of these funds were 
used to refund securities previously outstanding. 

Mr. Gesell. Will you explain to us the jagged line that appears 
below the columns? 

Mr, Howe. The jagged line which appears below the columns is 
the line which indicates the percentage of total new issues which were 
acquired by these 10 largest hfe insurance companies, and as I say 
even in 1930 these companies purchased the significant percentage 
of 10 percent, a very decent percentage of all issues, 10 percent, 
but we see that by 1938 this had risen to over 55 percent of all flota- 
tions of corporate bonds and notes. 



1218 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Would it be a proper inference to say that as a 
result of the depression, new enterprises had no other recourse except 
to go to the large insurance companies for finance, because the ordi- 
nary person and the ordinary bank were probably afraid to invest in 
these new issues,- whereas the big insurance companies, with their 
large staffs and their opportunity to survey the whole field, were in 
better position to invest? 

_ Mr. Howe. Well, Senator, I think that it is not a correct assump- 
tion to think that these new issues are a reflection of new enterprise. 
They are, in very large extent, particularly in this period since the 
depression, refundings of issues previously outstanding. 

The Chairman. I didn't mean to imply they were new enterprises; 
that is to say, in the sense of something that had never been carried 
on before. I was speaking of them as new in the sense that your 
chart speaks of them as new issues. 

Mr. Howe. Oh, I see. I think if this chart is considered in the 
light of the rapid growth which was shown on the other chart, it will 
be evident that there were no other types of institutions, especially 
if we remember Dr. Davenport's chart this morning,^ there were no 
other types of institutions who were faced with the probletn of invest- 
ing increasing amounts of funds every year to the same* extent that 
the life-insurance companies were. 

The Chairman. To what extent was this increase of percentage due 
to the lack of desire upon the part of unorganized capital to invest, 
and to what extent was it due to any activity or desire or purpose 
upon the part of the m:anagement of insurance companies? 

Mr. Howe. I know of no statistical measures of the lack of desire, 
if such there be, on the part of various individuals or organizations 
to invest. 

The Chairman. Well, in times of depression it is only natural that 
the individual person holds onto his cash, and doesn't dare to ven- 
ture it. 

Mr. Howe. Right. 

The Chairman. But a large insurance company in such a time, 
being under the obligation, as it were, of investing its resources, is 
much more likely to take issues of this kind than the individual person 
or the small bank. 

Mr. Howe. Well, except that we find that in the pit of the de- 
pression, in 1932, the insurance companies purchased only 13 percent 
of the small amount of issues which were available, whereas as pros- 
perity returned they purchased 55 percent. 

The Chairman. Yes; but the total amount of issues available was 
much smaller in 1932. 

Mr. Howe. Yes; but the insurance companies' purchases were very 
much sinaller. 

The Chairman. All right; let's look at 1933. What was the per- 
centage of insurance company purchases in 1933? 

Mr. Howe. In 1933 the percentage of insurance company purchases 
was 31 percent. 

The Chairman. And in 1934? 

Mr. Howe. 52.5 percent; 1935, 34.1; 1936, 27.1; 1937, 62.1; 1938, 
55.2. 

' "Exhibit No. 221", supra, p. 1189. 



CONCENTRATION OF ECONOMIC POWER 1219 

The Chairman. So that actually in 1934 you had about as large a 
percentage as at any time during the period except for 1937? 

Mr. Howe. That is correct. There was a definite falling off in 
1936. 

Senator King. May I ask a question that in my opinion is germane, 
in view of the statemer.'t, .^ In the surveys which you have made — 
you and your associates — did you get any idea as to the relative amount 
that was obtained for development of business, what might be called 
capital investment, from the sale of stocks in comparison with that 
obtained from the sale of bonds. 

Mr. Howe. No; we have made no studies in connection with this 
matter of stocks. The reason is that the holdings of stocks of life 
insurance companies represent a relatively insignificant proportion of 
their holdings, and it is as detailed and difficult a study as the others, 
and we felt we should concentrate on the more important element. 

Senator King. The S. E. C, for instance, would have some informa- 
tion, would it not, as to the stock issues made about the country? 

Mr. Douglas. We have that. As we get a little farther on into 
tlds subject I think in the study of investment banking, the Com- 
mission will have detailed figures to present and facts on that point. 

Dr. LuBiN. May I ask one question? Would it be possible to find 
out what percentage of the total investment available to insurance 
companies is represented by this 65 percent of the total? In other 
words, is it theoretically possible, for example, that they couldn't 
have invested any more because under the restrictions of various states 
they were limited to certain types of securities? 

Mr. Howe. I think j'-ou will find that the principal limitations on 
the type of securities which the insurance companies may buy is in 
the discretion of the managements. 

Dr. LuBiN. That would not be an evidence of the investing power 
of the insurance companies in the sense that there might have been an 
upper limit to the amount they could have purchased in 1937? 

Air. Howe. An upper limit to the amount they could have pur- 
chased? Well, I suppose you mean that tL.. amount they could have 
purchased would be the amount they did purchase plus their cash 
balance. 

Dr. LuBiN. No; I mean in available securities. They bought 65 
percent of those issues, which means that there was 35 percent which 
they didn't buy. 

Mr. Howe. That is right. 

Dr. LuBiN. Is it possible that they couldn't have bought that 35 
percent because of certain restrictions? 

Mr. Howe. Well, there are certainly some of those issues in the 35 
percent which thej^ could not have bought because of legal restrictions. 

Dr. LuBiN. There is no way of knowing how much those were? 

Mr. Howe. It would be possible, I beheve, to determine that in a 
rough sort of way, but as the restrictions are different in different 
States it would be impossible to allocate them as between the com- 
panies. 

Dr. LuBiN. I am trying to get back to your earlier statement, you 
see, that theoretically there would be a limit to the types of investment 
the insurance companies could put their money into because there 
just wouldn't be enough securities available for them to buy. 



1220 CONCENTRATION OF ECONOMIC POWER 

Mr. Howe. Well, that is a very important fact, the fact that there 
is an expanding demand for these securities. The next thing I want 
to emphasize is that not only is there an expanding demand but there 
is a narrowing field, functionally. 

Mr. Gesell. Also, looking at this chart, since we are dealing only 
with the 10 largest companies, we would have to take into account 
the other amount of the total new issues which have been purchased 
by other life-insurance companies and hence not available to these 
particular 10 companies. 

Mr. Howe. That is correct. Now, this question of the narrowing 
of the field of investment which is available to life insurance companies : 
You will remember that the holdings of United States Government 
bonds increased materially. Now a United States Government bond 
is an ideal investment for an insurance company from every point of 
view except one, and that is yield. 

Senator King. One-half of 1 percent or one-eighth of 1 percent is 
not a very big yield. 

Mr. Howe. Is not a very satisfactory yield. Of course, that 
obtains, Senator, on the short-term obligations. 

Mr. Gesell. You have finished your comments on this chart, 
have you not? 

Mr. Howe. I have finished my comment on that. 

Mr. Gesell. The problem will be covered to some extent in your 
next chart. 

Mr. Howe. That is right. 

The Chairman. You were about to make some further comment 
on the narrowing field. 

Mr.- Howe. I was, Senator. 

The Chairman. Would you proceed? 

Mr. Howe. So that there is a more or less definite liirH on the 
amount of United States Government securities wliich these companies 
may own if they are to maintain their earnings at a rate which is 
necessary to live up to their contracts with their pohcyholders. 

The Chairman. Your figiires presented would indicate that by and 
large e^^cept for two periods in the last 10 years, premium income was 
quite sufficient to take care of all expenses. 

Mr. Howe. Well, that is true, but it must be remembered that a 
life insurance policy is a long-term contract, and one of the invariable 
characteristics of that contract is that the j^ompany agrees to invest 
its reserves at a certain contract rate. It accumulates its reserves at 
a certain contract rate, which is usually 3, 3.'5, and in a few cases 4 
percent, compounded annually, so that as soon as the return on invest- 
ments in the aggregate gets "below that rate, as will be explained in 
later charts, the difficulty of according equitable treatment through 
the medium of dividends to all policyholders becomes a little involved. 

The Chairman. Well, of course it raises the question as to what 
interest rate a company of this kind could afford to charge without 
injury to the policyholder. In other words, it opens the door to 
consideration as to whether or not a company with tremendous assets 
such as these insurance companies have, might offer money at a 
lower rate for the stimulation of industry than is now customary. 
Have you considered that? 

Mr. Howe. We have considered that, but I think you will see as 
we get on to the next chart the rather important effect of the decline 
of these interest rates. 



CONCENTEATION OF ECONOMIC POWER 1221 

The Chairman, I didn't mean to anticipate you. 

Mr. Howe. I might say, to reiterate and pick up on the question 
of narrowing field of investments, that United States Government 
bonds can onJy be utUized to a certain extent because of the fact that 
the yield on them is less than the contract rates with their policy- 
holders. 

The Chairman. The thought that was running through' my mind 
was simply this, that if the large holders of the capital available for 
investment were to charge a lesser rate for loans to new enterprises, 
perhaps it wouldn't be necessary for them to accept so very small a 
rate from the Government. 

Mr. Howe. Oh, that is of course correct. The larger percentage of 
their portfolio which is held in securities with higher yields, the less 
they need to rely upon the return from Government bonds. 

Senator King. However, they occupy the relationship of a fiduciary 
to a large number of people, and they are compelled under their oaths 
of office and under the'law to make as large a fund to meet the changes 
in bur economic system, economic disturbances, as possible. 

The Chairman. Senator, you weren't here this morning, much to 
our loss, when Dr. Davenport presented this chart on "Income and 
expenditures," which shows that the receipts from premiums except 
for two periods since 1890, have been more than sufficient to carry aD 
expenditures, including payments to the policyholders and all of the 
overhead expenses.^ 

Mr. Gesell. I would like to introduce into the record at this time 
the chart entitled "Corporate Bonds and Notes," which was discussed 
a moment ago, together with the supporting schedule showing the per- 
centage acquired by the 10 largest companies. 

The Chairman. Without objection, the chart may be admitted. 

(The chart referred to was marked "Exhibit No. 227" and appears 
on p. 1222. The statistical data on which this chart ig based are 
included in the appendix on p. 1520.) 

Mr. Gesell. You have before you, have you not, a chart entitled 
"Growth of Private Placements"? ^ Will you tell us what a private 
placement is and what this chart represents? 

Mr. Howe. Yes. Out of the narrowing field of investments has 
grown the necessity for insurance companies to obtain a large supply 
of investments of the highest caliber, and one of the manifestations of 
the last few years has been the growth of a practice which we refer to 
as private placements. Private placements are securities privately 
placed or in general those which are purchased direct from issuers 
without the machinery of any bankers or intermediate steps, so that 
a corporation comes to an insurance company and Avishes to borrow 
money. 

The Chairman. On the direct contract between the insurance 
company and the borrower? 

Mr. Howe. That is the ordinary form it takes. There are minor 
qualifications. 

Mr. Douglas. In contrast with a public offer? 

Mr. Howe. In contrast with a public offering. 

The Ch/iirman. In other words, this eliminates the so-called under- 
writing by a brokerage house or a bank. 

" See "Exhibit No. 218", supra, p. 1177. 
2 See "Exhibit No. 228", infra, p. 1226. 



1222 



CONCENTRATION OF ECONOMIC POWER 



Exhibit No. 227 



CORPORATE BONDS & NOTES 



DOLLARS 
BILLIONS 



DOLLARS 
BILLIONS 



Z^ TOTA L NEW ISSUES 

I 



ACQUISITIONS BY 

10 LARGEST LIFE INS. COS 



^^ 





1930 1931 1932 1933 1934 1939 1936 1937 1938 

sounce: annual STtrcmNTS a couu fin chron os-iiie prcpa/icd by sec a excn co* 



CONCENTRATION OF ECONOMIC POWER 1223 

Mr. Howe. That is right. 

Now the chart again shows the total offerings of securities similar 
to the one which was shown on the previous chart, the total figures 
being the same as the others. This chart simply shows the amount 
of the total flotations which were privately placed. 

The Chairman. Let me ask, does the whole column represent the 
offering and the deep orange part of the column [bottom section] a 
percentage of the total offering? 

Mr. Howe. Both columns are representative of an amount in 
terms of billions of dollars. The height of the column indicates the 
total amount of offerings. 

Mr. Gesell. Perhaps I can help here. In the top section of the 
chart the total column represents the same figures as were contained 
on your previous chart, with the total new issues offered. 

Mr. Howe. That is correct. 

Mr, Gesell. Those columns represent the same figures we had 
before us a moment ago. The difference between this and the 
previous chart is that the portion of the columns which is in dark 
orange or shaded [bottom section] represents instead of the total 
acquisitions of the 10 ]arge companies, the total amount of the offer- 
ings which were privately placed A\dth all insurance companies. 

Mr. Howe. That is correct. 

Mr. Gesell. How many companies do these figures relate to? 

Mr. Howe. These figures relate to the 308 insurance companies, 
although actually, of course, the private placements are taken only 
by the larger companies, though they refer to all insurance companies. 
The orange [bottom, shaded section of the column in top half of chart] 
is the amount of securities which have been privately placed; the 
cross-hatching at the top is the amount which were publicly placed, 
and the total height of the column represents the amount of the total 
issues. 

Mr. Gesell. Is the shaded part of the top section of the chart 
insurance companies' private placements, in other words, the place- 
ment of issues with insurance companies, or all private placements? 

Mr. Howe. No, this is all private placements of corporations and 
institutions which were placed with corporations and institutions of 
all kinds, 

Mr. Gesell. That means where the issuer placed it with any one, 
the insurance company being the buyer, an individual or partnership 
or anything else? 

Mr. Howe. That is right. 

Mr. Gesell. And the bottom of the chart shows the percentage 
of private placements which were given to the insurance companies? 

The Chairman. So the answer to my original question is yes. 

Mr. Gesell. That is correct, sir. 

Mr. Howe. The amount of corporate bonds and notes placed pri- 
vately has increased from $100,000,000 in 1934 to $733,000,000 in 1938. 

Mr. Gesell. The time is getting short. The figures with respect 
to these various columns will be put in the record. Have you any 
general comments which you want to make concerning the implica- 
tions in the cbart? 

_ Mr. Howe. I have. It would s^em at first blush that this was a 
simple and efficient method of obtaining capital for corporations. 
However, there are some implications in the situation which should 



1224 CONCENTRATION OF ECONOMIC POWER 

be pointed out. In the first place, whereas insurance companies have 
freely advanced money to corporations to refund issues outstanding 
in the public market, there is no case on record of an insurance com- 
pany having advanced money to a corporation for the purpose of 
refunding obligations held exclusively by another insurance company. 
If this coincidence should become a matter of policy, it might seriously 
restrict the bargaining power of borrowers when they seek money, 
and in this connection I wish to read a paragraph from the mortgage 
manual of a A'erv large insurance company showing the policy, the 
settled policy if a^ou will, of insurance companies with respect to taking 
mortgages away from other insurance companies, so that we may 
think for a moment of the implications which would be involved if 
that policy were extended now to private placements. 

This manual is prepared by the home office and is sent to all the 
agents throughout the country who are negotiating mortgages for 
purchase of the compan}^, so this is an official direction, an expression 
of policy. 

The Chairman. Of what home office? 

Mr. Howe. Of the home office to the men in the field who obtain 
mortgages^ and I say if this policy were extended to the field of private 
placements it might have very important national implications. 

The Chairman. From what book are you reading? 

Mr. Howe.- I am reading from the Mortgage Loan Branch Office 
Instruction Manual of the Prudential Insurance Company of America. 
I quote: 

You must maintain friendly and ethical relationships with competitors ir> order 
to prevent overt and manifest solicitation of business already on the books of 
institutions similar to ours. A conscientious and premeditated raiding of each 
other's business would be most detrimental and must be avoided. 

That is the end of the quotation. 

If this policy were extended to private placements, it might have 
very important implications. 

Mr, Douglas. You are not saying that it has been? 

Mr. Howe. I am not saying it has been. I have no evidence of 
that fact. I simply have tlie evidence with respect to the mortgage 
requirement. 

_ The Chairman. And yet on the other hand, if half a dozen financial 
giants, such as these corporations are, these mutual companies, were 
to initiate a policy of raiding one another, the effect upon the economic 
system might be vprv di=a,strous. 

Mr. Howe. Well, it would simply result in the transfer of assets, of 
mortgage loans or other obligations from one company to the other, 
the type of thing which goes on in the public market all the time. 

The Chairman. Yes; but let me make this comparison. It im- 
presses me as being worthy of consideration. If two men engage in a 
fi.ght on the street corner, that is not a matter of very much public 
moment, but if two groups of men, each numbering 100, engage in 
such a fight in a city, that becomes a matter of very serious moment. 
So that if corporations liaving assets of billions of dollars were to 
undertake economic warfare Vvitli one another, it might have very 
serious results upon the entire economic systerii. 

Mr. Howe. Of course. On the other hand, it might have a very 
serious implication to a borrower if when he wanted to refund his 
obligation, everybody said, "No, that is owned by another insurance 
company and we won't touch it." 



CONCENTRATION OF ECONOMIC POWER 1225 

The Chairman. Then the borrower is suffering because he is not 
likely to get any bids for his business, 

Mr. Howe. That is right. 

The Chairman. And he will have to pay what the lender, whose 
field is recognized by every other lender, chooses to levy against him. 

Mr. Howe. That is right. 

The Chairman. That is the point you wish to make. 

Mr. Howe. Those are the dilemmas of this. 

The Chairman. But there are two sides to the question. 

Mr. Howe. Oh, yes; there are definite^ two sides to it. 

Mr. Gesell. It might also result in great harm to the smaller 
companies, because the larger companies with their greater resources 
might be the most successful in the raid. 

Mr. DouctLas. I might say, Mr. Chairm.an, at this point that the 
Commission will be prepared before long to present to the committee 
a day or two of hearings on this whole problem of private placements, 
with witnesses from the insurance companj^ field, from the industrial 
field, and from the investment banking field, that I think may give 
the committee a rather broad perspective on this whole problem. 

The Chairman. In connection with what Mr. GeseU just said, I 
started to call attention to the fact that Mr. Howe was reading from 
the manual of the Prudential Company, and I understood that to mean 
that the Prudential Company was instructmg its agents with respect 
to the agents of similar companies, so that it was not the comparison 
of 100 against 1 at all, but of 100 agamst ICO. 

Mr. Gesell. I would like to put into the record at this time a cop}'' 
of the chart covering the growth of private placements, together with 
the supporting schedules which have been prepared from the Com- 
mercial and Financial Chronicle, and from certain information on file 
with the Commission. 

The Chairman Without objection it will be so ordered. 

(The chart referred to was marked "Exhibit No. 223"' and appears 
on p. 1226. The statistical data on which this chart is based are 
included in the appendix oq p. 1520.) 

Mr. Gesell. Your next subject, Mr. Howe, relates to the question 
of yield on investments. 

ivir. Howe. That is correct. 

Mr. Gesell. flight I point out the necessity of covering this part 
of the testimony as quickly as possible. 

The Chairman. I think we have interrupted him a good deal. 

Mr. Howe. With respect to return on investments, there is no inclu- 
sive public information which shows the yields which companies have 
on various classes of securities, but from one large company for 1937 
it might be interesting to note that their policy loans paid them 5.9 
percent, farm mortgages 5 percent, city mortgages 4.9, public utilities 
4.7, railroad bonds 4.5, industrial bonds 3.G, United States Government 
bonds, 1.95 percent, and real estate 1.3 percent. 

The Chairman. "\n)at is the real estate as to the Government's? 

Mr. Howe. Government's 1.95, real estate 1.3. 

Mr. Gesell. How does this question of yields relate to the broader 
problem? 

Mr. Howe. The question of yields, without commenting on these 
various yields because of the shortage of time here, is reflected in a 
very important m.anner in the earnings of the companies. As was 



1226 



CONCENTRATION OF ECONOMIC POWER 



ExHiKiT No. 228 

GROWTH OF 
PRIVATE PLACEMENTS 



Iftutnl CORPORATE BONDS & NOTES gruuSNl 




TOTAL OFFERINGS 



Kvyxxi^ 






EST PCTGS. OF PVT. PLACEMENTS 
ACQ. BY LIFE INS. COS. 







1 



IS34 1935 

SOURCE: CDItH. F>m CHRON s s e c. 



1936 ' 1937 1938 

Ds-iiii pRtPAReo er sec a cxch com 



CONCENTRATION OF ECONOMIC POWER 1227 

stated earlier, the policy contracts require that the company earn on 
their reserve certain fixed rates, usually 3 or 3.5 percent, and for the 
number of companies which report their gain and loss ejdiibits in the 
Spectator Yearbook, this large section of the chart (Interest Required 
on Reserves, exhibit No, 229). 

Mr. Gesell. You have before you a chart entitled "Net Investment 
Income and Interest Required on Reserves.'' 

Mr. Howe. I have. 

Mr. Gesell. And you are referring to the top section of that chart. 

Mr. Howe. I am referring to the top section of the chart, yes; and 
the lower portion of the chart entitled "Interest Required on Reserves," 
is the contract amount which these companies had to earn in order 
to maintain their pohcy contracts on the basis on which they are 
written. 

The top line is the "Net Investment Income" of these companies 
after deducting the direct investment expenses. 

The Chairman. In other words, what the chart shows is that from 
1906 to 1938, the period covered by the chart, there has always been 
an excess over the required interest on reserves. 

Mr. Howe. That is right, there has always been an excess over the 
required interest on reserves. However, the ratio of this excess to 
the interest required on reserves has changed from time to time. 

Mr. Gesell. That is shown in the bottom of the chart. 

Mr. Howe. That is shown in the bottom section of the chart, 
whereas in 1906 the excess was about 30 percent, in 1938 it was 18. 

The Chairman. But it would appear from the lower part of the 
chart then that along about 1918 when we had a depression there was 
a sharp decrease of this excess, which thereafter recovered during the 
twenties but which sharply declined after 1930. 

Mr. Howe. That is correct. 

The Chairman. Thereby again indicating a depression. 

Mr. Howe. That is right, or indicating a decline in interest rates. 

The Chairman. But it was coincident with the depression. 

Mr. Howe. It was coincident with the depression, but has reflected 
itself in subsequent years in declining income, through declining 
interest rates. 

Mr. Gesell. I would like to introduce into the record at this time 
a copy of the chart entitled "Net Investment Income and Interest 
Required on Reserves," together with the supporting figures that have 
been prepared from the Spectator Insurance Year Book. 

(The chart referred to was marked "Exhibt No. 229" and appears 
on p. 1228. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 1521.) 

Dr. LuBiN. Does this chart mean that even today the net earnings 
from investments are about 18 percent more than is required to main- 
tain interest on reserves? 

Mr. Howe. That is correct, 18.26 percent higher. 

The Chairman. What do you mean by investment income? 

Mr. Howe. That is income from interest on mortgages, interest on 
bonds, dividends on stocks, rents from real estate leases. 

The Chairman. In other words, you mean the total income from 
investments, excluding, of course, all payments by policyholders by 
way of premiums. 

Mr. Howe. Oh, yes; premiums don't come into this at all. 



1228 CONCENTRATION OF ECONOMIC POWER 



Exhibit No. 1^29 



NET INVESTMENT INCOME 

& INTEREST REQUIRED 

ON RESERVES 




RATIO OF EXCESS TO INTEREST REQUIRED ON RESERVES 

PERCENT PERCE NT 

7S 



TS 




^ \' 


/ ^— - 


^ 


25 




/ 


^ V 




\ 











1906 19 10 



souRct: specTAToit reAR book 



IS pREi'tPED Br sec a cxcM. conn. 



CONCENTRATION OF ECONOMIC POWER 1229 

The Chairman. But the haterest on policy loans is included in this 
figure? 

Mr. Howe. That is correct. 

Mr. Douglas. Less what? 

Mr. Howe. Less direct expenses, real estate taxes, and direct ex- 
penses of administrating necessary investments. This is the net 
figure after deducting any expenses. 

The Chairman. Now it would appear from that chart that the 
net-investment income reached its highest point at about the year 
1929, and that at 1938 the income was practically the same. I can't 
tell from this distance what the figures are but I think it might be 
wall to make direct comment upon that, Mr. Howe. 

Mr. Howe. Yes; the peak of the net invested income in 1929 was 
$926,000,000 from which point it declined to a low in 1934 of $756,- 
000,000 and recovered to $918,000,000 in the year 1937. 

The Chairman. But the low of 1934 was vastly in excess of the 
high of 1924. 

Mr. Howe. Oh, yes; vastly in excess because of the tremendous 
. rate of growth with which we are dealing in this picture. 

The Chairman. Just give us the figure for 1924. 

Mr. Howe. $506,000,000. 

The Chairman. So that in 1924 long before the depression there 
was vastly smaller income than at the very depth of the depression. 

Mr. Howe. Yes; vastly smaller income. 

Mr. Gesell. Figures with respect to that, Senator, are all in the 
record.^ 

The Chairman. Yes, but I wanted to have specific attention 
called to them. 

Dr. LuBiN. \VTiat happens to that excess? What account is it 
put into — surplus? 

Mr. Howe. The excess goes into the surplus — yes; but it is one of 
the principal sources, if I may use that word, of dividends to pohcy- 
holders. 

The Chairman. But it is also the source of renewed investment in 
new obligations which in turn produce an accumulating incotne. 

Mr. Howe. Yes; a part of the income is invested in reserves and 
as the reserves increase, the tldng continues to roll, we might say. 

The Chairman. Let me put it this way, going back to the chart 
presented this morning shoAving a comparison between the total 
income of these companies and the income from premiums,^ the 
excess of the total income over the expenditures, which seems to have 
been constantly increasing, creates every jear an increasingly large 
reservoir from which these companies are able to acquire a larger 
investment in the economic life of the nation so that there is a con- 
stant trend toward concentration of investment in these companies. 

Mr. Howe. Very true, sir. 

The Chairman. And that goes on independently of any policy or 
any purpose on the part of the companies. 

Mr. Howe. That is right. 

The Chairman. It is like a snowball rolling down hill. 

Mr. Howe. That is right. Now the next factor which I wish to 
mention is the fact that the inescapable characteristic of all invest- 

' "Exhibit No. 229", appendix, p. 1521. 
2 See Exhibit No. 218, supra, p. 1177. 



2230 CONCENTRATION OF ECONOMIC POWER 

ments over a long term period of time is that they produce capital 
gains or losses. In the case of the insurance companies whose figures 
are shown in Spectator, it is interesting to note that there was a loss 
of $244,000,000 in 1937, a gain of $85,000,000 in 1936 and losses in 
each other year from 1935 back to 1931, showing an aggregate loss 
during this period on account of capital of $674,000,000. 

Mr. Gesell. These figures are obtained on the schedule which 
you have prepared from The Spectator Year Book, are they not? 

Mr. Howe. That is correct. 

Mr. Gesell. I would like to offer the schedule as part of the 
record. 

The Chairman. It may be received. 

(The schedule referred to was marked "Exhibit No. 230" and is 
included in the. appendix on p. 1521.) 

Mr. Howe. I want to point out that these figures of gain and loss 
on investments are not wholly what are sometimes referred to as 
realized gains or losses, but are reflections of the level of valuation 
which the companies have placed upon their assets from time to time, 
so that the matter of valuation of assets is an extremely important 
factor, because of the fact that it affects the gain or loss which the 
companies show on their investments from year to year, and which in 
turn are reflected in the surpluses of the companies. 

With respect to the matter of valuation, I would like to read from 
Best's Life Insurance Reports. This is the standard manual of 
insurance companies, like Moody's or Poor's in the investment field. 
On page 17 Mr. Best states this: 

By overvaluing assets, even without dishonest intent, a company may indicate 
a surplus position well above the average of the business. 

and then he goes on: 

It is unfortunately true that the statements of numerous companies, even those 
attested under oath by the officers, do not reflect the true condition of the com- 
panies, because of overoptimistic valuations placed upon their assets. 

The Chairman. What is the year of that book? 

Mr. Howe. 1938. 

The consideration of the valuation of life insurance assets may be 
divided roughlj^ into three parts; (1), the valutations of corporate 
bonds and notes; (2), the valuation of mortgages; and (3), the valua- 
tion of real estate. 

Mr. Gesell. This question of valuation relates itself primarily to 
the amount of surplus which a company may have and as to whether 
or not the surplus is as large as shown because of the valuation methods 
used. 

Mr. Howe. That is correct. It is a matter of surplus — relative 
surplus. 

With respect to bonds, the rule is that bonds adequately secured 
may be carried at so-called amortized values. Amortized values are 
a species of cost; an illustration will make this clear. If a company 
buys a 10-year bond at 95, at the end of 1 year they will increase that 
on their books approximately one-half of 1 percent, so it will stand at 
95K, and so forth, a half of 1 percent each year, until the 10 years 
elapse, at which time it will apear on the books at par, which is the 
amount at which it will be paid off. 



CONCENTRATION OF ECONOMIC POWER 1231 

If, on the other hand, the company buys a bond at 105, the amor- 
tized value will decrease approximately one-half of 1 percent per 
annum, so it will be at par at the end of the term of the bond, so *hat 
amortized values are a species of cost, and the rule is that bonds ade- 
quately secured may be carried at amortized values. 

It is perfectly clear, of course, that in the case of the highest-grade 
investments, which do not fluctuate markedly in value, this is a very 
simple and effective rule. In 'the case, however, of securities which 
are less secure, the rule is of more doubtful apphcabUity, because 
these investments fluctuate much more greatly in value. 

As between companies, the policy of what is to be classified as 
adequately secured and therefore carried at amortized value is in 
most cases left largely to the companies themselves, so that there is 
some variation between companies as to what they classify as bonds 
adequately secured, and what they will classify as bonds which are 
not adequately secured. 

In the State of New York the insurance commissioner has made a 
rough rule by means of which the companies can determine what 
bonds are classified as adequately secured and what bonds are not 
classified as adequately secured. The rule is that if all four security 
rating services classify a bond as of less than fifth grade, that is, if all 
four of them classify it as less than fifth grade, then it must be carried 
at convention values, which are values established by the National 
Association of Insurance Commissioners rather than the amortized 
value. 

It is interesting to note what is a definition of a fifth-grade bond as 
the various services speak of it. Standard Statistics calls it "fair"; 
Fitch speaks of them as "of medium grade." Moody refers to the 
same thing here as "bonds carrying the Ba rating" (the fifth-grade 
rating) "generally have some elements of uncertainty. Investment 
characteristics are not entirely absent, but speculative elements 
begin to dominate." 

Poor's give a little fuUer definition of these fifth-grade bonds. 
They say, "Obligations wherein the speculative element is present, 
principal is fairly secure, but margin of safety over interest is usually 
small and the actual position of the bonds is beheved dependent upon 
earnings rather than upon the property securing the bonds. Not 
suitable for trust funds. Bonds of tliis ratmg are often known as 
'better grade speculative.' Bonds in this category are borderline issues 
falling in group 2 of the Government regulations, and therefore not 
considered eligible for bank investments." 

Mr. Gesell. All these references propose to do, Mr. Howe, is simply 
to present in a very tentative way the problem of valuation which may 
be present in the analysis of a surplus account of any legal reserve 
company. 

Mr. Howe. That is right. 

Mr. Gesell. And it will be a matter for further inquiry later on? 

Mr. Howe. Very careful study. 

Mr. Douglas. Mr. Howe, I just notice in the Best!s Reports for 
1938, from which you read a few minutes ago, and you read a sentence 
as follows: 

By overvaluing these assets, even without dishonest intent, a company may in- 
dicate a surplus position well above the average of the business. 

124491— 39— pt. 4 6 



1232 CONCENTRATION OF ECONOMIC POWER 

Now, I notice here another comment that you didn't read, as 
follows: 

A company, the management of which values all of its assets conservatively, 
and does not take credit for items of questionable character, may, by its very 
honesty, place itself at an apparent disadvantage. 

Would you care to comment on that? 

Mr. Howe. Well, the point that I wish to make is that there is con- 
siderable difference in the methods of" valuation of these companies. 
Some of them may understate their assets and some others may be 
found to overstate them to some extent, but the figures which are 
presently pubhshed do not, in all cases, give an adequate criterion of 
value when you bring it down to the last line. 

Mr. Gesell. If you were to look at two different statements of two 
different companies, you might find a disparity which resulted purely 
from different methods of valuations used by the officers of the res- 
pective companies? 

Mr. Howe. That is right. 

The Chairman. But in general is it not true that these companies 
follow a more or less conservative policy in making their valuations? 

Mr. Howe. With respect to most of their assets. 

Mr. Douglas. As respects certain items in the portfoho, the staff 
will be prepared before long for a breakdown on various levels and 
various investment standards, will it not? 

Mr. Howe. That is in process of preparation, yes. 

Mr. Gesell. That will be reflected through new material obtained 
by the Commission in its investment questionnaire, which is now in 
the hands of the companies. 

Mr. Howe. That is correct. 

The only two remaining points on valuations respect mortgages 
and real estate. With respect to mortgages it is the general practice 
of companies to carry them at their face value, and no account is 
taken of the amount of interest which may be delinquent upon the 
mortgage, or the fact that the interest may have been reduced to the 
borrower, or that taxes may be in arrears, or other factors. Of course, 
if these securities were selling in the public market they might possibly 
reflect these factors, but they do not so reflect them, to the best of our 
ability to find out, on the statements of the companies as they exist 
today. 

Now, with respect to real estate 

Mr. Douglas (interposing). That is all pursuant to the rules and 
regulations laid down by the various supervising agencies? 

Mr. Howe. Entirely. It is entirely in accord with regulations. 
None of these matters which I am discussing is mean.t to imply that 
they do not follow the regulations laid down for them, for I believe 
they do. 

With respect to real estate, the methods of valuation are also very 
different between companies. When a mortgage is foreclosed, some 
companies take the real estate in the assets at the face amount of the 
mortgage which has been extinguished through the process of fore- 
closure; other companies take foreclosure expenses into the asset 
account; others, in addition to foreclosure expenses, capitalize aU or a 
certain portion of the unpaid interest between the date of default and 
the date of receipt of fee simple title; other companies capitalize 
rehabilitation expenses and improvements to property ; whereas certain 



CONCENTRATION OF ECONOMIC POWER 1233 

Other companies do not capitalize various ones of these items, so 
that 

Mr. Gesell (interposing). The net result of this, Mr. Howe, is 
that the question of valuation is one which will require further study, 
is it not? 

Mr. How3. It will require the most careful analysis, we believe. 

Mr. Douglas. It is suggestive, Mr. Chairman, of a line of inquiry 
that the staff is presently making and which it will be prepared within 
a few weeks to present to the committee. 

Mr. Howe. That is correct. 

Mr. Gesell. Does that conclude your testimony? 

Mr. Howe. That concludes the testimony. 

Mr. Gesell. We have no further witnesses for the day. 

The Chairman. Do any members of the committee desire to ask 
Mr. Howe any questions? I want to caution you, it is getting late. 

We seem to be very discreet this afternoon, Mr. Howe. 

(The witness, Mr. Howe, was excused.) 

The Chairman. Mr. Gesell, do you care to announce now whom 
you would like to call in the morning? 

Mr. Gesell. The first witness in the morning wiU be Mr. Frederick 
H. Ecker, chairman of the board of the Metropolitan Life Insurance 
Company. 

The Chairman. If there is no further business, the committee will 
stand in recess until 10:30 tomorrow morning. 

(Whereupon, at 4:50 p. m., a recess was taken until Tuesday, 
February 7, 1939, at 10:30 a. m.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEE 



TUESDAY, FEBRUARY 7, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Monday, February 6, 1939, in the Caucus Room, Senate Office Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representative Reece; 
Messrs. Henderson, Douglas, Arnold, Patterson, Peoples, Davis, 
Thorp, and Lubin. 

Present also: Gerhard Gesell, Special Counsel for the Securities and 
Exchange Commission. 

The Chairman. The committee will please cortie to order. 

Senator King has sent word that he is detained by a special meeting 
of a group of Senators interested in silver, so it may be some little 
while before he appears this morning. 

Chairman Douglas, are j^ou ready to proceed? 

Mr. Douglas. We are prepared to proceed, Mr. Chairman, in 
connection with consideration of insurance company managements, 
how they are elected and how they operate. 

The Chairman. As yesterday, it will be under 

Mr. Douglas (mterposing) . Mr. Gesell will do the examining for 
the Commission. 

The Chairman. Your first witness is Mr. Ecker? 

Gesell. Mr. Ecker. 

The Chairman. Mr. Ecker, do you solemnly swear that the testi- 
money you are about to give will be the truth, the whole truth, and 
nothing but the truth, so help you God? 

Mr. Ecker. I do. 

TESTIMONY OF FREDERICK H. ECKER, CHAIRMAN OF THE 
BOARD OF DIRECTORS, METROPOLITAN LIFE INSURANCE 
CO., NEW YORK. N. Y. 

metropolitan life insurance company 

Mr. Gesell. Mr. Ecker, you are chairman of the board of direc- 
tors of the Metropolitan Life Insurance Co., are you not? 

Mr. Ecker. I am. 

Mr. Gesell. How long have you been chairman of the board? 

Mr. Ecker. About 2 years. I am corrected and told it is nearly 3, 
but I know it is more than 2. 

Mr. Gesell. You have been in the service of the company for 
many, many years, have you not? 



1236 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. I have. 

Mr. Gesell. In 1906 you were comptroller of the company, were 
you not? 

Mr. EcKER. Comptroller or treasurer. I would have to look up 
the record to be sure of that. 

Mr. Gesell. And since that time you have been treasurer, vice 
president, and president in succession? 

Mr. EcKER. That is correct. 

Mr. Gesell. I would like to inquire at the start this morning a 
little about your company, the size of its assets, the kind of business 
it conducts, and rather than ask you a lot of general questions I would 
like you to give us what information you can about that. 

Mr. EcKER. I shall be very happy to, respond. 

Mr. Chairman, before my examination begins this morning I think 
you would want me to correct an erroneous implication contained in 
two of the charts which were produced at the opening of these pro- 
ceedings yesterday .morning. I refer to "Exhibit No. 218",^ "Income 
and Expenditures of Life Insurance Companies," and "Exhibit No. 
219",^ Distribution of Income and Expenditure, 1937." 

The first chart indicated that the total income- of the companies 
over the total expenditures for 20 years ending in 1937 amounted to 
20 billions of dollars, and it was implied that this represented profits 
to the 308 life-insurance companies in the operation of their business. 
As a matter of fact, the real situation is quite different. The difference 
between the total of the income as set forth in the chart and the total 
of the expenditures as set forth in the chart for any given year or for 
all years put together is represented almost entirely by additions to 
policy reserves required by law, and increases in other liabilities such 
as claims, dividends, and the like, and also additions to surplus. It 
must be understood that the New York law requires that surplus of a 
mutual company be annually distributed to policyholders except for 
an amoimt, also Umited by law, to be held for contmgencies. 

In compliance with such law, or laws or practices prevalent in other 
States, companies have distributed to policyholders through the years 
in question more than $7,500,000,000 in the shape of dividends. In 
actual fact, speaking for the Metropolitan Life Insurance Co. alone, 
the surplus funds of this company during the period in question 
increased by the sum of $280,000,000, while the assets for the same 
period increased by $4,000,000,000. 

The bar chart, Mr. Chairman, might be used to illustrate the receipts 
and disbursements of a bank. That chart on the left would include all 
the income of the bank, including deposits; the chart on the right, all 
of the disbursements of the bank, cost of operation and what-not, and 
deposits withdrawn. 

The way this was set up it would leave as a profit the deposits in the 
banks that had not been withdrawn. Our reserves are analogous to 
the deposits of our poHcyholders that have not been withdrawn. It 
isn't that the chart itself was incorrect, but it gives entirely the wrong 
impression and the newspapers have picked that up and referred to a 
profit of $20,000,000,000. I know that wasn't in Mr. Douglas' mind. 

The Chairman. Nothing was said here of profits in that amount. 

Mr. EcKER. Yes. exactly; and I thought you would be interested 
and desirous that J should make that correction this morning. 

'See supra, p. 1177. 
'Ibid. p. IIRI. 



CONCENTRATION OF ECONOMIC POWER 1237 

Mr. Douglas. I don't recollect that any of the witnesses, Dr. 
Davenport, or Mr. Howe, so characterized it. 

Mr. EcKER. The newspapers did, Mr. Douglas, and it gives a wrong 
impression. You wouldn't want the impression to go abroad that 
during these years the companies had a profit of $20,000,000,000. 

Mr. Douglas. I don't think it is an impression that would be justi- 
fied from the record of the hearing as constituted yesterday. 

Mr. EcKER. I am saying that if it were a bank and the deposits 
had not been withdrawn but were left there and assumed to be a 
profit- — which, of course, they are not — our reserves which are required 
b}^ law are analogous to the bank deposits. 

Mr. Douglas. I think there is no misunderstanding 

Mr. EcKER (interposing). No; just that I want to correct a mis- 
understanding taken up by the newspapers. 

The Chairman. Let me say that those of us who are living in a 
glass ball down here all the time realize that it is impossible to live 
up to the newspapers, and if we spent our time correcting the \^Tong 
ideas, we wouldn't have time to do anything else. 

Mr. EcKER. Bear with me because we have 29,000,000 poHcy- 
holders throughout the United States, and we are very sensitive that 
they shouldn't get the wrong impression. 

Mr. Arnold. May I ask one question about the chart on page 7.^ 
Is that total expenditures on that chart 

Mr. EcKER (interposing). Is that the bar chart? Let me see it. 
Sorry, Mr. Arnold, I am following you now. 

Mr. Arnold. Does the total expenditure line on that chart include 
dividends? 

Mr. EcKER. That have been^ disbursed ; but not the dividends for 
which we carry a liability and which are obligations just the same at 
the end of a year. When you look at the statement of the company 
you wouldn't be very happy if it didn't include in its set-up of liabilities 
the definite obligations which we must pay. 

Mr. Douglas. I think that is what Mr. Howe meant yesterday 
when he was talking about these insurance contracts with long-term 
insurance companies. 

Mr. Arnold. But the chart on page 7 does include actual income 
and actual disbursements of all kinds? 

Mr. EcKER. Oh, yes. It is the same thing in both cases. 

Mr. Gesell. I will return to my question now, Mr. Ecker. I 
asked you if you could give us some idea as to the size of your com- 
pany and the various activities in which it is engaged. 

Mr. EcKER. Perhaps the best way to measure the size would be to 
go back to the year just before mutualization, 1914. 

Mr. Gesell. Your company was mutualized in January 1915? 

Mr. Ecker. Exactly, and in the statement made for December 31, 
1914, my recollection is that our total assets were about $490,000,000. 
At the end of 1938 those assets had growTi to be $4,942,000,000. 

The surplus at the end of 1914 v/as, in round figures, 31,000,000, 
and at the end of 1938 it was 313,000,000. The amount of business 
in force at the end of 1914 was just under 3,000,000,000. At the end 
of 1938 that total was 22,600,000,000. 

At the end of 1914 we had paid to industrial policyholders, in 
bonuses payments that were not required under the contract, jabout 

' See "Exhibit No. 218", supra, p. 1177. 



] 23S CONCENTRATION OP ECONOMIC POWER 

$47,000,000. That diptribution of the bonuses, increased by the divi- 
dends siDce miituftlization. bn?igs (be total up to about $1,400,000,000. 

If you \vould Jike to go back and look at the size of the company, 
we will sav at the cj)d of 1906, I could give you those figures, 

Mr. Gesrll. In 1906 you had about 174,000,000 

Mr. EcKEii (interposing). 176,000,000 of assets. We had a surplus 
at that time of about 16 millions. Our total business in force was 
just under a billion 700 millions. 

Mr. Gesell. At the present time, Mr. Ecker, how many policy- 
holders does your company have? 

Mr. Ecker. As near as we can calculate it — and that can't be a 
positive figure — it is between twent3^-eight and a half and twenty-nine 
millions of individual lives insured. 

Mr. Gesell. That means about 1 out of 5 people you see on the 
street is insured b}'- your company. 

Mr. Ecker. That is true, and in the cities — our business is largely 
in the cities — we would probably average a third of all the people; 
and in some cities, like St. Louis, for example, more than half of the 
population are insured, so it might be said that in such cities every 
other man, woman, find child one meets on the street, in the home, 
or in the cradle, is insured in the Metropolitan. 

The Chairman. How many of these, or what proportion of these 
are cflrrying group insurance? 

Mr. Ecker. Group insurance of course is under the master policy 
issued to the employer. 

Mr. Gesell. Does that count as one policyholder? 

Mr. Ecker. That counts as one poHcyholder, but when we count 
tlie number of policies in force we use the certificates that are issued 
to the individuals who ore insured under that master policy. 

Mr. Gesell. So that in your figure of twenty-eight or twenty-nine 
injihon policyholders, you have included all members of the group. 

Mr. Ecker. It is my understanding that we have. 

We calculate that under group policies there are about. two millions 
of people insured^ndividuals. 

Dr. LuBiN. Mr, Ec^'^r, of the 28,000,000 how many hold industrial 
policies? 

Mr. Ecker. The exact figures I do not have, but I would say 
somewhere between twenty-two and twenty-three millions. 

Mr. (jesell. You have group insurance^ Mr. Ecker, with such 
companies as Gcner.al Motors, General Electric, Union Carbon & 
Carbide. United States Steel Corporation, Westinghouse Electric and 
Mnnufncturing Co., Sear>?, Koebuok. Armour & Co., Socony Vacuum, 
fuid companies of that character. 

Mr. EcKKR. That sounds when you read it like a roster of our 
holders of grouj) po!ic)«:'S. 

Mr. Gesell. These industrial policyholders that Mr. Lubin referred 
to are policyholders who pay prem.iums on a weekly or monthly basis? 

Mr. EcKviR. They are. 

Mr. Geselt,. 11ns the increase of your business in recent years been 
predominantly in the industrial field or in the ordinary field, or has 
the increase of both t--, pcr of insur^.nce been similar? 

Mr. EcKER. I would say tliii.t the increase wu? more in the field of 
the ordinary insurance than in the industrial. 

\\t. Patterson. Mr. Ecker, what proj)ortion of these industrial 
policies lapse? Have you any idea, approximately? 



CONCENTRATION OF ECONOMIC POWER 1239 

Mr. EcKER. It is hard to answer that question without some Httle 
discussion about it. 

Mr. Patterson. Well, that is ail right. 

Mr. EcKER. Let me say what I have in mind. There is a very large 
lapse reported in the industrial department on which only a week's 
premium is paid. In the ordinary department, those are classified as 
not-takens. In the industrial department there is a time within 
which the applicant may say he doesn't want the insurance and will 
take back his first premium. Usually it is so small an amount that 
the average industrial applicant doesn't bother to ask for the return 
of his money, so that all of that first week's premium lapse should 
really be compared with what is called not-takens in the ordinary. 
The company, however, must carry a liability for that insurance for 
that period. As a matter of fact we pay many death claims on 
which only 1 week's premium has been paid. A great deal of that 
business, while reported as a lapse in the first instance, due to the 
activity of the agent and his interest. in the policyholder, is subse- 
quentl}^ revived. 

Now to answer your question, you have to make an analysis. It 
isn't easily answered without a full discussion. 

Mr. Patterson. I am not asking you to answer that now, but I 
would appreciate it if you would get for the record, if possible, later, 
the number that do not mature, the approximate percent of industrial 
policies that do not mature. 

Mr. EcKER. We will be able to give you that. It varies according 
to the economic conditions in the country, I have observed over a 
period of years. There was one time when the persistence of the indus- 
trial policy was better than the ordinary. 

Mr. Gesell. Have you made studies of the lapse rate in your 
industrial policies, Mr. Ecker, of your company? 

Mr. Ecker. We have. 

Mr. Gesell. Who in your organization has made those studies, in 
case the committee desires to know more about it? 

Mr. Ecker. I would say in the fir§t instance that the actuary who 
gives attention particularly to the industrial department. 

Mr, Arnold. One point wasn't entirely clear to me. You said 
those who had paid a single week's premium ordinarily didn't bother 
to ask for their money back. Are they entitled to it if they ask? 

Mr. Ecker. Yes. They have a period within which they may say 
they^ do not want the insurance and want their mone}^ back, for ex- 
ample, if it is a 25-cent premium it isn't enough to bother with and 
they let it go, but the company has the liability just the same. 

Mr. Arnold. How long is that period? 

Mr. Ecker. It is 2 weeks, it has been 2 weeks for years, and under 
our new contract it is 3. 

Mr, Gesell. Does your company operate in every State of the 
country? By that I mean, do you sell insurance in every State in 
the country? 

Mr. Ecker. No. That would need this further explanation. I 
believe we are licensed to do business in every State. We do not 
pursue the business of insurance; we haven't agents actively writmg 
insurance in every State. 

Mr. Gesell. Do you know offhand the States in wnich your 
■^^y doesn't operate? 



1240 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER, Well, in one State we have representatives to take 
care of the group insurance, life insurance and annuities that are 
written under a contract with employers where we have insured all 
of their employees. We are not actively prosecuting that business 
in that particular State, but we must have representatives there to 
take care of insured employees. We have agents, I think — can you 
tell me, Mr. Lincoln? 

Mr. Lincoln. Seven. Texas, Nevada, Wyoming, North Dakota, 
South Dakota, Arizona, New M^exico. 

Mr. EcKER. Seven. 

Mr. Gesell. Does that mean that your company doesn't operate 
in those States, Mr. Ecker, or does it do, say, a farm business in those 
States, money invested? 

Mr. Ecker. Some of them we invest money in, yes, and we have 
farm investments and possibly some others. 

Mr. Gesell. Your company owns and operates a large number of 
farms, does it not? 

Mr. Ecker. During the depression we have had to foreclose on a 
large number of farms, and we have a very carefully studied policy 
for taking care of the farm properties, rehabilitating them. 

Mr. GeSell. We will come to the question of your farm properties. 
All I am asking you now is generally the types of activities in which 
your company is engaged. In the real estate side, the urban. real 
estate, you own and operate buildings, do you not? 

Mr. Ecker. We do. 

Mr. Gesell. Tenement houses, ofRce buildings, all kinds? 

Mr. Ecker. Yes; properties that we have foreclosed, of course. 

Mr. Gesell. Yes; those are properties that you originally made a 
loan on, were obliged to foreclose, and since then you have operated 
them. You operate hotels, do you not, through a management 
agency? 

Mr. Ecker. We operate hotels, I think, in every case through a 
lease or management operator. 

Mr. Gesell. Has your company an interest in any large housing 
developments? 

Mr. Ecker. Yes; we have in two. In 1922 there was a great 
shortage of housing and construction costs were very high. Under a 
special act of the legislature we undertook a demonstration. It was 
possible at the then prevailing high costs to produce shelter accom- 
modations that could rent at $9 a month pef room. That was our 
first operation under the law in the nature of a housing project. 

Mr. Gesell. You say you have two. 

Mr. Ecker. That is one. 

The Chairman. What was that room cost? 

Mr. Ecker. Nine dollars per month per room, and that compared 
with similar accommodations that were offered in the market at 
$12 and $14 per month per room. 

The Chairman. Did you give the construction costs per room? 

Mr. Ecker. Can I do it now? 

The Chairman. Did you in your answer a moment ago? 

Mr. Ecker. No; I did not. 

The Chairman. Do you know what it is? 

Mr. Ecker. I know that in the project which we now have it is 
under $1,100. I was going to say that we have a second project 



CONCENTRATION OF ECONOMIC POWER 1241 

which we are permitted to engage in under a special act of the New 
York Legislature, and that is an undertaking on a community basis. 
My feeling is that the ownership of a single piece of real estate, a 
corner, a block front, or a block comes ver}- close to being speculative 
in character. I believe that if one can undertake an operation on a 
community basis; it may be so carried out and so planned as to make 
a sound investment of life insurance funds. With that- in view, we 
acquired a piece in the Bronx, adjoining the IVlanliattan Island, on 
the subway, so the transportation is very good, 28 minutes from the 
Grand Central Station, about 31 minutes from City Hall, and we were 
fortunate there iii getting a piece of property that had not been im- 
proved. It had been in the possession of the people from whom we 
had purchased it since 1868, and that enabled us to make a very ad- 
vantageous plan, so that the streets would not be rectangular, so that 
it was possible to make construction that wouldn't look like an insti- 
tution or a factory when completed, so that we could plan to make it 
a very attractive place for living. 

I was going to say that the reason I think the community operation 
of 'the nature I referred to can be undertaken safely is that, if properly 
planned, there will be protection against obsolescence. In real estate, 
obsolescence is the factor against which we have to work. 

Mr. Gesell. Well, now 

Mr. EcKER (interposing). May I finish this if it doesn't interfere 
with what you have in mind? The best protection against obso- 
lescence is light and air. The old tenements that exist in New York 
City today, which are a part of the slum clearance operation, are 
those improvements where the landlord has covered 90 percent 
of his lot with the building and today those habitations are regarded 
as a failure. 

Mr. Douglas. What was the name of the first project? 

Mr. EcKER. It hadn't any name, but it was located in Queens. 
For the present one in the Bronx our plans cover less than 27 percent 
of the land; that is our protection against obsolescence. The con- 
struction is all fireproof and that is our protection against deteriora- 
tion. Then in the matter of equipment there are gadgets to go with 
the kitchen and the bathroom of the most improved type. There we 
are planning and expecting to provide an accommodation for housing 
for which there is an existing need. 

Slum clearance operations are taking care of those in the lowest 
income group. There hasn't been a^ good provision made for those 
who are a little better circumstanced. We will provide improvements 
here which will rent for two-thirds, we calculate, of the rental that is 
charged for similar improvements built by builders for speculation. 

Mr. Gesell. My question was directed simply to get some idea of 
the size of the company. We can come back to your housing projects 
at a later stage. 

Can you give us some idea of the amount of new industrial business 
which your company has written in the last 2 or 3 years? Has it at 
all times been in excess of a billion dollars each year? 

Mr. EcKER. Written? I don't think it has ever been that, but I 
would like to have the figures to teU you that. I don't have it in 
mind. I would be glad to produce it. 



1242 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Let me ask you this: For both your ordinary and in- 
dustrial departments combined, let me ask you what has been the 
amount of business written per year? 

Mr, EcKER. I can give it to you for any year that you are interested 
in, and possibly the separation. 

Mr. Gesell. Just the last 2 or 3 years is all I want. 

Mr. EcKER. The paid-for life insurance business issued during 1938 
totaled $1,810,000,000, of which the ordmary was $875,945,000, in- 
dustrial, $832,256,000; group, $102,000,000. That is last year. I 
can give you the same figures for any other year. 

Mr. Gesell. Just the year before that, if you please. 

Mr. EcKER. The year before that, the paid-for life insurance issued 
was $2,393,500,000, of which the ordinary was $1,162,000,000; indus- 
trial, $1,000,000,000; group, $214,000,000. 

Mr. Gesell. Coming to another figure for the moment, can you 
give us any idea of the amount of monev your company invests every 
day? 

Mr. Ecker. I would say we invest about $700,000,000 a year, but 
there is in that figure much of investment and reinvestment, short- 
term stuff which we may buy as a secondary reserve for cash, and 
when thaffalls due we reinvest it. 

Mr. Gesell. It may include the investment of $1 two times? 

Mr. Ecker. Three times, maybe. The increase, of course, is 
shown by the increase in assets for the year. 

Then we have maturities, payments on account, and these short 
term investments which may be a reinvestment of the same dollar in 
the same year in which it was originally made. 

Mr. Gesell. Coming to another topic for a moment, your company 
is a mutual company, is it not? 

Mr. Ecker. Yes. 

Mr. Gesell. You said it -was mutualized in January 1915? 

Mr. Ecker. Yes. 

Mr. Gesell. What is a mutual company? 

Mr. Ecker. A mutual company is one in which there is no stock- 
holding interest, one in which all of the assets of the company are 
held for the benefits of the policyholders, one m which all of the 
profits, after the board of directors determines the amount that 
should be added to surplus, is distributed to policyholders in the form 
of dividends. 

Mr. Gesell. Is there any other outstanding characteristic of a 
mutual company that comes to your mind? 

Mr. Ecker, Yes. The directors are elected under the laws of the 
State of New York by the policyholders. 

Mr. Gesell. Now you were connected with the company at the 
time it mutualized, were you not? 

Mr. Ecker. I was. 

Mr. Gesell. Can you give us some idea, very briefly, of the factors 
which prompted that mutualization? 

Mr. Ecker. Well, it is a matter of recollection. There were many 
factors. The company was growing rapidly; there was an increasing 
accumulation of assets and funds, the great bulk of which was con- 
tributed by policyholders, and there was a possibility of the stock 
getting into the hands of people who might not be as scrupulous as 
were the holders of the stock of our company. It might constitute 
a menace that in unfriendly hands there might be an attempt to 



CONCENTRATION OF ECONOMIC POWER 1243 

exploit the company or its funds for the benefit of the individuals 
who hold the stock. 

Mr. Gesell. It was the fear, then 

Mr. EcKER (interposing). It was a recognition of that situation, 
rather than a fear, sir. 

Mr. Gesell. Yes; there was inherent in a stock company the 
possibility that the stock might get into the hands of individuals who 
would run the company for their o\\ti interests, rather than those of 
the policyholders. Is that a correct statement? 

Mr. Ecker. That is a correct statement, except that in our case, 
prior thereto, our policyholders had the right to vote for directors. 
They voted with the stockholders. That was a protection which we 
had which some other companies may not have had. 

Now, I want to say that our stockholders, having knowledge of the 
care with which life-insurance companies were supervised by insurance 
departments, had confidence in a management under law which would 
afford good protection to policyholders, that it would be a good thing 
to mutualize. 

The Chairman. May I interrupt, Mr. Gesell? You seem to draw 
a distinction, in response to Mr. Gesell's question, between fear of a 
condition which you both describe and recognition of it, the usual 
phrase. Just what did you have in mind in making that distinction? 

Mr. Ecker. There wasn't any situation that caused us to be 
frightened about it, but we did recognize that a situation like that 
could develop. 

_ The Chairman. What caused you to recognize that such a situa- 
tion could develop? 

Mr. Ecker. Nothing more than, as I have said, that the company 
was constantly growing in size and the funds were increasing, and 
then we had a capitalization of $2,000,000. 

The Chairman. Would it be a warranted conclusion that your 
recognition of the fact that the company was growing in size, that its 
assets and fimds were accumulating, as you have stated, led you to 
the conclusion that greater precaution should be thrown around the 
administration of these accumulated funds? 

Mr. Ecker. Purely in the interest of poHcyholders, to separate 
the interest of policyholders from stockholders. 

I was about to say our capital stock was $2,000,000. We had 
savings in the business far in excess of the dividend provision of 7 
percent on $2,000,000. 

The Chairman. In other words, you recognized that as the size 
of the company grew, greater care should be exercised in the interest 
of the policyholders. 

Mr. Ecker. Senator, that is true. For dividend requirements to 
stockholders we needed $140,000 a year. We have been pajdng in 
dividends to policyholders for the last 10 years an average of $100,000,- 
000. Those are the savings- that might correspond to profits on a 
corporation whose capital stock was $2,000,000. 

Mr. Douglas. Was it felt, Mr. Ecker, that it might help sell insur- 
ance to mutuahze, make the insurance contract a more attractive 
one to prospective purchasers? 

Mr. Ecker. If you ask me if I think so now, yes; but we were a 
stock company, our premium rates were low, and we were successfully 
meeting the competition of mutual companies at that time. 



1244 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Then I gather from your statement in answer to 
previous questions that you believe at least as far as large companies 
are concerned that a mutual company is far better than a stock 
company. 

Mr. EcKER. I think you must answer that with respect to the 
individual case. I feel that our company is managed in the interest 
of the policyholders, and that in our case mutualization has been a 
wise course to have followed. 

Mr. Douglas. What you are trying to say is that mutualization is 
no guarantee of wise, prudent management. 

Mr. EcKER. I agree to that. 

The Chairman. But you do agree that the greater the size, the 
more need there is for care in management. 

Mr. EcKER. That is my opinion with respect to our company, if I 
may restrict my answer to our own situation. 

Tlie Chairman. You wouldn't object if we generalize? 

Mr. Ecker.'I wouldn't. 

Mr. Gesell. At the time the company mutualized and the plan 
v/as presented to the policyholders on November 18, 1914, was it not 
stated that one of the advantages to be derived by the policyholders 
from the adoption of the plan mcluded the fact that it would place 
the absolute control of the management in the hands of the policy- 
holders? 

Mr. EcKER. That was a provision in law that doubtless was stated' 
at that time. There would also inure to the policyholder the benefit 
of his having contractual rights in the earnings of the company which 
he did not have m a stock company. 

Mr. Gesell. Yes; there were other advantages that were presented 
to the policyholders, but v/as not one of the advantages which was 
mentioned, and that which was mentioned first, the fact that the 
management of the company would be placed absolutely in the hands 
of the pohcyholders? 

Mr. EcKER. I would have to review the literature that was put out 
at the time, but I think that is quite a natural thing to have said. 

Mr. Gesell. I have the literature if you would like to look at it. 

Mr. EcKER. I don't question it. If you have the literature, of 
course I accept the record. 

Mr. Gesell. As your company has worked out and as it has gone 
on since that date, do you feel that the control of the managem.ent stUl 
hes absolutely in the hands of the policyholders? 

Mr. EcKER. It does under the provisions of the law, and I think 
that carries with it something more than the bare statement that the 
policyholder elects the directors. It is a relationship in which the 
company is supervised by State insurance departments, in our State 
headed by a very efficient man. The examination is required by law 
to be made every 3 years. It takes about a year and a half to make 
an examination of our company, and the result is that those examiners 
are with us about half the time. 

Mr. Gesell. Now, this y^lan of mutualization, Mr. Ecker, con- 
ceived that the policyholders, not the insurance department, would 
control the management of your company, isn't that correct? And 
I want to keep you to that point. 

Mr. EcKER. That is quite right, but I submit, sir, that it is some- 
thing more than the mere policyholder's vote. It is in connection 



CONCENTKATION OP ECONOMIC POWER ^245 

with these circumstances under which we are carefully supervised, 
under which if there were any abuse in the management of that 
company, it would come to the notice of the supervising officials, and 
that would make it public, and that would cause policyholders to act 
if they had any cause for being dissatisfied. 

Mr. Douglas. Is the State commission in charge of the election 
machinery? 

Mr. EcKER. It is. 

Mr. Gesell. Do I understand then your position to be that the 
policyholder has as his protection the State supervision of your 
company, more than the fact that he can through his franchise right 
vote for and control the company through his vote? 

Mr. EcKER. That is only incident to the fact that it would be 
difficult to mobilize by concerted and intelligent action, for the 
exercise of judgment, the many millions of policyholders wliich a 
company has — which we have, for example. 

The Chair^ian. Your position is the policj^holder exercises his 
right through a veto power rather than in management. 

Mr. Ecker. Yes; and definitel;^ if there were anything wrong. 

Now, another factor in the situation is the expression that we 
would have from policyholders if there v/ere any cause for complaint. 
We are meticulously attentive to all inquiries from policyholders. 
I don't believe we ever receive any letter that isn't answered, and that 
means a good deal in the daily task of the business. But most of our 
inquiries, practically all of them, relate to inquiries affecting their 
particular contract. I scarcely know of any compiamts made of 
the management of the company. If there were reasons for it, I am 
satisfied we would have many. 

That is one of the factors I have in mind when I say that the mutu- 
alization has been in the interest of the policyholders. 

Mr. Gesell. In considering the advantages of mutuality, is it 
true that a mutual company, the management of such a company, 
doesn't find itself torn between the interests of the policyholders on 
the one side and the proprietary interest of the principal stockholders 
on the other? 

Mr. Ecker, That could be said to be true, yes. 

Mr. Gesell. Is it not a point which your company has made 
frequently, in urging the advantages of mutuality as opposed to the 
advantages of the stock company? 

Mr. Ecker. I don't know that we have urged it in any case except 
the one time in our case when we were mutualizing our company. 

Mr. Gesell. Let me read you a paragraph from a letter of Air. 
Lincoln's dated November 1, 1937, addressed "To All Agents in the 
Metropolitan Territory." The fourth paragraph of the letter reads: 

Your company is not a stock corporation with shareholders whose interest in 
its gains or losses would affect its management in determining its policies. On 
the contrary, as each of you know, the company is a mutual company, composed 
of some 29,000,000 individuals, holding over 43 million contracts with the 
company. 

Does not that sentence indicate a feeling on the part of Mr. Lincoln, 
your associate, that the management of a stock company is placed 
in a dilemma by having to cater to the interests of the proprietary 
stockholders as weU as those of the policyholders? 



1246 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. You might draw that inference, but my impression is 
Mr. Lincoln was stating a case and not desiring to cast any reflections 
upon what might be the interests of the stockholders if there were 
stockholders. He was stating a situation that exists. 

Mr. Gesell. May I ask you then, very specifically, to state for the 
record the advantages which you consider to be inherent in the 
mutual plan, not with any elaboration of them but with a definite 
cataloging of those advantages so we ma;^ have them for the record. 

Mr, EcKER. Haven't I already stated it? 

Mri Gesell. My feeling is that I haven't learned it from you, 
Mr. licker. 

Mr. Ecker. I will attempt to do it again: that any savings in the 
business inure to the benefit of the policyholder. There are savings 
in the life-insurance business from only three sources: from mortality, 
from savings in 'expense and savings from interest. 

In a mutual company, as I have stated, at the end of the year the 
board of directors determine the part of the savings that should in 
their judgment be added to surplus. All of the remaining savings are 
distributed to the policyholders in the form of dividends. 

Mr. Gesell. Does that come down to the fact that a person havmg 
a policy in a mutual company gets cheaper insurance than a person 
who has a policy in a stock company? Is that what you are stating? 

Mr. Ecker. That may or may not be true, but I am stating that 
whatever he pays is the net cost of the insurance, that after paying 
the net cost of the business the savings are distributed, retaining only 
for addition to surplus such amount of the savings as in the judgment 
of the board of directors is wise as a contingency reserve. 

Mr. Gesell. Do the mutual companies sell cheaper insurance, Mr. 
Ecker? 

Mr. Ecker. That I am sure can only be determined by taking the 
premium rates for each company and then following through. 

Mr. Gesell. You have made no study to determine 

Mr. Ecker (interposing). May I finish? A pohcy, for example, 
might be cheaper in one company if it lasts 1-0 years, but if the 
policy lasts for 30 years it may be cheaper in some other company. 

Mr. Douglas. Is it your judgment, Mr. Ecker, that the cost of 
your policy is by and large cheaper than the cost of a stock policy? 

Mr. Ecker. Competition, I think, Mr. Douglas, compels the stock 
companies to come pretty close to meeting the cost of insurance issued 
by mutual companies. I don't believe it can be said — it cannot be 
stated by me as a definite proposition as applying to all companies. 

Mr. Gesell. Then if competition results in the net cost of insurance 
being approximately the same in the mutual and the stock companies, 
the first advantage which you have just cataloged is not one which is 
peculiar to the mutual companies, or that results at least in any 
benefit to the policj^holders. 

Mr. Ecker. I doubt if you can come to that conclusion. I am say- 
ing that in any event, whatever the savings are in a mutual company 
they belong to the policyholders. That isn't true with the stock com- 
pany. It may be that in competition it works out, so there is little 
difference. 

Mr, Douglas. In operation it may be merelj^ a theoretical advan- 
tage. 



CONCENTRATION OF ECONOMIC POWER 1247 

Mr. EcKER. It may be, but I am stating what the fact is with 
respect to the rights of the pohcyholder. 

Mr. Gesell. Then what is the next advantage which j^ou can add 
to this list? 

Mr. EcKER. That the poUcyholders elect the directors, and if there 
is any abuse that grows up in the management of the business, they 
have in their hands the abiUty to correct it by electing a different 
board of directors. 

Mr. Gesell. It is a fact that the policyholders own and control 
the company? 

Mr. EcKER. In the way I stated, the policyholders control the 
company. 

Mr. Gesell. Are there any other advantages? 

Mr. EcKE.R. Why, I don't think of any at the moment. 

Mr. Gesell. Then we have one advantage which you have men- 
tioned which may in practice not be an advantage at all, and we 
have the other very definite advantage that the policyholders control 
the management of the company. 

Mr. EcKER. I feel that the first aavantage is more real than you 
are indicating because all of the assets of every kind and nature in a 
mutual company are held for the benefit of the policyholders. In a 
stock company that isn't true. It may work out that the policy- 
holder is just as weU off, and I wouldn't say he isn't, but I am stating 
that difference. 

Mr. Gesell. It is a difference which may or may not be impor- 
tant, depending upon the quality of the management of the different 
companies and other extraneous factors. 

Mr. EcKER. I suppose that is so. 

Mr. Gesell. Can you tell me whether or not the agents of your 
company in selling insurance use that fact that the company is a 
mutual company as one of their selhng points? 

Mr. EcKER. I haven't any doubt they do, but there is an absolute 
direction to our field organization that there should never be any 
invidious comparisons between our company and any other. The 
policyholder may be influenced by the fact, and doubtless is, that ours 
is a very large company, influenced by that as an indication of solidity 
and strength. We will not countenance, an agent's making a com- 
parison unfavorable to any company that-is licensed to do business in 
the State. 

Mr. Gesell. That is, an agent can't go to Mr. Pohcyholder and 
say, "XYZ Company here is a stock company and they are no good, 
and we are a mutual company and we are all right." But isn't it a 
fact that the agency force of your company continually, in selling 
insurance, talks to the prospective policyholder about the fact that 
the company is mutual? 

Mr. EcKER. It is inevitable that in setting up the contracts which 
we have to offer the agent sliould state that it is a mutual company. 
That he actually goes out and points out to a prospect that- he is 
better to have come into a mutual company than a stock company, 
I doubt it. 

Mr. Gesell. That was what I wanted to know. Do your agents 
do that or don't thej^? 

Mr. EcKER. I don't know. 

124491— 39— pt. 4 -7 



1248 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Have you any policy with respect to that as far as 
your agents are concerned? 

Mr. EcKER. The pohcy that I told you of, sir. That is ail. 

Mr. Gesell. Are your agents instructed to talk to the prospective 
policyholder about the mutual nature of the company or are they 
not? 

Mr. EcKER. Specifically to represent the contracts of this company 
as better than any other because it is a mutual company? I would 
say they are not, because it is involved in what 1 have said, that we 
do not permit our agents to make unfavorable comparisons or cast 
reflections upon any other company. 

The Chairman. Is it your contention, Mr. Ecker, through the 
field force, to your prospective clients, that mutuality ir» a company is 
a~ great advantage over stock ownership? 

Mr. EcKER. I would say "no," but it seems to me that the agent 
in his canvassing — he is resourceful and I dare say he puts his best 
foot forward in selUng this contract. 

The Chairman. You testified some moments ago that the reason 
for the change from the stock ownership to the mutual plan, as I recall 
it, was that the accumulated assets and funds of the company were 
growing so great that it was decided, to be in the interest of the policy- 
holders to change to a mutual company in opder to avoid the danger 
of exploitation of these resources in the interest of those who are in 
charge of the management. 

Mr. Ecker. That was our situation, Senator. In connection with 
that, you notice I referred to how dividends have grown, that we 
have been distributing over and beyond the terms of the contract, in 
the form of dividends an average of $100,000,000 a year, and our total 
capitalization was two milhon. I think that is a fine exliibit in itself. 

The Chairman. Yes; you have paid $100,000,000 a year in divi- 
dends for each of the past 10 years, is that right? 

M.r. EcKER. I think it would average that. I haven't looked it 
up. I think that will come very close to it. We are paying 118 
million this year, paid over 100 in each of the last 2 years — I will have 
to go back and look at the figures. 

The Chairman. That is another phase of the inquir5^ What I am 
trying to deteimine now is 3'our point of view w^th respect to which 
system is preferable and why you think so, so I ask you the question, 
speaking out of your experience. Would you now recommend that the 
Metropolitan go back to a stock-ownership company, if that were 
possible? 

Mr. Ecker. I would not. 

The Chairman. And^hy not? 

Mr. Ecker. Because the mutuality with us has worked out so 
advantageously. W^e have grown rapidly. That has been referred 
to and is here in the record. I beheve that growth has come from our 
having a progressive management, from the whole conduct of our 
business being such as to win the confidence of the public. I don't 
think these things are accidental. I think the general reputation of the 
company has been such 

The Chairman (interposing). You say you don't ttiink they are 
accidental. By that do you mean that they are the result of mutuali- 
zation? 



CONCENTRATION OF ECONOMIC POWER J 249 

Mr. EcKER. They are the result of the management of this com- 
pany and- its reputation with the pubhc, not necessarily as a mutual 
company, but as it exists, and it has been a mutual company since 1915. 

The Chairman. Holding this conviction which you have just now- 
expressed, that mutualization has been of such great benefit to your 
policyholders 

Mr. EcKER (interposing). To ourselves. 

The Chairman. Yes; to your policyholders, do you or do you not 
hold that out to prospective clients as an argument for the purchase of 
insurance in the Metropolitan? 

Mr. EcKER. As far as \vritten instructions are concerned, no. What 
the men in the field may be saying, I don't know. We wouldn't 
object to it. I should say the only objection we would have would be if 
they make any invidious comparisons with other companies; that we 
would not allow. I dare say the agent in presenting his contracts pre- 
sents every feature of the contract of the Metropolitan that to liim 
seems desirable and under wliich the reputation of the company has 
been established, and under which we have grown to the extent that we 
have grown. 

Mr. Gesell. Now, you have referred to the fact that under the 
mutual plan your company has grown much larger. As a matter of 
fact, while you have been a responsible officer of the company, it has 
grown from about 176 million in assets to close to 5 billion in assets, 
has it not? 

Mr. Ecker. Four billion nine hundred forty-two million. 

Mr. Gesell. And your company is now the largest in" the world. 
Can you tell me whether this growth is, in your opinion, an advantage 
or a disadvantage to the policyholders? 

Mr. Ecker. I beUeve it to be an advantage. 

Mr. Gesell. Will you state very specifically why you consider it to 
be an advantage? 

Mr. Ecker. W^ithin limits the larger the volume of business the 
lower the percentage of overhead. The larger the volume of invest- 
ments the greater is the benefit through diversification. We get, 
because of our large volume of investments, an experience of average 
not unlike the experience in mortality. 

Mr. Douglas. From that, Mr. Ecker I judge you conclude there 
would be no legitimate ceiling on size. 

Mr. Ecker. There hasn't been any time when I thought that was a 
factor, because of changing conditions. I remember when $10,000 
was almost the limit that we felt our size would permit us to put in any 
one investment. I have seen that grow to where 10 million is only 
in the same proportion that the $10,000 was. This is a matter of 
increasing the size of your units, and it has gone along with the 
development of the country. In 1906, which you are speaking of, I was 
curious to see what the Government disbursements were that year, 
and I find $565,000,000; in 1937 it was $8,000,000,000. These figures 
have a relative bearing on the situation. 

Mr. Douglas. You mean then that your company's growth has 
been with the growth of the country and that, therefore, has been 
profitable. 

Mr. Ecker. Not necessarily with the growth of the country. With 
the growth of business and enterprise in the country. 



2250 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. E>o you feel there is any limit to the size to which the 
Metropolitan can grow safely in the interest of its policyholders? 

Mr. EcKER. I haven't fLxed in my mind any place at which it 
would be unsafe to continue. If our business goes on just as it is 
now, it doesn't seem to me it would make any difference. I believe 
that our pohcyholders are better protected now than they were 
when we had the 176 miUions of assets, and in the same way I beUeve 
we could continue to grow and furnish the same protection. 

The Chairman. Why are they better protected now, Mr. Ecker? 

Mr. Ecker. Because of this tremendous diversification. We have 
100,000 separate investments. It is humanly impossible for any 
individual to have that. There is no such thing as a riskless rate. 
I think Mr. Douglas will bear me out. You have the law of averages, 
and the wider your diversification, the more protection you have. 

The Chairman. My mind goes back to your original statement 
of the reason why you changed from a stock company to a mutual 
company. Thinking of that now, do you feel that it is an advantage 
to the pohcyholders and to the pubhc that you have the mutual plan 
in the light of this great size? 

Mr. Ecker. Yes; I think it has a bearing on that. If one could 
say that the dividends to stockholders should never change, get down 
to $140,000 a year 

The Chairman (interposing). How does the mutual plan give the 
policyholders better protection than the other? 

Mr. Ecker. From the stock standpoint, probably no better as 
long as there was no change in those conditions. 

The Chairman. You felt that under the old conditions there was 
a possibility, because of the size, that those who were in charge of the 
management, the stockholders, the owner, the proprietary interests, 
could use these vast assets for personal purposes rather than for the 
benefit of the pohcyholders. Now is there anything in the mutual 
system that prevents that very same thing now — and I ajn talking 
generally, Mr. Ecker, you understand. 

Mr. Ecker. I think what you are saying is a httle more of an 
inference than what I generally said, but nevertheless I regard it as 
true that there would be the interest of the stockholder there which 
would be of a different character than the interest of the pohcyholder, 
and whatever that interest of the stockholder might be, it is entirely 
eliminated fand [everything here is for the benefit of the policyholder, 
with no other interest involved. 

The Chairman. But now the mutual plan safeguards that interest, 
does it? 

Mr, Ecker. I beheve it does; yes, sir. 

The CfiAiRMAN. In what way? 

Mr. Ecker. In that if there is anything in the management that 
isn't entirely creditable, . that the policyholder through his right to" 
vote would change the administration. 

Mr. Gesell. It is in the franchise right of the policyholder then 
that the whole safety of the pohcyholder in a mutual company rests? 

Mr. Ecker. That is true except that I do feel you overlook the 
fact that the policyholder's right to vote is made available by reason 
of the supervision of the State authorities whose business it is, and 
whose carefulness in conducting their work is such that if there were 
any abuses that would bring it out. 



CONCENTRATION OF ECONOMIC POWER 1251 

Now, without the supervision, it is quite possible that the pohcy- 
holder couldn't have knowledge of his situation until it might be too 
late to repair it, but in conjunction with the supervision we have, I 
feel that the policholder's having this franchise right that you spe- k of 
affords him protection which he would not have in a stock company. 

The Chairman. And your statement to the committee that the 
supervision which is exercised by the various State authorities, and 
which you have described in the State of New York as consuming 
1)2 years out of every 3 years, is such as to prevent any abuse by man- 
agement. Is that your statement? 

Mr. EcKEE. It would be extremely difficult to have any abuse that 
would not appear in these examinations. 

The Chairman. Do these examinations go into matters of pohcy 
or merely to matters of auditing what has already been done? 

Mr. EcKER. I think they go to every feature of the control of the 
business. There have been times when the insurance department has 
been very definite in expressing its views in matters of pohcy, not only 
the conduct of daily transactions but of pohcy in the management of 
business. 

The Chairman. Can you give an example? 

Mr. Douglas. Do you refer to the character of the investments? 

Mr. EcKER. No; I wasn't speaking of any investments; they cover 
that as well. I was thinking of the policy of rfianagement. Well — 
the msurance department has quite some authority under the law with 
respect to the payment of dividends; they have authority under the 
law, or at any rate have assumed it in the question of management 
of the company as a whole, where, for instance, in one department 
at the direction of the superintendent of insurance certain practices 
were established that would. prevent waste or competition of a charac- 
ter that would lead to waste. 

Mr. Douglas. I suppose there might be included in that question 
valuation of the kind Mr. Howe was speaking about yesterday.^ 

Mr. EcKER. I didn't hear Mr. Howe yesterday. Valuation of 
policies? 

Mr. Douglas. Assets. 

Mr. EcKER. The insurance department makes our valuation of 
pohcies. They may value assets of course with respect to the desira- 
. bihty of the policy we have in force. 

The Chairman. I wonder, to go back to my question, if 5"ou recall 
a particular instance of changing policy at the direction of the super- 
vising authority of the State. 

Mr. EcKER. Not required by law? 

The Chairman. President Lincoln wants to make a suggestion. 

Mr. EcKER. Let me answer, then you tell me. He knows more 
about that detail than I do. By law we weren't required to put up 
a certain reserve in connection with group insurance. At the direc- 
tion of the department a different practice was developed that fur- 
nishes further protection to the policyholder, further than the law 
requires. The reserves for disabiUt;y^ benefits were increased by 
reason of the requirement of the insurance department. They 
directed that be done; it was not a requirement of the statute. 

Mr. Gesell. Perhaps we can get at this problem another way, 
which may be of some help. You had a question, Dr. Lubin? 

I Supra, p. 1198 et seq. 



1252 CONCENTRATION OF ECONOMIC POWER 

Dr. LuBiN. Mr. Ecker, are the stock companies sabject to the 
same supervision by the insurance commissioner as the mutual 
companies in the State of New York. 

Mr. Ecker. I understand they are. 

Dr. LuBiN. In other words, then, as far as the revelation of bad 
practices is concerned, the pohcyholder in the stock company has the 
same protection as the stockholder in the mutual company. 

Mr. Ecker. So far as publicity is concerned, yes; but he may not 
have the right to put out a board of directors and elect another board 
In the mutual company he has. 

Mr. Gesell. Well now, has this growth of your company been 
encouraged by the management of the company? 

Mr. Ecker. The growth of the business encouraged by the manage- 
ment? Yes; we have had a progressive management for years. 

Mr. Gesell. That was not my question, Mr. Ecker. The question 
was whether you had encouraged the growth of your company through 
the writing of new business. 

Mr. Ecker. I think I answered that. We have a very progressive 
management and have had it for years. 

Mr. Gesell. My question is not whether it is a progressive thing 
to do to get larger, but rather whether you have definitely encouraged, 
as part of your management policy, the writing of new business, year 
in and year out. 

Mr. Ecker. I don't see how you could take it out of the business. 
It is inherent in it. A man's compensation as an agent depends upon 
his writing. 

Mr. Gesell. And who fixes that compensation? 

Mr. Ecker. First of all it is fixed by section 97 of the law, under 
which you can't go beyond certain expenditures. 

Mr. Gesell. Does "section 97 say that you must pay a commission 
to a salesman for the amount of new business which he writes each 
day, each year, and each month? 

Mr. Ecker. If says that there is a limit there of what you might 
pay. 

Mr. Gesell. There is no mandatory provision in the New York 
law that you must pay a man for new business written? 

Mr. Ecker. There is no mandatory provision to make the payment, 
but there is a mandatory provision that you can't pay beyond the 
limits fixed by that provision of the law. 

Mr. Gesell. Isn't it a fact that your whole method of compensa- 
tion encourages the writing of new business? 

Mr. Ecker. Yes; that is inherent in the insurance bushiess. In- 
surance agents are paid on the basis of their production — a commis- 
sion on the premiums on the new business. 

The Chairman. To put it in another way, the management of the 
Metropohtan has never come to the conclusion that the company 
was large enough, and should stop growing? 

Mr. Ecker. It never has, Mr. Chairman, and that would result m 
our going out of business. You can't stand still. You either go 
forward or you go backward. You have an oi'ganization in the field 
who arc depending for a livelihood upon their writing of life insurance. 
If you tell them to stop writhig they will go to a company M-here they 
v.-iil get ])ai(l, and that whole organization will disintegrate, 

T]xo, Chmkman. So you naturally encourage the writing of more 
insurance. 



CONCENTRATION OF ECONOMIC POWER 1253 

Mr. EcKER. I tried to say it was inherent in the business, and I 
don't see how you can take it out of it. 

Mr. Douglas. And, Mr. Ecker, you have not adopted any poUcy 
of restricting the maximum amount of new business you will write in 
any one year, such as was recommended in the Hughes report? 

Mr. Ecker. There was a time when we were required by law to 
limit our business, and I have a recollection that in 2 years we had to 
stop writing business because we were so close to the limit that there 
was danger of violating the law, and I recall now that on one of those 
occasions we had to say, "We will take your application and issue it 
next year." It would have been unfortunate if there hadn't been a 
change in the law that permitted us to increase the amount of writmg. 

Mr. Douglas. But that ceiling in the law was taken off as respects 
new business? 

Mr. Ecker. It was taken off as it was planned in the beginning, 
that it would relate to the economy of conducting the business. As 
I understand, and I was there, the conclusion of the Armstrong com- 
mittee was that it was a question of expense, that in the desire to get 
business the companies were wasteful in the commissions they paid 
for writing new business, and those statutes were directed against 
stopping that wastefulness, 

Mr. Douglas. You don't think that condition exists today? 

Mr. Ecker. You mean that section 97 is too Kberal? 

Mr. Douglas. That that wastefulness, as you characterize it, no 
longer exists? 

Mr. Ecker. It is controlled definitely by the statute now. 

The Chairman. Mr. Ecker, in making these distributions of divi- 
dends to your policyholders, which you tell us have amounted to 
about $100,000,000 a year for the past 10 years, do you have a policy 
with respect to the proportion of the earnings which are to be 
distributed in dividends, a fixed poUcy? 

Mr. Ecker. No. 

The Chairman. How do you determine, each year, how do the 
directors determine each year, how much they are going to distribute 
in dividends? 

Mr. Ecker. Each year, when it is determined how much our sav- 
ings are and how much we have accumulated in what might be termed 
"profits," the Board determines, according to the general economic con- 
ditions, I would say, how much should be added to our surplus with 
respect to economic conditions, with respect to the size of the com- 
pany, and with respect to our obligations and liabilities under the 
policies outstanding. 

In other words, when 29 mOHons of dollars seemed ample surplus 
for 500 milhons of assets and 3 bilhons of insurance, 311 millions is 
relatively, in the judgment of the board, about the figure that it 
should be for the year v/ith insurance in force of 22 billions. 

The Chairman. I can see how you might come to that conclusion. 
What I am trying to find 

Mr. Ecker (interposing). Maybe I am answering it now. 

The Chairman. All right, sir. 

Mr. Ecker. Conditions obtaining at the time are very important. 
There are many factors that we take into consideration. We have 
been paying liividends for a good many years on a certain class of 
policies. Is it desirable to reduce those dividends, to reduce the 



1254 CONCENTRATION OF ECONOMIC POWER 

scale? It isn't possible to fix any proportion in the .way of a per- 
centage, because of these other factors that are involved. In one 
year, in the year 1937, we' actually reduced our surplus instead of 
adding to it. These other factors taken into consideration, the 
money we had in certain special reserves, viewing the picture as a 
whole, it seemed in the judgment of the board that we could that 
year make a distribution that didn't increase our surplus at all. 
There are many factors. 

The Chairman. Was that an unusual case? 

Mr. EcKER. That was quite an unusual case; yes. 

The Chairman. During the past 10 years could you' tell the com^ 
mittee approximately how much has been added to surplus, while 
you have been paying $100,000,000 a year? 

Mr. EcKER. Our surplus this last year was reported at $313,000,000. 
That includes our general voluntary reserve, which should be added 
to surplus. Now we go back to December 31, 1928, and our surplus 
was $160,000,000, so that we have added the difference between 160 
and 313. 

The Chairman. That is $153,000,000. 

Mr. EcKER. Yes. 

The Chairman. Now, if it were decided to put a ceihng to the 
growth of such a corporation, it could be done in one of two ways, 
could it not; first, by adopting a policy of not writing any more 
insurance, which you found an undesirable policy 

Mr. EcKER (interposing). Utterly tiestructive to the business. 

The Chairman. And which brought about the changing of the law; 
or you could adopt a policy whereby at a certain point there should 
be no more additions to surplus. That would be feasible and a prac- 
tical way. 

Mr. EcKER. It mig'ht be, but I think it would be a dangerous way, 
for example let us consider mortality experience. We usually run 
along with an ex-perience that doesn't vary materially from year to 
year in mortality. In the year 1918 the companies experierccd 
about 170 percent of normal mortality. We had a pandemic. We 
may never have it again, but the Lord only knows. In the matter 
of interest, which figures so largely in the question you now have in 
mind, our average rate was well over 5 percent. It is down, now, to 
well 

The Chairman (interposing). I have been tremendously interested 
in this original statement of yours, that because of the_accumulation 
of the assets and Ihe funds the managers of your company decided 
upon a certain change in the interest of policyholders. Now, if accu- 
mulation of assets and funds, namely, if the size of the corporation, 
prompted ^^ou years ago to change the policy of the company, the 
question that keeps repeating itself in my mind is whether, when com- 
panies have grown to such tremendous size as was described b.cre yes- 
terday and as you have described, there should not, for the srme 
reasons, be suggested similar remedies now, to protect the policy- 
holders and the public. 

Mr. EcKER. We have a ceiling with respect to surplus, that you 
spoke of, in the law. We are not allowed to have more than 10 per- 
cent surplus. 

The Chairman. And as your surplus grows, as you add $153,000,000 
in 10 years, that naturally multiplies itself. Money bege(s money; 



CONCENTRATION OF ECONOMIC POWER 1255 

we all Imow that. Accumulations cause new accumulations, and as 
accumulations take place they have an inevitable effect altogether 
independent of management or integrity or even abuses or violations 
of the law; they have an altogether direct effect upon public interest. 
We all know that from experience. 

Mr. EcKER. Without a question. 

Mr. Gesell. I have a line of questioning which I think will assist 
the committee on this problem. 

The Chairman. I apologize to the counsel for interrupting. 

Mr. Gesell. I would like to get some facts into the record that I 
think will be of assistance to you. 

Mr. EcKER. There is something that I would like to say with ref- 
erence to the operation of the companies under the Armstrong laws, 
and maybe you have many more questions to ask me, and I would 
like the privilege of keeping that in mind. 

Mr. Gesell. I want to ask you this question, Mr. Ecker. Does 
this acquisition of new business result in an immediate gain to your 
company? 

Mr. Ecker. You mean gain in assets? 

Mr. Gesell. I am always thinking of your company in terms of 
policyholders. Is it to the advantage of the policyholders when this 
acquisition of new business is made, as soon as it is on the books? 

Mr. Ecker. I believe policyholders have been influenced by the 
size and strength of the company, so that it is a rather intangible 
benefit to them. 

The immediate improvement in the financial part of the business 
is on the negative side. It costs money to put new business on the 
books on account of the reserves set up. That is rapidly made up 
as the business stays. 

Mr. Gesell. Now, let's see about that. Isn't it a fact that, taken 
as a whole, the new business issued b}^ the Tvletropolitan results in an 
initial loss to the company? That is to say, does not the sum of the 
expenses incurred on such new issues during the first policy year 

Mr. Ecker (interposing). Exceed the premium. 

Mr. Gesel^l. The claims incurred on such business and all other 
expenses, exceed the gross premium? 

Mr. Ecker. I have said so; I have said that it did. 

Mr. Gesell. Now is it only for the first year or isn't it a fact that 
the business must have been on the books quite a while? 

Mr. Ecker. It depends on the form of contract. The actuary 
would make that exhibit for you and he would show you in some classes 
of policies it may be some time before the experience of the issue of 
that year is out of the red, as it were. Some other form of policy 
may get into the black the next 3'^ear. 

Mr. Gesell. Taking first your industrial department, I have here 
some figures contained on page 47 of the Report of the State of New 
York Insurance Department, which would indicate that there is a 
loss in the first year, taken as of Decem.ber 31, 1936, of some 233 
percent of the reserves. 

iVlr. Ecker. I haven't those figures, but I would accept them, of 
course. 

Mr. Gesell. And tliat in some types of weekly premium business 
almost 4 years elapse before that loss is made up? 

Mr. Ecker. That may be. 



1256 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And then in your ordinary department iliere are some 
types of 3>2 percent business which I think takes 6 years before that 
cost is made up. 

Mr. EcKER. Our insurance exhibits are accurate in that respect, yes. 

Mr. Gesell. I woukl hke an opportunity to elaborate on tliis. 

Mr. EcKER. Very well, p;o ahead. 

Mr. Gesell. If you take, then, any group of persons who become 
policyholders in the company at the san^e time, is it not a fact that 
that group of policyholders who lapse their policy before that entire 
loss incurred by the class of which he was a member has been fully 
Hquidated has not borne his respective share of the loss contributed by 
the class of which he was a member? 

Mr. EcKER. May I ask that the question be repeated? 

(The question was read.) 

Mr. EcKER. I would like the actuary to answer that. He is here. 
The answer is no. 

Mr. Gesell. It isn't a question of reserves at all. 

Mr. EcKER. Yes, it is; but when he surrenders his policy, you 
asked me if he had suffered some loss because there has been a charge 
made to put that business on the books. 

Mr. Gesell. No; I am talking about the company. ^Miat happens 
is that you take money out of surplus to build up a rfeserve which is 
required against that business. As a result the company has lost 
money, has it not? 

Mr. EcKER. Now, listen, if it were true that every dollar of insur- 
ance that was written was written with that in mind there wouldn't be 
any written, there couldn't be; it is all involved in whether the insti- 
tution of insurance is a service and whether we shall continue to per- 
form that service. It isn't possible to write insurance without any 
expense of acquisition, and if you proceed on the theory that no 
expense should be incurred in writing new business you would never 
write any, you wouldn't have any policyholders, there wouldn't b^ 
any in this dass that the examiner is asking about. Isn't that true? 

Mr. Douglas. I don't think, Mr. Ecker, that the line of questioning 
here is designed to attack the fundamentals of insurance. It is 
merely to get at the facts as to who bears the cost in case of lapses. 

Mr. Ecker. It is appurent that the first year's business costs more 
to put on the books than is received in the premium. If that is the 
question there isn't any doubt about it. 

The Chairman. T think perhaps the witness is disturbed by the 
inference which might possibly be drawn from the word "loss" and I 
don't believe that the examiner intends it in the manner in which the 
witness makes the inference. 

Mr. Gesell. I do mean to state that in the acquisition of new 
business there is a definite and irretrievable and absolute loss to the 
policyholders who were in the business before that new business was 
written. 

Mr. Ecker. It is not irretrievable, because you have just said that 
it is made up in subsequent years of that experience with that business. 

The Chairman. If I were to say that new business is written at an 
expense you would not object to that statement. 

Mr. Ecker. No; I have stated it costs more. 

The Chairman. In other words, you don't make a profit for the 
policyholders and the company from the very moment that new busi- 
ness is written. 



CONCENTRATION OF ECONOMIC POWER 1257 

Mr. EcKER. That is correct. 

The Chairman. And in the sense that it is an expense it is a loss. 

Mr. EcKER. It is an acquisition expense that is inherent in the 
business. 

The Chairman. But it may be recovered later on. 

Mr. EcKER. It is an expense actually recovered later on. 

Mr. Arnold. May I clarify this in my own mind? Without 
regard to the general policies of the insurance business, but confining 
ourselves to this particular question, is it correct to say that the exist- 
ing policyholders would gain if no new business were written? 

Mr. EcKER. Are you asking me if we stop writing business 

Mr. Arnold (interposing). I am not asking you anything about 
whether it should be your policy to write new business or whether 
the country needs new business. Leaving those aside for the moment, 
is it a fact that the existing policyholders in a company would gain 
if no new business were written? 

Mr. EcKER. If from heaven or some other place all the expense of 
conducting a business and looking after the affairs were provided, or 
provided in some manner or other, 3'^es. 

Mr. Arnold. That is provided by reserve. 

Mr. EcKER. But always temporarily, sir. Take this question you 
are speaking of. If a man lapses his policy in the first year it would be 
just against the reserves that have been put up. That is why that 
business costs us money. We get the money in the premium but we are 
required by law to set up a reserve for which the premium has pro- 
vided. If he lapses immediately he doesn't get that reserve. Isn't 
that right? [Turning to Mr.' Bassford, the actuary.} So there 
hasn'trbeen any loss in that respect to the existing policyholders. 

Mr. Gesell. That man has gotten his insurance for the period 
before he drops out of the company at a cost less than he would have 
gotten it otherwise, and the difference is made up by money taken 
from the policyholders who are already in the business. 

Mr. EcKER. I think that is only true in the respect of our having 
to put up the reserve. If the reserve wasn't put up against his insur- 
ance, there would be no transaction in red on our books. 

Mr. Gesell. With respect to this matter, Mr. Ecker, is there sonie- 
one on the staff of your company who can prepare us a schedule with 
respect to these matters and present it to us? 

Mr. Ecker. Yes; specifically if you will give us what you want 
we can do it, but I think the committee would be interested in this 
part of the Armstrong report to which you have referred. 

The committee believes that the following is a proper standard for reasonable 
and profitable expenditure for new business, viz: That the expense of new business 
should not exceed the loading on first year's premiums plus the present value of 
the mortality savings on a conservative basis for 5 years after admission. These 
two items arise directly from the new business. Were there no new business, 
neither the loading on new premiums nor these mortality gains would be realized. 
It costs the other policyholders nothing to permit them to be used in this way, 
and if the cost of new business is kept within these limits, both old and new policy- 
holders are the gainers. 

I hadn't read that, but that is definitely an opinion expressed with 
the thought that I had in mind. 

Mr. Douglas. At the same time that committee did give certain 
recommendations for a ceiling on new business per year, did it not? 

Mr. Ecker. They did, but promptly changed it as conditions 



1258 CONCENTRATION OF ECONOMIC POWER 

changed, and as a matter of fact Mr. Hughes, Governor Hughes, or 
Judge Hughes, who drew those statutes in the beginning, was then 
Governor and signed the bill that amended it. However, it was 
followed through by the same thoughtful intelligence that proposed it. 

Mr. Arnold. To clarify my 

Mr. EcKER (interposing), t wonder whether it would be appropri- 
ate at this point to call your attention to what Judge Hughes said 
about this, following 20 years later. I don't Imow whether your 
attention has been called to this, but he made an address before the 
Association of Life Insurance Presidents, the very opening sentence 
of which was: 

In appearing before you today, it seems to me like the fulfillment of a dream 
and the justification of a faith of twenty years ago. 

Some of the things that we have been discussing are in this at some 
length. Would it bore you if I were to just read a sentence or two? 

The Chairman. I assure you Judge Hughes never bores. 

Mr. EcKER. I mean would I bore you. 

Dr. LuBiN. May I ask the date of that? 

Air. Chairman. Please give the date. 

Mr. EcKER. December 9, 1926, 20 years after he drew these 
statutes. I have quoted his opening remarks. 

The Chairman. A little over 12 years ago. 

Mr. EcKER. Yes; but he says: 

But the lesson taught by your success is that cooperation must have expert 
direction. It is well that policyholders should have the opportunity to correct im- 
proper management, and their power though latent must Idc real; they must have 
the final control. But if thej^ undertook to manage affairs directly, they would 
make a mess of it. How to obtain the safeguard of ultimate control by those 
whose interests are at stake, and the continuitj' and efficiency of expert manage- 
ment, without the intrusions and insincerities of politics or the fantasies of 
dreamers, that is the great problem. It has been solved to a gratifying degree 
in your case. It could not have been so successfully solved if respect for the 
fiduciary obligation of officers and directors had not been maintained. The 
members of your companies are so numerous, so scattered, so helpless individually, 
that while the insurance company is not technically a trustee it is practically the 
highest form of trusteeship. You represent trust and service. The vast ac- 
cumulations in your care, and your reports as to your dealings with them, testify 
to trust protected and service performed, and what higher satisfaction can there 
be than the consciousness of that? 

There is more of the same thing, but this likewise bears on it. 

From the millions of policyholders you would get strong criticism if you were 
remiss, but you are also assured of powerful support against mischievous assaults 
upon management which they recognize to be conducted in their interest. We 
have a fortunate balance, mutual undertakings under competent direction, with 
confidence in the integrity of management and a wholesome public supervision 
which is now as little menaced by political interference as any great public under- 
taking in democracy can well hope to be. 

The Chairman. Mr. Ecker, that is tremendously interesting, and 
I am sure we all are moved by the same idea. As a matter of fact, 
as T listened to you read what Justice Hughes had to say about the 
mutual undertaking and the desirability of competent management 
and the desirability of building up confidence in that management, 
his disci'ssion about the great number of persons involved, how they 
are scattered all over the coimtry, and how they are helpless, if I 
remember the word which you just read, I am moved to draw the 
comparison between what he v/as talking about and what this com- 
mittee is trying to do. The Metropolitan Insurance Co. changed its 
form because as its size grew and the policyholders grew aiul the 



CONCENTRATION OF ECONOMIC POWER 1259 

accumulations grew it came to the conclusion that in the interest of 
those policyholders, who were numerous and scattered and helpless, 
some new policy had to be evolved. Now we are impressed with the 
fact that the population of the United States, numerous and scattered 
and helpless, under the present management not of insurance com- 
panies alone, but of all business and of all industry and of Govern- 
ment also, need concentrated attention of patriotic citizens to develop 
the same sort of a cure in this larger field which was developed as a 
result of the insurance investigation of 1906. 

Mr. EcKER. Well, we have been very cooperative. I believe, ex- 
pressing a personal opinioii, that extreme publicity is one of thp great 
cures, or preventions, rather, for abuses in a business, and our business 
is a fine example of that. Every transaction of ours is put before the 
public, as it were, in our reports to the insurance departments. We 
have a volume of printed pages of some three hundred pages that 
contains information about the transactions of the company, and 
then we have this examination, and extreme publicity is given to all 
of the affairs of the hfe insurance business. If that were true of every 
industry in the country I believe there wouldn't be an opportunity 
for any abuses. 

The Chairman. Since you approve of publicity, then, of course, 
you are giving your benediction to this inquiry. 

Mr. EcKER. I am cooperating with it in every -y^^ay possible. There 
has been no resistance on my part or on the part of anybody connected 
with the Metropolitan. 

The Chairman. Chairman Douglas made that statement at the 
opening, and he assured me all through the inquiry that the officers 
not only of the Metropolitan but of all the insurance companies were 
cooperating in a very satisfactory manner. 

Mr. Gesell. Now let's get back to the subject of size. 

Mr. EcKER. It is a large subject. 

Mr. Gesell, You are familiar with Best's Life Insurance Reports, 
are you not? 

Mr. EcKER. Oh, yes. 

Mr. Gesell. Are you familiar with the computations which those 
reports make of the expense ratios of total insurance expense per 
$1,000 of insurance written and paid for? 

Mr. EcKER. Not in the sense that I would like to discuss it; no. 
It is only in a general way I have loiowledge of it. I would be glad 
to have our actuaries deal with that question. 

Mr. Gesell. Best's Life Insurance Reports are recognized by the 
industry as a source to refer to for all kinds of pertinent information 
are they not? 

Mr. EcKER. I understand on some points they are not. 

Mr. Gesell. Are they or aren't the}^ on the question of expense ratios? 

Mr. EcKER. I understand they are not. 

Mr. Gesell. Has anyone else ever made a study of expense ratios 
other than the Best Life Insurance Reports that you know of? 

Mr. EcKER. I don't know of any. 

Mr. Gesell. And isn't it a fact- that in the preparation of these 
expense ratios with respect to your company, your actuaries and 
other employees of the Metropolitan are in constant consultation with 
officials of Best, and efforts are being made to work out ratios which 
properly take into account difTerent types and different forms of 
insurance Avritten? 



1260 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. My actuary is here, and he says no. 

Mr. John L. O'Brian. Mr. Gesell, we will be very glad to place our 
actuaries at your disposal for questioning on this subject, with which 
they are entirely familiar. 

Mr. Gesell. Do I understand that Mr. Ecker is not familiar with 
the question of whether expense ratio on a thousand dollars of insur- 
ance has risen or declined in the last few years? 

Mr. Ecker. Beyond the fact that I know they are there, I am not. 
Nor am I acquainted with these computations in our office and the 
attempts on the part of Best to get from us any confirmations of the 
figures that lie uses, but our actuaries are here and they would answer 
that. 

Mr. Gesell. Let me ask you this question. Has your company 
ever made a study to determine whether the expenses are rising or 
declining with respect to the writing of $1,000 of insurance, the 
carrying of $1,000? 

Mr. Ecker. The actuary is here. We have made studies? 

Mr. H. R. Bassford. We continually make studies. 

Mr. Ecker. From day to day. It wouldn't be otherwise. It 
isn't a question of making studies; it is a question of experience and 
the record of the busmess. 

The Chairman. Mr. Actuary, you were about to make a remark. 

Mr. Bassford. I was remarking that we have criticized the very 
figure that he is quoting from Best's analysis because it is not a fair 
statement of expenses, a fair comparison of expenses. 

Mr. Gesell. I haven't quoted any expense ratio for the record.. 
I was trying to find out. 

Mr. Bassford. You quoted a method. 

Mr. Gesell. He should be sworn, Mr. Chairman, if he is going to 
testify. 

The Chairman. Let me say that everybody here is tremendously 
interested and it is only natural that there should be this intervention 
from time to time. 

Mr. O'Brian. I think the lawyer started it. 

Mr. Gesell. Mr. Ecker, have you made any studies of this problem 
of expense within your own company? 

Mr. Ecker. I think Mr. Bassford answered the question to the 
extent to wliich we have made a study of expense. I say we must 
necessarily in the record of experience .of the business know of the 
expense. 

Mr. Gesell. Let me put it this way. As chairman of the board of 
directors of the Metropolitan Life Insurance Co., are you not in a 
position to tell me now whether it has been advantageous or dis- 
advantageous from the point of view of expense for your company to 
grow in size? I think that is a fair question and doesn't need the 
actuarial assistance. 

Mr. Ecker. I would refer the question to the actuary, however, 
because it should be supported by actuarial calculations. 

Mr. Gesell. Is tliis matter of growth of your company and the 
writing of new business a matter of pohcy determined by the board 
of directors of the company as the representatives of the policyholders? 

Mr. Ecker. Yes, buty- — 

Mr. Gesell (interposing). Have you considered the question of 
expense in your board mectnig? 



CONCENTRATION OF ECONOMIC POWER 1261 

Mr. EcKER. Why, we must inevitably consider it. We review all 
the matters that come before the board wliich are matters of policy. 

Mr. Gesell. Do j^ou recall the consideration that you had with 
respect to the matter of expense in the figures you had before you? 

Mr. EcKER. If you are asking of a specific instance, no; but it is all 
involved in the policy of the company, and that is the only way that 
I can answer that question. Are we going to continue in business, or 
are we going out of business? There are certain expenses that are 
inherent in the life insurance business, to which we have referred and 
I understand you agreed, and if we say that we can't incur those 
expenses that means we stop writing insurance, so that the pohcy of 
the company to continue its existence, to continue the prosecution of 
its business, it seems to me, is the answer to your question. 

Mr. Gesell. No; my question is whether the board of directors of 
the Metropolitan, since you have been a member of that board, has 
ever considered tliis question of expense and determined the amount of 
new insurance which should be written as a matter of company policy. 

Mr. EcKER. Only with respect, as I have stated, to whether we will 
continue to wTite insurance or not. 

Mr. Gesell. It is just will you or won't you, and not a matter of 
degree or amount. 

Mr. EcKER.. I can make no other answer than that wluch I have 
intended to give, which is that there has never been a time when the 
board of directors has considered it was desirable to stop writing 
business. 

Mr. Gesell. Have you any figures with respect to that question 
in your head? Is that problem one the board has been consideling 
even informally? 

Mr. EcKER. I have no figures in my head. I would ask the actuary 
for figures. 

Mr. Douglas. Have specific figures on this point been presented to 
the board from t me to time? 

Mr. EcKER. Presented in the summing up of the business of the 
year, and the recommendations of the actuaries with respect to the 
distribution of savings. All of these formulas are presented to the 
board which makes the picturer-of the company's conditions and situ- 
ation, but if you say, has something in Best's report compared with 
the expenses of our company and other companies been presented to 
the board, no. 

The Chairman. I understand you to say, Mr. Ecker, that the board 
of directors has never come to the conclusion that new business should 
not be written, and that you have never discussed that possibility of 
ceasing to write new insurance, is that correct? 

Mr. Ecker. Except by the inference that we are going on doing 
business upon the state of facts presented to the board in our annual 
statement. 

The Chairman. So you have not, as I understand you, in the board 
of directors considered this specific question of the ratio of cost? 

Mr. Ecker. As to whether we should continue writing business or 
discontinue it, in that respect, no. 

Mr. Gesell. Also as to the amount of new business you should 
write. Assuming you must write some new business to make up for 
the business you lose, it is still a question of degree, is it not, as to 
how much you should write and the types of insuttuK r you should 
write? 



1262 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. That would be reflected in the reports to the board, 
where if it transpires it is costing too much money to do this business, 
then the question comes up, shall we continue it, much as a manu- 
facturer would do if when his cost sheets were presented to him, he 
saw it was costing too much to manufacture one line of goods and 
he had to consider whether he should stop it. 

Mr. Gesell. Have those questions been presented to the board, 
and in what form and what kind of reports, and when? 

Mr. EcKER. The reports to the Board are the reports of the business 
as a whole. The management, which includes all officers of the com- 
pany, are studying every phase of the business all thoi time. They 
bring before the board their recommendations and that constitutes 
board action. There is no part of the conduct of our business that is 
concealed from, the board. 

You are asking questions there that must be regarded by the board 
of directors as having to do with algebraic or arithmetical, technical, 
features of the business, in which they must rely on the actuaries. If 
an actuarial formula was presented to me in algebraic form, I frankly 
couldn't follow it, but I can follow what my actuary tells me are the 
conclusions based on that formula. 

Mr. Gesell. Have you had conclusions of your actuaries telling 
you that you should write as much business as you can, every year, 
year in and year out, and how have those conclusions been expressed? 

Mr, Ecker. We haven't had them; there has been no occasion for 
them. It is a question for the business as a whole. We have from 
our actuaries the results of the operations in the various classifications 
of our business, and there has been very careful consideration given 
to how this business is growing, whether we are getting out of what 
I term the red, when we may expect this particular class of business 
to be in the black. Those are questions which the actuary brings 
to management and they are carefully discussed, and where there is 
a recommendation for change it goes to the board. 

Mr. Gesell. Mr, Chairman, may we request the Metropolitan 
officials to produce at some convenient time to them such studies 
as have been made with respect to this question of expense? I 
would like to hold out of the record these Best expense ratios until 
we have in hand such studies as the Metropolitan has, so it would 
be a matter of fair comparison and consideration for the committee. 

The Chairman. Of course, your request is rather broad, Mr. 
Gesell. 

Mr, Gesell. We will be glad to have our men sit down with 
representatives of the company and work out the matter in memoran- 
dum form. 

The Chairman. Mr. Ecker, you have heard the request of the 
examiner for the Securities and Exchange Commission. 

Mr. Ecker. I think we would hesitate to compare ours with other 
companies. We have never done it. 

The Chairman. That I don't think is the point, 

Mr. Gesell. No; comparisons within the company itself. 

The Chairman. The question is, will you detail 

Mr. Ecker (interposing). Anything we can do in cooperating with 
this committee, we will do. 

The Chairman. If you will be good enough to detail one of your 
actuaries to meet with some person to be designated by Chairman 
Douglas, I think this matter can be pursued. 



CONCENTRATION OF ECOXOxMIC POWER 1263 

Mr. Ji^cKER. We will continue the same cooperation, Mr. Douglas, 
in tliis direction as we have in every other. 

Air. Gesell. I am interested in tliis problem from another point 
of view, Mr. Ecker. You said you invest each year about sometliing 
over $700,000,000. Is that easier to invest than, say, $300,000,000 
a year, or harder to invest? Does it create any new problem to your 
company in terms of management and in terms of policyholders? 

Mr. Ecker. It hasn't up to the present time. I say it is a question 
of increasing the units. Where $10,000 was the limit at one time, in^ 
the same proportion $1,000,000 might be the limit today. 

Mr. Douglas. That is, it doesn't stretch a management's ability 
to choose and select investments of the type that companies like you 
are entitled to invest in? 

Mr. Ecker. I think it is taken care of in my statement of increasing 
the units. There is a limited field of investment for life insurance 
funds, bilt where it is a question of the proportion or relation it bears 
to our requirements, all of our investments that are in our portfolio 
are selected with respect to our requirements: Long-term, short-term, 
and even the cash itself. There are times when we need more cash 
than others. There are times that are so uncertain that our cash 
balances are running much higher than they would if everything were 
smooth saiUng. 

Mr. Douglas. That would run on the average a little less than $2,- 
000,000 a day to invest? 

Mr. Ecker. I think we invest about that. Of course, in that total 
investment are included poHcy loans, and I don't know just what the 
figure would be if we took out policy loans. 

Mr. Douglas. Would it bring it down substantially? 

Mr. Ecker. Of course, our poKcy loans accoimt for about 
$50,000,000 a year. 

Mr. Douglas. So it wouldn't aflfect the total per-day figure? 

Mr. Ecker. Not materially; no. I would say we are investing on 
the average of $2,000,000. 

Mr. Douglas. But as the money to invest each day increases, it; 
does tax the capacity of any management, does it not? 

Mr. Ecker. I don't know that I could agree to that. If you had 
10 opportunities for investment in whicn the size of the company 
hmited the appropriate amount, we will*.ay, to $100,000, that would 
invest $1,000,000. Now, if your company was about 5 times as big, 
you could invest $500,000 in each instead of $100,000. It isn't always 
available, so you don't say that is the rule, that you take $500,000 
instead of $100,000, but you do take the larger amount opportunity 
offers. It levels out to something Uke a relationship toward the 
amount you have to invest with respect to investment requirements. 

Mr. Douglas. So the problem of size as it is reflected in the amount 
per day to invest is not a troublesome one? 

Mr. Ecker. It hasn't got to the point where it is troublesome, no. 
Investments are not available at satisfactory rates of interest.^ We 
are forced to take a lower rate, but that is the market condition. 
That has no relation to the amount; it is the economic condition. 

The Chairman. Gould you ^ay what the average single investment 
was in 1919 as compared with the average investment now, the 
average amount? 

124491— 39— pt. 4 8 



1264 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. It would be a pure guess. 

The Chairman. You have never made any computation of that? 

Mr. EcKER. No, sir. 

The Chairman. Do you think there has been quite a growth in 
the average? 

Mr. EcKER. Oh, yes; we take 40 millions in one investment now 
which we wouldn't think of taking at that time. 

The Chairman. In other words, the units with which you deal 
have been growing with the growth of the country, and there is natur- 
ally a demand for larger loans than there was 30 years ago. 

Mr. EcKER. That is true; and then the other feature, that we 
have grown. so that where $100,000 would be a proper amount in our 
portfolio 20 years ago, now it might be a million. You see, it is in 
proportion to 5,000,000 or 500,000,000 or 1,000,000,000. 

The Chairman. But stni it isn't like increasing — to invest 
$2,000,000 a day is not like investing $200,000 a day, so far as the 
care and burden of the person charged with the responsibihty is 
concerned. 

Mr. EcKER. Surprising as it might seem, I mean to say it is. There 
isn't any difference; we are as careful, as meticulous in investing 
200,000 as in 2,000,000. 

The Chairman. I am not talking about that. I am talking about 
the burden and responsibility of the management. 

Mr. EcKER. It is a question of taking 10 times as much in the 
investment. 

Mr. Douglas. And it is a question of management of 10 times as 
much in the portfolio, because your problem doesn't end with making 
the investment. 

Mr. EcKER. But that doesn't involve any more; $100,000 would 
exercise no more care or no less care than a million. 

Mr. Patterson. How about diversification? 

Mr. EcKER. The diversification is determined by what is avail- 
able, and I would say the field of investment for life-insurance funds 
is limited. It isn't expanding, but rather it is contracting. 

Mr. Patterson. How about the diversification in 1906 versus 
today? 

Mr; EcKER. I would say there was today a larger field than there 
was in 1906, not in character but in amount. 

Mr. Patterson. Undoubtedly there is a larger field today, but 
is your diversification larger or greater than it was then? 

Mr. EcKER. I rather think it is; yes. 

Mr, Gesell. Would you say that you have made no investments 
because of this additional amount that you had to invest, that you 
wouldn't have made if you had had a smaller amount of money? 
I am not talking about the size of the investment now, I am talking 
about the investment itself. 

Mr. EcKER. If I understand your question correctly, you mean 
that we have not purchased by reason of the amount of money a 
security which we would not have purchased if we had a lesser amount. 
Is that what you are asking? 

Mr. Gesell. That is right. 

The Chairman. The committee will stand in recess until 10 o'clock 
tomorrow morning 

(Whereupon, at 12:35 p. m., a recess was taken until Wednesday, 
February 8, 1939, at 10 a. m.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



WEDNESDAY, FEBRUARY 8, 1939 

United' States Senate, 
Temporary National Economic Committee, 

Washwgtun, D C. 
The committee met at 10:10 a. m., pursuant to adjournment on 
Tuesday, February 7, 1939. in the Caucus Room, Senate Office Build- 
ing," Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman), and King; Messrs. 
Henderson, Arnold, Douglas, Ferguson, Peoples, and PattersoD; 
Representative Reece. 

Present also: Mr. Gerhard Gesell, Special Counsel, Securities and 
Exchange Commission. 

selection and attendance of directors in metropolitan life 
insurance company 

The Chairman. The committee will please come to order. Mr. 
Gesell, are you ready to proceed? 

Mr, Gesell. I am. I would like to offer certain material for the 
record at the opening of the hearing today. First, an advertisement 
of the MetropoUtan Life Insurance Co. which advertises the fact that 
it is a mutual company, and which I think wiU be of value on the 
record. 

The Chairman. How do you identify it? 

Mr. G-ESELL. I can through Mr. Ecker, if you wish 

Senator King. Is there any controversy?? 

Mr. O'Brian. There is no controversy as to the. authenticity of 
any of it. 

Senator King. If there is no controversy as to whether it is a mutual 
company what is the necessity of cluttering up the record by put- 
ting in an advertisement that it is a mutual company? 

Mr. Gesell. We had some discussion yesterday with respect co 
the advertisement o^ the mutual nature of the company_. 

The Chairman. Without objection ihe exhibit may he admitted. 

(The advertisement referred to was marked "Exliibit No. 231" and 
is included in the appendix facing p. 1522.) 

Mr. Gesell. Since v;e are going to be considering on several occa- 
sions during this week the manner in which directors of companies 
operating in New York are elected, I think it would be well to have 
the record include a copy of section 91 of the New York insurance 
law, which establishes the provisions for the election of directors in 
mutual companies. I wish to offer this for the record. 

1265 



1266 CONCENTRATION OF ECONOMIC POWER 

Senator King. That is the entire act? 

Mr. Gesell; That is the section relating to the election of directors 
only. It is not the entire act. 

The Chairman. Without objection the exhibit may be admitted. 

(Section 94 of the New York insurance law referred to was marked 
"Exhibit No. 232" and is included in the appendix on p. 1522.) 

Mr. Gesell. I would also like to offer for the record a list of the 
directors of the Metropolitan Life Insurance Co. I would like to 
show it to Mr. Ecker first to be sure it is accurate. 

Mr. Ecker. Without comparing it with the list, I would say it is 
right. 

Mr. Gesell. If there are any corrections 

The Chairman (interposing). You are satisfied it is a correct list? 

Mr. Gesell. Yes, I am. 

The Chairman. If there should be any error of any kind it will be 
corrected. 

Mr. Douglas. I think, Mr. Chairman, that we might have a 
standing agreement as respects these exhibits all being put into evi- 
dence subject to correction by the other party if errors should later 
appear. 

The Chairman. Very well, it may be so understood. 

(The list referred to was marked "Exhibit No. 233" and is included 
in the appendix on p. 1526.) 

Mr. Gesell. From information submitted to us by the company 
from Mr. Lincoln, the president, we have prepared a schedule showing 
the business affiliations of the directors of the Metropolitan, whose 
names are contained on that previous exhibit. I would like to offer 
this schedule of their other business affiliations for the record. 

The Chairman. Has Mr. Lincoln seen that? 

Mr. Gesell. He has not. He has provided the information with 
which it has been prepared. 

The Chairman. With the same understanding, that it is subject to 
correction or amendment, it may be received. 

(The schedule referred to was marked "Exhibit No. 234" and is 
included in the appendix, on p. 1526.) 

Mr. Gesell. I might point out that that schedule indicates among 
other things that the present board of di^ectoi-s of the Metropolitan 
are affiliated as directors with 14 bank and trust companies, with 13 
industrial companies, with 3 life insurance companies, with 1 accident 
company, with 1 surety company, with 9 fi^e insurance companies, 
with 1 casualty insurance company, with 2 mercantile companies, 
with 2 oil companies, with 4 publishinsr companies, 8 real estate 
ventures, 10 railroads, 1 steamship company, and 18 utilities. 

I would also like to Offer for the record, subject to the same qualifi- 
cation, a schedule showing the number of di'-ecitors of the Metropolitan 
attending each meeting: of the board of directors held from the period 
from 1929 to 1938. This schedule has be^n prepared from the actual 
attendance records submitted to us by the company and is' offered 
subject to check. During that period, this analysis reflects that 
there were a total of 125 meetings, 12 or 13 meetings a year, and that 
the average attendance at those meetings was 15 out of a board of 
24 or 25, as the case happened to be. The number of meetings 
attended by 20 directors, which was the greatest number ever attended, 
was 2, and the schedule shows various details with respect to this 
matter. 



CONCENTRATION OF ECONOMIC POWER 1267 

Mr, EcKER. Mr. Chairman, I noticed that the examiner referred 
to our directors being affiliated with these various other industries. 
I suppose j^ou mean directly or indirectly. You do not mean by 
aflBliated that they had important interests. 

Mr. Gesell. I said that they were affiliated as directors, I believe. 

The Chairman. It is qualified, I notice, on the first page, "Afl&fiated 
as officer only," "Affiliated as director only." Apparently the 
schedule is analyzed. 

Mr. O'Brian. May I ask if you intend to examine Mr. Ecker about 
that attendance list, because standing by itself it would be misleading. 
Certain of these directors live at great distance. 

Mr. Gesell. \ye will examine Mr. Ecker at some length. 

The Chairman. Without objection this schedule may be admitted. 

(The schedule, referred to was marked "Exhibit No. 235" and is 
included in the appendix on p. 1529.) 

Mr. Gesell. Now can you tell us briefly, Mr. Ecker, the manner 
in which the board of directors of your company is selected. The 
law itself is in the record, and I would simply like a general st«.tement 
of the manner in which that is done. 

TESTIMONY OF FREDERICK H. ECKER, CHAIRMAN OF THE BOARD 
OF DIRECTORS, METROPOLITAN LIFE INSURANCE CO., ilEW 
YORK, N. Y.— Resumed 

Mr. Ecker. Covering a period of many years, I can speak with 
knowledge that our directors are chosen for certain qualifications: 
First, their standing in the community, high character and integrity, 
for their experience that would qualify them for the service on our 
board. They are selected at the suggestion of various members of 
the board, in many cases at the suggestion of the principal executive 
officer of the company who is very jealous of its reputation, who 
is anxious to do his utmost to see that the best men available are 
obtained. 

Mr. Gesell. By the principal executive oflicer, you refer to your- 
self, do you, Mr. Ecker? 

Mr. Ecker. Executive officers — to a large extent to myself now 
since I am Chairman of the Board, very much with the President — — 

Senator King (interposing). Let him finish his answer to the 
question which you propounded, how they were selected. You 
interrupted very properly at that point. Were there any reasons or 
any other grounds upon which selections are made, other than those 
which you have indicated? You stated character and fitness. 

Mr. Ecker. Character, integrity, fitness because of their knowledge 
and experience to render service, and then our company does business 
throughout the United States and Canada, which makes it important 
that we should have a director or two, we have thought, in Canada, 
likewise a director on the Pacific coast, and then here and there a 
director throughout the country, not necessarily chosen for any 
specific district — that hasn't been in mind — but men in various parts 
of the country. 

Now, in the building up of our board, it follows that the men at dis- 
tant places are not able to attend meetings with the same regularity 
as those at home, nor are they expected to, but in no single instance 
that I can think of have we ever had a director who wasn't ready to 



1268 CONCENTRATION OF ECONOMIC POWER 

respond to a call and make it his business to attend a meeting if it was 
important that he should be there. 

Then we need on the board— first of all, by New York State law a 
majority of the board must be residents of the State. That in a 
measure limits the selection so far as geographical location is con- 
cerned. 

Then we have the men who are available to serve on committees, 
that carry on the work of the company and give close attention to it. 
The volume of transactions is large and under our State law there are 
■"/Grtain specific things which may only be done with authority of the 
board, as for instance, the purchase or sale of any property shall not 
be made or contract entered into which shall not first have been author- 
ized by the board, or a committee of the board appointed to supervise 
such investment. That is the basis of our organization. The detail 
■work to a very large extent is done by committees who meet more 
frequently, who get the whole details of transactions, enter into dis- 
cussions of them, and then their actions are carefully reported to the 
board for approval by board action, for the approval of minutes, 
ratifying and affirming the action of committees. So that in a sense 
in the selection of directors we must have in mind men who are con- 
venient and whom we may expect to come to meetings nearby and 
to be available for our committee work. 

The Chairman. Cah you give us the names of directors not citizens 
of New York State? 

Mr. EcKER. We have two men in Canada, Coleman, who is the 
second man in authority on the Canadian Pacific Railroad, and Mr. 
Taschereau, who, by the way, is not on the administration ticket f jr 
reelection. Mr. Taschereau was Premier of Quebec. On the Pacific 
coast we had for very many years Mr. William H. Crocker. He has 
recently died On the administration ticket we have a man sehcted 
to take his place, atid there was a question of a good deal of caref'il 

The Chairman (interposing). What do you mean by the aiminis-' 
tration ticket? 

Mr. EcKER. The law provides in the matters of election tnat there 
shall be a ticket nominated by the board of directors kn< wn as the 
administration ticket. There is provision in the law for lomination 
of the opposition ticket, and in contradistinction one is called opposi- 
tion and the other administration, and the ticket nominated by the 
board to be voted on at the next election by poUcyholde.s is called 
the administration ticket. 

The Chairman. Pardon me, you gave us two names, tlie name of 
Mr. Coleman and 

Mr. EcKER. Yes, Coleman and Taschereau, and Crocker on the 
Pacific coast.; In Chicago we have FoUansbee, who at the time of 
his selection ^as president of the Bar Association of Ch'cago. We 
have a man 'named Samuel Fordyce in St. Louis. We Jiought we 
had a man in Pittsburgh, a man outstanding in importance in a 
business way, and he withdrew from the board because he thought 
it not desirable for him to continue. Those are the men I think of 
who are out of town, all available, on call when we need them. 

Now I say we have the men we think of as the working members of 
the board. 

The Chairman. Is there another out-of-town man? I thought 
Mr. Lincoln was about to surest one. 



CONCENTRATION OF ECONOMIC POWER J 269 

Mr. EcKER. We have a man in Washington, Mr. Fleming. And 
who else have we out of town? Mr. Merriam is also in Washington 
part of the time, and Topeka, Kans. 

The Chairman. That constitutes the hst of those not citizens 
and residents of New York? 

Mr. EcKER. That is right. 

Senator King. You have an organization a good deal Uke oenate 
committees. We have full committees and subcommittees. The 
subcommittee may meet frequently on matters reported to them, 
and report to the full committee. 

Mr. EcKER. Working committees, yes, sir; working members, as 
it were. In that make-up of the board there are some men who are 
not attending regularly; we don't expect them to. Then we have 
men who have been with us a long while and have grown ill, or some- 
thing or other. There is a good deal of feeUng in our board as I 
think there would be in any corporation with respect to an employee 
who has rendered long and valuable service and become incapacitated, 
we don't want to discharge him immediately. I have in mind a case 
like Charlie Schwab, a very promiijent man, who rendered real 
valuable service to us. He got awfully sick and he said, "You had 
better drop me." I said, "You have rendered service to this com- 
pany and we don't want to drop you. We want to keep you on the 
board." 

He got well, he hasn't been very regular in attendance but he is 
there if we call for liim. 

Mr. Gesell. With respect to the individual attendance of the direc- 
tors, I wish to bring that out with facts, letters and correspondence, 
and possibly move along faster, Mr. Chairman, if we do it that way. 

Mr. EcKER. Mr. Chairman, you asked me.about the selection of our 
directors and I was seeking to give you a picture of the way we operate. 
I trust that is all right. Finishing what I was saying, there have been 
instances of men who have been long with the company, have been 
long on the board, fulfilling all of our expectations. I say ours, speak- 
ing as one of the board. As an instance, a man named John Ander- 
son- — he is elderly ; he is not in good condition ; he comes to board meet- 
ings but can no longer attend committee meetings. The controlling 
thought I have had about it is: Has this at any time caused us any in- 
convenience? Have we available an ample number of working direc- 
tors for a quorum? And I recall no tune when we have had any 
difficulty in getting a quorum. I think I said to one of these men, I 
think Charlie Schwab, I wrote to him and said, "We have no trouble 
having a quorum for our meetings." If that is the case at all, I will be 
free to take some different attitude. 

Now Mr. Taschereau in Canada was selected prior to my adminis- 
tration as president. I think there was an understanding — he says 
there was and I don't question it — with the former president, that he 
wasn't expected to come down to meetings. Again, he was available 
if he was called for, and it was expected in the prominent position he 
occupied, as Premier of the Province of Quebec at the time, that he 
might not get down to meetings; but there were times, many times, 
when our people in Canada had conferences with him and talked about 
business matters; and I don't know that his services were actually 
sought in any particular case by the Home office, but they were 



1270 CONCENTRATION OF I'XONOMIC POWER 

available if in any way as director he could render service to the 
company. 

iHis record of attendance when the examiner gets to it will look 
pretty bad. Those are the circumstances, however, and it was a subject 
of correspondence with me prior to our last selection of the candidates 
for the administration ticket, and it resulted in his saying he was unable 
to attend meetings, as reported to him we feel he should, and he asked 
not to be renominated. 

Mr. Gesell. Now, the directors are elected to represent the inter- 
ests of the policyholders? 

Mr. EcKER. Why, certainly. 

Mr. Gesell. They are elected by the policyholders as the policy- 
holders' representatives, are they not? 

Mr. EcKER. Yes; elected by the pohcyholders. 

Mr. Gesell. To represent the policyholders. 

Mr. Ecker. They are elected by the policyholders. There are no 
other interests to represent in our compan}'- than the policyholders'. 

Mr. Geselx. The executive officers of the company are responsible 
to the board of directors for their conduct, are they not? 

Mr. Ecker. That is right. 

Mr. Gesell. You referred to Mr. Schwab. From the attendance 
records which I ha.ve before me, he attended no meetings in 1932 out 
of 13; 1 meethig in 1933 out of 13; no meetings in 1934 out of 12; no 
meetings in 1935 out of 12; no meetings in 1936 out of 12; 1 meeting in 
1937 out of 12 ; and 1 meeting in 1938 out of 12. 

Mr. Ecker. It was during the period of his illness, and I should 
iigain put emphfjsis on the fact that the directors serve in other capaci- 
ties than merely attending meetings — I don't say merely, it is very 
important they should, but their services are always iivailable and he 
had in the past rendered in a good many instances valuable services to 
our company. There were times when we had large meetings. Mr. 
Schwab was a very magnetic speaker and I can remember occasions 
when he did a splendid service, making speeches for the company to 
large meetings of the policyholders. 

When we come down to serving in his community, m his part of the 
country, in Pennsylvania, his directorship with the company was of 
value to us. It is hard to measure these intangibles, but they are 
really there. 

Mr. Gesell. You mean of value to you.iji getting new business 

Mr. Ecker. Yes; the reputation of the company. 

Mr. Gesell. Now, Mr. Schwab wrote you oh February 9, 1934 
jaying, "Dear, Dear Friend," and he told you he had been in bad 
health and said as follows [reading from "Exhibit No. 236"]: 

You probably have beard that I have been in prett}'^ poor health the past 5 
months, and I do not seem to be rapidly recovering. As a result of this, I am 
retiring from everything I can. You probably also have noticed that I have even 
retired from the Chase Bank v^'here I have been a director so many years. The 
only directorates I am now on are those of the Bethlehem Steel Co. and the 
Metropolitan Life Insurance Co. 

It sticm.s to me that you should havu someone who could givo ftctive attention 
to u>ur f ompany as a diTeot.-r, and thi-^ I am «t present unable to .io nor likely to 
lrf= ' bic, to do for some lit 11' • li'nc. I'l^der these circumstances T wonder if you 
w, u-^ not like me to resign to make way for someone else. 

])<» J on recall receiving that let! r? 

Mr. Ecker. Yes; I remember it. What was the dat«? 

Mr. Gesftl. Fpbrvprv 9, 1^"4, 



CONCENTRATION OF ECONOMIC POWER 1271 

Mr. EcKER. Mr. Schwab remained on the board of directors. 

Mr. Gesell. In 1935 and 1936 he attended no meetings. You 
wrote him on February 15, 1934, in part as follows [reading from 
"Exhibit No. 237"]: 

Dear Charlie, and may I have the privilege of also adding my dear, dear 
friend: * * * With respect to the particular subject of your letter, we are 
having no difficulty in getting a quorum for our meetings. Frankly I would have 
more regret than you express at breaking off your relations with the Metropolitan. 
I much appreciate the way your write about it. My preference is the situation 
should not be disturbed. If, on our side, it changes at all, I will be frank and let 
you know. 

Now, in writing that letter, Mr. Ecker, did you consult the board of 
directors or the policyholders as to what your position should be? 

Mr. Ecker. You can't be serious in asking if I consulted the policy- 
holders. We have 29,000,000 of those. I discussed it with members 
of the board, yes; whether it came up in any formal way I don't 
know. The iDoard minutes show where there is formal action taken, 
but there is a great deal of discussion at board meetings that isn't 
recorded unless it takes the form of some definite action. I don't 
know whether I spoke to the whole board about it or not. My 
impression is I did. If you ask me what I said, I don't know, but the 
whole situation was discussed with members of the board. 

Mr. Gesell. Do you recall whether or not there was a board 
meeting between February 9, 1934, and February 15, 1934, when you 
rephed? 

Mr. Ecker, Well, there wouldn't be. The board meetings are 
held on the fourth Tuesday of the month. 

Mr. Gesell. February 27 would be your board meeting? 

Mr. Ecker. Unless there was a special meeting. 

Mr. Gesell. Were there any special meetings? 

Mr. Ecker. None that I recall. The record will show that. 

Mr. Gesell. Your meeting was held February 27, 1934? 

Mr. Ecker. Yes. 

Mr. Gesell. Does that assist you in recalHng whether you took 
this matter up with the board of directors? 

Mr. Ecker. In a formal manner I did not take it up with the board 
of directors, but I say I consulted with other members about the 
situation, as to whether it was wise to keep Mr. Schwab on the board. 
• Mr. Gesell. I would like to offer in evidence the two letters, por- 
tions of which I have just read. 

(The letters referred to were marked "Exhibits Nos. 236 and 237" 
and are included in the appendix on p. 1529.) 

The Chairman. They may be received. 

Mr. Gesell. Are you authorized by the board of directors, Mr. 
Ecker, to make decisions of this character without asldng the board 
of directors? 

Mr. Ecker. Decisions expressing my personal preference of whether 
a man should ^stay on the board or not — is that the question? 

Mr. Gesell. When a man states he is unable to be in active attend- 
ance and wants to resign. 

Mr, Ecker. I am authorized to express my individual opinion about 
it; yes. That isn't the action of the board. 

Mr. Gesell. Mr. Alanson B. Houghton was a member of your 
board of directors and is at the present time? 



1272 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. Right. 

Mr. Gesell. He is not up for reelection? 

Mr. EcKER. He is not. 

Mr. Gesell, Did he not also indicate to you that he was anxious 
to get off the board? 

Mr. EcKER. Yes ; in the course of and after many years of associa- 
tion, and his gradually retiring from active business. He was the 
head of one of the largest manufacturing enterprises in New York 
State or in the country; he was a prominent man, had been a Repre- 
sentative in Congress; he was subsequently the Ambassador of the 
United States to Germany -and thereafter Ambassador to the Court of 
St. James — a prominent man. 

Mr. Gesell. . Now the first time the question of his resignation came 
up was some time in 1934, was it not? 

Mr. EcKER. I can't say as to date, but it was the subject of some 
conversation between us, whether you have any memorandum in the 
minutes or record of it or not, we talked of it. 

Mr. Gesell. I was interested in your statement that it came up in 
connection %\^th his retiring from business, because the attendance 
records which I have of the company indicate he attended no meetings 
in 1921, 1922, 1923, 1924; one meeting in 1925; none in 1926; one in 
1927; and none in 1928. 

Mr. EcKER-. Was he Ambassador at the time? I haven't looked 
up the dates. 

Isn't it interesting to know that it is our practice to send copies of 
our minutes to our directors who do not attend meetings and those 
who do, so that they can keep in touch with everything that goes on? 
I remember when he was in BerHn and also when he was in London, 
we sent him regularly minutes of our board meetings. 

Mr. Gesell. Do I gather, then, from what you say, that you do 
not think a director elected by the policyholders as their representative 
must giv^ active attention to the day-to-day affairs of the company 
as, they come before the board? ^ 

Mr. EcKER. You will find a reflection of my views in a letter to 
Mr. Taschereau. I have stated very definitely it seemed to me he 
should attend meetings, but for day-to-day attention, unless asked 
for, I couldn't expect that of a director. He is not employed by the 
company. He attends meetings when called, for wliich he gets a 
nominal fee. It is a great pubfic service rendered by the directors of 
a mutual hfe-insurance company, and there isn't any such thing as 
compensation for their time and effort. It is a contribution they 
make to the pubhc cause,^ and we feel privileged to call upon them at 
any time when meetings are not in session, and, of course, to discuss 
matters of conduct of the business with them when they hold meetings, 
but that they should be giving attention from day to day to the 
business bf the company, except as called in for conference, it would 
not be ex])ected. 

Mr. Gesell. It would then rest with the executive officers of the 
company to determine when they wanted to consult those members 
of the board and the kind of things they wanted to bring to their 
attention as representatives of the policyholders? 

Mr. EcKER. The by-laws show that the policies of the company are 
in the hands of representatives elected b}^ the board of directors. They 
are whole-time men, and give their whole time to it. The advantage 



CONCENTRATION OF ECONOMIC POWER 1273 

of the policyholders having the privilege of voting hes in their securing 
better protection, as I said yesterday; that in the first instance the 
great responsibility must be ^vith the management, giving attention, 
whole-time attention, to the business. The method of management 
is subject to the closest scrutiny by the departments of insurance of 
the various States, and if there is any abuse anywhere it is bound to 
be brought to light, and then the policyholders have opportunity to 
change the board of directors, to change their representatives, and 
with us we have had, no complaints. If there were dissatisfaction, 
it may be assumed we would have had those complaints. 

Mr. Gesell. Let me ask you this. Is there any necessity of your 
board being as large as it is? 

Mr. EcKER. I couldn't say it was necessary it should be as large. 
It might be larger, it might be less. So far as working is concerned, 
there is just this one thing, that if we have to have 50 percent of our 
board, a majority of our board, resident in New York, we couldn't 
have a board very much less and have any representation outside of 
New York. 

The Chairman. What is the provision of the New York State law 
with respect to the appointment of directors and their duties? ' 

Mr. EcKER. I suppose it is in the general corporation law. I would 
have to ask my lawj^er to tell me that. I do know that the law pro- 
vides that in case of a hfe insurance company the majority of the board 
of directors shall- be residents of the State of New York, and it is in 
our charter and I think it is in the State law. We \\-ill furnish it, sir. 

The Chairman. I won't interrupt the inquirj^ at this point. 

Mr. O'Brian. I have a copy of the charter' and bylaws, and that 
fixes the number of directors. 

The Chairman. Does it prescribe their duties? 

Mr. O'Brian. It defines their responsibiUties. 

Mr. Gesell. This is both the charter and the bylaws? I would 
like to offer this for the record. 

The Chairman. It may be received. 

(The charter and bylaws referred to were marked "Exhibit No. 238" 
and are included in the appendix on p. 1530.) 

The Chairman. [Reading from "Exhibit No. 238":] 

Article IV 

Section 1. The corporate powers of said corporation shall be exercised by a 
board of directors, by a president and vice president of the corporation, and by 
such other officers and agents as the board may elect or appoint and empower. 

Sec. 2. The board of directors shall consist of 25 directors elected as hereinafter 
provided, that being the present number of its directors. 

Sec. 3. The board of directors shall have power to make and prescribe from 
time to time such bylaws, rules, and regulations for the transaction of the business 
of the corporation and the conduct of its affairs, not inconsistent with the laws of 
the State or this charter, as may be deemed expedient, and to amend or repeal 
Buch bylaws, rules, and regulations. 

Sec. 4. Nine directors shall constitute a quorum for the transaction of business; 
but a less number may meet and adjourn from time to time until a quorum is 
present. 

i Mr. Lincoln. Their duties are largely in the bylaws, too, you will 
note. 

Mr. EcKER. It is true, Mr. Chairman, that following the New. York 
law, coj>y of which counsel vnil supply, pohcyholders elect directors. 

1 See 'Exhibit No. 232", appendix p. 1522. 



1274 CONCENTRATION OF ECONOMIC POWER 

You will see that that provision of law p:ives no opportunity for a vote 
to be cast'or received and counted that is not on a ticket that has been 
nominated in accordance with the provisions of the law. In conFe- 
quence, if at a date, I think it is in September, there has been no 

Mr. O'Brian (interposing). November. 

Mr. EcKER. If by November there is no opposition ticket nomi- 
nated, then votes may only be received and counted for the adminis- 
tration ticket. For years, even though there was no opposition 
ticket, we thought it v/as a wise thing to have policyholders informed 
about their rights to vote, and it would be a good thing to call their 
attention to it, so that at small expense we send out ballots. It 
can't change the result, since only votes may be cast and counted 
for the administration ticket. It wouldn't be possible for us to mail 
a ballot to every policyholder of our vast company, 29,000,000 
policyholders. 

The Chairman. I observe from the law that you are required to 
nominate your so-called administratioli ticket 7 months in advance 
of the election. Did I understand you to say just now that there 
sometimes is not an opposition ticket? 

Mr. EcKER. There has never been one, as a matter of fact, in our 
case, but if there were one, it must have been nominated by some 
time in November, and in the event of there being no opposition 
ticket nominated under the law, ballots may be received and counted 
only for those who have been nominated on the administration ticket, 
so that the actual holding of the election doesn't change, doesn't 
have any effect — the voting doesn't— and I dare say it is a matter 
of wonder or amazement that we have always had the election. We 
have always done what we could to inform policyholders regarding 
their rights to vote. On every policy of the company, on every 
premium receipt, on every premium receipt book, there is advice to 
the policyholder with respect to his right to vote. 

Mr. Gesell. The next witness, Mr. Tully, who is in charge of the 
elections, will go into great detail with respect to these facts. 

Mr. EcKER. With respect to the machinery. The ballot, the 
election, is held by the insurance department, the superintendent of 
insurance of the State of New York, not by us. We have certain 
cooperative work, and for that purpose we do everything that we 
can to facilitate holding that election. 

I want to say that we have 400,000, sometimes 500,000 votes cast. 
Only- the administration ticket could be elected, but we felt that it 
was good policy to keep our policyholders informed of their rights to 
vote, that it was a desirable thing to do. They are more familiar 
with the procedure if there should be any reason for their changing it. 

The Chairman. I take it from what you say that the law was 
apparently so drafted that the administration could select the board 
of directors and control, the elections. As a matter of practice, that 
is the way it works out. 

Mr. EcKER. The Armstrong report says votes should be limited 
to the nominated candidates and suitable provision should be made 
for ne\'^ nominations and the casting of votes under proxies in case 
of the death or incapacity of any person nominated, and so on. 

The Chairman. In other words, the system which you describe 
actually makes it difficult for an opposition ticket to be effective. 



concp:ntuation of economic power 1275 

Mr. EcKER. No; I should say not. It is only that it must be 
nominated in accordance with the provision of the statute. A man 
couldn't come to the meeting and say, "I am going to place a ticket in 
opposition to the administration ticket." In order to avoid the possi- 
bility of an attempt to nominate unacceptionable candidates and the 
subsequent substitution of an inferior ticket, the elections should be 
limited to those who have been nominated in a prescribed manner. 
That is in the Armstrong law. 

The Chairman. That is very clear. I was merely commenting on 
the effect of it, and you have testified that there never has been an 
opposition ticket. 

Mr. EcKER. There never has, and notwithstanding that we always 
have the elections and bring to the notice of the policyholder his right 
to vote. 

The Chairman. It would be a rather difficult tiling to develop an 
opposition ticket with 29,000,000 policyholders, would it not? 

Mr. EcKER. Oh, no. The machinery is provided there for nominat- 
ing an opposition ticket. If there were an abuse and it was publi- 
cized, there would be votes by our policyholders that would put out 
of office any unsatisfactory board of directors. 

Senator King. I would like to ask a question. 

Mr. EcKER. This whole subject — my counsel calls my attention to 
the fact that while we have been operating for all these years under 
the laws which were recommended by the Armstrong committee and 
by Mr. Hughes, they are now being carefully studied again ^-ith 
respect to whether there should be any revision. 

Senator King. I suppose when your ticket is nominated, the ad- 
ministration ticket, due notice is given of that fact through the press 
and through such agencies as your organization possesses. 

Mr. EcKER. When a nomination is made, probably not; but just 
as soon as we are required to take some action on it, yes. As a 
matter of fact, we can't know until about the end of the year that 
there will be no opposition ticket nominated, and then we prepare 
ballots by the first of the year and send those to our agents who 
distribute them by hand to the policyholders. 

Senator King. So the policyholders, then, are advised of the 
ticket? 

Mr. EcKER. Oh, yes. They are given a ballot and proxies. 

Senator King. Have you had, after the ticket has been nominated 
by the administration, objections to any specific candidate in any 
considerable number? 

Mr. EcKER. I don't recall a single instance where there were any. 

Senator King. In these various elections? 

Mr. EcKER. I recall no instance in which there was any objection 
raised by any policyholder. 

Dr. LuBiN. Mr. Ecker, are these policyholders notified as to who 
has been nominated immediately before the election date? 

Mr. EcKER. There is no practical way of advi?ing them except 
that we put on their policies, on their premium receipts and premium 
receipt books, this information of their right to vote at these elections 
which are held in odd years, held every 2 years on a date in April. 

Mr. Gesell. May I again suggest that we are going to cover this 
with the following witness. 



2276 CONCENTRATION OF ECONOMIC POWER 

Mr. EcKER. Wait a minute. In addition to that • 

The Chairman (interposing). Do you want to suggest that we as 
members of the committee not interrupt the examination? I will 
be very glad to do that, if that is your desire. 

Mr. Gesell. I would, because we have a special witness on tliis 
matter. 

The Chairman. The witness has been answering questions which 
have been directed to him by members of the committee. 

Mr. EcKER. May I finish that one question? 

The Chairman. We will give you ample time to finish it. I want 
to explain to Mr. Gesell and other members of the committee, in 
previous hearings we have had a rule which permitted the examiner 
or the witness to proceed uninterrupted by members of the committee, 
and that frequently works out advantageously. Now, Mr. Gesell is 
asking us, sitting at this side of the table, to refrain from interrupting 
his examination of you, and I think probably in the interest of orderly 
procedure and in your own interest, it will be desirable for us to 
refrain. 

Mr. EcKER. Well, inasmuch as this has been brought up, I think 
it is of interest to know first that the fullest information is given to our 
policyholders through our publications. We have a magazine known 
as the "Me^tropolitan" that contains the fullest information to our 
policyholders, giving methods of electing, and advising them of the 
administration ticket when it has been nominated. Then, of course, 
by law we are required to make certain publications. There is in no 
sense any secrecy about it. We do our utmost to publicize it. 

Dr. LuBiN. Mr. Chairman, in order that the record might be clear, 
in view of the witness' answer, may I just ask this final question? 

The Chairman. Without objection on the part of the examiner, Dr. 
Lubin, you may. 

Dr. Lubin. Are these policyholders notified of the ticket while there 
is still opportunity available for them to put up ^n opposition ticket? 
Is there time for them to do anything about it? 

Mr. EcKEi^. When we advise them of who has been nominated, it is 
probably too late, except that they know by the advice we give them 
all the time of their right to vote and the conditions under which they 
may vote. 

Mr. Gesell. Now, returning to this question of attendance at 
directors' meetings, Mr. John W. Davis was a member of your board 
for some time, was he not? 

Mr. EcKER. He was. 

Mr, Gesell. He was elected according to the records we have on 
October 26, attended one meeting in 1926, two in 1927, two in 1928,. 
one in 1929, one in 1930, and one in 1931 and finally resigned April 
28, 1931. He was one of the New York directors to whom you have 
referred, was he not? 

Mr. EcKER. He was one of the New York directors and also one of 
the directors whom we were glad to have on the board and did not 
recognize as a day-to-day or week-to-week committee worker; he was 
not on any of the committees. 

Mr. Gesell. Now on June 27, 1930, did he not write you the 
following letter? [Reading from "Exhibit No. 239":] 

I was greatly disappointed when just as I was leaving my office to attend the 
directors meeting on the 24th matters came forward which made it impossible for 



CONCENTRATION OF ECONOMIC POWER 1277 

me to get away. This has happened so often in the past and my attendance at 
meetings has been so infrequent that I am driven to the conclusion that I should 
get ofl' the board and permit you to elect someone whose attendance can be more 
relied upon. I quite agree that no member of any board of directors should 
complain if he is called upon for half a day once a month. If he finds it, however, 
difficult or impossible to give even that much time, I think he should get out of the 
way. 

You replied in your letter to him of July 1 partly as follows [reading 
from "Exhibit No. 240"]: 

I wish you would give the matter further thought in the hope that your decision 
will be otherwise. I have understood that because of your many engagements 
it was not always convenient to attend the regular meetings, but have felt tnat 
in case of necessity you would be available. 

Do I gather from this correspondence that as in the case of Mr. 
Schwab you made the decision that the man, the particular director 
in question, should remain on the board even though in each instance 
the director himself felt he w^as not adequately doing his duty and 
service to the company as a representative of the policyholders? 

Mr. EcKER. As the principal executive officer with the responsi- 
bility that goes with that office, I was expressing my individual opinion 
for such weight as it would carry. I felt it my duty, as I have said 
repeatedly, to very jealously guard the interests of and render the 
best service possible to secure in the interests of the poUcy holders. 
That was my particidar job. 

Mr. Gesell. Now following this correspondence, is it not a fact 
that Mr. Davis was again nominated on the administration ticket for 
service for another period of time, and his name went out to the 
policyholders for election? 

Mr. EcKER. If that is the record; I am unable to say that without 
looking it up, but if you say that is the record of course I accept it. 
He was a very outstanding man, a very useful man, and one that we 
valued as a director of the company. I trust you will bear with me 
if I repeat that service is not Umited to just attending meetings; 
there are services in various ways that are helpful. 

Mr. Gesell. I wish to offer the two letters I have read in evidence. 

(The letters referred to were marked "Exhibits Nos. 239 and 240" 
and are included in the appendix on p. 1539.) 

Mr. Ecker. After all, Mr. Davis was a Democratic candidate for 
President of the United States. 

Mr. Gesell. I would like also to offer in the record at this time 
certain facts concerning the attendance record of Mr. D 'Alton Corry 
Coleman. Mr. Coleman was elected to the board in March 1929. 
He attended no meetings in 1929 and 1930 attended one meeting 
in 1931 and 1932, none in 1933, one in 1934, two in 1935, one in 1936, 
two in 1937, and one in 1938. 

Mr. Ecker. He is a particular instance of those situations to which 
I have referred where we secure as a director a man not resident in 
New York but ready to come at any time that we tell him we need his 
services. 

Mr. Gesell. And in the case of William H. Crocker, another of 
your directors, who died September 25, 1937, during the last 5 years 
of his service he did not attend any meetings. 

Mr. Ecker. No; he was ill, his wife died, and he wasn't in physical 
shape to travel, but we never had a more valuable man on the board 
than Will Crocker, who almost daily went to our office on the Pacific 



1278 CONCENTRATION OF ECONOMIC POWER 

coast. You see we have there a Pacific coast head office that conducts 
all of the affairs that our home office conducts with the exception of the 
investment of funds. We have one in Canada of a similar character. 
There is a man on the coast interested in our business to the extent 
of making him a frequent visitor at our office there, not attending 
board meetings — no board meetings are held there — but we never 
had a more enthusiastic and loyal supporter of the company than 
Will Crocker. 

Mr. Gesell. Now article IV, section 4, of the charter which has 
been put in evidence provides that nine directors shall constitute a 
quorum.^ Is that not correct? 

Mr. EcKER. That is correct. 

Mr. Gesell. Is it not a fact that your company has held meetings 
of its board of directors and transacted business without a quprum 
being present? 

Mr. EcKER. I recall no instance unless it was sometime some years 
ago, in which case it was carefully explained to the board at the next 
meeting at which there was a quorum that they should in approving 
the minutes of the preceding meeting ratify and confirm the action of 
that meeting as the action of the meeting when there was a quorum 
present. Whether that has always been done in just that form I 
would like to look at the record to determine, but I would suppose 
it had been. 

Mr. Gesell. The record you have provided us indicates that at the 
meeting of August 23, 1927 

Mr. EcKER (interposing). Twenty-seven? 

Mr. Gesell. Yes; August 23, 1927. 

Mr. EcKER. Twelve years ago? 

Mr. Gesell. That is correct, I think — that there were six directors 
present; on February 26, 1929, seven directors present; February 23, 
1927, eight. Those would be three instances where a quorum was 
not on hand. I would like you to provide for us, if I might suggest, 
Mr. Chairman, at some future cofiv^enient time, the minutes of those 
three meetings and any subsequent action that the board took to 
ratify or go over the ground of the business transactions at those 
meetings. 

Mr. Ecker. May I not call attention to the fact that under the 
law our committees have full power in matters of transfer of property, 
matters of investment, or anything that could raise any question as 
to the validity or authenticity of any act of the company, and doubt- 
less having that in mind the committees acted with full authority and 
the proper attention was not, perhaps should have been, given with 
reference to lack of quorum. As far as I can recollect, it has been 
our practice (and that goes back a dozen years, there is nothing like 
that noted in the record since I was president of the company), and 
it is my recollection that at that time it was explained to a subsequent 
meeting of the board at which there was a quorum that their approval 
of the minutes would be considered as ratification of the acts at the 
meeting at which there was not a quorum present. 

I remember — may I add one more word? The matter com.es back 
to me, and n)y mentioning it to Mr. Fiske, who was President of the 
-company, tliat perhaps we should adopt a resolution which in sub- 
stance would provide that the minutes of a meeting at which there 

•See "Exhibit No. 238", appendix, p. 1530, at p. 1273. 



CONCENTR.\TION OF ECONOMIC POWER 1279 

was not a quorum presen t would be presented for approval and the 
acts of that meeting ratified and confirmed. He expressed the opinion 
to me as a lawyer that it wasn't necessary. 

Mr. GESELL^ Now, Mr, Ecker, you have also referred to the case of 
Mr. Taschereau. Mr. Taschereau is at present a director, is he not, 
but is not up for renomination on the administration ticket? Is that 
not correct? 

Mr, Ecker, That is correct; yes. 

Mr. Gesell. He is now a director. 

Mr. Ecker. He is now a director, and he is, not up for election on 
the ticket. 

Mr. Gesell. Mr. Taschereau was elected in 1922 to the board, was 
he not? 

Mr. Ecker. If that is the record; yes. I don't pretend to remem- 
ber the date. I know it was back there sometime ago. 

Mr. Gesell. Now let me ask you whether it is not a fact that Mr. 
Taschereau has never attended a single meeting of the board of 
directors since he joined the board. 

Mr. Ecker. I believe I said that, Mr. Chairman. 

The Chairman. He is a Canadian? 

Mr. Ecker. Yes. 

Mr. Gesell. Was that fact ever called to the attention of the 
policyholders on the many occasions when his name was resubmitted 
to them on the administration ticket for approval? 

Mr. Ecker. Are you perfectly serious about asking me about call- 
ing the attention to an incident of that nature to 29 millions of 
policyholders? How can they do it? 

Mr. Gesell. My question was, did you ever call it to their atten- 
tion? 

Mr. Ecker. I am trying to think how I could possibly have done it. 

Mr. Gesell. His name was submitted to the pohcyhqlders on many 
occasions on the administration ticket as a valuable director for the 
company to have to represent the policyholders' interests, and the 
fact of his nonparticipation in the affairs of the company were not 
called to his attention, is that a fact? 

Mr. Ecker. It is a fact that the administration ticket was sub- 
mitted to the policyholders. Comments are not made on the services 
rendered by the individual directors in the way of advice to policy- 
holders. I know of no occasion that that has been done. 

Mr. Gesell. On April 20, 1938, you wrote Mr. Taschereau partly 
as follows. After advising him that it was necessary to prepare the 
new administration ticket, you said [reading from "Exhibit No. 241"]: 

I hardly need tell you how much we have valued the inclusion of your distin- 
guished name in the list of our directors. You have honored the company by 
being one of its directors for the' past 16 years. We have had much satisfaction 
in the feeling of your interest in the company and its activities. 

It has transpired, however, that you have been unable to attend the meetings 
of the board and I am afraid that is a situation which should not be permitted 
to continue. I assume that you are not likely to find it convenient to attend 
such meetings in the future and I am, therefore, wondering whether at this time 
you would like to consider whether the board should renominate you. 

Now, why did this question come up with Mr. Taschereau some 
16 years after he had been elected? Would it not- have been more in 
the interest of the policyholders to have brousH'this matter up with 
him much sooner than after this 16-yefif period? 

124.49t— 39— pt. 4 1 - -= 



1280 CONCENTRATION OP ECONOMIC POWER 

Mr. EcKER. It seems to me that is like asking if it wouldn't have 
been better to invest money in something other than a particular 
transaction in which we had suffered loss. I beUeve Mr. Taschereau 
did render a valuable service to the policholders, although his record 
of attendance was nil. 

Mr. Gesell. Do I understand the record of attendance becomes 
important only after a period of 16 years of nonattendance at the 
meetings? 

Mr. EcKER. I don't Imow whether that is a serious question or not. 

Senator King. Too didactic. 

Representative Eeece. Mr. Chairman, I probably shouldn't say 
anything, but I hardly think it is proper for the witness to make' 
suggestion as to whether the question is serious or not. 

Mr. Ecker. Mr. Chairman, if I have transgressed, I am sorry. 
I am just thinking that here is a great institution that has been carried 
on with quite amazing success, as has been testified here. It has 
received the endorsement certainly of the public to the extent of the 
large number of policyholders that come within the fold. Their 
method of management has been successful so far as I have any idea 
that it would be possible to make it successful. I know of no charges 
of abuse or misconduct. 

The Chairman. How many poUcyholders do you have in Canada, 
do you recall? 

Mr. Ecker. Probably about 6 percent in round figures. Mr. Bass- 
ford, would that be right, about 6 percent of our policyholders? 

Mr. Bassford. About right. 

Mr. EoKER. It would be somewhere around 2,000,000. 

The Chairman. And I assume as a gesture toward the Canadian 
policyholders you felt for a long time it was wise to have some promi- 
nent Canadian on your board. 

Mr. Ecker. That is exactly what I meant. That seemed so obvious. 

Mr. Gesell. I think that matter is fully covered in Mr. Tasche- 
reau's letter that I am about to read into the record, dated April 27, 
1938. Mr. Taschereau wrote this letter in which he acknowledges 
receipt of his previous letter and says [reading from exhibit No. 242]: 

Some vears ago, while in New York, I was approached by the then president 
of the company, Mr. Haley Fiske and was asked by him to join the board. Mr. 
Fiske told me that, on account of his Canadian business and especially of the 
French Canadian clients of the Metropolitan Life he wished to add on the board 
the name of a well-known French Canadian. I was then the Prime Minister of 
the Province of Quebec. 

It was distinctly understood at the time that, as I was a very busy man, I could 
not attend the meetings of the board, and I accepted the honor offered to me 
under this distinct condition which Mr. Fiske told me he fully understood. Need- 
less to say that I was not^invited for the services that I could render to a board 
composed of so distinguished men. 

Is it customary, Mr. Ecker, to approach men with respect to -their 
coming on the board of directors and enter into understandings such 
as is indicated in tliis latter? 

Mr. Ecker. I can only speak for myself. I have not, and I know 
of none, but I should say that the present administration has sought 
to get men of the caliber I referred to, and at the same time we felt 
it important to get new blood in our board of younger people, and 
you will see that some of the later additions to the board are not men- 
of the years that some of the others were. In a sense, that was 



• CONCENTRATION OF ECONOMIC POWER 1281 

getting an average, too. Some of our men who had been there a long 
time and served the company faithfully were getting along in years 
and it seemed unnecessary under the circumstances to ask them to 
withdraw, and we have been filling our vacancies with men of younger 
years. 

You can see from my correspondence that we had in mind that it 
v/as undesirable for Mr. Taschereau to continue, no matter what his 
understanding was at the time. I did not know about that under- 
standing until he called it to my attention. I wasn't at all surprised 
about it because it is something that came about in an administration 
of. other years. Conditions are changing and we are seeking to keep 
abreast of the time, even in the matter of selecting our directors. 

Mr. Gesell. I would like to oflfer for the record the two letters, 
portions of which I have just read. 

The Chaipman. They may be received. 

(The letters referred to were marked "Exhibits Nos. 241 and 242" 
and are included in the appendix on p. 1540.) 

Mr. Gesell. Can you tell me, Mr. Ecker, what services Mr. 
Taschereau performed? 

Mr. Ecker. Specifically, no. I can tell you that he did stand very 
high in the community. His acting as a director of the company 
was an endorsement of the company, and in Canada I know that 
means a good deal among the French Canadians. They have high 
respect for men in public life and there couldn't be anything about a 
company that wasn't entitled to their respect if Mr. Taschereau was 
a director. 

In addition to that, I can't give you specific cases, but I haven't 
the shghtest doubt that our people in Canada consulted and talked 
with Air. Taschereau about matters that had to do with the manage- 
ment of the company's, affairs. 

Senator King. Do you have a local office there? 
Mr. Ecker. Oh, yes, we have a head office, just as we have on the 
Pacific coast. "We have a head office in Ottawa, opposite the parlia- 
ment buildings, a very fine building for our purposes. We have a large 
staff up there. About 10 percent of all our business is received in 
Canada. We have a large number of employees in that office. 

Mr. Gesell. May I ask you with respect to all these instances 
which we have reviewed whether any effort was made to acquaint 
the policyholders as the names were put up again and again for 
renomination and election of the degree to which these particular 
directors had attended the meetings of the board of directors, and 
participated through that means in the affairs of the company? 

Mr. Ecker. Would it be lacking in courtesy or out of place for 
me to say that I can only think of that as my saying to the poUcy- 
holders in some formal commuincation that the men who had been 
nominated on the administration ticket were in any respect unfit to 
serve. I can't conceive of that as possible, and again it seems to 
me that is so obvious that it isn't a suitable questiori. Of course, 
I didn't. Our action with policyholders consisted in advising them 
of the men who had been nominated. 

Mr. Gesell. My question was somewhat prompted by a letter 
directed to Mr. Lincoln on March 18, 1935, by John H. Almy, super- 



1282 CONCENTRATION OF ECONOMIC POWER 

intendent of agencies of your Pacific coast head ofl&ce, in which he 
states [reading from "Exhibit No. 243"]: 

It has come to my attention that an unusual interest has been developed in the 
field iu the matter of getting policyholders to vote for directors. On several 
occasions the agents have told me that policyholders are asking many questions 
about the various directors whose names appear on the ballot. Managers also 
tell ine that their agents are making inquiry and asking for information about 
the directors. People want to know who they are, what position in public and 
private life they hold, as well as where they have their business location. 

I pass this information along for what value it may be to you, but it does occur 
to me that it would be a nice thing if our entire field force would have some 
knowledge of each of our directors in order that they would be in a position to 
answer such direct questions. 

Coming from a person Hke Mr. Almy, did not that letter suggest to 
you and your fellow officers the necessity of bringing more information 
concerning the directorships to the policyholders? 

Mr. EcKER. I believe that our directors are all men who are. very 
well known, and we have not followed the practice (in our judgment 
we thought it unnecessary) of some other companies which have pub- 
lished a photograph of all of their directors. Someone laughed at it 
and called it a rogues' gallery, and it was just a question of judgment 
of what is necessary. The man we have selected on the coast, where 
that came from, was one of the most prominent citizens there. It 
wasn't necessary to tell our field force anything about William H. 
Crocker. A suggestion of that kind would be considered in the light 
«of the circumstances and its application. 

Mr. Gesell. After the receipt of this letter 

Mr. EcKER (interposing). May I just say to you that our directors 
are not, if you look at the list of them, men who would not have their 
own judgment about matters that have to do with the conduct of the 
affairs. Sometifnes people use the term, "rubber stamps." I don't 
know any man on our board that might be said to be a rubber stamp. 

Mr. Gesell. The specific question, Mr. Ecker, is whether or not 
anything was done by the rnanagement of the Metropolitan when this 
letter came to their attention to give more information concerning the 
directors to the policyholders. That is the question I have in mind. 

Mr. Ecker. Was that a question from the policyholders? It was 
a question from one of our men in the field who made a suggestion. 
We welcome suggestions from our employees all the time, whether it 
be a messenger or whether it be an agent or a manager or what-not, 
and everytliing that comes to us from anyone in our organization 
receives consideration, and I say that received consideration. 

Mr. Gesell. Was anything done about it? 

Mr. Ecker. I don't know. By saying, "Was anything done?" did 
we then put out the information that was there suggested to all of our 
policyholders? I have no recollection of doing it, but it was considered 
and the course of action adopted was a considered course. 

Mr. Gesell. I was somewhat troubled in this connection by a por- 
tion of Mr. Lincoln's reply, in which he says that he was somewhat at 
a loss to explain the special interest indicated by this letter, because 
no similar reports had been received from other territories: Does that 
mean that you do not expect the policyholders to have an interest in 
matters such as were called to your attention here? 

Mr. Ecker. It doesn't mean that at all. If I may be permitted to 
explain Mr. Lincoln's letter, it means that we seek to do the thing 
that seems to us best adapted to all of the situations, and here is one 



CONCENTRATION OF ECONOMIC POWER 1283 

particular location from which that particular inquiry came. We have 
10 other locations from which no similar inquiry came. Could we 
therefore consider that the one instance made an indication of the 
desire of the majority? Nothing else could I understand in that letter 
but just that thing. If this were something that frequently came to 
us, certainly we would be doing it. This was a single instance, and 
evidently it was Mr. Lincoln's view that that didn't indicate or evi- 
dence the view of a sufficient number to have it made a general practice 

Mr. Gesell. I would like to offer this correspondence for the record. 

The Chairman. Without objection, it is received. 

(The correspondence referred to was marked "Exhibit No. 243" and 
is included in the appendLx on p. 1541.) 

The Chairman. Did I understand there were no other letters of this 
character? 

Mr. EcKER. Mr. Lincoln says so. He says in the letter there were 
no others. 

The Chairman. That is your experience too? 

Mr. EcKER. We have never had any case just like that, any other 
instance. The volume of our files accumulates correspondence by the 
truckload weekly, and it is interesting to note the little correspondence 
we have from the policyholder and how rare it is for him to "jvrite 
at all; and then I can't recall an instance where there was a policy- 
holder's complaint of the management of the 'company. The cor- 
respondence with policyholders has been almost entirely confined to 
complaint on a particular policy — he didn't get the dividend he looked 
for, he didn't understand why, having a disability clause in his policy, 
he had a less dividend on one policy than the one he received on one 
in which there wasn't this disability provision — things of that kind. 

And then an important thing is that upward of 40 percent of any 
business is written upon the hves of people who are already insured — 
old business of the company, as it were. That is an endorsement of 
the policyholders' view of the management of the company. 

Mr. Gesell. Are these directors pohcyholders? 

Mr. Ecker. They may or may not be. They are not required to 
be by law. 

Mr. Gesell. I asked yoji whether they were or not. Do you kiji^w 
at all, Mr. Ecker, about that? 

Mr. Ecker, I know that some are. I do not knew wlrether they 
all are. 

Mr. Gesell. I take it, then, that isn't a factor considered in the 
selection of the directors? 

Mr. Ecker. It has never been in my mind. 

The Chairman. It is not required by the statute? 

Mr. Ecker. No, sir. There was a time when our charter required 
it, when it was a stock company — that they either held stock or policies 
of life insurance or annuity contracts. That is not a present provi- 
sion of either the charter or the State law. 

Mr. Gesell. Has it occurred that on some occasions directors have 
been nominated and elected to the board without their approval or 
consent? 

Mr. Ecker. I don't recall any instance where they were elected to 
the board without approval or consent. They were nominated and 
afterward we found that we were unable to get their consent to serve. 



1284 CONCENTRATION OF ECONOMIC POWER 

Another thing I might have touched on in this selection of directors, 
havingmade'your searching inquiry and weighing the quahfication of 
the man to serve as a director, you then have to get him to serve, and 
it not infrequently happens that it is becoming difficult to get men. 
It not'oply frequently happens we can't get consent, but it becomes 
increasingly difficult to get men of the type we have been searcliing 
for to serve as directors. 

Mr. Gesell, Have the majority of the directors selected in recent 
years been chosen by the executive officers of the company? 

Mr. EcKER, They have never been chosen by the executive oJEcers 
of the company. They have often been suggested by the executive 
officers, but they are chosen after discussion with other members of 
the board. 

I do not know any instance in wliich the action was solely that of 
one executive officer. 

Mr. Gesell. No; the board must meet and approve the nomination 
of every man. _ . 

Mr. EcKER. I mean more than that. The selection of directors, 
we feel, is of so much iniportance that it is a matter of conversation 
and discussion and consideration. Then, of course, under our bjdaws, 
after the nomination is made it must lie over for 4 weeks before it is 
acted upon, which gives ample opportunity for notice to every member 
of the board, and for discussion ; and then I have in mind, and I ask you 
to please have in mind, that we send a copy of oui* minutes to any 
absent director so that he knows. 

Mr. Gesell. We have concluded the presentation of the facts with 
respect to this particular matter. If anyone on the committee has 
any general questions, Mr. Chairman, concerning it that they would 
like to ask, this would be a good time. 

The Chairman. Do any members of the committee desire to pursue 
this matter? 

Senator King. I suppose, Mr. Ecker, you make your reports as 
required by statute to the insurance organization of New York? 
* Mr. Ecker. Yes. 

Senator King. And they have a superintendent of insurance. 

Mr. Ecker. A superintendent of insurance; yes. 

Senator King. And do they examine your books and accounts? 

Mr. Ecker. They are required by law to examine us every third 
year and the task is so considerable I testified yesterday, that it takes 
a year and a half for their examiners to complete an examination, so 
they are really with us about half the time, and they are very thorough , 
very efficient and Careful in their examination. 

Of course, we report to all of the States in the Union. They all 
have the riglit to examine us if they choose, but there has grown up a 
practice lately that other States will join with the State of New York, 
so it isn't only New York State that makes the examination. 

Senator King. So . your accounts and business transactions, the 
meetmgs of the board, indeed everything that your organization does, 
is open to inspection and examination by the insurance department 
of New York, and by other States if they desire, and, as you indicate, 
they frequently join \/ith the State of New York and collaborate in 
making investigations i (^-quired by law. 

Mr. Ecker. Just right. Senator, and in addition to that we send 
copies of the minutes referred to, so often t5 the superintendent of 
insurance so he can keen in close touch. 



CONCENTRATION OF ECONOMIC POWER 1285 

I spoke yesterday of the instance 

Senator King (interposing). I don't want you to repeat. I wasn't' 
here. 

Mr. EcKER. I spoke yesterday of the instance of policyholder 
control; that was a control that was of value to the policyholder in 
conjunction with the careful and critical regulation of a department 
that examines every transaction of the company, that is, insurance 
department, where if there be any abuse or anything that should be 
called to the attention of the policyholder, it would inevitably be made 
public, and then the policyholder would exercise his franchise and 
elect a board of directors to correct any evil or abuse that had grown 
up in the management. 

Mr. Arnold. I understood that one of the considerations in your 
urging Mr. Schwab to stay was a sort of reward for past services. 

Mr. EcKER. Oh, no ; not a reward for past services, no ; a recognition 
of his valuable service in the past and our hope to continue him on the 
board. May I add this: Service as a director is like service in any 
other line. If you had a man a good while, he knows more about the 
business and with less time can render more valuable service than 
one who has never been a director and has to learn the business; and 
when we have a valuable old Director on the Board — just because he is 
ill, it seemed a decent thing to keep him there, for his sake, and a 
worth-while thing for the company. 

We had one director who got quite ill, so ill he was mentally inca- 
pacitated, and I had some conversations — I said I had because I 
represented the board — with his son that it was undesirable for him 
to stay on the board, and his son finally wrote the letter. That 
correspondence hasn't been presented. I didn't know but what the 
examiner might refer to it. The son said his father was unable to 
perform the duties, and therefore felt that he should retire, and if you 
read the record only it looks as if that were originated by the son. It 
wasn't. It was originated by ^s, and that was his way of putting it. 

Mr. Arnoli^. I wasn't asking the question in a critical way, but 
simply to find out the various considerations. I am not meaning to 
be critical when I repeat that one of the considerations, then, is a decent 
treatment and recognition of past services, and take out the question 
• of reward, omit that. 

Mr. EcKER. Well, having called on his services at all times and as 
an experienced director of the company 

Mr. Douglas (interposing). But this does suggest, at least, Mr. 
Ecker, what the real functidn of a director is or should be. You have, 
I gather from these statistics, a majority of the board who are fairly 
active. As I recall, there was an average of about 15. 

Mr. Ecker, Fifteen or sixteen or seventeen there; yes. 

Mr. Douglas. But there has been a substantial minority who 
have been rather inactive. 

Mr. Ecjs:er. And the attendance is almost 100 percent attendance 
of the active ones, may b0 not 100 but a very good percentage of those 
that you would call active. 

Mr. Douglas. You have a majority of a working board, and you 
have a minority of — would it be unfair to characterize it as an honorary 
board? 

Mr. Ecker. No,-^ that would be unfair because all are the same, but 
it is jecognized that some could not be as active aS others. 



1286 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. In the actual performance of director's functions? 

Mr. EcKER. The functions depend on circumstance. It wouldn't 
apply to all of them. There was a man on the Pacific coast who 
couldn't ettetid a meeting here for 4 or 5 years, but, frequently visited 
our head office there and was close to the business and rendering 
service to the company. I see that you are agreeing with me that it 
should be recognized that some men may be selected for services that 
are not where they are expected to attend weekly meetings and 
meetings of the committees. 

Mr. Douglas, I wasn't suggesting that that was a proper role for 
directors. 

Mr. EcKER. Not proper, but it couldn't be avoided. 

Mr. Douglas. Has your company, for example, ever considered the 
idea df paid directors? 

Mr. EcKER. On salaries, as the English practice, you mean? 

Mr. Douglas. Yes. 

Mr. EcKER. We have talked about it, yes. 

Mr. Douglas. You never did anything about it? 

Mr. EcKER. We never did anything of that sort. That would 
mean to haVe men there all the time, and I just wonder whether a 
director in daily attendance is any different from a vice president or 
president in daily attendance. Isn't it the same thing? 

Mr. Douglas. We all know instances in corporation history of this 
country— X am not speaking now about Metropohtan — where direc- 
tors have been chosen merely for window dressing. That has not 
been an unusual practice. 

Mr. EcKER. Maybe those were the rubber stamps you referred to. 
We haven't any. 

Mr. Douglas. It is not necessarily to be classified with rubber- 
stamp directors or dunmiy directors, but a man whose name is a 
prominent name and who carries prestige and influence. I take it 
that has at times been a consideration in the selection of the adminis- 
tration ticket by the Metropolitan. 

Mr. EcKER. Not dehberately, expecting- they wouldn't render any 
other service than that performed by having their name in the window, 
no; but it just works out that way. It isn't possible toget men of the 
type I am speaking of — 24 or 25 working directors — and itis becoming 
increasingly difficult to get any directors who could qualify as a direc- 
tor of a great insurance company. 

Mr. Douglas. I know some corporation officials who are seriously 
thinking of reducing the size of their board, making them into more 
workable, compact units. Have you considered that? 

Mr. EoKKR. Some of the banks have done that. We have not 
given ioiisidcration to that; no. It would necessitule ji, cliange in the 
charter; that is simple enough, but if a majority of the board must be 
^esiden^s of the State of New York, we have a factor to give serious 
consideration thereto, don't you see. There is always thp question of 
whether it is better to have a board of representative men located in 
difffriiit sections of the coimtry. We think that is of value to us, and 
if we lose that, then we might come back to liaAang all of our directors, 
or nmoh more than a majority of them, res'd'='j>ts in New York. 

Air. n<^T'GLAS. Is it your philosophy thau the constitution of the 
board ahouki take into consideration having on the board as members 
a muu»tity \vh- will bring the company some prestige but who cannot 
be expected to participate in the dehberations of the management? 



CONCENTRATION OF ECONOMIC POWER 1287 

Mr, EcKER. Mr. Douglas, I feel that is applicable to everyone, that 
we have no one on the board who doesn't bring prestige to the com- 
pany, not one. There is no one selected to be just, should I say, an 
active, clerical working director who doesn't measure up in every 
respect to the standard I have spoken of. 

Mr. Douglas. Except a minority who do not attend and par- 
ticipate in the deliberations where policies are formulated. 

Mr. EcKER. No; I except none. I recognize in the natural course 
of things we cannot get 25 men, particularly if some of them are 
residents away from New York, to give all the attention that must 
be given to the transactions which are handled by committees. I 
tried to make that differentiation, that the detail work is done by 
committees. For that purpose we have established what I call the 
working members of the board, but those men in our estimation are 
of the same character with respect to standing, reputation, and 
integrity as all others. 

Mr. Douglas. I am not questioning that. I am just tliinking of 
the traditional function that directors are supposed to perform, and 
whether or not directors who do not direct actually have any place 
in a position of management. 

Mr. EcKER. I feel that our men do direct and when they are not 
attending meetings, they get the fullest information from the minutes 
that are sent to them and there isn't any part of the company's oper- 
ations they are not informed on. I feel they direct. We haven't 
any men who do not direct. 

Mr. Douglas. Even though they do not actually deliberate in the 
formulation of policy? 

Mr. EcKER. Even though they may not attend all meetings. 

Mr. Douglas. But the meeting place is the point where effective 
direction of policy can be had, and only that, isn't it? 

Mr. EcKER. Yes; that is true, but when they are informed of the 
transactions of the company, they are men who read those minutes 
and if there is anything there that should call for comments, I feel 
they would make it just the same as they would make it in our board 
meetings. 

Now our board meetings necessarily record actions that are taken 
by motion. There isn't the record there of the free discussion and 
free conversation that goes on with respect to many of the transactions. 
It may be policy of the company, it may be a question of dividends, 
it may be a question of investment of one type or another, but the 
only record that will appear there when you look at it is that upon 
motion, such and such action was taken. 

Mr. Arnold. Am I correct in coming to the conclusion that for the 
various reasons which you have stated, you have roughly two classes 
of directors, some who are expected to attend meetings and some 
who are not? 

Mr. EcKER. I wouldn't say that for a moment. ^Tien elected, we 
expect them all to attend meetings. You have a sort of desideratum 
over years, but a few men have been ill, one man says, "I was never 
expected to attend" — that wasn't an agreement made with me and 
that is an outstanding exception— and just going along with the 
natural course of business, it transpires after a while that those that 
may have expected to attend find they can't, or those who did attend 



1288 CONCENTRATION OF E!:ONO:\IIG I'OV.'ER 

regularly firid they are no longer able to cio so. You are dealing ^i-ith 
24 men. 

Mr. Arnold. I wasn't speaking of agreements made in advance, 
but it seemed to me that in the light of this correspondence the 
directors • did somewhat automatically fall into those two classes. 

Mr. EcKER. In the natural order of things, yes; but the}' weren't 
selected to be so classified. 

Mr. Arnold. Granted that, but those two types of directors do 
become somewhat crystallized, those you and the board think are 
very valuable whether they attend meetings or not, and those who 
are expected to attend meetings. 

Mr. EcKER. Except, of course, you have an instance of one man 
that wasn't attending, where we felt that it wasn't right for him to 
continue and we took up the matter in his case. 

Mr. Arnold. I take it you felt that maybe he was not performing 
the services. ' ^ 

Mr. EcKER. We felt under the changed conditions he should 
recognize an obligation to come to meetings. 

The Chairman. You have had a long experience with the activities 
of directors of various corporations, Mr. Ecker? 

Mr. EcKER. Yes, I have. 

The Chairman. Would you care to express an opinion to-this-com- 
mittee as to the degree to which directors, as a rule, of the large cor- 
porations attend actively to the duties or to the functions of the office? 

Mr. EcKER. As a general thing I should think the companies I 
have had opportunity to observe show about the same record as our 
own. Where there was a large board, there are a few that are very 
regular in their attendance; there are some that are irregular. 

The Chairman. But it is becoming increasingly difficult, is it not, 
to get the attendance of directors? 

Mr. Ecker. Yes; it is; and as I have said, increasingly difficult to 
get directors, to get men to serve as directors. 

The Chairman. To what do you attribute that difficulty? 

Mr. Ecker. The difficulty in attending simply means occupation 
and that they are so much engrossed in other tilings they are unable 
to get there because they are men of affairs and prominent in their 
business. 

Nov/, as to the difficulty of getting people to serve on boards, it is 
much of the same character. I think that men that serve on boards 
of directors are becoming more sensitive to their obligations, and it 
means a greater sacrifice. It is a better understanding of what the 
nature of the business is. 

The Chairman. My question has nothing to do particularly with 
Metropolitan. There is no sense of criticism at all. 

Mr: Ecker. I am trying to think of it 

The Chairman (interposing). I am aware of the fact, as ^ am sure 
everybody who is studying this problem is aware of it, that during 
several 3^ears past there has been an increasing amount of thought 
about paid directors, as Chairman Douglas suggested, and discussion 
of that method was particularly active— if that is a proper word — 
immediately after the McKesson & Bobbins affair, and I was wonder- 
ing what your opinion would be, with all your experience, with respect 
to the value of such procedure. 



CONCENTRATION OF ECONOMIC POWER 1289 

Mr. EcKER. I have expressed it. As I said to Mr. Douglas, I 
don't see the difference between a director who is paid for full time 
and a vice president or a president who are charged with the same 
responsibility. ' • 

The Chairman. What do you consider to be the function of a 
director, then? 

Mr. EcKER. It is first independent judgment in the conduct of 
the affairs of the company. Ifc is an opportunity to get the composite 
opinion of a body of representative men in matters that have to do 
with the policy in connection with the conduct of the affairs of the 
company. Then in individual cases these are all men of experience in 
business and you get the advantage of the \visdom that comes from 
the coimsel of several instead of one or two. And then there is always 
great value, as I see it, in an outside point of view. A fellow that is 
fight close to his proposition, working right close to it, doesn't ahvays 
get the perspective that gives him as good a view. 

Mr. Douglas. You could get that with your paid director,, couldn't 
you, because the fact that the man was more active tlian men who are 
around once a month wouldn't mean he was performing the same 
functions as a president. He would be merely supervising rather 
than paying close attention to details. 

Mr. PACKER. If he were a paid director, he would be there every day. 

Mr, Douglas. Not necessarily. 

Mr. EcKER. L was thinking of a paid director who was there all 
the time. Our company is so big that we have necessarily made 
divisions of the activities of the company, and a man to know all, 
unless he has grown up with it, would have to spend his time in one 
department or another. He couldn't have it all. As a director, he 
can get the reports and the advice from tlie officers of what is trans- 
piring and then form judgment. Now a paid director could only do 
.the same thing, couldn't he? 

Mr. Douglas. On the basis of that com.ment, I judge in view of 
the magnitude of the enterpiise, of a corporation such as yours, Mr. 
Ecker, that a director who isn't fairly close,- fairly intimately ac- 
quainted with the details of the business, can at these monthly meet- 
ings, which can't last very long, give only the most superficial 
supervision. 

Mr. EcKEK. He can't possibly pass on the thousands of individual 
'transactions, but he does pass his judgment upon the* trustworthiness 
of, the men who are doing the work, and it seems to me 

Mr. Douglas (interposing). He could do that much better if he 
were closer to the supervision of the organization. 

Mr. Ecker. I don't see any difference between the man v/ho is 
there every day and the officer employed to do th,e same thing. 

Mr. Douglas. It depends on what liis functions are — whether 
functions of supervision or functions of direct management. 

Mr. Ecker. That is. about all. I wonder whether there is any 
difference between the man paid to be there all the time as a director 
and the man paid to be there as an ofRcer. 

The Chairman. It comes down to the question of what is to be 
expected of a director. If a director is expected to be an executive 
officer, then he must, _of course, devote a great deal more time to the 
work of the company than if he is expected to be only an observer and 
pass upon the work of the active executive officers. In almost any 



"1^290 CONCENTRATION OF ECONOMIC POWER 

sort of an organization, I assume, and even in the Government, the 
executive officers develop the policy, and then they lay the policy 
before some other body which is to pass upon it. In the parliamen- 
tary system of government abroad, in Great Britain, the Prime 
Minister and his Cabinet will devise a policy and they will bring it 
into the Parhament and the Parliament will approve or disapprove. 
It will ordinarily approve without very much consideration unless it 
happens to be a question of such moment that a political division is 
held, and then, if it disapproves, the executive force changes. 

Now I assume from what you have testified tliis morning that you 
conceive the function of a board of directors to be rather this super- 
visory, observing character than actual participation in the affairs of 
the company. Am I correct in that? 

Mr. EcKER. That is true. Under the law certain actual, specific 
things are required. We can't pay any person or corporation more 
than $5,000 in 1 year without the authority of the board. What is 
the nature of that service? Should we approve of it? That is some- 
thing more than just looking in. 

Then with respect to certain investments we must have the author- 
ity of the board or the authority of a committee appointed to supervise 
the action of that particular transaction. Take our investment 
service; if you look at it for a moment, it is a big company. We have 
specialists in every department. We have specialists in municipal 
bonds, in railroad bonds, in public utilities, in general corporations; 
in investment in real estate we have specialists in types of buildings, 
dwellings, small dwellings, apartment dweUings, office buildings, and 
so forth, and then we have specialists in- different sections of the 
country again for those- subdivisions. Now there 

The Chairman (interposing). And all this contributes to the condi- 
tion which you described a moment ago, as the result of which it is 
becoming more and more difficult to persuade men of large affairs to 
serve as members of the board, because they don't find the time to 
look actively and directly into these various matters. 

Mr. EcKER. To accept the responsibility. 

In addition to that our company does a great deal of welfare work. 
I don't know whether you would like me to take a few minutes to 
describe the nature of that. 

Mr. Douglas. I was just about to ask you, Mr. Ecker — I am not 
sure that the idea would be adaptable — whether or not there had ever 
been discussed the possibility of so-called pubUc directors, which some 
corporations have discussed. 

Mr. Ecker. Yes; in a New Jersey life-insurance company there are 
three appointed by the chancelor. It is a question asked by the present 
committee of the State legislature engaged in revising the insurance 
laws, and we said in response to that that -we would see no objection 
to having added to our board one, two, or three men appointed from 
some source like the Court of Appeals or some body that you would 
feel sure wasn't of a political character. That we would welcome. 
Frankly, as far as I see it, it isn't possible for a director to render the 
service that is rendered by the examiners of the insurance department 
and to go into every detail of the operations of the company. 

Mr. Douglas. That leads to one more question. 

Mr. Ecker. Just to finish that, Mr. Douglas, it does put the respon- 
sibility to some extent on these directors who come in here as public 



CONCENTRATION OF ECONOMIC POWER 1291 

directors and may perhaps to some extent reduce the responsibility 
of the directors as now chosen. 

Mr. Douglas. The other additional c[iiestion that I had in mind 
was an indication from something you said in your testimony. In 
view of the extent of the supervision of the State that perhaps that 
supervision has usurped (perhaps that is the wrong word) taken away 
from, the normal functions of directors. 

Mr. EcKER. No, no, no; on the contrary it has put the directors 
more on their toes. I think it has had the opposite effect. Of course 
this business of ours is a service business. It is based on public confi- 
dence. That is why we feel it is so important not to disturb the con- 
fidence of the policyholders which might result in their doing things 
to their own disadvantage, canceling their policies, getting policy 
loans or taking cash surrender values, things that are not in their 
interest. Anything that tends to disturb the policyholder we would 
regard as a disservice. 

Now our business has been going on all these years since this Arm- 
strong investigation which has been referred to, with no scandal, no 
abuse during this entire period, and that would seem to be the best 
justification for the management and for the manner in which the 
management carried on. You talk about election of directors. Is 
there any better way? Mr. Hughes couldn't think of any. I have 
known of some instances where lawyers have said, "I don't think that 
is a good practice." Can you tell us of any better practice? Go out 
and devise something; Ve will welcome you with open arms, if there 
is anything better. 

Mr. Douglas. I was rather timidly suggesting paid directors. 

Mr. EcKER. Well, in studying it, Professor Patterson — is that his 
name? 

Mr. O'Brian. Patterson of Columbia. 

Mr. EcKER. He was specially charged with devising a better plan, 
and I understand has given it lip. Your idea would be to have paid 
directors? 

Mr. Douglas. I was suggesting it for discussion, Mr. Ecker. 

Mr. Ecker. Working full time instead of directors of the nature 
we have now? How would you choose them? 

Mr. Douglas. It has application to the corporate field, whether to 
the insurance field is something to consider. 

The Chairman. I don't understand that Chairman Douglas is 
advocating that necessarily. 

Mr. Douglas. Not necessarily; it is for discussion. 

Mr. Ecker. Mr. Douglas, if you had paid directors how would you 
choose them? 

Mr. Douglas. Well, I think that theoretically the selection by 
policyholders is a very sound system. I just wonder as to the vitality 
of the system when we find in the large corporations a clear self- 
perpetuation. 

Mr. Ecker. The only answer to it is that we have been working on 
this the last 33 years; there hasn't been any scandal, we have made 
progress, the company has grown. That is an indication of public 
confidence. Sometime maybe you would like to have a fuller state- 
ment with respect to our welfare activities. Our selecting of directors 
has to do with that ; men who have to do with these matters. We have 
one man now as a director with whom our first acquamtance was 



1292 ' concp:ntiiation of EroNo^fic power 

made becaiis3 of his interest in a diphtheria campaign, in the State 
cf Kew York. We liad m.uch to do with the development of the use 
of the scrum for immunity against diphtheria and for treatment of 
diphtheria after the disease bad developed. 

Mr. Douglas. I think it might be desirable, Mr. Chairman, if Mr. 
Ecker submitted such a statement for the record of their welfare work.^ 

Mr. Ecker. I was going to say that just that one instance has led 
to such a tremendous improvement that we have cities in the State of 
New York in which there hasn't been a smgle' death from diphtheria 
in a year. 

The CiiAiHMAN. I will say, Mr. Ecker, that I have read a good 
mniiy of the r.dvertisements of the Metropolitan Life Insurance Co. 
wii.h rospoct to iiealth advice, and I assume that probably these 
activities have, contributed somewhat to extending the period of 
longevity cf wl;ich we talk so much in recent years. 

Mr. EcKEi:. i^rcm forty-odd years up to fiO or 61. 

The CII.^l^v?,I.^N. And in that connection may I just ask this 
question without any implications' or inferences at all? Have the 
studies of insurance companies with respect to health and the welfare 
work and all cf the efforts which have been made to prolong human 
life been rcfierted in the mortality tables? 

y.v. EcKEE.. Very definitely. 

The Cn.'viiiMAN. Have the rates been affected? 

Mr. Ecker. The comparison would come in the improvement in 
the registration area and the improvement among policyholders in 
the same psriod. There is a surprising amount of evidence of irn- 
proverrent of mortality of policyholders which might be traced in 
part to public health agencies and to the activities of the company for 
its poliC3'^hald3rs. You see what we do for them. In the industrial 
department we nurse them. Last year we made visits to the number 
of, let me see, 3,716,090 policyholders. 

The Chairman. Is that reflected in the rates wliich the policyholders 
pay? 

"Mr. Ecker. It is a part of the cost of the business, and it is a 
question which you might ask, whether it is worth while. The results 
would indicate very strongly that it is much worth while, and that 
is the comment that has been made by the commission of the State 
lejiislaturo that Iras been studying it. Curiously enough, I think some 
of them said it is worth v/hile, but we should spend half as much 
money, but they ha.ven't told us which half of the policyholders to 
nurse and which half not to. 

Mv. Gesell. Tlie time is coming to a close and I have just three 
additional questions. 

May I ask whether any inquiry is made before directors are selected, 
nominated, or apnoiuted to the board, as, to their knowledge in life 
insurance as such? 

y[r. Ecker. Specifically no; it might be an incident that some 
might have; a lawyer might have some particular knowledge of his 
pmctico. 

Mr. Gesell. How many of the directors of your company are also 
officers of the company? 

Mr. Ecker. Only three. There would be only two except that we 
don't p'lv ihe chairman of the board. 

Mr. Gesei.l. You are an executive officer, are you not? 

' Th. stiilLinLr.t will appear in a later volume. 



CONCEXTKATIOX OF ECONOMIC POWER 1293 

Mr. EcKER. Oh yes, I am an executive officer under the bylaws, 
but before that office was fixed by the board we had only the president 
and the vice president. Now it is the chau'man of the board, the 
president, and vice president. 

Mr. Gesell. Do you feel that the board is handicapped by not 
having its members in regular attendance, certain of its members? 

Mr. EcKER. I haven't felt so, for the reason that I have explained 
to you, that we. have had no trouble in having a quorum for the con-' 
duct of the business, and our committees we have no trouble about 
at all. 

The CiiAiRM.'\N. Any other questions, Mr. Gesell? 

Mr. G-ESELL. No, sir. 

The Ch.mrman. Are there any questions hj any members of the 
committee-? 

Er. LuBiN. If I might ask a question, Mr. Ecker. You on several 
occasions have emphasized the fact that there have been no scandals 
and no complaints, and I thii^k you have rightly felt proud of that fact. 

Mr. Ecker. With all humility I am. proud of it. I am not boasting 
of it, but recording it as a historical fact. 

Dr. LuBiN. I think you have a right to be proud of it. As a man 
who has had many contacts in the field of business and has had occasion 
to see the activities of various corporations, do you feel that the ab- 
sence of scandal or complaints is any evidence of the efficiency of 
operation of any particular company? 

Mr. Ecker. Wliy, I do; puttii g emphasis on the fart that in our 
business every detail of operaticn is so carefufiy examined by very 
eflBcient examiners that if there were anything there it would show up, 
and the fact that they find nothing, 1 do think is significant. 

Dr. LuniN. I thhik it is significant, too, but, as I said, do 3^ou thinli 
that is a test of efficiency of operation? 

Mr.,EcKER. My mind goes back to the conditions that obtained 
preceding the Armstrong report and examination. There were evils, 
then, in the business that that committee sought to remedy, and I 
beUeve they did remedy, but at any rate we have been going on for 
the last 33 years and if anything in the nature of abuse or crookedness 
existed in the operation of these companies, I believe it would have 
come to light* and .the facT that it hrsn't is an inr.ication to my mind 
that it isn't there. Some differences in judgment may exist; one man 
might think a thing might be done 07ie way and some another. Mr. 
Douglas might look at a balance sheet and read into it an inference 
that someone else would read as something else, but that is a matter 
of judgment only; it isn't necessarily criticism. Even Mr. Douglas 
wouldn't say that his judgment was the last word on any of these 
questions. 

The Chairman. May I say, Mr. Ecker, that I am not conscious of 
any inference on the part of any members of the committee, and cer- 
tainly no information has come from any members of the Securities 
and Exchange Commission of developing scandals. 

Mr. EcKER. If they were there, I would hope they would be 
brought out. 

The Chairman. The thought has been altogether to make a survey 
of the economic condition, and may L say that on behalf of the com- 
mittee, we feel, very much mdebted to you for your contribution. 

I understand there are no more questions. 



1294 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. There are no more questions at this time. It is 
possible that much later, when we get into problems of investment, 
we will want Mr. Ecker back. 

The Chairman. You will notify him. 

Mr. Ecker. And then you said you might welcome a statement 
from us on our activities that I have spoken of in connection with 
welfare, cooperation with the United States and other public health 
agencies, of which there are various instances. 

The Chairman. Mr. Ecker, we will be Tery glad indeed to accept 
that statement from you. Thank you so much. 

(The witness, Mr. Ecker, was excused.) 

The Chairman. On the 18th of January, Dr. Jewett, of the Ameri- 
can Telephone & Telegraph Co., appeared before this committee to 
give testimony, with respect to patents.^ Several questions were 
directed to him with respect to the effect of the cross-licensing agree- 
ments upon the use and development and the distribution of a high- 
powered tube, and Dr. Jewett was given the opportunity to prepare a 
response to these questions. He didn't have the material with him 
at the time. 

The chairman has now received Dr. Jewett's letter, and I want to 
enter it formally in the record for publication, to appear in the ap- 
pendix of the record. 

(The communication referred to was marked "Exhibit No. 244" 
and is included in the appendix of Hearings, Part III, p. 1158.) 

The Chairman. The committee will stand in recess until 2:30 
this afternoon. 

(Whereupon, at 12:03 p. m., a recess was taken until 2:30 p. m. 
of the same day.) 

AFTERNOON SESSION 

The committee resumed at 2:40 p. m. on the expiration of the 
recess. 

The Chairman. The committee will come to order. Mr. Gesell, 
are you ready to proceed? 

Mr. Gesell. I am. The next witness is Mr. Cletis TuUy. 

The Chairman. Mr. Tully, do you solemnly swear the testimony 
you are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Tully. I do. 

TESTIMONY OF CLETIS E. TULLY, ASSISTANT SECRETARY, 
METROPOLITAN LIFE INSURANCE CO., NEW YORK, N. Y. 

ELECTION OF DIRECTORS METROPOLITAN LIFE 

Mr. Gesell. Mr. Tully, you are assistant secretary of the Metro- 
politan Life Insurance Co., are you not? 

Mr. Tully. Right. 

Mr. Gesell. As part of your duties are you in charge of the mechan- 
ics of conducting the biennial election of directors of that company? 

Mr. Tully. I am. 

Mr. Gesell. How long have you been in charge of that phase of 
the company's activities? 

' See Hearings, Part III, p. 948 et seq. 



CONCENTRATION OF ECONOMIC POWER 1295 

Mr. TuLLY. Ever since mutualization in 1915. 

Mr. Gesell. Section 94 of the New York Act ^ governs the conduct 
of these elections, does it not? 

Mr. TuLLY. It does. 

Mr. Gesell. That act provides that every policyholder whose 
insurance has been in force and shall have been in force for at least 
1 year shall be entitled to vote at every election? 

Mr. TuLLY. That is true. 

Mr. Gesell. Do you know the number of policyholders who were 
entitled to vote in the last election of the Metropolitan Life Insurance 
Co.? 

Mr. TuLLY. How many were entitled to vote in the last election? 

Mr. Gesell. You would have to estimate it I reaUze. 

Mr. TuLLY. I would say around 27,000,000. 

Mr. Gesell. About 27,000,000 policyholders were entitled to vote. 
The election in the Metropolitan is held every 2 years, is it not? 

Mr. Tully. Correct. 

Mr. Gesell. The policyholder can vote in person, by proxy, or by 
maU? 

Mr. Tully. Right. 

Mr. Gesell. If someone wishes to put. an independent slate 
before the policyholders, they must petition the Insurance Commis- 
sioner for a hst of pohcyholders and must make their nomination 
within a specified time? 

Mr. Tully. Correct. 

•Mr. Gesell. Vi ithin what time must that nomination be made? 

Mr. Tully. Five months of the day of election. 

The Chairman. I didn't get the answer. 

Mr. Tully. Five months before the day of election. 

Mr. Gesell. And if no independent nomination has been made 
after a specified time, the election is conducted under the supervision 
of the insurance department, is it not? 

Mr. Tully. Correct. 

Senator King. All of this is done pursuant to statute? 

Mr. Gesell. That's right. The statute is in. 

Senator King. Within what specified tim.e must an independent 
nomination be made? 

Mr. Tully. It must be made 5 months before the election. 

Mr. Gesell. The elections of the MetropoUtan are usually held id 
April? 

Mr. Tully. April ; the second Tuesday in April of every odd year. 

Mr. Gesell. Has there ever been, since mutualization, a contested 
election in the Metropolitan? 

Mr. Tully. No, sir. 

Mr. Gesell. It is not a fact that your procedure following your 
determination that there is to be no independent nomination is to 
write to the insurance commissioner, asking permission for the estab- 
lishment of certain rules with respect to the conduct of the election? 

Mr. Tully. That is correct. 

Mr. Gesell. You ask him, do you not, to waive the provision 
for maihng individual ballots and proxies to each policyholder? 

Mr. Tully. Correct. 



' See "Exhibit No. 232", appendix, p. 1522. 
124491— 39— pt. 4—10 



1296 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You also ask him to wpive the system which the 
statute sets up for checking in safe custody of the ballots and proxies 
received? 

Mr. TuLLY. Correct. 

Mr. Gesell. You get permission to open the ballots and proxies 
before the election date? 

Mr. TuLLY. Correct. 

Mr. Gesell. You also obtain permission from the insurance com- 
missioner wliich enables the agents and representatives of the com- 
pany to solicit the poUcyholders, urging them to vote, and so forth? 

Mr. TuLLY. That is correct. 

Mr. Gesell. In the last election can you tell me how many votes 
were cast in person, how many by mail, and how many by proxies? 

Mr. Tt)LLY. The last election? 

Mr. Gesell. That would be the election held in April of 1937, 
would it not? ^ 

Mr. TuLLY. Yes. 

Senator King. Would voters have to go to New York to vote in 
person? 

Mr. TuLLY. Yes, sir. In "person the number of votes dast for each 
candidate numbered 40; by proxy, 24,068; by mail, the vote varied 
slightly. 

Mr. G:«;sELL. Approximately 414,000 votes? 

Mr. Tllly. That is true. The total in person, by proxy and by 
mail varied from four hundred thirty-seven thousand, six hundred 
sixty-three to 438,575. 

Mr. Geselt, Does this memorandum which I show you contain a 
record of the voting which was submitted by you to the chairman and 
ajso a comparison with the voting of previous years? 

Mr. Tully. Yes, sir. 

Mr. Gesell. I notice that on the tab attached you state [reading 
from "Exhibit No. 245"! : 

"In peisdn" vv)tes all came from H. O. employees. 

Do you mean home-office employees? 

Mr. Tully. Home-office employees. 

Mr. Gesell. That means those 40 votes cast in 1937 were all cast 
by employees of the MetropoUtan? 

Mr. Tully. Yes; the president, I think, voted as well as the chair- 
man and three other officers. 

Mr. Gesell. What did you mean at the bottom of the tab when you 
said "No 'outsider' called"? 

Mr. Tully. No policyholders called at the home office to cast a 
vote in person. 

Mr. Gesell. lou call the poUcyholder the outsider? 

Mr. Tully. Yes. 

Mr. Gesell. 1 would like to have this record of voting included in 
the record. 

The Chairman Without objection it will be so included. 

(The documents referred to were marked "Exhibit No. 245" and are 
included in the ai'pendix on p. 1541.) 

Mr. Gesell. I would also like to offer for the record at this time 
what I behove to be a complete record of the correspondence between 
the Metropolitan and the Honorable Louis H. Pink, superintendent of 
insurance, with re-spect to the election held in 1937, this correspondence 



CONCENTRATION OF ECONCJIIC TOWER 1297 

particularly relating to the creation of rules for tliat noncontested 
election. 

The Chairman. Has the witness identified it? 

Mr. Gesell. They come from Mr. TuUy's office, I beheve. 

Mr. TuLLY. They are correct. 

(The correspondence referred to was marked "Exhibit No. 24G" and 
is included in the appendix on p. 1542.) 

Senator King. Does the superintendent of insurance of the State of 
New York formul-.tte the rules to giude the election? 
_ Mr. TuLLY. Tviicu there is no ijdepeudciVu, nomination he has the 
right to snspeid various i-cqu3roine:its of section 94; subsection 11 
covers thjiv pariici:lai- pc-iiit. 

Senator Rixg. 1 hat is where tliero is ro contest wliatever, no inde- 
pendent ticktt, the.n some cf the formalities which may be prescribed 
by the statu; c with respect to rules and regulations incidc'it to election 
may be waived by the superintendent of insurance. 

Mr. TuLLY. They are waived by the superintendent of hisurance. 

Senator King. A mere formality, I would imagine, when tlierc was 
no ticket in the field except the one, and no contests of any character. 
""Mr. TuLLY. Yes, sir. 

Senator King. That does not in any way militate, docs it, against 
the interest and welfare of the poUcyholder? 

Mr. TuLLY. The pohcyholder; no, sir. 

Mr. Gesell. Now, Mr. Tully, when do you first advertise the fact 
that an election is about to take place? 

Mr. Tully. Generally speaking, in the middle of Januaiy. 

Mr. Gesell. That would be after it had become clear thai vhero v,-as 
no independent nomination in the field. 

Mr. Tully. That is true. 

Mr. Gesell. Does the company make any efiTort to notify the pol- 
icyholders in advance of the time that they have a right to'nommate 
an independent ticket? 

Mr. Tully. Only by the notice that appears on the poiicies. the 
receipt for premiums paid on the annual, scmiannaal, or quarterly 
basis, or in the premium receipt book for industrial weekly and 
monthly. 

Mr. Gesell. Do those statements advise the policyholder that he 
has a right to make an independent nomi?iaticn? 

Mr. Tully. No; they do not. 

Mr. Gesell. My question was, when does the company advise the 
policj^holder of his right to make an independent nominatioti? 

Mr. Tully. So far as I recall, there is no direct notice to the 
policyholder. 

Mr. Gesell. All the advertising and notice involves is either the 
poUcyholder's right to vote or acquainting him with the fact that an 
election is to be held on a certain date? 

(The witness nodded his head.) 

The Chairman. May I interrupt? The lavv- prescribes tiiat the 
administration ticket naky be nominated 7 months ia advance of 
elections. 

Mr. Tully. Correct. 

The Chairman. That I assume is always carried out. 

Mr. Tully. That is true; always carried out. 



J 298 CONCENTRATION OF ECONOMIC POWER 

The Chairman. And when the administration ticket is so nomi- 
nated by the ofl&cers, what is done about it? 

Mr. TuLLY, Arcertificate of nomination is transmitted to the su- 
perintendent of insurance with the acceptances of the individual 
nominees. 

The Chairman. And it becomes a pubHc document then, doesn't it? 

Mr. TuLLY. Right then and there. 

The Chairman. What does the superintendent of insurance do 
about it? 

Mr. TuLLY. He holds a certification there, waiting developments. 

The Chairman. Does he take any step of any kind to give public 
notice of the fact that such ticket has been nominated and filed with 
his office? 

Mr. TuLLY. Not to my knowledge. 

The Chairman. There is no provision for the advertising of such a 
notice? 

Mr. TuLLY. No, sir. 

The Chairman. If there were a requirement that the nomination 
of the administration ticket should be published, as other insurance 
notices are published, that would be one means of notifying the pol- 
icyholders of the personnel of the administration ticket, wouldn't it? 

Mr. TuLLY. That is correct. 

The Chairman. But that is not done. 

Mr. TuLLX- It is not done; it is not required. 

The Chairman. And I understand your testimony in response to 
questions of Mr. Gesell, to be that the company itself, that is to say; 
under your direction, takes no step to notify the policyholders. 

Mr. TuLLY. Correct. 

Senator King^ Do any of the rules or regulations promulgated by 
the insurance commissioner call for any further notice to be g ven to 
the stockholders or to the public? 

Mr. Tully! No, sir. 

Mr. Gesell. You mean pohcyholders, do you not, sir? 

Senator King. Thank you; yes; I mean pohcyholders. 

Mr. Gesell. You .give notice of the election either on the policy 
or the policy jacket, do you not? 

Mr. TuLLY. On the policy, every policy. 

Mr. Gesell. Every policy of every kind? 

Mr. TuLLY. Yes, sir. 

Mr. Gesell. You give notice on the premium receipt? 

Mr. TuLLY. Correct. 

Mr. Gesell. How long has it been that you have been giving notice 
on the premium receipt of the fact that an election is to take place? 

Mr. TuLLY. My recollection is that that was established in 1936. 

The Chairman. Of what does the notice consist? 

Mr. TuLLY. Notice to the pohcyholdet? 

The Chairman. Yes; of what does it consist? 

Mr. TuLLY. This is the legend that appears on the policy, premium 
receipts, premium receipt books: 

An election of directors of the company is helcTin New York on the second 
Tuesday in April of every odd year. The holder of this policy while it remains in 
force after 1 year from its date of issue will have a right to vote either in person 
or by proxy or by mail. For full particulars how to vote, apply to the secretary, 
No. 1 Madison Avenue, New York City. 



CONCENTRATION OF ECONOMIC POWER 1299 

Senator King. And do the premiums which are paid from year to 
year on the poHcies all contain a similar notice? 

Mr. TuLLY. The premium receipt does. The notice of the prem- 
ium being due does not carry the legend. 

Senator King. But the receipt does? 

Mr. TuLLY. The receipt does. 

Mr. Gesell. ^Vhen a man pays a premium and receives back a 
receipt from the company, that receipt notifies him of the election. 

Mr. TuLLY. Well, yes; it notifies him, of course. 

Mr. Gesell. If he reads it. 

Is it not a fact that these premium receipts are sent out to the 
policyholders, a certain number every month and every week, possibly 
every day? 

Mr. TuLLY. According to the period during which they have paid 
the premiums. 

Mr. Gesell. So If I am a policyholder I may pay my premium and 
get my premium receipt, let us say in the month of June, and the 
notice I would get then would be of an election to be held the following 
year in April. 

Mr. TuLLY. But the preceding receipt for the premium paid carries 
that same notice. 

Mr. Gesell. Yes; but the current nature of the notice would depend 
upon when I received my premium receipt, would it not? 

Mr. TuLLY. If you paid your premium in January, we will say on 
March 15 of each year you would get the notice that i§ on the back of 
that receipt. 

Mr. Gesell. But if I paid it in June, I would be about a year off, 
wouldn't I? 

Mr. TuLLY. That is true, but you still have had the same notice 
for many years, we will say. 

Mr. Gesell. Do you also advertise in certain New York papers 
about 10 days prior to the election? 

Mr. TuLLY. Two weeks, as a rule. 

Mr. Gesell. That is required in the New York statute, isn't it? 

Mr. TuLLY. Yes. 

The Chairman. Has the New York statute fixed the date of the 
advertisement? 

Mr. TuLLY. It says that the notice shall appear daily for 2 weeks 
preceding the day of election. 

The Chairman. So you couldn't pubhsh it 4 weeks preceding and 
com])ly with the law? 

Mr.TuLLY. I presume that there wouldn't be anybody to take 
exception to it if we did. 

The Chairman. If you published the notice for 2 weeks, 6 weeks 
in advance of the election, that wouW not be compHance v.dth the 
law, would it? You have to pubhsh it for 2 weeks immediately 
preceding. 

Mr. TuLLY. Preceding, that is right. 

Senator King. If you publish it for 6 weeks, including the 2 weeks, 
then that might be comphance with the law. 

Mr. TuLLY. That is true. 

Mr. Gesell. You simply live up to the strict statutory require- 
ments, do vou not? 

Mr. Tully. That is right. 



1300 COXCEXTRATION OF ECONOMIC POWER 

' Mr. Gfsell. And the notice states: 

Metropolitan Life Insurance jCo. notice of election of directors. Notice is 
hereby given that the election of directors of the Metropolitan Life Insurance Co. 
will be held at the home office of the company, 1 Madison Avenue in the borough 
of Manliattan, city of New York, on Tuesday, the 13th day of April 1937, the 
poUa to be open at 10 o'clock in the forenoon and to remain open until 4 o'clock 
in the afternoon of said day, at which time they shall be closed. 

Metropolitan Life Insurance Co., 
J. P. P^RADT.EY, Secretary. 

Now that is not a notice to the policyholder that he has a right to 
vote. It simply says the polls are open and if a man doesn't, know 
that he has the right to vote, that docen't inform him of thiit fact. 

Senator King. You don't contend the po!icvh(^Jccr3 con't know, 
when they get their receipts and their ■ receipts for the premiums 
they pay carry this notice? 

Mr. TuLLY. May I interrupt to say if a man is paying his premium 
quarterly, he g^s that same notice four times within the policy 3"ear. 

Mr. Gesell. Are these papers that I show you the form of proxy 
and ballot which is used by the company? 

Mr. TuLLY. This appears to be a correct copy of the ballots and 
proxies used for the election of 1937. 

Mr. Gesell. I wish to offer both the prox}^ and the ballot for the 
record. 

(The proxy and ballot referred to were marked "Exhibit No. 247" 
and are included in the appendix on p. 1544.) 

Mr. TuLLY. Those by the way are approved by the department. 
When the copy is ready it is submitted to the superintendent of insur- 
ance for his approval. They are not used until we have his approval. 

Mr. Gesell. And by the time those proxies and ballots go out the 
situation is such that one vote will elect the directors, will it not? 

Mr. TuLLY. In effect. 

Mr. Gesell. And the transmittal of the proxies and ballots is 
simply for the purpose of finding out how much interest the policy- 
holders have in supporting the management, is that correct? 

Mr. TuLLY. We have striven to interest the policyholders to a 
greater number than, have heretofore voted at these elections. 

Mr. Gesell. But by the time these are sent out, one vote will 
result in the election of the directors, will it not? 

Mr. TuLLY. That is practically true. 

Mr. Gesell. How are these proxies and ballots distributed? I 
think you said they are not mailed to all the pohcyholders, 

Mr. TuLLY. They are not mailed to the policyholders at all. 

Mr. Gesell. How are thej'- distributed? 

Mr. TuLLY. The proxies and ballots are distributed to our managers 
and assistant managers in charge of detached offices throughout the 
United States. 

Senator King. And Canada? 

Mr. TuLLY. And Canada. 

Mr. Gesell. Now, they are sent out by regular form notices, are 
they not, to the managers and detached assistant managers? 

Mr. TuLLY. A circular letter follows the distribution of ballots and 
proxies. That circular letter is over the signature of the president 
of the comxpany. 

Mr. Gesell. You have in your hand, have you not, copies of the 
two ciir^rUr letters used in the two previous elections? 



CONCENTRATION OF ECONOMIC POWER 1301 

Mr. TuLLY. Yes. 

The Chairman. How many ballots and proxies do you ordinarily 
print? 

Mr. TuLLY. In 1937 we printed 1,027,000 ballots and 102,000 
proxies. 

The Chairman. And how many did you distribute? 

Mr. TuLLY. The distribution was 795, 260 ballots, and 79,676 proxies. 
Subsequent orders from the managers and detached assistant man- 
agers called for 58,740 more ballots and 12,324 more proxies. 

The Chairman. And all of these were sent to agents and none of 
tliem to policyholders as such? 

Mr. TuLLY. That is true. 

Mr. Gesell. I would Hke to read for the record a portion of the 
letter of Mr. Lincoln, president of the company, dated January 25, 
1937, in reelection of directors, sent to the managers and detached 
assistant managers. The letter states in part: 

You have already had notice 

The Chairman (interposing). What is the date of this? 
Mr. Gesell. January 25, 1937. This has been identified by Mr. 
Tul) jusL a m.oment ago [reading from "Exhibit No. 248"]: 

You have already had notice of the election of members of the board of directors 
to be held in the home office of the company, 1 MadLson Avenue, New York, 
N. Y., on the 13th day of April 1937. Official ballots and forms of proxies for 
the use of policyholders in your district have been sent to you for distribution. 
It is my wish that your agents should endeavor to interest as many policyholders 
as possible in this election. They are members of the corporation and entitled 
by law to vote for directors, and they should be desirous of exericsing such priv- 
ilege. It is incumbent upon your agents to bring this right to their notice and to 
endeavor to make them understand its significance. 

In the ordinary case, policyholders will prefer tb vote directly, w^hich the • may 
do by signing an official ballot before a witness who must also sign, and Wi/img 
on the ballot the number of at least one policy on the voter's life that has been in 
force more than 1 year. The amount of insurance does not signify. Each 
policyholder has one vote, without regard to the number of policies or the amoimt 
of his insurance. All necessary instructions are printed on the ballots and on 
the proxy forms. Signed ballots and executed proxies may be delivered to the 
agent or mailed to the home office, according to the preference of the policyholder. 

Forty ballots and 40 proxies 

Mr. TuLLY (interposing). Beg pardon; you said 40 ballots and 40 
proxies. 

Mr. Gesell. (Beading further from "Exhibit No. 248"): 

Forty ballots and four proxies per agent have been sent to your district, and 
should be distributed to your staff in such a way as will stimulate in them a spirit 
of friendly competition to procure the greatest number of completed ballots. 

A good way to liandle this election material is to give each agent a part only of 
the s>ipply of ballots and proxies provided for him, and to see that, within a 
definitely set time, he turns them in properlj'^ completed. These ballots are not 
merely for distribution, but are intended for use. As soon as an agent has ex- 
hausted his first installment ©f ballots and proxies, he should be given another lot 
and encouraged to exert every reasonable effort to have them used. Meanwhile, 
completed ballots and proxies should be promptly transmitted by first-class mail 
to the home office * * * 

I wish to offer these circular letters in evidence. 

The Chairman. They ma}'^ be received. 

(The letters referred to were marked "Exliibit No. 248" and are 
included in the appendix on p. 1546.) 

Mr. TuLLY. May I say that during the period from one to another 
election, a few of the policyholders write in f-or advice as to how they 



1302 CONCENTRATION OF ECONOMIC POWER 

can cast their votes at the next election. That information, of course, 
is always given. 

The Chairman. Did you say "few" or "a few"? 

Mr. TuLLY. A few. 

Mr. Gesell. And then they are put on a mailing list and receive 
ballots or proxies directly from the company? 

Mr. TuLLY. Just as soon as we have the ballots and proxies off the 
press the distribution begins. 

The Chairman. What is the tenor of tho inquiry which comes from 
such policyholders? 

Mr. Gesell. I have some, Mr. Chairman, to come to in a moment, 
if you don't have any objection. 

Are the ballots and proxies usually seilt in by the policyholders, or 
usually by the office manager? 

Mr. TuLLY. Mainly by the office manager. 

Mr. Gesell. Do they come by mail or express or by hand, or how 
do they get to you? 

Mr. TuLLY. They come by first-class mail. 

Mr. Gesell. All of them? 

Mr. TuLLY. Occasionally one or the other of our managers slipped 
up and sent the package in by express, and the moment that we 
discover that at the home office we take the package over to the post 
office and there pay postage that should have been paid in the first 
instance. 

Mr. Gesell. The law provides that the policyholders must vote by 
mail, by proxy, or in person. The ballots come in by express. 

Mr. TuLLY. By first-class mail. 

Mr. Gesell. These ballots we are talking about come in by express, 
do they not? 

Mr.- TuLLY. Yes. 

Mr. Gesell. Thea, to legaHze them, you put the stamps on, take 
them to the post office, and mail them back toyourselves. 

Mr. TuLLY. We sent them by messenger to the post office, there 
purchase the postage, and pay for it. 

Mr. Gesell. Nov/^, what do you do with respect to the voting of 
group pohcyholders? 

Mr. TuLLY. Group policyholders have the right to vote, but so far 
as I know none of our policyholders have exercised that right. The 
employees are not entitled to vote. 

Mr. Gesell. It would be one vote by the employer for all of the 
employees. 

Mr. TuLLY. If you wish to express it that way. 

Mr. Gesell. Is that. correct? 

Mr. TuLLY. That is correct. 

Mr. Gesell. Is it not a fact that when it gets around time to count 
these ballots and proxies that a regular system for the examination of 
these ballots is prepared an;l instructions are given to the clerks? 

Mr. TuLLY. Yea; clerks provided or appointed by the superintend- 
ent ol msurance supervise elections. 

Mr. Gesell. The superintendent of insurance appoints the clerks? 

Mr. TuLLY. Three inspectors to supervise the election. 

Mr. Ge'ell. The actual counting is by the employees of the 
Metroi)oHtan? 

Mr. Tully. Largely, however, tests are niade by each of the three 
inanftctov<a 



CONCENTRATION OF ECONOMIC POWER 1303 

Mr. Gesell. If there is a dispute, I suppose it goes to the inspector. 

Mr. TuLLY. Right; the inspectors are in complete control of the 
election from the opening of the polls until the final votes are cast. 

Mr. Gesell. Is this sheet which I show you a copy of instructions 
which are given to the clerks with respect to the counting of ballots? 

Mr. TuLLY. It looks to be and probably is. 

Mr. Gesell. I notice you say in paragraph 4: 

(a) A void ballot is one unsigned, (b) signed but not witnessed, (c) not stating 
the policy number, (d) where a name other than any one of the several listed 
under the administration ticket is inserted. 

Directing your attention to (c), these instructions void ballots not 
stating the policy number. Is that correct? 

Mr. TuLLY. That set of instructions was prepared by our general 
counsel. 

Mr. Gesell. Are you aware that section 94, subsection 16, which 
is not one of the sections waived by the insurance commissioner, states 
that failure to state or correctly state such policy number shall not 
render a ballot void or subject the policyholder to any penalty? ' 

Mr. TuLLY. What subsection is that, please? 

Mr. Gesell. That is subsection 16 to section 94. 

Mr. 'I'uLLY. That escaped my attention. 

Mr. Gesell. Has that been the practice to void ballots when they 
do not contain the policyholder's number? 

Mr. TuLLY. I wouldn't want to say that has been the practice. 

The Chairman. These are not adversary ballots, are they? 

Mr. TuLLY. No; they are all administration ballots. The inspec- 
tors pass on them. 

The Chairman. So the mere fact of the invalidation of the ballot 
here by the interpretation of that doesn't affect the outcome of the 
election any way because they are all one wa}^. 

Mr. Gesell. No; one vote will do the trick, 

Mr. TuLLY. The inspectors are in complete control and they issue 
instructions. 

Mr. Gesell. Are these the insurance inspector's instructions or 
yours? 

Mr. TuLLY. Mine. 

Mr. Gesell. And they are instructions to clerks of the Metro- 
politan, are the^^ not, who do the counting? 
• Mr. TuLLY. Yes. 

Senator King. From your observations and experience are there 
many ballots which have been received in which the number of the 
policy was omitted? Is that a usual thing? 

Mr. TuLLY. Very rare. The number is given in a very large per- 
centage of all the votes. 

The Chairman. Just describe the machinery of counting the bal- 
lots. Who has charge of it and how is it carried on? 

Mr. TuLLY. The canvass of votes is made by staff clerks. 

The Chairman. Under whose direction? 

Mr. TuLLY. Under the direction of the superintendents of insur- 
ance inspectors in charge of the election. 

Senator King. Thev come down to the office, do they? 

Mr. TuLLY. Yes. 



'See "Exhibit No. 232", appendix, p. 1522 at p. 1524. 



1304 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Do you have anything to do with it? 

Mr. TuLLY. I do not. 

Mr. Gesell. Is there any comparison of the policyholder's num- 
ber with the numbers on the ballots of proxies when they are received? 

Mr. TuLLY. With what? 

Mr. Gi^SELL. With the true numbers of the policyholders' policies. 
In other words, do you see whether the policyholder's number is 
correctly stated? 

Mr. TuLLY. No; we don't go to that extreme. We accept the 
ballot with the policy number as having been used in good faith by 
the policyholder. 

Mr. Gesell. Do you make any effort to compare signatures? 

Mr. TuLLY. No, sir. 

Mr. Gesell. Do you have any procedure which would cast out 
duplications? 

Mr. TuLLY. In the examination of the ballots the clerks find occa- 
sionally duplicate ballots, meaning that they have voted under one 
policy in the first instance and then on the second occasion they 
voted on on other policy. 

Mr. Gesell. Is j^our procedure such as to catch all duplications? 

Mr. TuLLY. We believe it is. 

The Chairman. What is the purpose of trying to catch duplications? 

Mr. TuLLY. They are entitled to only one vote. 

The CHAIRMAN. What difference does it make under that system? 

Mr. TuLLY. That is the inspector's 

The Chairman (interposing). Senator King and I have been listen- 
ing to this description with a great deal of interest and we are going 
to put our heads together and see if we can't arrange for a similar 
system in our States. 

Mr. Gesell. You said, I think, that these ballots and proxies are 
counted under the supervision of the inspectors appointed by the 
insurance department. Isn't it a fact though that these ballots 
and proxies are received in advance of even the appointment of the 
inspectors and counted and sorted by the clerks ahead of the actual 
election itself? 

Mr. TuLLY. They ai'e received a long time ahead of the election. 

Mr. Gesell. Are they opened before? 

Mr. TuLLY. They are opened with the permission of the super- 
intenden t of insurance. It is a fact that we do have clerks who count 
the ballots only for the purpose of informing me as to the total number 
of ballots that are received up to any given date. 

Mr. Gesell. Why do you want to know the total number cast? 

Mr. TuLLY. Just to see how many of those that we have shippe(| 
come back completed ballots. 

Mr. Gesell. What difference does it make? 

Mr. TuLLY. It doesn't make a particle of difference, but the final 
counting of the ballots is done on the day of the election by these 
clerks under the supervision of the inspectors of the election. That 
is tiie official count. 

Mr. Gesell. But there is a preliminary opening of the packages 
and a sorting of ballots in advance? 

Mr. TuLLY. If I may say so, it is just a matter of curiosity. We 
would like to know how many out of the million or, say, 840,000 
ballots that were sent out have come back up to a given date. It has 



CONCENTRATION OF ECONOMIC POWER 1305 

nothing to do whatever with the official count which is made after the 
opening of the poll. 

Mr. Gesell. The New York law provides that 4 months after they 
have been counted, if there has been no objection raised, they can be 
destroyed. Is that correct? 

Mr. TuLLY. It sa3"s they are to be preserved for a period of 4 
months. We add, when thej^ are destroyed. 

Mr. Gesell. Is the practice of the Metropolitan to destroy the 
ballots after those 4 months, and the proxies too? 

Mr. TuLLY. Ballots and proxies are all destroj^ed. 

Senator King. May I ask one question: Has there been any formal 
charge by any stockholder or by the insurance commissioners 

Mr. TuLLY (interposing). Policyholder. 

Senator King. I beg your pardon, policyholder or by the insurance 
commissioner that there was .a fraud in the election, ballots weren't 
counted that should have been or inferred that there was unfairness, 
deceit or fraud, or irregularity in any of your election proceedings? 

Mr. TuLLY. Notliing of that kind has ever been known. 

Senator King. From these millions of stockholders 

Mr. TuLLY (interposing). Policyholders. 

Senator King. Yes, policyholders. 

Mr. TuLLY. Yes. 

Senator King. I will have to move to strike out stockholders and 
insert policyholders. 

The CHAiRM.ysf. There is not likely to be much demand for a recount 
when the votes are all one way. 

Mr. Gesell. Is there any advertising in connection with the elec- 
tions or in anticipation of the elections wliich advises the policyholder 
in any way of the business connections of the director, his age, his 
period of service, his business accomplishments, his attendance record, 
or anytliing of that character? 

Mr. TuLLY. No, sir. 

Mr. Gesell. By the way, is there any such tiling as a policyholder 
list available in your company? 

Mr. Tully. Not as a list. We have a card record of all ordinary 
policyholders of $500.00 and upward. 

Mr. Gesell. You have no list which you could^hand me and say, 
"These are the people who have a right to vote"? 

Mr. TuLLY. No, sir. 

Mr. Gesell. You would have to compile that, ^vould you not? 

Mr. Tully. We would have to go to the record of about 29,000,000 
or 27,000,000 policyholders. 

Mr. Gesell. As a matter of fact, your procedure.is such that the 
policyholder's name is really carried in the branch office and not car- 
ried on a master control in tlie home office? 

Mr. Tully. No; on the ordinary type of policy the record is in the 
home office. In the industrial department that record is in the hands 
of the agent. 

The Chairman. But the law provides a method whereby a certain 
number of ]iolicy holders, by signing petitions, may obtain such a list 
of policyholders? 

Mr. Tully. That i_s correct. 

The Chairman. Has anv such demand ever been m.ade? 



1306 CONCENTRATION OF ECONOMIC POWER 

Mr. TuLLY. No, sir. 

Mr. Gesell. The chairman asked concerning communications from 
poHcyholders. Those clear across your desk, clo they not? 

Mr. TuLLY. The majority of them; yes. 

Mr. Gesell. They are either answered by yourself or one of the 
higher officers of the company? 

Mr. TuLLY. That is true. 

Mr. Gesell. Perhaps I might read a typical one into the record, 
a letter from a Mr. Lieberman, dated July 27, 1938, addressed to the 
Metropohtan [reading from "Exliibit No. 249"]: 

I am the holder of policy No. so and so. I notice on the policy that directors 
of the company .are elected at a given time. Please send me a copy of the consti- 
tution and bylaws of the company together with particulars on how to vote in 
the forthcoming election of directors. 

I shall thank you for your prompt attention. 

That is the type of inquiry you get, is it not? 
Mr. TuLLY. Yes; just a simple request for information. 
Mr. Gesell. Now may I read this and ask j^ou whether this is 
a more or less customary reply [reading further from "Exhibit No. 249"]: 
This is in response to your letter of the 27th. 

The bylaws of this company contain no provisions whatsoever governing 
corporate elections. 

Section 2 of article V of the company's Certificate of Corporations fixes the 
date for the biennial election of directors on the second Tuesday of April in every 
odd year. 

The election of directors of ins:irance companies organized in New York la 
covered by the provisions of section 94 of the New York insurance law which 
is very elaborate in detail, comprising 35 subsections which occupy the greater 
part of seven pages of the Statute Book. This law makes provisions for an admin- 
istration ticket and for independent tickets. The administration ticket is required 
to be nominated by the board of directors at least 7 months prior to the day of 
any election. Independent nominations may be made by petition of policy- 
holders filed with the superintendent of insurance not less than 5 months before 
the election. The minimum number of nominations is 1 percent of the total 
policies in force. 

The next election will be held on t^he second Tuesday of April 1939. We shall 
have pleasure in sending you on or about March 15 of that year a ballot and a 
proxy, either one of which may be used to record 5'our vote at that election. 

Mr. TuLLY. That is not a typical response. 

Mr. Gesell. It is not? 

Mr. TuLLY. No, sir. It is generally very brief and to the point. 
I think perhaps you have copies there. If you haven't, I have. 

Mr. Gesell. You Mould consider this veiy detailed? 

Mr. TuLLY. Yes; very much in detail. 

Mr. Gesell. Do you usually tell the policyholder about his right 
to make an independent nomination? 

Mr. TuLLY. No, sir. 

Mr. Gesell. You said no? 

Mr. TuLLY. We do not. 

Mr. Gesell. I notice in this letter you state the minimum number 
of nominations is 1 percent of the total policies in force. You wrote 
that letter didn't vou? 

Mr. TuLLY. I think I did. 

Mr. Gesell. Is it not a fact that section 94, subsection 9 provides 
that one-tenth of 1 percent may make that nomination? 

Mr. Tully. That is true. 



CONCENTRATION OF ECONOMIC POWER 1307 

Mr. Gesell. That is the difference between 270,000 and 27,000, 
is it not? 

Mr. TuLLY. Will you just read that for me again, please? 

Mr. Gesell. You may look at the letter again. 

Mr. TuLLY. It is a misprint, that is just a plain error. It should 
be one-tenth of 1 percent. 

Mr. Gesell. It is written out; it is not in figures. I wish to 
offer this correspondence. 

(The letters referred to were marked "Exhibit No. 249" and are 
included in the appendix on p. 1547.) 

The Chairman. What is the typical letter that you send out? 

Mr. TuLLY. May I just refer to our records and quote it? 

The Chairman. I confess the matter seems to me to be of slight 
importance where the votes are all one way. 

Mr. Gesell. Have you found that typical letter? 

Mr. Tully. This is a typical one, addressed to an individual, we 
will call liim John Doe, Dated April 2, 1935. 

This is in response to your card of the 28th ultimo. 

The election of directors of this company will be held on Tuesday, April 9. 
The polls will be open from 10 o'clock irt the morning and closed at 4 o'clock in 
the afternoon. It is your privilege to cast your vote for the directors, and we 
would be very glad to have you do so. You may vote by ballot or by proxy. 
We are enclosing a ballot and proxy, either one of which may be used. Full in- 
structions for voting appear thereon. If you prefer to vote in person you may 
do so at any time between the hours above mentioned. 

The Chairman. Do you recall ever having received any substan- 
tial number of letters from policyholders who desired to know whether 
or not there were anj^ independent candidates or who desired to know 
if there was any opportunity of nominating any independent 
candidates? 

Mr. Tully. I have in mind that during the last 20 years we have 
received two or three such requests. 

The Chairman. How were they treated? What sort of a response 
went to them? 

Mr. Tully. I do not believe that I can answer that question. It 
would be in the hands of the general counsel. If received by me it 
would be referred to the general counsel" for attention. I am just 
quoting recollection now. 

The Chairman. "What is the reason for the circulation of so many 
proxies and administration ballots when apparently when they are 
circulated there is no opportunity for any opposition ticket to be 
placed in the field? 

Mr. Tully. The ballots run into large figures, as I quoted a short 
time ago, numbering some 740,000. The proxies at the most were 

Senator King (interposing). Forty-six thousand. 

Mr. Tully. Forty-six thousand, a wade discrepancy, a discrepancy. 
We send these ballots to our field force, managers, and agents, in the 
hope that the policyholders will take more interest and cast their 
votes at the various elections. 

The Chairman. Have you at any time notified them of their right 
under the law to nominate anyone for opposition tickets? 

Mr. Tully. No. 

Mr. Gesell. No; as a matter of fact, Mr. Tylly, when some of 
these people write in is it not so that you in Metropolitan make an 



1308 CONCENTRATION OF ECONOMIC POWER 

independent, secret investigation of that man's habits, why he wrote 
in, and why he indicated this great interest? 

Mr. TuLLY. There have been one or two, possibly three, and you 
will note a policy number was not given and so we had no means of 
identifying the individual as a policyholder eligible to vote. In 
one or two of those cases I did write to the manager under personal 
and confidential coverage asking him to give us a word picture of the 
correspondent and to tell us whether he was a policyholder. 

Mr. Gesell. Now, let me see. Here is, I thmk, an example. From 
Kansas City, Mo., September 29, 1936, you received a little post 
card [reading from "Exhibit No. 250"! : 

Dear Sir: Kindly advise me as a policyholder how to vote. Is there one vote 
for each policy, one for each holder, or is the vote regulated by the amount of 
insurance carried? 

Yours verytruly, 

C. L. Fontaine, 
Mercier Street, Kansafi City, Mo. 

Your reply states to Mr. Fontaine [reading further from "Exhibit 
No. 250"]: 

This is in response to your post card request of the 29th ultimo for information 
as to voting for election of directors. 

You give him some information. That letter went out on October 9 
to Mr. Fontaine, telling him about his right to vote. On the same day 
you appeared to have written to Mr. Henry V. Party, manager in 
Pennway, Mo. [reading further from "Exhibit No. 250"]: 

Will you please find out and tell us something about the above named, his 
business, general standing in the community, the numbers of his policies plus the 
numbers of others in force on the lives of the members of his family and the 
D. L. P. 

Mr. TuLLY. D. L. P., date of last payment. 
Mr. Gesell (reading): 

We ask for this information as the result of his request of us for advice as to how 
he is to proceed to vote for the directors of the company at the next election. 
We are, of course, giving him the desired information. We have also told him 
that we will have pleasure, on or about February 15, in sending him a ballot and a 
proxy either one of which may be used to record his vote; that full instructions as 
to how to vote will appear on each form, and that irrespective of the number of 
policies and the total amount of insurance he has, he is entitled to only one vote. 

This is the paragraph that interests me, Mr. Tully: 

There is no need for you to send one of your men to question him. Casual 
inquiries of the agent or of others in the neighborhood of his business should 
enable you to give us a pretty good line on him and his interest in the company. 

Mr. TuLLY. If the gentleman was a policyholder of the company 
the manager could obtain from the agent some knowledge of this man. 

Mr. Gesell. Now if you wanted to know whether this man had a 
policy and what the policy number was, couldn't you write to him as 
a member of the Metropolitan family and drop him a card and ask 
him for his policy number? 

Mr. Tully. I could very well have done that, but I just took the 
other means that was open to us of finding out through the agent. 

Mr. Gesell. Why was it necessary to know about his business and 
general standing in the community? 

Mr. Tully. Well, that is somewhat of an exaggerated point. 

Mr. Gesell. Wliy was it necessary to make casual inquiries about 
him in the neighborhood? 



CONCENTRATION OP ECONOMIC POWER 1309 

Mr. TuLLY. That would not be done if the agent knew the man as 
a policyholder. 

Mr. Gesell. Wouldn't the proper thing have been for your agent 
or your manager to go directly to this man and ask him? 

Mr. TuLLY. No, sir; I don't think so. We never do that. 

Mr. Gesell. On whose instructions do you send this kind of thing 
out, Mr. Tully? 

Mr. Tully. I would say in that respect that I personally am re- 
sponsible for that. That was followed in two or three cases. I do 
not know of any other cases where that has ever been done. 

Mr. Gesell. Is it because you are alarmed or have some doubts as 
to the fact that a man may make an independent nomination? 

Mr. Tully. Absolutely no. 

The Chairman. Wliat was the date of that? 

Mr. Tully. October 9. 

Mr. Gesell. October 1936. The correspondence is all in that 
month; it varies from the 9th to about the 13th. 

The Chairman. When was the next election? 

Mr. Gesell. April 1937, I believe. 

Mr. Tully. April 1937. 

Mr. Gesell. I wish to offer this correspondence in evidence together 
with the reply which perhaps I might read. Mr. Party replied to Mr. 
Tully [reading further from "Exhibit No. 250"! : 

In regard to Mr. Fontaine, I will give you the following report. This man has 
$27,500 of Metropolitan 10-year term policy with our Agent Brown, debit 76. 

He is a grain broker. He also has $10,000 worth of insurance in some Texas 
company. He has recently requested the figures to change his term insurance. 

and there follow some facts that they have been able to collect about 
him, about his daughters being in boarding school, and certain things. 

(The correspondence referred to was marked "Exhibit No. 250" 
and is included in the appendix on p. 1548.) 

Mr. Tully. May I add that the manager correctly identified this 
man as a policyholder, that he gave us the amount of his insuraace, 
and we could then and there have gone into our files, we could have 
learned from our files the nature of the man's business, something 
about his insurance, and many other things. 

Mr. Gesell. Does that incoming letter give the man's policy 
number? You didn't get what you wanted, did you, Mr. Tully? 
Did you write him back? 

Mr. Tully. No; we didn't. When he is a policyholder of the com- 
pany we must necessarily satisfy him. 

The Chairman. The witness testified that this is an isolated inci- 
dent, Mr. Gesell. Have you any reason to believe it is not an iso- 
lated case? 

Mr. Tully. May I add that that is the experience over a good 
many years, just these three cases. 

Mr. Gesell. I have some other cases from the files, of that kind; 
yes. Would you like them for the record? 

The Chairman. Not necessarily; no. The witness testified that 
this was an isolated case and I was just wondering what the purpose 
of the representation is. Are you going to prove that it is not an 
isolated case? 

Mr. Gesell. I will ask Mr. Tully, how many times have you made 
an investigation of a policyholder who wrote in and inquired about his 
franchise rights? 



1310 CONCENTRATION OF ECONOMIC POWER 

Mr. TuLLY. I would say not more than the three or four that are 
in this file. 

The Chairman. How did you happen to do tliis, Mr.- Tully? 

Mr. TuLtY. The man didn't give us the number of his policy, and 
curiosity killed a cat. That was what I was after, trying to find a 
word picture of the man. There was no ulterior purpose in mind. 

The Chairman. Since the election is such a formality in any event, 
I wondered why you should go to the trouble in one isolated case to 
find out who the man was. 

Mr. Tully. Just poor judgment. 

The Chairmat^j. What would you do with the information when 
you got it? 

Mr. Tully. It would remain in the 7i\e. 

Senator King. In the card you first received did the sender state the 
number of his policy? 

Mr. Tully. He did not. 

Senator King. If he had stated the number of his policy 

Mr. Tully (interposing). I would know he was a policyholder and 
was entitled to that information. 

Mr. Gesell. Just one thing, Mr. Tully. Do you recall some 
correspondence you had with a Mr. John O'Connor, who inquired 
about the right to vote, in December 1937? 

Mr. Tully. Yes. 

Mr. Gesell. Your reply to Mr. O'Connor on December 15, 1937,' 
did not give full information to Mr. O'Connor about the methods to 
be pursued in making an independent nomination, did it? 

Mr. Tully. No, sir. 

Mr. Gesell. I notice the tab states, to you from Mr. Dunham, of 
the legal division of your company. 

This letter has had the consideration of Messrs. Lincoln and Ecker, who don't 
want any further explanation given. 

Have you anything further to say about that? 

Mr. Tully. I have not. They have to speak for themselves. 
I speak for myself. 

Mr. Douglas. I have a question; perhaps you covered it, perhaps 
I didn't understand. Let me ask you a hypothetical question. Sup- 
pose I were a bona fide policyholder of Metropolitan, and I wanted to 
get a candidate of my choice before the electorate, how would I go 
about doing it? 

Mr. Tully. You would have to join with 24 others and petition 

Mr. Douglas (interposing). Tw§nty-four other pohcyholders? 

Mr. Tully. Yes. 

Mr. Douglas. How could I find them? 

Mr. Tully. Well, from personal acquaintances. 

Mr. Douglas. Could I go to the company and would you, as 
assistant secretary, or some other ofiicer of the company give me a list' 
of policyholders from which I could select a few names? 

Mr. Tully. I would immediately refer that question to the general 
counsel of the company for attention. 

Mr. Douglas. Have you ever had any such inquiry? 

Mr. Tully. We have never had. 

Mr. Douglas. Therefore it is correct to say that Metropolitan has 
no policy as respects the accessibility of the names and addresses of 
policyholders. Is that right? 



CONCENTRATION OF ECONOMIC POWER 1311 

Mr. TuLLY. We have an index of all policyholders. 

Mr. Douglas. But you have no policy as respects their release or 
distribution to people like myself in this hypothetical case. 

Mr. TuLLY. I would prefer to have the general counsel answer 
that question. I would say, however, that we would probably give 
you the information if you asked for it. I am just expressing my own 
opinion on that question. 

Mr. Douglas. But in the history of Metropolitan so long as you 
have been associated with it, that question has never arisen? 

Mr. TuLLY. It never has. 
■ Mr. Gesell. Just to clarify one point, you say you get 25 policy- 
holders. That would be for the purpose of getting a policyholders' 
list through the office of the insurance commissioner. 

Mr. TuLLY. Superintendent of insurance. 

Mr. Gesell. It would then be necessary, would it not, to, get the 
approval of one-tenth of 1 percent of aU the poUcyholders entitled to 
vote, to make an independent nomination? 

Mr. TuLLY. That is correct. 

Mr. Douglas. And that requirement would require me to get 
around 27,000 endorsements for my candidate? 

Mr. TuLLY. I would say 27,000 to 29,000. I am not much of a 
mathematician. 

Mr. Douglas. One-tenth of 1 percent of 27,000,000 is 27,000, isn't it. 

Mr. TuLLY. Twenty-seven thousand. 

Representative Sumners. I would like to ask a question, if you 
please, sir. As a practical proposition, with that many million pohcy- 
holders, is there any possibility of an opposition ticket, unless there is a 
great big excitement among the policyholders caused by somebody 
who has a lot of money he wants to invest in an effort to get control? 

Mr. TuLLY. I think there would have to be a lot of noise. 

Representative Sumners. Suppose one individual got all the infor- 
mation you have got. How would he go about stirring up these 
twenty-odd million people and getting a ticket in there to beat you 
folks? 

Mr. TuLLY. He would have to find a number of men of the same 
type of mind, to interest as many as he can. 

Representative Sumners. He not only would have to have a mi^d ; 
he would have to have money. ■ 

The Chairman. It would be a Uttle bit worse than running for 
Congress. 

Representative Sumners. Now, as a practical proposition — I don't 
know what all this testimony is about — either you people control the 
election of officers or somebody else does. 

Mr. TuLLY. The directors. 

Representative Sumners. And somebody has to unseat you to get 
in. It takes a heap of votes and lots of money, so that is aU there is 
to it as I see it. 

Mr. TuLLY. And a lot of money. 

Senator King. Has there ever been any particular complaint of 
the management or any disposition to oust any member at all? 

Mr. TuLLY. Not even a ripple of it; on the other hand there have 
been thousands of letters coming in and congratulating the manage- 
ment on the conduct of the business from all over the United States 
and Canada. 

124491— 39— pt. 4 11 



1312 CONCENTRATION OF ECONOMIC POWER 

Mr. O'Brian. Mr. Chairman, may I make an observation in con- 
nee tion with this very subject? This section 94 ^ which has been in 
force in substance, substantially the same form, ever since the Arm- 
strong committee, has been given a good deal of study according to 
current information, and a couple of years ago Professor Patterson, of 
Columbia University, who is a professor of insurance, was retained by 
the commissioner of insurance of the State of New York to study and 
make recommendations on a revision of the New York insurance law, 
and this particular subject was made — special emphasis was laid upon 
it in the so-called "code" which is now before the New York Legislature 
for adoption. This section remains substantially unchanged. There 
are minor changes in it, but I believe there is some literature on the 
subject in the form of notes of Professor Patterson, who has been ap- 
pointed special counsel. 

The Chairman. Mr. O'Brian, inasmuch as you have made this 
statement, won't you, for the benefit of the record, just tell us who 
you are? 

Mr. O'Brian. I am Mr. John Lord O'Brian, acting as counsel for 
the Metropolitan in this particular section of this inquiry. I thought 
it might be of interest to the committee to know that this subject has 
been receiving a good deal of study on the part of the New York Insur- 
ance Department as well as on the part of the companies. 
The Chairman. Have you participated in the study? 
Mr. O'Brian. I have not, but I think what I am saying is a matter 
of general knowledge. Mr. GeseU is probably familiar with it. I am 
not saying it should or should not be changed. I am just calling atten- 
tion to the fact that it has been receiving a good deal of attention, but 
the net result is the recommendation of the special committee in New 
York State who made the study, a legislative committee, embodied 
in a proposed law which leaves this without substantial change. It is 
a troublesome question. Everybody reahzes that. 

Senator King. Notwithstanding, then, the study made, an investi- 
gation and study by Mr. Patterson, the matter is now before the legis- 
lature and this particular section has not been materially changed? 
Mr. O'Brian. Not been materially changed. 

Mr. Douglas. Mr. Chairman, we plan to present the committee 
with the matters with regard to that study. 

Mr. O'Brian. If I had known that I wouldn't have mentioned it. 
Mr. Gesell. I have no further questions of this witness. 
The Chairman. Do any members of the committee desire to ask 
questions? Dr. Lubin? 

Dr. Lubin. Mr. TuUy, can you give us for the record the cost of 
printing that miUion-odd ballots and proxies? 

Mr. TuLLY. I personally cannot give you that information, but we 
have it in the file here somewhere. 

Cost of printing ballots, proxies, letters to the field force, and forms 
for recording votes for 1937 election, $1,279.27. Printing notice re- 
election in pohcies, and so forth, $1,007. 

Senator King. Supposing you had not printed a large number — 
you printed a milHon — and there had been, through some unexpected 
reason, a demand upon the part of the policyholders to make a change 
or to vote, and you had not printed the milUon, then you would have 
been in a dilemma, I suppose. 

I See "Exhibit No. 232", appendix, p. 1522. 



CONCENTRATION OF ECONOMIC POWER 



1313 



Mr. TuLLY. We would have to have the presses running night and 
day for 24 hours every day in the year, costing considerable money. 

Mr. Gesell. Our next witness is Mr. Schurr. 

(The witness, Mr. Tully, was excused.) 

The Chairman. Do you solemnly swear the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Schurr. I do. 

TESTIMONY OF EDWARD SCHURR, AGENT, VAN CORTLAND 
DISTRICT OFFICE, METROPOLITAN LIFE INSURANCE CO., 
NEW YORK CITY 

Mr. Gesell. What is your full name? 

Mr. Schurr. Edward Schurr. 

Mr. Gesell. Are you employed by the Metropolitan Life Insur- 
ance Co.? 

Mr. Schurr. I am. 

Mr. Gesell. In what capacity? 

Mr. Schurr. As an agent. 

Mr. Gesell. Out of what office do you work? 

Mr. Schurr. The name of the office is the Van Cortland district; 
the address, 723 West One Hundred and Eighty-first Street, Nev/ 
York. 

Mr. Gesell. What is the name of the manager? 

Mr. Schurr. Mr. J. L. Kinsey. 

Mr. Gesell. Are you selling industrial insurance, primarily? 

Mr. Schurr. Industrial and ordinaiy. 

Mr. Gesell. Do you have industrial debits from which you collect 
each week? 

Mr. Schurr. I do. 

Mr. Gesell. How long have you been \\ith the company? 

Mr. Schurr. It will be 11 years in August. 

Mr. Gesell. In how many elections have you participated? 

Mr. Schurr. Four or five, I am not quite sure. 

Mr. Gesell. Will you tell us the procedure in the office in which 
you are employed when an election of directors for the company is 
announced? 

Mr. Schurr. We would be given somewheres around forty or fifty 
ballots by the manager, usually, at an open meeting, and asked that 
we have them signed by the poUcyholders,. witnessed and insert the 
poficy number applying to that individual, and then we would return 
them to the office. 

Mr. Gesell. Would the manager or assistant manager call together 
all the agents working out of that office? 

Mr. Schurr. That is what I mean by an open meeting, when all 
the men were present. 

Mr. Gesell. And these would be handed out to all of the men? 

Mr. Schurr. That is right. 

Mr. Gesell. Are you given any particular time within which to 
get them returned, signed by the policyholders? 

Mr. Schurr. As far as I recall, within about a week. We would 
be given a few a day, probably 10 or 12, and we were asked that they 
be returned the following morning. 



1314 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. So you were given a few and you would get those in, 
and then you were given a few more and you would get those in. 

Mr. ScHURR. That is the usual procedure. 

Mr. Gesell. Will you tell us what procedure you followed in 
obtaining the signature of poUcyholders on these ballots? 

Mr. ScHURR. If we had the time or we could get them signed, they 
were signed by the poUcyholders, but if we were very busy or found 
some resistance by the policyholder in not wanting to sign it for one 
reason or another, they wouldn't be signed at times. 

Mr. Gesell. Who would sign them? 

Mr. ScHURR. Well, it was a practice more or less for one agent to 
sign them for another. 

Mr. Gesell. You mean that two or more agents would get together 
and each sign the other fellow's ballots? 

Mr. ScHURR. That was done a good deal. 

Representative Sumners. Let's make that pretty clear. Why 
didn't the agent sign his own ballot? 

Mr. Douglas. When you say his own ballot 

Representative Sumners. If an agent is a policyholder, he is 
entitled to a vote. 

Mr. Gesell. I think I can help. If you have 20 or 30 ballots to 
get signed, do the policyholders sign them or do other agents in the 
company sign them? 

Mr. ScHURR. I say we have some of them signed, but if we couldn't 
or didn't have the opportunity to do so and we were pressed for time, 
we didn't think anything of having someone else sign it for them. 

Mr. Gesell. That would be without the knowledge or author- 
ity 

Mr. Lincoln (interposing). Do I understand the agent to say that 

one agent will forge the name of a policyholder? 

Representative Sumners. He is pretty nearly saying it. 

Mr. Lincoln. That is what I want to bring out. I may be out of 
order. Has this young man 

Mr. Douglas (interposing). I think, Mr. Chairman, in accordance 
with the procedure we have recommended to the committee, that Mr. 
Gesell should be permitted to continue his examination and elicit the 
facts without interruption. 

Mr. Gesell. Will you just go over this in as much detail as possible, 
Mr. Schurr? 

Representative Sumners. Let him teU us exactly what he is trying 
to say. 

Mr. Gesell. Tell us exactly the procedure that is followed with 
respect to some of these ballots. 

Mr. Schurr. I am trying to say we take some ballots out, and if the 
policyholder signed it without any trouble, we would explain it within 
the limits of our time, and so forth, but if there was any opposition, 
if they started saying, "Well, we don't know who these people are," 
or "We haven't any choice," or "We don't understand it/' or "Don't 
bother me," or "I don't want to sign my name to something," which 
we would get in some cases, and we were pressed for time, when it 
came to sending them in, if we were short of time and couldn't get 
them done, we didn't think anything of having an agent sign them 
for us. 



CONCENTRATION OF ECONOMIC POWER 1315 

Representative Sumners. Can't you say whether you signed that 
man's name to a ballot or not? Was his name signed to a ballot, the 
name of a man who didn't agree to sign, did that ballot show up signed 
by somebody else in his name? 

Mr. ScHURR. That is right. 

Mr. Gesell. The other agent would sign the name of that particular 
policyholder on the ballot? 

Mr. ScHURR. That is right. 

The Chairman. Let me interrupt here. You said that "We 
didn't think anything of getting an agent to sign." Did I understand 
you to say that? 

Mr. ScHURR. That is right. 

The Chairman. Do you want the committee to understand that 
you, personally, in some cases, signed the name of a policyholder with- 
out the knowledge and consent of that poUeyholder? 

Mr. ScHURR. I do; yes. 

The Chairman. In how many cases have you done that? 

Mr. ScHURR. I wouldn't be prepared to say how many, but quite a 
few. 

The Chairman. Ten cases? 

Mr. ScHURR. Probably m each batch, as many as that. 

The Chairman. In each batch. How many batches? 

Mr. ScHURR. What I mean is, there were a group of 40 or 50 we had 
to sign in each particular election, and in that batch there would be 
a number that we would do that way. 

Mr. Lincoln. Aren't we entitled to have the names of any policy- 
holders 

Representative Sumners. I would sort of like to finish up with this 
witness. 

Mr. Douglas. Out of forty-odd ballots that you would receive, Mr. 
Schurr, you would, yourself, in the period in question, on the average, 
sign the name of the policyholder to about afourth of those? 

Mr. Schurr. No; I didn't say that I signed them. I said if I were 
short of signatm-es; we would exchange signatures. 

Mr. Douglas. But you would sign the ballots that had been given 
to another agent and he would sigii ballots that had been given to you. 

Mr. Schurr. That is right. 

Mr. Douglas. And that would run about one-fourth in average on 
the total number received. 

Mr. Schurr. I am maldng a guess. 

Mr. Douglas. That is your best estimate. 

Mr. Schurr. Some small percentage would be done that way. 

Mr. Gesell. And when you say "sign," you mean sign the name of 
tiie policyholder; is that right? 

Mr. Schurr. 'That is right. 

Senator King. Suppose I was a poHcyholder and you came to me 
and asked me to sign the ballot and I dechned, would you take upon 
yourself the responsibility before you turned in that ballot to sign my 
name? 

Mr. Schurr. If we didn't succeed in getting the sufficient number 
signed we would finish them up that way. 

Senator King. You would forge my name ; would you? 

Mr. Schurr. That is right. 



1316 CONCENTRATION OF ECONOMIC POWER 

Representative Sumners. Every time I begin to develop a witness 
everybody jumps in on me. There are several things that I don't quite 
imderstand about it. Why' didn't each agent sign the names of the 
people who were on his list instead of getting somebody else to do it? 
Why did you have to have the exchange among agents? He signed 
your bunch and you signed his. Why did you boys go to that 
trouble? 

Mr. ScHURR. So the signatures wouldn't all be in the same hand- 
writing. 

Representative Sumners. Another thing I would like to know is, 
you did this when you were in a hurry. Were you usually in a hurry? 

Mr. ScHURR. Well, it would depend. If we had plenty of other 
work, or if we had other work, and if w<? were short of time — I have 
added that two or three times. 

Representative Sumners. I understand that. Did you stay short 
of time most of the time? 

Mr. ScHURR. This only took place for a week, as far as I remem- 
ber — the balloting. 

Representative Sumners. But how often does it occur? 

Mr. ScHURR. Every other year. 

Representative Sumners. You do that every other year? 

Mr. ScHURR. That is correct. 

Representative Sumners. Is that week one of your slack weeks or a- 
rather busy week? 

Mr. ScHURR. We have no way of telling right now. 

Representative SuMNERs.'fHow did you come to get in the habit of 
doing this sort of thing? Who put you up to it in the first place? 
Who developed it, or did you just as a bunch of smart boys figure 
that out to save a lot of work? 

Mr. ScHURR. Well, do you want to know the reason why I did it? 

Representative Sumners. That is what I have been trying to find 
out, and we will find out too if the rest of these folks will leave us 
alone a while. 

Mr. ScHURR. We felt it wasn't done, that the policyholders didn't 
take enough interest in them and if we had to press them too much, 
it would interfere with the rest of the work. We didn't think it was 
taken seriously enough — let's put it that way. 

Representative Sumners. Who originated the idea in your outfit? 

Mr. ScHURR. I couldn't say that. 

Representative SuMi^ERS. You didn't do it, did you? 

Mr. ScHURR. I don't believe so. 

Representative Sumners. You can't claim credit for it. Do you 
know whether that is done by agents in other territories? Have you 
ever heard or do you know anything about it? 

Mr. ScHURR. I wouldn't be prepared to say about other territories, 
but it was common practice in my office. 

Mr. Douglas. I might say. Judge Sumners, that the Commission 
is prepared to show the extent of the practice. 

Representative Sumners. Then I will quit. I didn't know that. 
Mr. Gesell. How long has this been going on in the office where 
you work? 

Mr. ScHURR. As long as I am there. 

Mr. Gesell. That has been back over four or five elections? 

Mr. ScHURR. Four or five; yes. 



CONCENTRATION OF ECONOMIC POWER I317 

Mr. Gesell. Is the signing of these ballots done openly in the 
office? 

Mr. ScHURR. Well, not necessarily. 

Senator King. Do you mean in his office or the company's office? 

Mr. Gesell. In the company's office. 

Mr. ScHURR. Not particularly; no. Sign them any place we could. 

Mr. Gesell. Have you sometimes signed them in the company's 
office? 

Mr. ScHURR. I believe I have; yes, sir. 

Mr. Gesell. Have you seen other agents sign them in the company's 
office? 

Mr. ScHURR. Yes ; I have. 

Mr. Gesell. Is if more or less a standing joke around the office 
that everybody signs them that way? 

Mr. ScHURR. It is common practice; yes, sir. 

The Chairman. Is it generally knDwn? 

Mr. ScHURR. Yes, sir. 

The Chairman. Do you know whether or not your manager knows 
about it? 

Mr. ScHURR. I don't think he could avoid knowing about it. 

The Chairman. Why do you say that? 

Mr. ScHURR. Because if enough were done around the office, it was 
no secret. 

The Chairman. Did he come up from an agent himself? 

Mr. Schurr. Well, this particular manager, I don't believe so; no. 

The Chairman. What about the assistant managers? 

Mr. Schurr. Well, I say it was done openly in the office enough so 
it was known around the office. 

Mr. Gesell. Did the manager or the assistant managers indicate 
when they handed these ballots out in any way they knew that was 
the way you were going to get the signatures? 

Mr. Schurr. No; they didn't indicate that way. 

Mr. Gesell. Did you sometimes sign them left-handed or back- 
handed to disguise the signatures? 

Mr. Schurr. Yes. 

Mr. Gesell. And that was the general way of doing it, was it? 

Mr. Schurr. Yes, sir. 

Mr. Gesell. Was there quite a bit of pressure put upon you by the 
managers to get these ballots in on specific dates? 

Mr. Schurr. Yes, we were given a set time to bring them in. 

Mr. Gesell. Is that one of the reasons why you felt hurried in 
getting them? 

Mr. Schurr. Yes; we had to have them in by the end of this given 
time. 

Mr. Gesell. What do you mean, you had to have them in? Were 
you told .that you would be subject to some penalty if you didn't get 
them in? 

Mr. Schurr. I don't recall any penalties being given in that connec- 
tion, exactly, but it was impressed on us very definitely that they had 
to be in. 

The Chairman. By whom? 

Mr. Schurr. By the manager. 

The Chairman. The same manager of your office? 

Mr. Schurr. The manager who gave us the ballots. 



1318 CONCENTRATION OF ECONOMIC POWER 

The Chairman. The manager who knew the signatures were bemg 
"^dded by yourself and other agents? 

Mr. ScHURR. I say I presume he knew. It wasn't discussed with 
me personally. I presume he knew about it. 

The Chairman. You don't Imow whether he Imew or not? 

Mr. ScHURR. Well, you understand, if we sign a ballot that way, 
we didn't take any particular trouble to advertise it. If he saw it, it 
didn't bother us much. That was the idea. 

The Chairman. But you don't know and don't wish to testify 
directly as to whether or not the manager himself knew that you were 
doing it? 

Mr. ScHURR. No; I wouldn't say that; no. 

The Chairman. Then, so far as your .testimohy is concerned, the 
agents knew about it but you cannot say that the manager knew about 
it? 

Mr. ScHURR. No; I don't know that. 

The Chairman. What do you mean by, "No; I don't know that?'^ 

Mr. ScHURR. I feel it was common practice that the manager and 
the assistant manager and everybody connected with the office knew 
about it. That is what I feel, but I didn't ask them and they didn't 
discuss it with me, or vice versa. 

The Chairman. And you never told the manager you were signing 
the ballots in this way? 

Mr. Schurr. I did not. 

Senator King. Who is the manager? 

Mr. Schurr. The manager for the most part of my employ was a 
man by the name of C. E. Wyatt. There is a new manager now. 

Senator King. When you speak about your office, do you, mean the 
office for the agents in contradistinction to the office of the general 
corporation?' 

Mr. ScHiTRR. There are district offices; mine was a district office. 

Senator King. This was a district office? 

Mr. Schurr. That is right. 

Senator King. How many employees were there in the district 
office? 

Mr. Schurr. Around 34 or 35. 

Senator King. Did they have anything else to do other than look 
after such other work as 'might be assigned to them by the Metro- 
politan Insurance Co.? 

Mr. Schurr. Do you mean did the agents have any other work? 

Senator King. Yes. 

Mr. Schurr. No; our job is to take care of this collection of ballots. 

Senator King. You were not working for any other corporation 
other than the Metropolitan? 

Mr. Schurr. No, sir. 

vSenator King. Paid per diem or monthly — how are you paid? 

Mr. Schurr. We were paid weekly, based on a contract which ran 
over a period of time. 

Senator King. Who employed you? 

Mr. Schurr. The manager hired me. 

Senator King. Mr. Wyatt? 

Mr, Schurr. Yes; that is right. 

Mr. Gesell. It is just a regular sales office of the Metropolitan, is 
it not, a district office for ser^dcing the policyholders in that district? 



CONCENTRATION OF ECONOMIC POWER 1319 

Mr. ScHURR. That is right. 

Mr. Gesell. And lots of those offices are established all over the 
country? 

Mr. ScHURR. That is right. 

Mr. Gesell. I have no further questions. 

Mr. Douglas. Mr. Schurr, over what period did you of your own 
knowledge know that poUcyholders' ballots were being forged by 
agents in your office? 

Mr. Schurr. Ever since the first election. 

Mr. Douglas. Will you give that date to the record, 1933 was it? 

Mr. Schurr. Well, no; I started there in 1927 or 1928. 

Mr. Douglas. You know that the forgeries took place in every 
election since 1927? 

Mr. Schurr. No; I entered the employ of the Metropolitan in 1928 
and I guess the first election was 1929. 

Mr. Douglas. Do you know of your own knowledge that forgeries 
took place in that office from 1929? 

Mr. Schurr. Yes, sir; and every election. 

Mr. Douglas. Every election, so you are speaking now not of 
sornething that happened just once, but something that happened 
during each election since and including 1929? 

Mr. Schurr. That is correct. 

Mr. Lincoln. Mr. Chairman, are we permitted to have the name 
of a policyholder or policyholders whose names he forged? 

The Chairman. I shall ask that question of the witness. 

Mr. Schurr. No; I couldn't tell you that. We kept no record. 
We picked out one from the book. As a matter of fact, if an agent 
would come over and give me a ballot and I put the pohcyholder's 
name on it, I didn't keep any record; I had no interest in it and the 
name was on the other fellow's book. 

Mr. Gesell. You mean he would give you the name from his books 
showing the names of policyholders on his debits and the numbers of 
the pohcies and you would take that as a guide in lilhiig out ballots 
of poUcyholders for him. 

Mr. Lincoln. Did he do that in the election of 1937 or 1935? 

Dr. LuBiN. Who is this gentleman who is asking the question? 

The Chairman. This is Mr. Lincoln, the president of the Metro- 
poUtan Life Insurance Co., and of course I tliink we recognize the 
fact 

Mr. Lincoln (interposing). Mr. Chairman, I insist on the right 
to say that I never heard of such a practice, and of course don't 
countenance it in any way, shape, form, or manner, and bearing in 
mind Senator King's suggestion, I may say I have tliat in mind, sir. 

Senator King. Can you give the name of a single person whose 
name you forged? 

Mr. Schurr. No; I couldn't now. 

Senator King. Wliy not? 

Mr. Schurr. Because we paid no attention to it. He just gave 
me a ballot, the poUcy number was on there, and he asked me to put 
the name down. I couldn't tell you olThand. It might have been one 
or it might have been several. 

Senator King. Was it an agent that told you to do it, or the manager? 

Mr. Schurr. Oh, not the manager; an agent. 



2320 COXCENTKATION OF ECONOMIC POWER 

Senator King. And did you tell another agent to forge some other 
man's name? 

Mr. ScHURR. Yes. 

The Chairman. Can you give us the name of any poHcyholder in 
which case you asked that that be done? 

Mr. Schurr. No; I could not. 

The Chairman. You did this at the last election? 

Mr. Schurr. Yes, sir. 

The Chairman. During what month did you do it? 

Mr. Schurr. In April of '37. 

The Chairman. In April of '37? 

Mr. Schurr. That is right. 

The Chairman. And you do not now recall the name of any policy- 
holder whose proxy was handed to you to procure the signature? 

Mr. Schurr. No; I do not. 

The Chairman. Is there any way by which you could find out? 

Mr. Schurr. We couldn't know. 

Mr. Gesell. You will recall, Mr. Chairman, that the previous 
witness testified that the ballots and proxies had been destroyed in 
accordance with New York la\v, quite properly, as the law allows. 

I have ho further questions of this witness. We have other wit- 
nesses v/e would hke to call. 

The Chairman. Do any other members of the committee desire to 
ask any questions? 

Representative Williams. I understood you to say you engaged in 
the practice of forging names in case jou didn't get a sufficient num- 
ber of ballots. 

Mr. Schurr. That is right. 

Representative Williams. Who determined what was a sujfficient 
number? 

Mr. Schurr. We were given a set amount, somewhere around 50. 

Representative Williams. Were you instructed to get all of those 
signed up? 

Mr. Schurr. That is right. 

Representative Williams. And in case you couldn't get the parties 
to sign them, you signed them yourself? 

Mr. Schurr. Yes. 

Representative Williams. In other words, you had to get, or you 
did adopt the policy of getting all the ballots that were given you 
signed up. You were supposed to get them all signed. 

Mr. Schurr. That is right; yes. 

Representative Williams. And the manager who gave them to 
you gave you to understand that he wanted them all signed and 
returned. 

Mr. Schurr. He did. 

Representative Williams. And it was in order to fulfill that direc- 
tion that you and your coworkers there signed them for each other? 

Mr. Schurr. Only if we couldn't get them signed by policyholders. 

Representative Williams. If you couldn't get them signed you 
signed them yourself? 

Mr. Schurr. That is right. 

Dr. LuBiN. Am I to imderstand from the questions asked you it 
was your job to get them signed, and you felt that was your duty, 
that you had to get so many signatures? 



CONCENTRATION OF ECONOMIC POWER 1321 

Mr. ScHURR. Yes ; but I have expressed it before that we felt there 
was quite a Httle resistance on the part of the poHcy holder, and also 
lack of interest, and the question would come up very often, "Well, 
I have no choice in the voting." 

Dr. LuBiN. You were asked a question a few minutes ago as to 
whether there was any penalty in the event 3-ou failed to get the 
signatures. You said as far as you laiew, there wasn't any penalty. 

Mr. ScHURR. I personally was not penalized; no. 

Dr. LuBiN. Do you know of any case where people who failed to 
get a sufficient number of signatures were called down by the manager? 

Mr. ScHURR. I just heard of it but I wouldn't give any names. 

A man would say he was told, "If you don't get them signed we 
will withhold your salary," but I don't knov»^ of cases where it has 
been done. 

Dr. LuBiN. Was it generally felt b}^ the agents if they failed to get 
the signatures, sometliing might happen to them? 

Mr. ScHURR. I don't think that entered into it very seriously, 
because the ballots v%'ould be filled out at the designated time in the 
way I described. 

Mr. Gesell. I have no further questions of this witness. 

Dr. LuBiN. Am I to understand then you feared your income might 
have been interfered with if you failed to get enough signatures? 

Mr. ScHURR. We were told we would have to have them signed and 
we weren't looking for any more trouble in that direction. 

The Chairman. I understood you to say at the outset that it was 
regarded as a matter of not very serious importance. 

Mr. ScHURR. That is the way I have felt, and that is the way the 
policyholders feel a great deal. 

The Chairman. As to whether or not they cared to ballot, it was 
immaterial? 

Mr. ScHURR. That is right. 

Representative Sumners. It was just sort of an easy way of your 
doing the job, wasn't it? 

Mr. ScHURR. I have explained the reason 

Representative Sumners (interposing). If you felt that way about 
signing the name of a policyholder, why were you so concerned to find 
out whether he objected or not? 

Mr. ScHURR. I don't understand. 

Representative Sumners. If he didn't object, he didn't object and 
signed, and if he did object, you signed for him. "Why didn't you 
sign them all? That is what you did in most instances, anyway, 
isn't it? 

Mr. ScHURR. I didn't say that. 

Representative Sumners. What I can't understand is why you 
troubled to go around over town to get the signatures of these people 
when you could so easily sign them yourself and had no conscientious 
scruples about it. 

Mt. Schurr. I did want to have them sign. 

Mr. Gesell. You had to see these people anjmow in collecting your 
weekly debit, didn't you? 

Mr" ScHURR. Yes; we have to see these people, either every week 
or every other week, and we certainly wanted to have them signed 
by the policyholder, and we would tell them whatever we told them, 



1322 CONCENTRATION OF ECONOMIC POWER 

open up a conversation, probably talk about business at the same 
time. 

Representative Sumners. And if he didn't sign it you were going 
to sign his name anyhow? 

Mr. ScHURR. I have already gone into that. 

Senator King. Can you remember a specific case where you asked 
the policyholder to sign and he refused to sign and gave his reason 
why he refused and then you signed his name subsequently? 

Mr. ScHURR. Can I give you the name of such a party? 

Senator King. Yes. 

Mr. ScHURR. No; I cannot. 

Mr. Douglas. I take it that is due to the fact that you would 
sign a ballot for another agent, and he would sign a ballot for you. 

Mr. ScHURR. The agents would do that for each other. 

Senator King. What I am trying to get is, did you ever sign the 
name of any person after he had refused to sign the ballot at your 
request? 

Mr. ScHURR. No; I didn't do that. 

Senator King. Then you sneaked it over into some other agent's 
pocket and told him to sign it, is that it? 

Mr. SciiURR. Well, that's 

Senator King (interposing). Did you do that? 

Mr. ScHURR. I did, yes. 

Representative Williams. Were you given as many ballots as 
you had policyholders in your territory? 

Mr. ScHURR. No; only given a proportion. We were given a set 
amount, around 50 as far as I can recall, around that number. 

Representative Williams. Then you were not supposed to see 
every policyholder. 

Mr. ScHURR. That is right. 

Mr. Gesell. Those letters of instruction with respect to the han- 
dling of this have already been placed in the record. 

Mr. Douglas. We are ready for the next witness, Mr. Chairman. 

The Chairman. The witness may be excused. 

(The witness, Edward Schurr, was excused.) 

Mr. Gesell. The next witness is Mr. Bruno Silbiger. 

The Chairman. Do you solemnly swear that the testimony you 
are about to give in this proceeding will be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Silbiger. I do. 

TESTIMONY OF BRUNO SILBIGER, AGENT, WEST END OFFICE, 
METROPOUTAN IIFE INSURANCE CO., NEW YORK CITY 

Mr. Gesell. Will you state your full name, please? 

Mr. Silbiger. Bruno Silbiger. 

Mr. Gesell. How do you spell it? 

Mr. Silbiger. B-r-u-n-o S-i-l-b-i-g-e-r. 

Mr. Gesell. Are you employed by the MetropoUtan Life Insur- 
ance Co. as an agent? 

Mr. Silbiger. I am. 

Mr. Gesell. Out of what office do you work? 

Mr. Silbiger. I work out of West End, 135 West One Hundred 
and Twenty-fifth Street, New York City. 



CONCENTRATION OP ECONOMIC POWER 1323 

Mr. Gesell. Is that the same oflfice Mr. Schurr works out of or 
another office? 

Mr. SiLBiGER. No; that is a different office. 

Mr. Gesell. How long have you been employed by the company? 

Mr. SiLBiGER. Eight years in December, it is going to be 8 years 
in December. 

Mr. Gesell. How many elections have you participated in? 

Mr. Silbiger. I have participated in three. 

Mr. Gesell. Those were 1937, 1935, 1933? 

Mr. Silbiger. That is correct, 

Mr. Gesell. Will you tell us the practice followed in your office 
with respect to the obtaining of pohcyholders' signatures on ballots 
and proxies? 

Mr. Silbiger. The ballots were given out by the manager one day 
and we got an approximate number of ballots, say, for instance, 40 to 
60, and we were told to have them signed by the next week, and natur- 
ally the thing was considered more or less a joke, so we simply took 
the ballots, had them signed by a few pohcyholders, and the rest of 
the ballots were signed by agents. 

Mr. Gesell. You mean that you followed the same practice Mr. 
Schurr did? 

Mr. Silbiger. Exactly. - 

Mr. Gesell. You would sign pohcyholders' names on other agents* 
ballots and vice versa? 

Mr. Silbiger. Yes. It was done by aU the agents in the office. 

Mr. Gesell. Was it done openly in the office? 

Mr. Silbiger. Quite openly, yes. 

Mr. Gesell. In front of the manager? 

Mr. Silbiger. Not in front of the manager. 

Mr. Gesell. Was it done in the office of the company? 

Mr. Silbiger. In the office of the company in view of the assistant 
manager. 

Mr. Douglas. In view of whom? 

Mr. Silbiger. The assistant manager — not exactly in view, but 
they knew about it because they used to kid us along, "Have you 
signed your ballots already?" 

Mr. Gesell. Tell us a little more about that, Mr. Silbiger. You 
say you would be near an assistant manager and he would kid you 
about the fact that you and the other agents were signing the policy- 
holders' names to the ballots without authority? 

Mr. Silbiger. Well, nothing was thought of it. 

Senator King. Answer the question. 

Mr. Silbiger. What is the question? 
^ Mr. Gesell. My question was: Did some assistant manager in 
your office kid with you and the other agents about the fact that you 
were signing your policyholders' names to the ballots without au- 
thority? 

Mr. Silbiger. Yes. 

Mr. Gesell. Can you name those assistant managers for us? 

Mr. Silbiger. Well, I believe there was one assistant manager by 
the name of Edward Cherman. 

Mr. Gesell. Spell his name. 

Mr. Silbiger. C-h-e-r-m-a-n. 

Mr. Gesell. Do you remember anyone else? 



1324 CONCENTRATION OF ECONOMIC POWER 

Mr. SiLBiGER. Well, I couldn't remember the names of other 
assistant managers, but it was just done in a more or less kidding 
spirit around. 

Mr. Gesell. Would you all get together and do it at the same 
time? 

Mr. SiLBiGER. No; we would just sit in the oflBce and one agent 
used to come over to my desk and ask us to si^n the name, sign the 
name Mary Jones, John Kennedy, or whatever it was, and we would 
sign it. 

Mr. Gesell. When you came to work for the Metropolitan, was 
that a general practice in the office of the company? 

Mr. Silbiger. Well, when I came to the Metropolitan the first 
election I participated in was in 1933, and naturally I took it upon 
myself to have this filled out — I mean signed by the policyholders, 
but when I used to come to the office and see the agents doing this 
signing themselves, I said to myself, "Why should I do it?" So I 
have done the same thing. 

Mr. Gesell. You mean when you first came there the first year 
you conscientiously went out to the policyholders and tried to get 
them to sign? 

Mr. Silbiger. Yes. 

Senator King. He got them to sign. 

Mr. Silbiger. It wasn't an easy job to sign them because most 
people objected for no good reason; they didn't want to bother sign- 
ing because they didn't know what they were signing for; some of 
them were very leery about signing something they didn't understand. 

Mr. Gesell. Many of them were illiterate and signed with an X? 
Is that not true? 

Mr. Silbiger. Yes; a good many of them-signed with an X. 

Mr. Gesell. And then when you came back to the office and saw 
the other agents signing policyholders' names to the ballots without 
bothering to approach the policyholders, you started to do the same 
thing? 

Mr. Silbiger. That's right. 

Mr. Gesell. Why did the practice start, do you know? 

Mr. Silbiger. Why did the practice start? I couldn't tell you. 

Mr. Gesell. Was any deadline put upon you as to when you 
should get these in? 

Mr. Silbiger. We had to return them within a week, 

Mr. Gesell. Was that made very clear and very certain to you? 

Mr. Silbiger. Yes, sir; very clear. 

Mr. Gesell. Were you supposed to use the company time in getting 
them signed, or was it your own time? 

Mr. Silbiger. It was always our own time, our time, of course. 

Mr. Gesell. Was any compensation paid to you for getting them 
signed? 

Mr. Silbiger. No. 

Mr. Gesell. Were any threats made to you about what would 
happen to you if you didn't get them signed? 

Mr. Silbiger. Not exactly. We were told if we didn't bring them 
in by a certain time we were disloyal. 

Senator King. By whom were you told that? 

Mr. Silbiger. The manager. 



CONCENTRATION OF ECONOMIC POWER 



1325 



Senator King. What was his name? 

Mr. SiLBiGER. Bendell. 

Mr. Gesell. What is his first name? 

Mr. SiLBiGER. It just sHpped my mind now — Leon Bendell. 

Mr. Gesell. Can you tell us how many agents in your ofl&ce there 
are? 

Mr. SiLBiGER. Well, at the present time we have 31 agents. 

Mr. Gesell. How many of those agents have you seen doing this? 

Mr. SiLBiGER, Almost every one of them. 

Mr. Gesell. You have seen every one in that ofl&ce? 

Mr. SiLBiGER. I couldn't vouch for every one; so far as I could see, 
almost every one did so. 

Mr. Gesell. Was there any conscientious objector who stood out 
like a sore thumb? 

Mr. SiLBiGER. No. 

Mr. Gesell. So far as you could tell, everybody was doing it? 

Mr. SiLBiGER. Yes. 

Mr. Gesell. Have you any idea as to how many of the total ballots 
and proxies from your office were signed that way? 

Mr. SiLBiGER. Oh, I would say about 80 percent. 

Mr. Gesell. And were about 80 percent of yours signed that wav? 

Mr. Silbiger. Yes. 

Mr. Gesell. I have no further questions. 

Mr. Douglas. You are speaking of the elections of 1933, 1935, and 
1937? 

Mr. Silbiger. That's right. 

Mr. Douglas. And about 80 percent of the ballots of your oflBce— ; — 

Mr. Silbiger (interposing). 1 can only say from my observation 
and from other agents' observation. I can only tell what I saw my- 
self. ^ I can't vouch- for every agent that they had 80 percent signed. 

Mr. Douglas. So far as the ballots that were given to you and the 
other agents whom you knew, about 80 percent of those ballots were 
forged? 

Mr. Silbiger. That's right. 

Mr. Gesell. I have no further questions. 

Senator King. How many persons' names did you sign in the last 
election? 

Mr. Silbiger. Oh, I can't tell you that. At random I can't give 
an exact figure. 

Senator King. How many ballots did you turn in? 

Mr. Silbiger. Approximately 45. I don't know the exact figure. 

Senator King. Did each agent have 45? 

Mr. Silbiger. These ballots were not counted. 

Senator King. Did each agent have 45? 

Mr. Silbiger. These ballots were not counted; we were given a 
bundle of ballots and it was supposed to be approximately 50. 

Senator King. For each agent? 

Mr. Silbiger. Yes, sir. 

Senator King. Then if there were 40 agents in your room there 
would be, then, 40 times 40 or 50 ballots. It would be over 800 
ballots. 



1326 CONCENTRATION OF ECONOMIC POWER 

Mr. SiLBiGER. If there was an office of 40 agents it would be about 
1,600 ballots. 

Senator King. How many ballots were given you? 

Mr. SiLBiGER. We never counted the ballots. We took a bundle 
of ballots. 

Senator King. How many do you think? 

Mr. SiLBiGER. Approximately 50. I don't know, exactly. 

Senator King. Do you remember the name of a single policyholder 
whose name you forged? 

Mr. SiLBiGER. I don't remember. 

Senator King. Did you write it down? 

Mr. Silbiger. No; I did not. 

Senator King. Did you try to remember? ' 

Mr. Silbiger. Remember what? 

Senator King. The name or names of persons whose names you 
forged. 

Mr. Silbiger. I could not now remember. 

Mr. Gesell. Isn't it a fact that each of these ballots has to be 
witnessed as well as signed? 

Mr. Silbiger. That's right. 

Mr, Gesell. So that you have to have two signatures on each of 
them? 

Mr. Silbiger. That's right. 

Mr. Gesell. Did you witness your own ballots yourself? 

Mr. Silbiger. That's right. 

Mr. Gesell. And it was for that reason that you had someone 
else sign them? 

Mr. Silbiger. That's right. 

Mr. Gesell. So that the handwriting of the policyholder, so-called, 
would not look to be the same as the handwriting of the witness? 

Mr. Silbiger. That's right. 

Mr. Gesell. And for that reason you can't remember any par- 
ticular policyholder's name, because you weren't signing the names 
of your own policyholders, but the names of other agents' policy- 
holders. 

Mr. Silbiger. It is impossible to remember all these names. 
There are thousands of names, and it happened 2 years ago. 

' Senator King. As I understood you, you had to collect from the 
policyholders, you visited them, the preceding witness stated, every 
week or every 2 weeks. 

Mr. Silbiger. Yes. 

Senator King. Visiting these policyholders every week or every 
2 weeks, perhaps two or three hundred times during the 4, 5, or 6 years, 
you can't remember the name of a single one whom you visited, 
whose name you forged? Is that true, that you can't remember a 
single person whose name you forged? 

Mr. Silbiger. I want to clarify this thing. We have on our books 
approximately, say, three or four hundred families, approximately — 
I can't tell you exactly how many we have now. Out of that there 
are about 1,500 policyholders insured. I can't really remember 
30 or 40 polic;^holders out of 1,500 who signed their names or whose 
names were signed. It isn't possible. 



CONCENTRATION OF ECONOMIC POWER 1327 

Senator King. Let me put the question again. You visited the 
poHcyholders in your particular beat every week or every 2 weeks. 
That is right? 

Mr. SiLBiGER. That's right. 

Senator King. And you did that for several years? 

Mr. SiLBiGER. That's right. 

Senator King. And ii' visiting them you would give receipts, 
would you not? 

Mr. SiLBiGER. y-'s, for ordinary insurance; that's right. 

Senator King. And you learned their names, of course. 

Mr. SiLBiGER. Yes. 

Senator King. You had their names? 

Mr. SiLBiGER. Yes. 

Senator King. And notwithstanding the fact that you visited them 
every week or every 2 weeks for 4, 5, or 6 years, and then forged 
the names of them 

Mr. SiLBiGER (interposing). I didn't forge the names of any of 
my poUcyholders. I simply put names of other agents' policy- 
holders on their ballots. 

Mr. Douglas. You didn't forge the names of your own clients, so 
to speak; youiorged the names of the chents of another agent, whom 
you did not know personally. 

Mr. SiLBiGER. That's right. 

Senator King. Did you try to learn the names of those yoti did 
forge? 

Mr. SiLBiGER. We didn't attach any importance to do that. 

The Chairman. How did you come to do this? 

Mr. SiLBiGER. Because I saw other agents doing it. 

The Chairman. Did you have any conscientious scruples about 
doing it? 

Mr. Silbiger. The whole thing was presented to us in such a manner 
that it was of little importance as to who signed the ballots. There- 
fore every agent did the same thing. 

The Chairman. Why did it seem to be of so little importance? 

Mr. Silbiger. It was a standing joke in the offices, when we re- 
ceived these ballots, to go and sign the ballots, that's all. 

The Chairman. How was it expressedras a joke? 

Mr. Silbiger. The manager used to "come on the floor, give us 
these ballots, told us to go out and have them signed, so we did. 

The Chairman. But you say it was a sort of standing joke. Why 
was it regarded as a joke? 

Mr. Silbiger. Because — I can't tell exactly why it was a joke. It 
was simply a matter of presenting the case to us. If the manager 
would have made an effort to tell us how important it was to have 
these ballots signed, perhaps we would have reaUzed some sort of 
importance, but the way the thing was presented to us we simply took 
these papers, had them signed, and returned them. 

The Chairman. You regarded it as a matter of no importance? 

Mr. Silbiger. Yes, we all did. 

The Chairman. Did the manager know that you were doing this? 

Mr. Silbiger. I don't know. Perhaps he did. If he was an 
agent, perhaps he did. 

124491— 39— pt. 4 12 



1328 CONCENTRATION- OF ECONOMIC POWER 

The Chairman. I am just trying to find out from your own knowl- 
edge, did the manager of your office himself know of any case in which 
you had personally signed the name of a policyholder to another agent's 
ballot? 

Mr. SiLBiGER. Not to my knowledge. 
. Mr. Douglas. Was it common practice in that ojffice of yours? 

Mr. SiLBiGER. Absolutely. 

Mr. Douglas. You were not the only transgressor? 

Mr. SiLBiGER. I wasn't the only one. 

Mr. Douglas. You were merely following the custom or habit of 
that office? 

Mr. SiLBiGER. That's right. 

Mr. Gesell. We have no further questions. 

The Chairman. May I ask: You brought tliis witness here under 
subpena, of course? 

Mr. Gebsll. Both this and the preceding one have appeared 
under subpena. 

The Chairman. They did not come as voluntary witnesses. 

Mr. O'Brian. Did I understand that this witness signed his name 
as a witness to the forged signatures on his ballots? 

The Chairman. Of course, Mr. O'Brian, I see the purpose of that 
question, and that is the reason I asked the examiner here as to whether 
or not this and the preceding witness had come here under subpena or 
voluntarily. I know, of course, that these subpenas were issued. 
I did sign subpenas for a large number of witnesses. But I think it is 
only fair that the witness should know of his rights. 

A witi:ess can refuse to testify on the ground that his testimony 
might incriminate him. Then the committee may compel the witness 
BO to testify, and when the witness is so compelled to testify then he 
is granted immunity. 

Is it the desire of the committee that Mr. O'Brian, acting as attorney 
for the Metropolitan, shall be permitted to ask the question he has 
propounded to the witness? 

Mr. Douglas, i should think so, Mr. Chairman, if the witness has 
no objection to answering. 

Mr. O'Brian. Did I understand you to say that when you signed 
your name you signed your name as a witness on tlie ballots where the 
signatures were forged by your fellow agents? 

The Chairman. Bear in mind, Mr. Witness, I think in fairness to 
this witness, he is here on the subpena by committee, he is not repre- 
sented by counsel, and I feel that I must warn him that this might be 
a very serious matter of signing names as a witness to a false document. 

Mr. SiLBHJKR. r refuse to answer that, tlion. 

Mr. O'Brian. That is satisfactory 

Mr. Gksell. We have no further ouestions of this witness. 

Mr. O'Brian. Mjiy 1 ask Mr. Gesoli whether this man volunteered 
his testimony in the first place? 

The (>haiuman. 1 have asked that (juostion. 

Mr. Lin(J()LN. If you will j)ard(>n me, Mr. (chairman, you asked if 
he was hero under sul)[)ena. The question is, Did he go to Mr. Gesell 
and his HHSo('iat(!s? 

Mr. Douglas. 1 do not think that it is proper to state in a public 
forum what the methods of investigation of the Securities and E.x- 
change CJommission are. 



CONCENTRATION OF ECONOMIC POWER 1329 

Senator King. I think it is proper to ask this witness if he volun- 
teer-ed. I don't think there is any impropriety in that. 

Mr. Douglas. This witness is here under subpena, Mr. Chairman. 

Senator King. I think it is a fair question, if he volunteered. 

Mr. SiLBiGER. Is that a question? 

Senator King. If you care to answer it. 

Mr. Silbiger. I was subpenaed. 

Mr. Gesell. I might say the first time I have seen this witness is 
on the stand here today. 

The Chairman. Are there any other question? If not, the com- 
mittee will stand in recess until 10 o'clock tomorrow morning. 

(The witness, Bruno Silbiger, was excused.) 

(Whereupon, at 4:30 p. m., a recess was taken until Thursday, 
February 9. 1939, at 10 a. m.) 



INYESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



THURSDAT, FEBRUARY 9, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:25 a, m., pursuant to adjournment on 
Wednesday, Februarjr 8, 1939, in the Caucus Room, Senate Ofl&ce 
Building, Representative Hatton W. Sumners presiding. 

Present: Senator King; Representatives Sumners (vice chairman), 
and Reece; Messrs. Henderson, Douglas, Lubin, Patterson, Peoples, 
Berge, and Frank; Senator Harry S. Truman, of Missouri. 

Present also: Gerhard Gesell, Special Counsel, Securities and 
Exchange Commission. • 

The Vice Chairman. Senator O'Mahoney is indisposed this morn- 
ing and has asked me to preside. 

Proceed, Mr. Gesell. 

Mr. John Lord O'Brian. Mr. Chairman, in appearing in this 
hearing as counsel for the Metropolitan Life Insurance Co. I appreciate 
that I appear simply by courtesy of the Commission, and have no right 
of examination or cross-examination, but in that capacity I would 
like to call attention to the testimony given yesterday afternoon by 
the witness Siibiger, of the West End office in New York City, to the 
effect that the signing of policyholders' names, or forging of their 
names, was a more or less common practice in that office, and at least 
one assistant manager, a Mr. Edward Cherman, knew of that practice 
and, as I remember, joked about it.^ 

Mr. Cherman, the assistant manager referred to, is here, and at the 
disposal of the committee, prepared to deny both of those statements ; 
at a suitable time we would like to have him called and interrogated 
by the committee. 

Mr. Douglas. Mr. Chairman, we have a considerable amount of 
evidence to produce on this matter. I think that if we could proceed 
at this time in an orderly way with the completion of the case that the 
Commission desires to present to this committee, we could at that 
time more intelligibly determine the extent to which additional wit- 
nesses might be called in rebuttal. 

Senator King. Mr. Chairman, I accord with that view. I think, 
however, that before the hearings are concluded, opportimity ought to 
be given to hear the person referred to by Mr. O'Brian. I suggest 
that we proceed as you desire. 

The Vice Chairman. It would seem to .the present occupant of the 
Chair that perhaps it would be well to proceed to put on, if there is 
any, additional testimony now, and then, as indicated by my colleagues, 

> Supra, p. 1323 et seq. 

loijl 



1332 CONCENTRATION OF ECONOMIC POWER 

there should be opportunity afforded before this aspect of the case is 
closed for testimony in rebuttal or explanation to be put on, to make 
the record complete. 

Mr. Gesell. The first witness this morning is Mr. Earl Steele. 

The Vice Chairman. Mr. Steele, have you been sworn? 

Mr. Steele. I don't beheve so. 

The Vice Chairman. Do -you solemnly swear that the testimony 
you are about to give in this matter being examined shall be the 
truth, the whole truth, and nothing but the truth; so help you, God? 

Mr. Steele. I do. 

TESTIMONY OF EARL STEELE, AGENT, PATERSON DISTRICT, 
METROPOLITAN LIFE INSURANCE CO., PATERSON, N. J. 

Mr. Gesell. Mr. Steele, you are employed by the Metropolitan 
Life Insurance Co.? 

Mr. Steele. I am. 

Mr. Gesell. In what capacity? 

Mr. Steele. As an agent. 

Mr. Gesell. Out of what office do you work? 

Mr. Steele. The Paterson district m Paterson, N. J. 

Mr. Gesejll. Who is your manager? 

Mr. Steele. Mr. C. W. Cox. 

Mr. Gesell. How long have you worked for that company? 

Mr. Steele. It will be 8 years this coming April. 

Mr. Gesell. How many different elections have you participated 
in as an agent? 

Mr. Steele. Three, I beheve. 

Mr. Gesell. Will you tell us what the practice is with respect to 
obtaining proxies and ballots from the agents in your office. 

Mr. Steele. Well, the practice is around about the 1st of April, I 
believe, a number of ballots are usually placed in our mail boxes. 

(Interruption during taking of photographs.) 

Mr. Gesell. You were telling us, Mr. Steele, that sometime in 
April these ballots or proxies are put in your mail boxes. Is that 
what you said? 

Mr. Steele. That is right. 

Mr. Gesell. Will you go on from there, please? 

Senator King. The mail boxes in the office? 

Mr. Steele. That is correct; and our management makes an an- 
nouncement that the biennial election is about to take place and 
requests the agents to have these ballots signed and returned to the 
office within usually a week or 10 days from the time we get them. 
The first election that I participated in, having only a limited number 
of ballots, I thought that probably the best procedure would be to go 
to my .larger policyholders who would probably be more interested m 
an election of this land. I found, however, that that wasn't the case, 
as most of the people whom I approached didn't know any of the men 
who were running for directors and asked me why they should vote 
for somebody they didn't know, and so forth. 

They also asked if there was any alternative if they didn't lilve the 
personnel, rather the set-up there, if they could vote for somebody 
else. I told them I didn't know the exact procedure if they wanted 
to vote for someone else, but I presumed that information could be 



CONCENTRATION OF ECONOMIC POWER 1333 

had. Nobody seemed particularly interested in finding out what 
that procedure might be. I became a little discouraged with my 
original plans and sought the advice of some of the older agents in 
the ofiice. I found that many of the agents tried to duck the issue 
entirely of getting ballots signed, because it took up their time, and 
so on. Some of the ballots were actually thrown away, destroyed, 
and a good many of them were signed by agents right in the office. 

Mr. Gesell. Do you mean by that that one agent would sign the 
policyholder's name to another agent's 

The Vice Chairman. The witness didn't say that. 

Mr. Steele. Well, your exception is correct; that is exactly what 
took place. In other words, the agent would present the name of the 
policyholder and some other agent would sign his name to that for 
that policyholder rather than go to that policyholder and explain the 
system of voting and carrying on an election. Most of the men 
figured that the present board of directors were going to be reelected 
anyway and no harm was done by simply carrying on the putting 
down of people's names themselves instead of going through the 
formality of having people actually do it themselves. 

Mr. Gesell. Was that a general practice in the office? 

Mr. Steele. Quite gener^. 

Mr. Gesell. Have you seen a lot of agents in the office doing it? 

Mr. Steele. Oh, yes. 

Mr. Gesell. How many agents are there in the office? 

Mr. Steele. Well, we have about 50 agents in our office. 

Mr. Gesell. How many of them would you say you have seen 
engaged in this pract^'ce? 

Mr. Steele. Well, over the period of time I have been there I 
have seen at least 30 men take part in that sort of thing. 

Mr. Gesell. Was it done right in the office openly? 

Mr. Steele. Yes; it was done in the office and in the corridors 
leading to the office and in the adjoining washroom there. 

Senator King. In what? 

Mr. Gesell. In the adjoining washroom. Was it ever done in 
the presence of the managers or assistant managers? 

Mr. Steele. I don't believe it was ever done in the presence of the 
manager, but I think most of the assistants knew what was going on. 

Mr. Gesell. What do you mean^ you think? What do you base 
that on? 

Mr. Steele. Well, men often would leave the fixing of the ballots 
go until the last day, and when it was announced that they had to 
be in that morning or that afternoon, sometimes there was a lot of 
scurrying around to get ballots signed up, and sometimes- they were 
practically signed under the assistant manager's nose, whether they 
turned their back to it or what, I don't know, but they must have 
known what was going on, they couldn't help it. 

Mr. Douglas. It was common knowledge in the office? 

Mr. Steele. Oh, yes. 

Mr. Douglas. It was a very customary thing to do. 

Mr. Steele. It was general. Nobody took the thing seriously, or 
they didn't see any harm in it, and it was more or less regarded as 
something to do and get out of the way. 

Mr. Douglas. Of what elections are you speaking, of your own 
knowledge, the 1937 election? 



1334 CONCENTRATION OF ECONOMIC POWER 

Mr. Steele. The 1937, 1935, and 1933. 

Mr. Douglas. And the practices that you have described took 
place at all of those elections? 

Mr. Steele. That is right. 

Mr. Douglas. What percentage of the ballots from your oflSce 
would you estimate were forged? 

Mr. Steele. Oh, I would say roughly between 25 to 30 percent. 

Mr. Gesell. Do I understand that when you came to the office, 
this practice was then going on? 

Mr. Steele. That is right. 

Mr. Gesell. Did the men give any reason as to why they were 
engaged in the practice? 

Mr. Steele. Only as a time-saver. 

Mr. Gesell. What do you mean, as a time-saver? Was there 
any urgency about getting these policyholders' ballots signed? 

Mr. Steele. There was when it was getting to the last minute, as 
it was on most occasions. I mean, men do the most pressing and 
important things first, and a detail of this kind which they regard as 
relatively not very important they let go to the last minute and then 
are often forced to sort of rush the thing through at the last minute. 

Mr. Gesell. Who established this last minute, was there a dead- 
line set by the managers and assistant managers? 

Mr. Steele. Of course the ballots have to be in the home office at 
a certain day, I understand, I don't know just what day it is, and for 
some reason or other they are usually let go to the last minute. 

Senator King. That is, the agents did? 

Mr. Steele. That is correct. 

Senator King. The ballots were handed out to the various depart- 
ments, if that is the proper term, in Paterson, or elsewhere, how 
many days before they had to be in? 

Mr. Steele. As my memory serves me, usually a week or 10 days. 

Senator King. And you knew when the ballots came and you knew 
the time when they had to be returned to the home office. 

Mr. vSteele. That is correct. 

Senator King. And you had then a week or 10 days within which 
to contact the policyholders within your respective field? 

jMr. Steele. That is right. 

Senator King. How many policyholders were there in your partic- 
ular field with whom you dealt? 

Mr. Steele. About 2,000. 

Senator King. Do you have 2,000 that you have to contact every 
week or over two weeks? 

Mr. Steele. Nui that often, no, but within the confines of ray 
agency I had about 2,000 policyholders. 

Senator King. Would that be for the entire district in which there 
were 20 or 30, or were those persons you had to contact? 

Mr. Steele. That was just my personal agency. 

Senator King. And from your testimony, I deduce the fact that 
someiimc-s you didn't contact all of them, you had other duties, and 
toward the so-called deadline when you had to report, if you hadn't 
contacted all of them and gotten the signatures, then you and one 
or two other agents would — I will not use the word frame-up — you 
would arrange so the signatures would be written upon the ballots. 

Mr. Steele. That is correct. 



CONCENTRATION OF ECONOMIC POWER 1SS5 

Mr. Gesell. You stated, did you not, that it was common practice 
in the office, and not just one engaged in by one or two agents in the 
office? 

Mr. Steele. It was quite common. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. You say that these ballots were arranged in 
corridors, sometimes in the office, and sometimes in the adjoining 
washroom. Did you attend to any other business beside this in the 
washroom? I mean, was it a common thing on ballots, and so forth? 

Mr. Steele. No. 

The Vice Chairman. The point I am getting at, why did you do 
this in the waslu-oom, in a more or less secret place, if it was a more 
or less open custom? 

Mr. Steele. Well, I suppose some of the agents were a little 
squeamish about actually doing this, you might say right under the 
nose of their assistant managers. 

The Vice Chairman. You wanted to make a Httle show of being 
sort of secret about it, is that the idea? 

Mr. Steele. I suppose you might put it that way. 

Senator King. Isn't it a fact that they were rather ashamed of 
their own conduct and they would slip into the washroom where the 
manager wouldn't see them? 

Mr. Steele. I suppose those were. 

Mr. Douglas. -I think that is all, Mr. Chairman. 

Dr. LuBiN. How many calls do you make a week on your regular 
rounds? 

Mr. Steele. On the average about 70, I believe. 

Dr. LuBiN. Seventy a week? 

Senator King. I didn't get that number. 

Mr. Steele. About 70. It fluctuates, of course. 

Dr. Lubin. Have you ever found aiw antagonism on the part of 
your policyholders toward signing, refusing deliberately to sign? 

Mr. Steele. I don't know whether I would call it antagonism or 
not. I have had people refuse to sign on the grounds that they weren't 
well enough informed as to what they were signing for. I know I 
overcome objections of that kind sometimes by telliiig the people that 
their present Board .of Directors were in favor of continuing the system 
of paying dividends, and so on, and naturall}^ it was to their interest. 

Dr. Lubin. Do you know of any cases where any agents have 
attempted to insist that they be signed, or at least to persuade them 
to sign and thereby antagonized policyholders? 

Mr. Steele. I don't think that was done. 

Dr. Lubin. Was there any fear so far as yoa personally were con- 
cerned that if you did antagonize a policyholder you might lose him? 

Mr. Steele. I wouldn't antagonize a policyholder over an issue like 
that. [Laughter.] 

Mri Gesell. No further questions of this witness. 

Senator King. By the way, did any of the policyholders whom you 
contacted complain about the management of the company, that it 
was not being properly managed and they were dissatisfied with their 
policies, or were they satisfied with their policies and with the manage- 
ment so far as your contact with them mdicated? 

Mr. Steele. I think so. You mean generally? 

Senator King. Yes. 



1336 CONCENTRATION OF ECONOMIC POWER 

Mr. Steele. I think so. 

Mr. Gesell. '\\ hat do you mean — what kind of complaints did you 
say you received about the -company? 

Senator King. He didn't say anything about complaints. 

Mr. Gesell. I understood you to say so. Did you, Mr. Steele? 

Mr. Steele. About complaints? 

Senator King. You put that word into his mouth. 

Mr. Gesell. I didn't mean to. Could we have that testimony 
read back, Mr. Chairman? 

(Senator King's question and the witness' reply were read by the 
reporter.) 

Mr. Gesell. It was Senator King who used the word "complaint." 

Mr. O'Brian. Mr. Chairman, by your courtesy again, would it be 
proper to ask the committee to interrogate the witness as to the names 
of the assistant managers who knew about this practice? 

Mr. Douglas, I don't think the witness said of his own knowledge 
that the assistant managers kn'ew~ 

The Vice Chairman. I will clear iliat up. ^f any of the assistant- 
managers knew of this practice, will you state ttleir names, if you 
know — the ones that you know knew of the practice? 

Mr. Steele. Weil, I think they all knew about it. 

The Vice Chairman. I didn't ask you what you thought. I asked 
you what you know, if you know. You have already testified as to 
the general practice, but what I am asking you now is whether or not 
you would be able to say, upon your responsibility, that specific 
assistant managers "whom you can name knew of the practice. . 

Mr. Steele. I would name them all. I would name them all, in 
that case. 

The Vice Chairman, Name them, the ones that you know knew 
of it. 

Mr. Steele. The ones we have in our ofRce now? 

The Vice Chairman. No; the assistant managers who have been 
in your office during this period of service who knew of this practice. 

Mr. Steele. Well, all of the assistant managers at one time were 
agents, and of course the same situation existed when they were 
agents as now, I am quite sure, and for that reason they couldn't help 
but know wliat is going on. 

The Vice Chairman. But what I nm trying to get at, what counsel 
representing this company wants to know — and we think it is a proper 
thing for them to know — if you know, is: the names of the assistant 
managers whom you know, as distinguished from your own deductions. 

Mr. Steele. 'I wouldn't want to swear. 

The Vice Chairman. You are swearing now, you see. 

Mr. Steele. I wouldn't want to swear that they positively knew. 
It is myimpression that they know. 

Senp,tor King. If it was such a common practice why did you go 
out into the washroom to sign these names? If it was so open and 
aboveboard, why did you go out into the washroom to do it? 

Mr. Douglas. I take it that was merely occasional, that going 
into the washroom wasn't the common practice. 

Mr. Steele. The common practice was to fill them out right in 
the office. 

Representative Reece. Did anyone caution you against letting the 
assistant managers know what you were doing in that respect? 



CONCENTRATION OF ECONOMIC POWER 1337 

Mr. Steele. No; I don't think so. 

Mr. Gesell. Do you ever remember any of the assistant managers 
while they were agents signing ballots m the manner which you have 
just described? 

Mr. Steele. Not as a positive thing. 

Mr. Gesell. No further questions. 

Mr. O'Brian. I dislike to interrupt here. I am only doing it in 
the interest of accuracy. Could the witness name any of these 30 
agents whom he says made a practice of this? 

Mr. Douglas. I tliink the number was over 50, was it not? 

Mr. Steele. About 50 men in the office, and the 30 that I referred 
to was an approximate number. I would venture to say that probably 
I saw more than that at various times — men who are no longer in the 
business, men who had come in the business and have since left. 

The Vice Chairman. Unless this witness knows definitely that a 
given agent did this thing, the Chair wouldn't like to be responsible 
for having him put in the record his assumption of belief about it. 
I wouldn't like, as one member of the committee, to put in the name 
of a person because you think he probably does know about it as a 
general practice. If you do know definitely of a given person, and 
you saw him engaged in this practice, you may give that name to the 
committee. 

Mr. Steele. Well, nothing particular happened in connection with 
that, I mean — -■ 

The Vice Chairman (interposing). I am not asking' you to explain 
why you can or why you can't. If you can, Vvhy do it; but if you 
can't, don't. 

Mr. Douglas. Mr. Chairman, we are going to call a number of 
other witnesses. 

The Vice Chairman. I know, but let him answer this question. 

Mr. Steele. I'd rather not mention one or two men's names I 
might not -be positive of. 

The Vice Chairman. You are right. You ought not to do it 
unless you are positive. 

Mr. Gesell. The next witness is Mr. S. J. Bander. 

The Vice Chairman. Do you solemnly swear that the testimony 
you are about to give shall be the truth, the whole truth and nothing 
but the truth, so help you God? 

Mr. Bander. I do. 

TESTIMONY OF S. J. BANDER, AGENT, METROPOLITAN LIFE 
INSURANCE CO., SOMERVILLE, MASS. 

Mr. Gesell. Wliat is your full name, sir? 

Mr. Bander. Samuel J. Bander. 

Mr. ©ouGLAS. How do you spell that? 

Mr. Bander. B-a-n-d-e-r. 

Mr. Gesell. Are you employed by the Metropohtan Life Insur- 
ance Co. as an agent? 

Mr. Bander. That is right. 

Mr. Gesell. Out of what office do you work? 

Mr. Bander. Someryille, Mass. 

Mr. Gesell. How long have you been in the employ of the com- 
pany? 



1338 CONCENTRATION OF ECONOMIC POWER 

Mr, Bander. Since August of 1923. 

Mr. Gesell. How many elections have you participated in, Mr. 
Bander? 

Mr. Bander. Well, I would presume it was 23 or 25, or all of them 
since that time. 

Mr. Gesell. Every other year since that time? 

Mr. Bander. That is right. 

Mr. Gesell. Is the practice of signing ballots in your office similar 
to that testified to by the previous witness? 

Mr. Bander. That is right. 

Mr. Gesell. In your office the agents sign the ballots for the 
policyholders without the policyholders' authority? 

Mr. Bander. In many cases. 

Mr. Gesell. Is that a general practice in the office? 

Mr. Bander. It has been, sir. 

Mr. Gesell. Have you engaged in it yourself? 

Mr. Bander. Well, directly, I would say yes. 

Mr. Gesell. How many men are there in your office? 

Mr. Bander. Well, at the present time there is 38, but at one time 
we had as high as 60, I believe, around that, I wouldn't say exactly. 

Mr. Gesell. How many of those people in your office would you 
say, agents in your office, engaged in this practice? 

Mr. Bander. Well, you can't watch every man, but I would say 
the majority that I have seen in there did the same thing. 

Mr. Gesell. Did they do it openly in the office or was it done 
covertly? 

Mr. Bander. I should say most of the time it was done openly. 

Mr. Gesell. Right in the office? 

Mr. Bander. That is right. 

Mr. Gesell. In front of the managers and assistant managers? 

Air. Bander, Well, I don't know if the managers and assistant 
maui.gers have seen it, but I know it was done without hiding any- 
thing. 

Mr. Gesell. If they had wanted to see it, they could have? 

Mr. Bander. I think if the assistant manager or the manager was 
inquisitive to see if those were done right, if they watched they could 
have seen the procedure go on that way. 

Mr. Douglas. Was it regarded as a secret among the agents? 

Mr. Bander I don't Relieve so. 

Mr. Douglas. It wasn't treated as a very, very confidential matter? 

Mr. Bander. No. 

Mr. Gesell. Do you know whether at any time since j'^ou have 
worked with the company any particular manager or assistant 
manager knew of this practice? 

Mr. Bander. I couldn't say whether he knew it or not. 

Mr. Gesell. Did they, ever say anything to you which mdicated 
in any way that they did? 

Mr. Bvndep. No. 

Mr. Gesell, You have worked in different oflices, have 3^ou not? 

Mr, Bander. No, sir; I worked in the same office for almost 16 
years. 

Mr. Gesell. Was that practice .going on in the office when you 
first came there? 

Mr, Bander. That is riorht. 



CONCENTRATION OF ECONOMIC POWER I339 

Mr. Gesell. How did you happen to start, Mr.' Bander? 

Mr. Bander. Well, I started with a case— those ballots were 
handed down or usually put in the mail boxes with the demand that 
those ballots be turned in at a certain time. The whole ballots, as 
they were, wer'e very flimsy, done in such a cheap way, so if I was 
to present them to a policyholder it would more incriminate the com- 
pany than do them good. In other words, let me explain, gentlemen, 
those ballots are printed on the cheapest paper ever possible, and I 
want to state right here, if you will allow me, that the Metropolitan 
Life Insurance Co. certainly puts out some marvelous printing in all 
other matters. 

Some of you gentlemen possibly have come across it. But those 
ballots were done in such a poor way, on paper that is used for pur- 

f)oses that I wouldn't want to mention here. Those were the ballots, 
ittle gray cheap paper that you wouldn't want to write on here for 
scrap paper. 

The Vice Chairman. That is enough of that; we have a pretty fair 
idea about that. 

Mr. Bander. Now if I were to present this to a policyholder which 
had a lot of respect for me and the companv, I think it would be 
very — well, the respect would be lost, I should say, and therefore I 
wouldn't take them out in the field to sign them. 

Mr. Douglas. This will be just an estimate on your part, but give 
us the best estimate of the percentage of ballots out of your office 
which were forged, the average percentage. 

Mr. Bander. Percentage of ballots that were 

Mr. Douglas (interposing). Forged. 

Mr. Bander. Well, I couldn't say exactly, it would be pretty hard 
to say because usually a man was given either thirty or forty or fifty 
ballots, about that number. To say exactly would be taking a lot of 
liberty in making a statement like that. 

Mr. Douglas. Approximately, would it be less than half or more 
than half? 

Mr. Bander. If I would say about 20 or 30 percent it would be a 
fair estimate. 

The Vice Chairman. Twenty or 30 percent of names signed that 
were not authorized, you mean? 

Mr. Bander. That is right. 

Senator King. That is, the paper wasn't presented to enough of 
them to get 70 percent signed? Is that right? 

Mr. Bander. I couldn't say that, exactly. 

The Vice Chairman. Why do you want to fool around getting those 
70 percent when jou could just go in and sign them? Why did you 
bother about getting anybody if you could do it so easily the other 
way? 

Mr. Bander. Personally I want to state right here that I have 
never had any policyholders outside of my own immediate family sign 
those ballots, and this is a true statement, for the last 16 years, I 
never took a ballot to any policyholder with the exception of my very 
close friends and my relatives. The reason why I took it to them was 
because it was demanded by the manager that those ballots be 
returned at a given date and I could not, you might say, cross it 
because the way we work it is just a matter of do as you are told or else. 



1340 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. It looks like you could easily get away with 
forging the kinfolks' names to a ballot if you could a stranger's. 

Mr. Bander. Personally I don't think I forged any ballots; the 
only thing I ever did in the office was ask some of the agents to sign 
ballots for me. 

The Vice Chairman. You got them to sign yours. 

Mr. Bander. That is right, in their own name; in other words, 
they vote for themselves, maybe five, six, ten times, if you call that 
forgery I don't know, but the man — for instance if I was an agent and 
the other members approached me and would say, "Well, will you 
fill out some ballots?" I would sigfi my name to the ballot. 

The Vice Chairman. How many times? 

Mr. Bander. Possibly two or three time, but I wouldn't sign any- 
body else's name to it. 

The Vice Chairman. You never did sign anybody else's na^me? 

Mr. Bander. No, sir. 

The Vice Chairman. I think we are getting something rather 
Interesting and if you gentlemen will leave me alone we will see what 
we can develop. Was that the custom in the office usually of these 
agents? Did they sign the names of pohcyholders or did they sign 
their own names? 
. Mr. Bander. Well, I couldn't^; 

The Vice Chairman (interposing). Several times? 

Mr. Bander. I couldn't say in other cases but I know in my case 
the agent would sign his own name several times and put a policy 
number on there, in other words the policy number would be fictitious, 
it would not be the right one. If the home office would check it 
they would find that this was not true. 

The Vice Chairman. And the custom, would be that you would 
receive a bunch of forty or fifty ballots put in the mail to each of the 
agents and was the custom with reference to the other agents the same 
as your own custom insofar as you know, or did they sign the names of 
policyholders without authority? 

Mr. Bander. I really couldn't say, sir. I don't know what the 
other agents did. I know that the ballots were signed in the office. 
Whether or not the agent wrote his own name or wrote somebody 
else's I could not honestly say. ^ 

The Vice Chairman. What is your opinion about it? 

Mr. Bander. My opinion was everythiiig done that it shouldn't 
be done. Does that answer the question? 

The Vice Chairman. Well, it goes pretty far toward answering it. 
What I am trying to find out is, if you can help us on it, what the 
practice was in your office with reference to these ballots which- the 
policyholder did not himself vote, was the name of the agent signed 
or did the agent sign the name of some policyholder, insofar as you 
know? 

Mr. Bander. As far as I know I couldn't definitely state that. I 
could state in my own case, as I told you before, that I had agents sign 
their own name on the voting blank, you might caU it, for me — signed 
several times. 

The Vice Chairman. Would you get several agents to help you 
out, several different agents to help you out with your batch of ballots? 

Mr. Bander. That is right. 



CONCENTRATION OF ECONOMIC POWER 1342 

The Vice Chairman. About how many agents would you prob- 
ably use in getting your own batch of forty or fifty ballots signed? 

Mr. Bander. I should say fifteen or twenty. 

The Vice- Chairman. You would just kind of go around among 
them. 

Mr. Bander. That is right. 

The Vice Chairman. When you were doing that did they ask you 
to help them out, too, and sort of cooperate? 

Mr. Bander. That is right, exactly the same way. 

The Vice Chairman. So fifteen or twenty of you working together 
helped each other to get your ballots signed. 

Mr. Bander. That is right. 

The Vice Chairman. But so far as you know none of those ballots 
had the names of any pohcyholders other than the agents who may 
have happened to be policyholders. 

Mr. Bander. That is right. 

The Vice Chairman. I think we have got that clear. 

Mr. Gesell. Who was your manager from 1926 to 1938? 

Mr. Bander. Mr. Martens. 

Mr. Gesell. What was his first name? 

Mr. Bander. William Martens. 

Mr. Gesell. I have no further questions. 

Mr. John Lord O'Brian. Do you mind asking the witness if that 
is the kind of proxy and ballot he signed? 

The Vice Chairman. That is a proper question. 

Mr. Gesell. Is this che type of ballot and proxy? 

Mr. Bander. That is right; and sometimes it was even cheaper 
paper than this. 

Mr. Gesell. I might say for the record that samples of the proxy 
and ballot are already in evidence.^ 

The Vice Chairman. If it is desired, we can put that particular 
one in and have it marked as an exhibit. 

Senator King. You call that bad paper? 

Mr. Bander. Not this one. 

Mr. Gesell. No further questions. 

The Vice Chair:^ian. If there is no objection, this may be marked 
as a proper exhibit. 

(The sample of policyholder's proxy and oflicial ballot were marked 
"Exhibit No. 251" and are on file with the committee.) 

The Vice Chairman. I think we might want that identified a little 
better. Has the witness identified that? 

Mr. Gesell. Yes, he has. 

(The witness, Mr. Bander, was excused.) 

Mr. Gesell. The next witness is Mr. Samuel Leshan. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth and nothing but 
the truth, so help you God? 

Mr. Leshan. I do. 

1 See "Exhibit No. 217", appendix, p. 1544. 



1342 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF SAMUEL LESHAN, AGENT, DORCHESTER OFFICE, 
METROPOLITAN LIFE INSURANCE CO., BOSTON, MASS. 

Mr. Gesell. What is your full name? 

Mr. Leshan. Samuel Leshan. 

Mr. Gesell. How do you spell it? 

Mr. Leshan. L-e-s-h-a-n. 

Mr. Gesell. Are you employed by the Metropolitan Life Insurnnce 
Co? 

Mr. Leshan. I am. 

Mr. Gesell. In what capacity? 

Mr. Leshan. As an agent. 

Mr. Gesell. How long have you been employed? 

Mr. Leshan. Since May 1935. 

Mr. Gesell. Out of what office do you work? 

Mr. Leshan. Dorchester, Boston. 

Mr. Gesell. Is that the same office Mr. Bander works out of, or a 
different office? 

Mr. Leshan. A different office. 

Mr. Gesell. Is the practice with respect to obtaining policy- 
holders' signatures on- ballots and proxies the same as that followed 
in^Mr. Bander's office? 

Mr. Leshan. Not exactly. 

Mr. Gesell. Will you tell us what the practice is in your oflQce? 

Mr. Leshan. The practice in my office, has been to exchange the 
signatures of the agents. 

Senator King. I didn't understand. 

Mr. Leshan. The practice ui my office has been to exchange signa- 
tures of policyholders by agents. 

Mr. Gesell. You mean one agent would sign the names of another 
agent's policyholders to the ballots? 

Mr. Leshan. Yes, sir. 

Mr. Gesell. And vice versa. 

Mr. Leshan. Yes, sir; without corresponding policy numbers. 

Mr. Gesell. And without the authority of the policyholder? 

Mr. Leshan. I wouldn't say that exactly. 

Mr. Gesell. What do you mean by that. 

Mr. Leshan. That the policyholders did not know what it was 
about and they refused to sign them. Presuming you were a policy- 
holder and I presented a ballot to you and said, "Sign it," and you 
didn't have the time and you refused to sign it, what would I do? 

Mr. Gesell. You mean the policyholder didn't know anything 
about it at all. 

Mr. Leshan. Of course not. 

Mr. Gesell. Was that practice followed in the case of the 1935 
election, or were you there at that time? 

Mr. Leshan. I don't remember the '35 election; I remember the '37. 

Mr. Gesell. Was it followed in the '37 election? 

Mr. Leshan. Yes, sir. 

Mr. Gesell. Was it a general practice in the ofl5ce? 

Mr. Leshan. Yes, sir. 

Mr. Gesell. Was it engaged in secretly or openly in the office? 

Mr. Leshan. Openly. 

Mr. Gesell. How many men are there in the office? 



CONCENTRATION OF ECONOMIC POWER 1343 

Mr. Le^han. Thirty-two. 

Mr, Gesell. How many of those men would you say participated 
in this practice? 

Mr. Leshan. Thirty. 

Mr. Gesell. Who were the two men who didn't? 

Mr. Leshan. Mr. Carroll and Mr. Paris. 

Mr. Gesell. Are they the managers? 

Mr. Leshan. No, sir; they are agents. 

Mr. Gesell. Everyone else did it? 

Mr. Leshan. Yes, sir. 

Mr. Gesell. Was it done in the presence of the assistant managers? 

Mr. Leshan. Yes, sir. 

Mr. Gesell. Do you know whether the assistant managers knew it 
was going on? 

Mr. Leshan. If they didn't — 

(The remainder of the answer was inaudible.) 

Mr. Gesell. Do you know whether the assistant managers knew of 
this practice? 

Mr. Leshan. They must have Imown. 

Mr. Gesell. What makes you say that? 

Mr, Leshan. The ink wasn't dry. 

Mr. Gesell, You mean you would turn in ballots and proxies 

The Vice Chairman (interposing). Wait a minute. Can't you use 
language we can understand? What do you mean? 

Mr. Leshan. The company did not allow the time to have the bal- 
lots taken care of in the appropriate way; therefore we had to present 
our reports in the morning, to present the ballots, we had to sign them 
right there and then; the ink wasn't dry. 

Senator King. How many days do you have? 

Mr. Leshan. Five to ten. 

Senator King. You had 5 to 10 days? 

Mr, Leshan. Yes, sir. 

Mr. Gesell. And you would sign them on the last day and turn 
them in to the assistant managers before the ink was dried? 

Mr. Leshan. No, sir; we signed them daily. 

Mr. Gesell, And turned them in before the ink was dry? 

Mr, Leshan. Yes, sir. 

Mr. Gesell. And why were they turned in daily? Was the com- 
pany making reports? 

Mr. Leshan. In a way. 

Mr. Gesell. Wliat do you mean, in a way? 

Mr. Leshan. The manager would take a report every morning. 

Mr. Gesell. As to how many you had gotten? 

Mr. Leshan. Yes, sir. 

Mr. Gesell, Do you know whether or .not the manager knew about 
it? 

Mr. Leshan. Definitely, no ; but there is np question he did know. 

Mr. Gesell. You mean you don't Imow ofyour own knowledge 
whether he knew or not? 

Mr. Leshan, I could not state definitely, because I could not prove 
it definitely. 

Mr. Gesell, What is the name of your manager? 

Mr. Leshan. P. J. Craffey. 

Mr. Gesell. W^hat are the names of the assistant managers? 

124491— 39— pt. 4 13 



1344 CONCENTRATION OF ECONOMIC POWER 

Mr. Leshan. Mr. Green, Mr. Purcell, Mr. Abrams, and Mr. Lynn. 

Senator King. Do you have such a large number of assistant man- 
agers in that small office? You have given 4 or 5 names. 

Mr. Leshan. Yes, sir. 

Senator King. Are there that number? 

Mr. Leshan. There are approximately nine agents to a staff, to an 
assistant manager. 

Mr. Gesell. You mean that each group of nine agents has an 
assistant manager over him, and one manager over all the assistants? 

Mr. Leshan. Yes, sir. 

Mr. Douglas. What percentage of the ballots going out of your 
office in 1937 election would you estimate were forged? 

Mr. Leshan. My personal opinion would be about 98 percent. 

Mr. Gesell. Were any of these assistant managers previously 
salesmen, do you know? 

Mr. Leshan. Yes, sir; they had to be in order to become assistant 
managers. 

Mr. Gesell. A man becomes an assistant manager usually from 
the ranks of the salesmen? 

Mr. Leshen. Usually. 

Mr. Gesell. Have any of these assistant managers been salesmen 
while you were with the company? 

Mr. Leshan. No, sir. 

Mr. Gesell. I have no further questions. 

Senator King. Did you sign the names of any individuals on those 
ballots? 

Mr. Leshan. Yes, sir; you mean policyholders. 

Senator King. Did you sign the names of policyholders? 

Mr. Leshan. Well, any policyholder. 

Senator King. Did you sign the name of any policyholder? 

Mr. Leshan. Yes, sir. 

Senator King. Give me the name of any policyholder whose name 
you signed. 

Mr. Leshan. I cannot remember that. 

Senator King. You can't do that? 

Mr. Leshan. No, sir; there are over a thousand names, I believe. 

Senator King. I understood you to say you had 50 ballots. 

Mr. Leshan. We don't discriminate in the names we chose; we 
chose any name in the book. 

Senator King. You had only 45 or 50 ballots for your section? 

Mr. Leshan. -Yes, sir. 

Senator King. How many of those ballots would you have; would 
you have 45? 

Mr. Leshan. About'45 to 50. 

Senator King. Now, can you remember the name of a single person 
whose name you forged? 

Mr. Leshan. No, sir; I do not choose the names, I just pick them 
at random. 

Senator King. And you don't remember the name? 

Mr. Leshan. No, sir; they were not the names of my debit, they 
were the names in the adjoining debit. I do not sign my own ballots. 
I sign the ballots of the next agent and he signed mine in turn, that was 
the procedure. 

Senator King. Where did you find the names to sign on the ballots 
of some of the agents that were adjoining you? 



CONCENTRATION OF ECONOMIC POWER I345 

Mr. Leshan. The other adjoining agent would copjr down the name 
on the top, I believe, and I would just write it in, copy it at the bottom, 
and return it. 

Senator King. You signed the name at the bottom? 

Mr. Leshan. That is right. 

Senator King. Your own name or the name at the top of the 
ballots? 

Mr. Leshan. The man's name at the top of the ballots. 

Senator King. If John Jones' name was at the top of the ballot, 
you would sign John Jones' name at the bottom. 

Mr. Leshan. Yes, sir. 

Senator King. You knew then you were committing a forgery. 

Mr. Leshan. No, sir. 

Senator King. You knew you were signing somebody's name you 
were not authorized to sign, didn't you? 

Mr. Leshan. No, sir. If I gave you a piece of paper and put the 
name at the top and asked you to sign at the bottom, and if you 
were a friend of mine, wouldn't you sign it? [Laughter.] 

Senator King. No; I wouldn't. Do I understand that you were 
there as a representative of the company? 

Mr. Leshan. No, sir; there was no 

Senator King (interposing). Do I understand you were there rep- 
resenting the company? 

Mr. Leshan. In that ballot? 

Senator King. Yes. 

Mr. Leshan. Not directly. 

Senator King. You were an agent of the company, weren't you? 

Mr. Leshan. Yes, sir; but there was no direct advice given as to 
the procedure in signing those ballots. 

Senator King. Did you feel that you were at perfect liberty to 
sign any person's name on those ballots? 

Mr. Leshan. Yes, sir. 

Senator King. And that was your conception of your duty to your 
employer, was it? 

Mr. Leshan. The instruction was not passed to me on which method 
to take on which to have ballots signed. 

Senator King. Did you read the instructions on the ballot? 

Mr. Leshan. Yes, sir. 

Senator King. That is aU. 

Mr. Douglas. It was common practice in your office to do that? 

Mr. Leshan. Yes, sir. 

Mr. Douglas. And that was a practice that was in existence at the 
time you came? 

Mr. Leshan. Evidently. 

Mr. Douglas. As far as you know it wasn't just started in 1937? 

Senator King. How would he know what the practice was before? 

Mr. Douglas. I am asking him if as far as he knows this was 
started in 1937, or whether or not it was his impression that it had 
been going on prior to that time. 

Mr. Leshan. Personally, I did not start that procedure. 

Mr. Douglas. You fitted yourself into the custom of an office? 

Mr. Leshan. I followed the process the other agents were going 
through. 

Mr. Gesell. No further questions. 



1346 CONCENTRATION OF ECONOMIC POWER 

(The witness, Mr. Samuel Leshan, was excused.) 

Mr. Gesell. The next witness is Mr. D. A. Pettinelli. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give in this case will be the truth, the whole truth, and 
nothing but the truth, so help you God? 

Mr. Pettinelli. Yes, sir. 

TESTIMONY OF DOMINIC A. PETTINELLI, AGENT, LEAGUE ISLAND 
DISTRICT, METROPOLITAN LIFE INSURANCE CO., PHILADEL- 
PHIA, PA. 

Mr. Gesell. What is your full name, sir? 

Mr. Pettinelli. Dominic A. Pettinelli — P-e-t-t-i-n-e-1-l-i. 

Mr. Gesell. Are you employed by the MetropoUtan? 

Mr. Pettinelli. Yes, sir. 

Mr. Gesell. In what capacity? 

Mr. Pettinelli. As an agent. 

Mr. Gesell. Ou.t of what office do you work? 

Mr. Pettinelli. League Island district, Philadelphia. 

Mr. Gesell. Philadelphia, Pa.? 

Mr. Pettinelli. Yes, sir. 

Mr. Gesell. Is the practice in your office the same as the practice 
in the offices concerning which the previous agents have testified? 

Mr. Pettinelli. Yes, sir. 

Mr. Gesell. Is it the practice in your office to exchange ballots 
among the agents and for the agents to sign policyholders' names to 
those ballots? 

Mr. Pettinelli. Yes, §ir. 

Mr. Gesell. Was that practice in effect in your office when you 
came to work? 

Mr. Pettinelli. I went to work with the Metropolitan in the 
year of 1936 and the week of June 29. When I heard that there was 
an election coming off, I was looking forward to a great event. I 
thought it was something very 

Senator King (interposing). Answer his question. What was the 
practice? 

Mr. Gesell. Tell us what was the practice. 

Mr. Pettinelli. Well, the practice was that the ballots were dis- 
tributed to the agents by assistant managers, and they were requested 
to take the ballots out and get them signed by the policyholders. So 
naturally when I was given the ballots, I went out on my debit and 
asked people to sign the ballots. In many cases, as a matter of fact, 
at that time my debit was a 98 percent foreign debit. 
Senator King. I diSn't get that. 
Mr. Gesell. What do you mean by foreign debit? 
Mr. Pettinelli. Italian people, and most of them, naturally, in 
many cases, they didn't know what they were signing, and in many 
cases people had never heard of the company having an election, and 
when the ballot was presented to them, they kind of resented it 
because they didn't know what they were signing for. In other 
instances people didn't know how to write their name. They made 
cross marks, and naturally they weren't going to attach a cross to 
something that they didn't know what it was. 
Mr. Gesell. Thev couldn't read, in other words. 



I 



CONCENTRATION OF ECONOMIC POWER 1347 

Mr. Pettinelli. Positively, they couldn't. 

Senator King, They could perhaps read the Italian language but 
not the English, is that what you mean? 

Mr. Pettinelli. That is right. 

Mr. Douglas. The ballots were in English. 

Mr. Pettinelli. Positively. 

Mr. Gesell. So what happened after that. 

Mr. Pettinelli. So the next morning when I first was given the 
ballots, I took in as many as I had signed by policyholders, and natu- 
rally an agent's time is limited. He has no time control; he must 
go out and do a day's work and with all that he had to get these ballots 
signed, so naturally we didn't have very much time to get all our 
ballots signed, and one morning when I was sitting there, the first 
thing I know, I saw some ballots stuck in front of me, so a man said, 
"Go ahead and sign them for me." 

Senator King. Was he an agent? ' 

Mr. Pettinelli. Yes, sir. So the first thing you know ballots were 
floating all over the office. 

Mr. Gesell. And you saw then it was the practice in the office for 
the agents to do the signing themselves? 

Mr. Pettinelli. Yes, sir. 

Mr. Gesell. And was that practice continued in the following elec- 
tions? 

Mr. Pettinelli. It only took place in the one election in 1937. 

Mr. Gesell. That is the only one you have been in? 

Mr. Pettinelli. Yes. 

Mr. Gesell. Was it the general practice in the office for you to sign 
that? 

Mr. Pettinelli. Yes, sir. 

Mr. Douglas. What percentage of the ballots going out of your 
oflfic^ in that election would you estimate were forged? 

Mr. Pettinelli. Wliy, I should say the majority. 

Mr. Douglas. Over 50 percent? 

Mr. Pettinelli. Positively. 

Mr. Gesell. How many men were working in your office? 

Mr. Pettinelli. At that time there were approximately 46 men. 

Mr. Gesell. Was any of this signing done in the presence of the 
assistant managers? 

Mr. Pettinelli. Well, the assistant managers were in the agents' 
room. 

Mr. Gesell. When the signing was going on? 

Mr. Pettinelli. Yes, sir. 

Mr. Gesell. Do you know whether or not they saw what was 
going on? 

Mr. Pettinnelli. That I can't say. 

Mr. Gesell. Wliat about the manager? 

Mr. Pettinelli. The manager was not present. He naturally was 
in his office. 

Mr. Gesell. How many assistant managers are there in the office? 

Mr. Pettinelli. Five. 

Mr. Gesell. I have no further questions. 

Senator King. Did you sign your name to the ballot? 

Mr. Pettinelli. Yes; I did. 



1348 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. I thought you said you signed the policy-holder's 
name. 

Mr. Pettinelli, Well, naturally, you sort of tripped me there. I 
signed for other agents the names of policyholders that they had given 
me to sign. 

Senator King. Do you sign your own name, that is what I mean? 

Mr. Pettinelli. I did, because I am a policyholder also. 

Senator King. How many policies do you Imve? 

Mr. Pettinelli. I have 

Senator King (interposing). Your own, I mean. 

Mr. Pettinelli. I have one of my own. 

Senator King. Any members of your family? 

Mr. Pettinelli. Yes, sir. 

Senator King. Did they sign? 

Mr. Pettinelli. No, sir. 

Senator King. Do you sign their names? 

Mr. Pettinelli. Yes, sir. 

Senator King. You signed your own name and signed the names 
of the members of your family who hold policies? 

Mr. Pettinelli. Yes, sir. 

Senator King. You voted the ticket then? 

Mr. Pettinelli. Yes, sir; I had no alternative. 

Senator King. You didn't put up any kick, if I may use the language 
of thjB street, against the ticket, against the officers on the ticket? 

Mr. Pettinelli. No; it was hopeless, no; naturally I didn't. 

Senator King. Were you satisfied with the management? 

Mr. Pettinelli. Was I? 

Senator King. Yes. 

Mr. Pettinelli. Certainly not. 

Senator King. You were working for it? 

Mr. Pettinelli. Yes, sir. 

Senator King. Still working for it? 

Mr. Pettinelli. Yes, sir. 

Mr. Douglas. Just for purposes of clarification, you signed to 
these ballots not your name but the names of policyholders? 

Mr. Pettinelli. Yes, sir. 

Senator King. Then I misunderstood that you signed your own 
name. 

Mr. Pettinelli. When ballots were given to me by other men, I 
signed the names of policyholders they presented to me to sign. 

Mr. Gesell. You did both, in other words. 

Mr. Pettinelli. Yes, sir. 

Senator King. Signed your name and signed the names of policy- 
holders? 

Mjr. Pettinelli. Yes, sir. 

Senator King. Did you sign your name more than once as a 
policyholder? 

Mr. Pettinelli. No, sir. 

Senator King. Then your name, as a policyholder, is only on one 
ballot? 

Mr. Pettinelli. Because I have only the one policy on myself. 

Senator King. But did you sign your name for policies that vou 
didn't hold? 

Mr. Pettinelli. No, sir. 



CONCENTRATION OF ECONOMIC POWER I349 

Mr. Gesell. In other words, you had one valid ballot in all of 
those, the one you signed yourself. 

The Vice Chairman. I think that is pretty clear. 

Mr. Gesell. No further questions. 

Dr. LuBiN. For the purpose of the record, will you just describe 
what you mean when you talk about your debit? 

Mr. Pettinelli. A debit is consisted of approximately — the aver- 
age debit has approximately 1,200 policyholders. The agent must 
go out and enter into about 300 homes to make his collections. He 
must collect his debit in 4 days, and with all that he must handle his 
detail work; that is, death claims, cash surrenders, and any corre- 
spondence that comes in from the home office. If anyone writes in to 
the home office asking any information in reference to their policies, 
or something of that nature, the agent must go out and contact the 
policyholder and get whatever information the policyholder would 
like to know, and naturally in many instances he has to call back at 
the homes two or three times withm the week in order to make his 
collection, so naturally his time is limited, and I think that that is 
the main purpose, that is the reason why so many of the ballots are 
signed amongst the agents, because of the pressure and the limit of 
time. 

Dr. LuBiN. You say you have 300 families in an average debit 
which you must visit once a week? 

Mr. Pettinelli. Yes, sir. 

Dr. LuBiN. This means you must average about 50 calls a day? 

Mr. Pettinelli. I beg your pardon. 

Dr. LuBiN. How many calls would you average a day? 

Mr. Pettinelli. Well, I will say about 75 calls, on the average. 

Dr. LuBiN. Have you any idea as to about what the average size 
of these individual policies on your own debit? 

Mr. Pettinelli. The average size? Well, that is hard to tell, 
because most of it, the largest share of the policyholders, are what is 
known as industrial policyholders. They are the policies that are 
paid on a weekly basis, and the debit that I had at that time, they 
had approximately 900 industrial policies and about 150 ordinaiy 
policyholders; that is, policies that were paid on a monthly basis. 

Dr. LuBiN. Have jou any idea as to what the average size of 
those industrial policies, the face value? 

Mr. Pettinelli. The face value of the policies, the average? That 
is hard to tell. 

Mr. Gesell. Many people on your debit are children, are they 
not? 

Mr. Pettinelli. Oh, yes; that also includes children. 

Mr. Gesell. Many of the policyholders; and many of them are 
also illiterate? 

Mr. Pettinelli. Yes. 

Mr. Gesell. Or at least some of them. 

Mr. Pettinelli. Positively. 

Senator King. You mean in the English language. I don't want 
to concede that in the language of their own country they were 
illiterate. 

Mr. Pettinelli. They were in the English language, some of them, 
but the majority of them were not. 



1350 CONCENTRATION OF ECONOMIC POWER 

Senator King. The majority of your clients were Italians, were 
they? 

Mr. Pettinelli. Do you wish to let me give you an example? 

Senator King. I was rather opposing the view that they^ are 
illiterate. 

Mr. Pettinelli. They were in the EngUsh language. 

Senator King. But they understood the Italian language? 

Mr. Pettinelli. Positively. 

Senator King. You wrote policies, didn't you? 

Mr. Pettinelli. I certainly did. 

Senator King. When you wrote poUcies among those people they 
were your clients; did you explain to them vrhat the nolicv was and 
what the company was, where it was? 

Mr. Pettinelli. Yes, sir. 

Senator King. Explained the policy as best you could and told 
them they had elections from time to time? 

Mr. Pettinelli. No, sir. 

Senator King. You didn't tell them that? 

Mr. Pettinelli. No, sir. 

Senator King. On the receipts you obtained or gave, was it stated 
that they had elections? 

Mr. Pettinelli. Yes. 

Senator King. That's all. 

Mr. Gesell. No further questions. 

The next v/itness is Mr. Samuel Brodis. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give is the truth, the whole truth, and nothing but the 
tnith, so help you God? 

Mr. Brodis. I do. 

Mr. Gesell. What is your name? 

TESTIMONY OF SAMUEL U. BRODIS, AGENT, LOGAN OFFICE 
METROPOLITAN LIFE INSURANCE CO., PHILADELPHIA, PA. 

Mr. Brodis. Samuel U. Brodis. 
Mr. Gesell. How do you spell it? 
Mr. Brodis. B-r-o-d-i-s. 

Mr. Gesell. Are you employed by the Metropolitan? 
Mr. Brodis. Yes, sir. 

Mr. Gesell. Out of what office do you work? 
Mr. Brodis. Logan, Philadelphia. 

Mr. Gesell. Is that the same office as the previous witness? 
Mr. Brodis. No, sir. 

Mr. Douglas. Did you say "no" or "yes?" 
Mr. Brodis. No. 

Mr. Gesell. How long have you been employed by the company? 
Mr. Brodis. Twenty years. 
Mr. Gesell. Since 1919? 
Mr. Brodis. February 3, 1919. 

Mr. Gesell. Have you participated in every election which has 
})e*'n IrmJ tiiiice that time? 
Mr. Prodis. No, sir. 

Mr. Gesell. How many have you participated in? 
Mr. Brodis. Four. 



CONCENTRATION OF ECONOMIC POWER I35I 

Mr. Gesell. Wliich four did j^ou participate in? 
Mr. Brodis. From 1919 to 1925. . 

Mr. Gesell. Since that time you have not participated in any? 
Mr. Brodis. No, sir. 
Mr. Gesell. Why is that? 

Mr. Brodis. Because I was an assistant manager. 
Mr. Gesell. Are you an assistant manager now? 
Mr. Brodis. No, sir. 

Mr. Gesell. How long were you an assistant manager? 
Mr. Brodis. Eleven and one-half years. 

Mr. Gesell. Will you tell us what the practice is in your ofTice 
with respect to the signing of the proxies and ballots? 

• Senator King. What ofSce does he hold now? 
Mr. Gesell. He is now an. agent. 

Mr. Brodis. The clerk gives out the ballots to the agents with 
instructions to have them signed within 10 days, somewhere around a 
week or 10 days. What the proxies were I did not see, because as an 
agent I never signed, never forged any signature. I used to get them 
all sigiied by the policyholders. "When I complained to the brother 
agents at that time that it was so hard to get the policyholders to 
sign them because they don't trust, they don't know what it is 
all about, and so on, they laughed at me. 

They said, "You don't know how the easiest way is to get out of 
that, and here is .the way we do it." They showed me then how to 
sign the signatures. 

Mr. Gesell. Is it a common practice in the office to get the signa- 
tures that way? 

Mr. Brodis. Since 1926 I did not see it. 

Mr. Gesell. But before 1926 you did? 

Mr. Brodis. When I was sitting with the agents together I did see 
it, but as an assistant manager I shut m}- eyes. 

Mr. Gesell. How many agents are there in the office? 

Mr. Brodis. Forty-nine. 

Mr. Gesell. While you were assistant manager did you talk with 
any of the other assistant managers about the practice engaged in 
in signing ballots? 

Mr. Brodis. No, sir; we avoided that question. 

Mr. Gesell. What do you mean by that? 

• Mr. Brodis. We didn't want to discuss that matter. 
Mr. Gesell. I have no further questions of this witness. 

Mr. Douglas. When you signed in the period prior to 1926, did 
you sign your name to the ballot or did you sign the names of policy- 
holders to the bpllots? 

Mr. Brodis. The poUcyholders signed their nam.es on the ballots. 
I never practiced this forgery, what you call it. 

Mr. Douglas. As respects the practices of other agents that you 
know about during that period, did they sign their names or did they 
sign policyholders' names? 

Mr. Brodis. They have signed the policyholders' names. 
_ Mr. Douglas. And that practice was going on during the first elec- 
tion in which you participated? 

Mr. Brodis. The first election I didn't know. 

Mr, Douglas. You learned about it after the first election? 

Mr. Brodis. After the election I learned. 



1352 CONCENTRATION OF ECONOMIC POWER 

Mr. Douglas. What percentage of the ballots during the period 
in question would you estimate were forged in that manner? 

Mr. Brodis. I couldn't tell you. I didn't participate, so I don't 
know. 

Mr. Patterson. Let me ask you a question. You are now an 
agent? 

Mr. Brodis. Yes, sir. 

Mr. Patterson. You were an assistant manager? 

Mr. Brodis. Yes. 

Mr. Patterson. Were you demoted? 

Mr. Brodis. Yes, sir. 

Mr. Patterson. "V^^iy? 

Mr. Brodis. I don't know. 

Mr. Patterson. When were you demoted? 

Mr. Brodis. In January 1938. 

Mr. Gesell. The next witness is Mr. Ernest Weiss. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Weiss. I do. 

TESTIMONY OF ERNEST WEISS, AGENT, HARROWGATjl OFFICE, 
METROPOLITAN LIFE INSURANCE CO., PHILADELPHIA, PA. 

Mr. Gesell. What is your full name, sir? 

Mr. Weiss. Ernest D. Weiss. 

Mr. Gesell. Are you an agent employed by the Metropolitan? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. How long have you been employed? 

Mr. Weiss. .Since May of 1934. 

Mr. Gesell. Out of what office do you work? 

Mr. Weiss. Out of the Harrowgate Office, Philadelphia. 

Mr. Gesell. Is that a different office from what any of the others 
have been talking about? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. Is the practice in signing ballots in your office the 
same as in the other offices? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. Do the agents sign the policyholders' names to the 
ballots? 

Mr. Weiss. The agents interchange ballots and sign names of 
policyholders of the other agents to the balloiJ,s. 

Mr. Gesell. Is that a general practice in the office? 

Mr. Weiss. So far as I sa^y; yes. 

Mr. Gesell. Was it done openly? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. In the offices of th^ company? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. In the offices of the company? 

Mr. Weiss. In the offices of the company. 

Mr. Gesell. How many agents are there in your office? 

Mr. Weiss. In the 1935 election there were approximately 27; in 
the 1937 election, about 24. 



CONCENTRATION OF ECONOMIC POWER I353 

Mr. Gesell. Do you know whether or not all of those agents 
engaged in the practice? 

Mr. Weiss. I should say the majo-rity, the good majority, engaged 
in that practice. 

Mr. Gesell. Was it done in the presence of the assistant man- 
agers? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. They saw it? 

Mr. Weiss. They must have seen it. 

Mr. Gesell. How many assistant managers have you got? 

Mr. Weiss. Three. 

Mr. Gesell. Was it done in the presence of the manager? 

Mr. Weiss. I can't recall definitely, but I think that the manager 
•was in the office during the 19 — in the agent's office — during the 1935 
election, at the front of the room. 

Mr. Gesell. And he saw the signing of the ballots at that time? 

Mr. Weiss. I cannot say definitely that he saw it or not, but it was 
being done. 

Mr. Gesell. No attempt to conceal it in any way? 

Mr. Weiss. No, sir. 

Mr. Gesell. How did you happen to start signing the ballots, Mr. 
Weiss? 

Mr. Weiss. Well, like every other agent, I was pressed for business 
at the time, had to take care of my debit, my detail work, and many 
other things. I found myself short of time in securing the necessary 
number of ballots legitimately, and like the rest, I took the easiest way 
out and gave some other agent my ballots to sign. 

Mr. Gesell. Was that practice going on in the office at the time 
you came to the company? 

Mr. Weiss. Yes, sir. 

'Mr. Gesell. In the first election you participated in, that practice 
was well under way? 

Mr. Weiss. Yes, sir. 

Mr. Gesell. Can you give us any estimate as to how many or 
what percentage of the ballots were signed in this unauthorized 
manner? 

Mr. Weiss. Well over 50 percent. 

Senator King. You are speaking of your own allotment, or for all 
the other allotments? 

Mr. Weiss. I am speaking for my own and other agents' in the 
oflBce. 

Senator King. Did you know what percent they had? 

Mr. Weiss. I should say about the same percent as mine. 

Senator King. Did you examine with a view to determining? 

Mr. Weiss. No; I didn't. 

Mr. Gesell. But you did sign some of the other agents'? 

Mr. Weiss. Sometimes as high as 10 ballots per agent. 

Mr. Douglas. Would the agents get together in one room at one 
time and do this at one time? 

Mr. Weiss. It was done in the agents' room. We sat a't desks, 
and naturally the adjoining agent would hand me his ballots and I 
would hand him my ballots and an adjoining agent would take his 
brother agent's ballots and sign the poHcyholders' names to them. 



1354 co^•CI■:NTilATIO^■ of economic power 

Mr. Douglas. That signing was done contemporaneously? You 
signed his at the time when he was signing yours? 

Mr. Weiss. Yes, sir. 

Senator King. Are you a poHcyholder? 

Mr. Weiss. Yes, sir. 

Senator King. You signed your own ballot? 

Mr. Weiss. I voted once. 

Senator King. Do any of your family have policies? Did they vote? 

Mr. Weiss. I voted for them. 

Senator King. Did they know of the fact that they had policies? 

Mr. Weiss. Yes, sir. 

Senator King. You explained that to them? 

Mr. Weiss. Yes, sir. 

Senator King. Did you sell them the policies? 

Mr. Weiss. Yes, sir. 

Senator King. You explained to them what the policy was, did you, 
and about the elections? 

Mr. Weiss. No; I explained nothing about the election. 

Senator King. Did you go to see your relatives? 

Mr. Weiss. In reference to what? 

Senator "King. In respect to the election. 

Mr. Weiss. No, I did not. 

Senator King. You just took it upon yourself to sign your relatives' 
names? 

Mr. Weiss. That is correct. 

Senator King. What relation do they bear to you? 

Mr. Weiss. Father-in-law, mother-in-law, wife. 

Senator King. That's all. 

Mr. Gesell. I have no further questions. 

The Vice Ciuirman. I have, I think, one question. How many 
signings would you have during the period of an election? How fre- 
quently would the agents get together to interchange 

Mr. Weiss (interposing). Well, it might be daily. It was done 
daily, and usually at the end of the week when the allotted time was 
up for the signatures and many agents had fallen short of their allot- 
ment it was usually done on Saturday; that is, in the 1935 election, 
when we had Saturday morning meetings, it was done Saturday 
morning. 

The Vice Chairman. How m.any ballots do you handle on an aver- 
age during an election? 

Mr. Weiss. It is hard for me to say, because I don't recall the 
exact number. It would be around 50. 

The Vice Chairman. That is all. 

Mr. Gesell. No further questions. 

(The witness, Mr. Weiss, Avas excused.) 

Mr. Gesell. The next witness is Mr. Alexander Heitzer. 

The Vice Chairman. Do you solemnly swear that the testimony 
you are about to give will be the truth, the whole truth and nothing 
but the truth, so help you God? 

Mr. Heitzer. I do. 



CONCENTRATION OF ECONOMIC POWER 1355 

TESTIMONY OF ALEXANDER HEITZER, AGENT, HARROWGATE 
DISTRICT, METROPOLITAN LIFE INSURANCE CO., PHILADEL- 
PHIA. PA. 

Mr. Gesell. "V\1iat is your name? 

Mr. Heitzer. Alexander Heitzer. 

Mr. Gesell. How do you spell it? 

Mr. Heitzer. H-e-i-t-z-e-r. 

Mr. Gesell. Are you employed by the Metropolitan Life Insurance 
Co.? 

Mr. Heitzer. I am. 

Mr. Gesell. In what capacity? 

Mr. Heitzer. An agent. 

Mr. Gesell. Out of what office do you work? 

Mr. Heitzer. Harrowgate district, Philadelphia. 

Mr. Gesell. Who is your manager? 

Mr. Heitzer. Arthur A. Becker. 

Mr. Gesell. How long have you been in the employ of the com- 
pany? 

Mr. Heitzer. Since July 1931. 

Mr. Gesell. How many elections have you participated in? 

Mr. Heitzer. Three. 

Mr. Gesell. Is the practice in your office similar to that practice 
in the other offices concerning which the previous agents have testified? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. Is it the practice in your office for the agents to sign 
the pohcyholders' names to the ballots without authority? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. Is that a general practice in the office? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. Have you engaged in it? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. Is it done openly? 

Mr. Heitzer. Yes. 

Mr. Gesell. In front of the assistani; managers? 

Mr. Heitzer. Yes. 

Mr. Gesell. How many agents in your office? 

Mr. Heitzer. At the present time I believe 20 or 21. 

Mr. Gesell. How many of them are engaged in this practice? 

Mr. Heitzer. Frankly, I couldn't say definitely that I know any 
agent that has ever been in the district who didn't engage in it. 

Mr. Gesell. As far as you know, all of the agents have done it? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. Have any of the assistant managers who are present 
assistant managers been agents with you? 

Mr. Heitzer. No. 

Mr. Gesell. Have they been agents previously? 

Mr. Heitzer. Yes, sir. 

Mr. Gesell. What percentage would you say of the ballots signed 
in youT district are signed in this unauthorized manner? 

Mr. Heitzer. Well, I think, a safe estimate would be about 90 
percent. 

Mr. Gesell. Do the assistant managers talk about it to the men? 

T\Ir. Heitzer. No; they don't- 



1356 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. But they are present when the signing takes place? 
Mr, Heitzer. Yes; they are. 

Mr. Gesell. Has the manager ever been present? 
Mr. Heitzer. I don't think so. 

Mr. Gesell. Was that practice in effect when you came to work 
in 1931? 

Mr. Heitzer. Yes, sir. 
Mr. Gesell. How did you happen to start? 

Mr. Heitzer. Well, my experience was probably the same as you 
have already heard. I met resistance on the part of the policyholders 
when I asked them to 'sign. Since we got such a small number of 
ballots, most of the people you approached didn't know elections were 
held; it took a lot of time and a great deal of difficulty, if you did want 
to explain the ballot honestly, which I did in 1937, at which time I 
completed all of my ballots legitimately. You met with a great deal 
of resistance on the part of the policyholders. If they examined the 
people they either didn't know them, or if they did know one or two, 
they didn't feel they wanted to vote for them. 

Mr. Gesell. I have no further questions. 

Senator King. Was the resistance because of the fact they didn't 
understand the policy or the mechanics of elections? What do you 
mean? 

Mr. Heitzer. They hesitated to sign. They either didn't want to 
sign the ballot because they didn't feel they were fully acquainted 
with the practice, or if they did really attempt to understand the 
mechanics of elections and examine the names on the ballots, they 
either didn't want to because they didn't Imow the people or in some 
cases because they did know some of the people. 

Senator King. As I understood you, it was the first election where 
you got your number legitimately. 

Mr. Heitzer. No, sir; the last. 

Senator King. You got those you contacted signed? 

Mr. Heitzer. Every one. 

Senator King. How many did you have? 

Mr. Heitzer. About 40. 

Senator King. So you got 40 names legitimately? 

Mr. Heitzer. Yes, sir. 

Senator King. Are you a policyholder? 

Mr. Heitzer. Yes, sir. 

Senator King. You signed? 

Mr. Heitzer. I did. 

Senator King. You voted the tickets? 

Mr. Heitzer. Yes, sir. 

Dr. LuBiN. Mr. Heitzer, were y^ou ever warned by an assistant 
manager against indulging in this practice? 

Mr. Heitzer. No, sir. 

Dr. LuBiN. Do you loiow of anybody who was ever warned against 
this practice? 

Mr. Heitzer. No, sir; I do not. 

Dr. LuBiN. Do you or any of the other agents feel there was any- 
thing fundamentally wrong with the practice? 

Mr. Heitzer. No; not at all. 

Dr. LuBiN. Was it due to the fact that there was no financial 
obUgation, no money involved? 



CONCENTRATION OF ECONOMIC POWER 1357 

Mr. Heitzer. We felt the election wasn't important, the people 
either voted for the name on the ballots or they didn't vote at all. 
We didn't feel we were depriving the poUcyholders of any special 
privilege. I know my conscience didn't bother me. 

Mr. Gesell. No further questions. 

The next witness is Mr. Dorfman. 

Senator King. Mr. Chairman, the Senate meets at 12 o'clock and 
I am compelled to leave. 

The Vice Chairman. Do you solemnly swear that the testimony 
you are about to give shall be the truth, the whole truth and nothing 
but the truth, so help 3^ou God? 

Mr. Dorfman. I do. 

TESTIMONY OF JACOB DORFMAN, AGENT, LOGAN OFFICE, 
METROPOLITAN LIFE INSURANCE CO., PHILADELPHIA, PA. 

Mr. Gesell. What is your full name, sir? 

Mr. Dorfman. Jacob Dorfman. D-o-r-f-m-a-n. 

Mr. Gesell. Are you employed as an agent by the Metropolitan? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. How long have you been employed? 

Mr. Dorfman. 9 years, 9 months, and 3 days. 

Mr. Gesell. You were ready for that. 

Mr. Dorfman. Yes, sir; May 6, 1929. 

Mr. Gesell. Out of what office do you work? 

Mr. Dorfman. Logan, Philadelphia. 

Mr. Gesell. That is the same office concerning which the other 
witness has previously testified? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. Do you confirm his statement about the practice in 
that office? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. Is it the practice in the office for the agents to sign 
the policyholders' names to the ballots for other agents without the 
authority of the policyholders? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. How long has that practice been in existence in. the 
office? 

Mr. Dorfman. Well, since I have been there. 

Mr. Gesell. You came when? 

Mr. Dorfman. In 1929. 

Mr. Gesell. And it has been used in every election since that time? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. Do all of the agents engage in it? 

Mr. Dorfman. Most of them, to my knowledge. 

Mr. Gesell. The great majority of them? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. How many agents are there? 

Mr. Dorfman. Forty-nine. 

Mr. Gesell. Is it done openly? 

Mr. Dorfman. Yes, sir. 

Mr. Gesell. In the offices of the company? 

Mr. Dorfman. In the office. 

Mr. Gesell. In the presence of the office assistant managers? 



1358 CONCENTRATION OP ECONOMIC POWER 

Mr. DoRFMAN. Yes, sir; the assistant managers are present in the 
office. 

Mr. Gesell. Do they help in the signing? 
, Mr. DoRFMAN. No, sir. 

Mr. Gesell. But they are present and can see it? 

Mr. DoRFMAN. They can see it. 

Mr. Gesell. What percentage of the ballots would you say in. 
your office, in, say, the 1937 election, had been signed in this manner? 

Mr. DoRFMAN. Do you mean as far as any ballots are concerned? 

Mr. Gesell. First of all, how many of yours? 

Mr. DoRFMAN. More than half of them. 

Mr. Gesell. Would you say that was generally true with respect 
to all of the agents? 

Mr. DoRFMAN. I couldn't say that about the other agents. It 
depends on the debit the agent controls. 

Mr. Gesell. You mean if he has a debit where he can get signatures^ 
he doesn't have to have so many phoney signatures? 

Mr. DoRFMAN. Correct. 

Mr. Gesell. What kind of debit do you have? 

Mr. DoRFMAN. It consists of about 80 percent Jews. 

Mr. Gesell. Are children on your debit who are poUcyholders? 

Mr. DoRFMAN. Yes, sir. 

Mr. Gesell. Have you any people who don't understand the 
English language on your debit? 

Mr. DoRFMAN. Very few. 

Mr. Gesell. You have some? 

Mr. DoRFMAN. Some. 

Mr. Gesell. Some of these ballots which the agents signed in your 
office are signed with crosses? 

Mr. DoRFMAN. Some of them. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. That is all. When I say that is all, that just 
means me. 

Representative Reece. Did you also feel, when you were signing 
these names', names of the pohcyholders to the ballots, that it was a 
matter of unimportance, since the question of their voting didn't 
deprive them of any benefits or rights in any way, and therefore, being 
a matter of inconsequence, j^ou just signed their names to it? 

Mr. DoRFMAN. The reason those ballots were signed by ^ther 
agents was because some of the pohcyholders were rather reluctant to 
sign them, and I couldn't persuade them to sign them. They were 
indifferent to signing those ballots. 

Representative Reece. Then why did you sign their names instead 
of just letting it go; letting the matter go? 

Mr. DoRFMAN. Those ballots were handed out to us and they had 
to be returned ^^^thin a certain time, signed. The first time when I 
told the clerk I couldn't get the signatures they told me they had to 
be signed, and one of the agents in our office volunteered to sign 
them for me. Ldid not volunteer. 

Mr. Gesell. Did you feel you were under pressure to have them 
signed, and get them in? 

Mr. DoRFMAN. I personally wasn't under any pressure. It was a 
common practice, as long as the man volunteered, and he told me it 
was done by other agents, I just let him do it. 



CONCENTRATION OF ECONOMIC POWER 1359 

Mr. Douglas. You were following the custom of the office? 

Mr. DoRFMAN. No, sir. 

The Vice Chairman. There is no opposition ticket in the field, 
and these people objected to signing something they didn't fully 
understand. 

Mr. DoRFMAN. The people didn't want to sign the ballots because 
they didn't care 

The Vice Chairman (interposing). They just didn't understand 
it, did they? 

Mr. DoRFMAN. I explained that. They didn't care whether those 
men were elected as directors or not. It was immaterial to them. 

The Vice Chairman. And no opposition ticket in the field. 

Mr. DoRFMAN. No, sir. 

Mr. Frank. You knew the slate would be elected whether any 
ballots were cast or not? 

Mr. DoRFMAN. Yes, sir. 

Mr. Frank. Then why do you tliink it was important to obtain 
signatures on the ballots? 

Mr. DoRFMAN. Because those were the instructions, that they had 
to be signed. 

The Vice Chairman. Any further questions. That is all. 

Mr. Gesell. The next witness is Mr. Nathan Bampe. 

The Chairman. Do you solemnly swear the testimony you are 
about to give shall be the truth, the whole truth and nothing but the 
truth, so help you God? 

Mr. Bampe. I do. 

TESTIMONY OF NATHAN BAMPE, AGENT, NEWARK DISTRICT, 
METROPOLITAN LIFE INSURANCE CO., NEWARK, N. J. 

Mr. Gesell. What is your full name? 

Mr. Bampe. Nathan Bampe. 

Mr. Gesell. How do you spell the last name? 

Mr. Bampe. B-a-m-p-e. 

Mr. Gesell. Are you employed as an agent by the MetropoUtan? 

Mr. Bampe. I am. 

Mr. Gesell. Out of what office do you work? 

Mr. Bampe. Newark, N. J., district, Newark. 

Mr. Gesell. What is the nam.e of your manager? 

Mr. Bampe. Mr. James B. Duff. 

Mr. Gesell. How long have you been in the employ of the com- 
pany? 

Mr. Bampe. Since October 29, 1929. 

Mr. Gesell. Is the practice in your office the same as in other 
offices concerning which we have had testimony? 

Mr. Bampe. Well, similar. 

Mr. Gesell. What do you mean, "similar"? 

Mr. Bampe. Along the lines that the men would be given a certain 
number of ballots and they were to get the signatures of policyholders. 
Wlien these ballots were handed to the men the men were given a cer- 
tain amount of time to deliver them back to the office signed. I 
would go out in the field and try to get signatures of intelligent people 
that I knew that were interested in the policy and told them that an 
election was taking place and that they were entitled to vote for direc- 

■!244-9l-39 -pt. 4 14 



1360 CONCENTRATION OF ECONOMIC POWER 

tors of the company. The intelligent people that were interested 
would sign or some refused. If I had a number of ballots signed I 
turned them in completed as required. If there was a certain number 
left over and I couldn't get the signatures — some people refused to 
sign, they weren't interested in the election — then I would come back 
to the office and tell them that was all I had, and you have to turn in 
the amount allotted to you, and when we would get together on the 
last day when the accounts go in we would get together and we would 
see a rumbling around, every man would turn ballots over to one an- 
other and merely get them signed in that respect. 

Mr. Gesell. That was to get signatures on those that the agents 
hadn't been successful in getting the policyholders themselves to sign? 

Mr. Bampe. That is right. 

Mr. Geseul. Was this a general practice in the office? 

Mr. Bampe. I believe so. 

Mr. Gesell. How many agents are there in your particular office? 

Mr. Bampe. At the present time 24. 

Mr. Gesell. Was the signing done in the presence of the assistant 
managers? 

Mr. Bampe. Well, whether they were there or not it was generally 
done open in the agents' room. 

Mr. Gesell. There was no secrecy about it? 

Mr. Bampe. No, sir. 

Mr. Gesell. Was this practice going on when you first came with 
the company many years ago? 

Mr. Bampe. When I joined the company it was in October 1929. I 
did not laiow anything about it, and the first election I took part in was 
in 1931. By that time ballots came down — I didn't know anything 
about it at first; when they were' given to me I just went out in the 
field to try to get as many signatures as I possibly could, and very often 
I got some. I think in one election, or two I would say, I got a com- 
plete allotment signed by policyholders. 

Mr. Gesell, But it was the election during '31 that you saw this 
other practice being engaged in? 

Mr. Bampe. This practice was going on; one man would turn a cer- 
tain amount of ballots over to another, and it was scrabbled down, 
written down, scrabbled anyway you want, and turned in. 

Mr. Gesell. Can you give us any estimate as to the percentage of. 
ballots cast, say in the 1937 election in your office, which were signed 
in this unauthorized manner? 

Mr. Bampe. I could not give you an honest estimate because I 
would not know how many were signed by agents. 

Mr. Gesell. You just know about your own. 

Mr. Bampe. Well, my own, I probably would have a few and I 
might not, I can't remember now what happened then. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. Any questions, gentlemen? 

(The witness, Mr. Bampe, was excused.) 

Mr. Gesell. The next witness is Mr. Meyer Glickman. 

The Vice Chairman. Do you solemnly swear that the testimony 
you are about to give will be the truth, the whole truth, and nothing 
but the truth, so help you God? 

Mr. Glickman. I do. 



CONCENTRATION OF ECONOMIC POWER 13g]^ 

TESTIMONY OF MEYER GLICKMAN, AQENT, HARROWGATE 
OFFICE, METROPOLITAN LIFE INSURANCE CO., PHILADELPHIA, 
PA. 

Mr. GfiSELL. What is your name? 

Mr. Glickman. Meyer GlickmaD. 

Mr. Gesell. Are you an agent employed by the Metropolitan? 

Mr. Glickman. Yes, sir. 

Mr. Gesell. How long have you been in its employ? 

Mr. Glickman. Since December 19, 1933. 

Mr. Gesell. Out of what office do you work? 

Mr. Glickman. Harrow Gate, Philadelphia. 

Mr. Gesell. Is the practice in that office the same as the previous 
testimony has indicated with respect to the signing of ballots? 

Mr. Glickman. Yes, sir. 

}^. Gesell. Agents exchange ballots back and forth among them- 
selves and sign the policyholders' names to them without authority? 

Mr. Glickman. That is correct. 

Mr. Gesell. Is that practice generally engaged in in your office? 

Mr. Glickman. I know it has been up until the last year, until 
1937. 

Mr. Gesell. It was not engaged in in 1937? - 

Mr. Glickman. Oh, yes; but I don't mean to the extent that it 
was in 1935. 

Mr. Gesell. In every election it has been engaged in? 

Mr. Glickman. Oh, yes. 

The Vice Chairman. What happened in 1937 that made, it dif- 
ferent from '35? . 

Mr. Glickman. Well, I don't know, I think in 1937 — I 4iave al- 
ways been a bug on detail work and doing my work correctly and I 
just felt I didn't want to do it any more, I didn't think it was proper, 
and in 1937 I went out and had the people sign them. 

The Vice Chairman. Did the other agents in the office do the same 
thing to your knowledge? 

Mr. Glickman. I couldn't testify for others. I admit that although 
I had all of mine signed in 1937 I helped other agents sign theirs. 

The Vice Chairman. In 1937? 

Mr. Glickman. Yes; they had to have them in. 

Mr. Gesell. They had to have them in? 

Mr. Glickman. Yes, sure. 

Mr. Gesell. What do you mean by that? 

Mr. Glickman. They couldn't get their pay if they didn't get them 
in. 

Mr. Gesell. That is very interesting. Will you tell us-about that? 

Mr. Glickman. Well, it is a system, you know, where certain 
things have to be done before you can get your pay, you have to have 
your detail work done, you have to have certain forms done, 3,355 
done, you had to have your Ufe register and lapse register, and of 
course when those ballots are given you you must turn them in ; if you 
don't turn the detail work in you just don't get an O. K. slip from your 
assistant manager to get paid. 

Mr. Douglas. Have you had the experience of not getting an 
O. K. slip? 



1362 CONCENTRATION OF ECONOMIC POWER 

Mr. Glickman. Oh, yes; I went home without my pay one Satur- 
day. 

Mr. Douglas. For what particular reason? 

Mr. Glickman. There was so much work to do that Saturday 
morning and I was doing my best to do it, and then I just felt ill 
and like sitting back and taking it easy and I felt I would complete 
the rest of the detail work Monday morning, and my assistant 
manager told me I had to get it in. I said, "I don't feel up to it." 

He said, "You've got to get it in or you don't get an O. K. shp." 

I said, "You can't hold my pay." 

He said, "What do you mean?" 

I said, "You can't hold my pay. I'm going to the cashier and take 
my pay right now and go home. I don't want to sit here any more." 
I took my books together, walked over to the cashier, I demanded my 
pay. She said, "WTbere's your slip?" 

I said, "I don't have a slip." I said, "I want my pay just the same, 
I want to go home." 

She said, "You can't have it." 

I said, "All right." 

Just then the manager was right in back of the cashier, and without 
any further remarks she said, "You can't have it." I didn't question 
her. I took my bag, my books under my arm, got out of the office 
and went home. I laid down on the couch; I guess I must have been 
there about an hour or an hour and a half or so when my assistant 
manager and another agent rang my doorbell, came in and brought me 
my pay. I said, "You didn't have to do that." 

The assistant nianager said, "Well, you shouldn't have run out 
that wa>. Here's your pay." 

I said, "Well, I couldn't stand it any more, I wasn't up to it." 

They gave me my pay that Saturday afternoon. 

Mr. Douglas. Would the pay be held up if the ballots were not in 
on time? 

Mr. Glickman. Oh, yes; you couldn't get any if you didn't attend 
to detail. You had to. 

Mr. Douglas. Do you know that to be a fact? 

Mr. Glickman. Definitely; they would even take you away from 
your breakfast if you didn't do your detail work, and pull you upstairs. 
[Laughter.] It's not funny; it just happened to me last week, gentle- 
men. I forgot to make out my lapses on Tuesday morning and 
went down and had my breakfast and there was maybe 100 people 
there and my assistant manager walked down and said, "Come up 
immediately." 

I said, "What for, Bob?" 

He said, "You didn't turn your lapses in yet." 

I said, "I will then, in 5 minutes I'll be through." 

He said, "You're coming right away." 

I said, "I'm not." 

He said, "You're coming right away! The manager can't wait, he 
wants them." 

I said, "I'm not." I said, "There's people here, you're making me 
feel bad." I said, "Go 'way from me, let me finish my breakfast," 
vrith. the place full. 

He said, "You must come up." I came. 

Mr. Douglas. Did you go up? 



CONCENTRATION OF ECONOMIC POWER 1363 

Mr. Glickman. I came. I finished my coffee first, but I came. 
Of course I did. It was part of my work, I had so much to do on 
Tuesday morning, I did it. It was just one of those things I forgot, 
but of course I had to come back regardless, that's part of my work, 
I am paid for that. 

Mr. Gesell. And it is understood in the oflBce that at the time of 
elections one of the details which a man must complete to get his pay 
is the detail of turning in all of his ballots signed? 

Mr. Glickman. Yes; surely. 

Mr. Gesell. No further questions. 

The Vice Chairman. Did you ever get your pay held up on account 
of not turning in your ballots? 

Mr. Glickman. Well, the practice was this, if 

The Vice Chairman (interposing). That is not what I asked you.- 
I asked you if you ever had your pay held up by reason of not turning 
in your ballots. 

Mr. Glickman. No. 

Mr. Douglas. You turned them all in. 

Mr. Glickman. Yes, sir. 

The Vice Chairman. Do you know of any other agents who had 
their pay held up because they didn't turn their ballots in? I suppose 
they weren't put to the test on that, were they? 

Mr. Glickman. No; all agents did that; they -got their work done, 
some way or other. 

The Vice Chairman. Helping each other out, cooperative attitude 
toward each other. 

Mr. Glickman. That's right. We understood our problems, we 
reahzed we could do nothing about it and we just had to do as the 
custom was. 

Mr. Douglas. Perhaps you .have answered this; if so, I missed it. 
What would be your estimate of the percentage of ballots from ydiy 
ofTice that were forged in these various elections? 

Mr. Glickman. A large amount. 

Mr. Douglas. Over 50 percent? 

Mr. Glickman. Oh, yes. 

Mr. Gesell. No further questions. 

(The witness, Mr. Glickman, was excused.) 

Mr. Gesell. The next witness is Mr. Samuel Goldberg. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give is the truth, the whole truth and nothing but the 
truth, so help you God? 

Mr. Goldberg. I do. 

TESTIMONY OF SAMUEL GOLDBERG, AGENT, PATERSON DISTRICT, 
METROPOLITAN LIFE INSURANCE CO., PATERSON, N. J. 

Mr. Gesell. What is your name? 

Mr. Goldberg. Samuel Goldberg. 

Mr. Gesell. Are you an agent employed -by the Metropolitan? 

Mr. Goldberg. That is right. 

Mr. Gesell. How long have you been employed there? 

Mr. Goldberg. I have been there since February 1932. 

Mr. Gesell. Out of what office do you work? 

Mr. Goldberg. Paterson district, Paterson, N. 0. 



1364 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Is the practice in your office similar to the practice 
in other offices? 

Mr. Goldberg. It is. 

Mr. Gesell. Do the agents exchange the ballots among themselves 
and sign the policyholders' names without authority? 

Mr. Goldberg. That is right. 

Mr. Gesell. Has that practice been going on as a general practice 
in your office ever since you have been there? 

Mr. Goldberg. Ever since I have been there. 

Mr. Gesell. How many agents are there in the office? 

Mr. Goldberg. About 50 agents in the office. 

Mr. Gesell. Have you engaged in the practice yourself? 

Mr. Goldberg. I have. 

Mr. Gesell. Is it done openly? ^ 

Mr. Goldberg. It is done quite openly; it is done right in the 
office where everybody can see it. The ballots are exchanged. There 
is a scurrying around, generally, particularly at the last moment. 
One agent hands the other ones his and shifts his ballots over to his 
desk and has them signed. 

Mr. Gesell. Is that done in the presence of the assistant managers? 

Mr. Goldberg. The assistant managers are most always there. 

Mr. Gesell. They are most always there. How many assistant 
managers are there in your office? 

Mr. Goldberg. There are six assistant managers. 

Mr. Gesell. Have some of those assistant managers been agents 
with you before they became assistant managers? 

Mr. Goldberg. Yes. 

Mr. Gesell. Have you seen some of those assistant managers 
engage in this practice themselves while they were agents? 

Mr. Goldberg. Why, I can't say whether I have noticed those 
particular ones. 

Mr. Gesell. But they were agents during the time the practice 
was being engaged in. 

Mr. Goldberg. That is right. 

Mr. Gesell. What percentage would you say of the total ballots 
cast in any election are signed in this unauthorized manner? 

Mr. Goldberg. Why, I would say about 40 percent. 

Mr. Gesell. About 40 percent. Is that true with respect to your 
own? 

Mr. Goldberg. Yes. 

Mr. Gesell. They are all turned in to the manager after they are 
signed? " 

Mr. Goldberg. That is right. 

Mr. Gesell. Did the manager ever see it? 

Mr. Goldberg. Not that I know of. 

Mr. Gesell. No further questions. 

Mr. Douglas. This was a general practice in your office during 
the time that you were there? 

Mr. Goldberg. It was. 

Mr. Douglas. And in so signing ballots you were not going con- 
trary to the common practice in the office? 

Mr. Goldberg. That is right. 

Mr. Douglas. That was the common practice? 

Mr. Goldberg. That was the common practice in the office. 



CONCENTRATION OF ECONOMIC POWER 1365 

The Vice Chairman. Any questions, gentlemen? 

Dr. LuBiN. Mr Goldberg, have you ever been warned by tlie 
assistant manager not to indulge in this practice? 

Mr. Goldberg. No; I have not. 

Dr. LuBiN. Do you know of any agents who have been? 

Mr. Goldberg. I never heard of any agents being warned, repri- 
manded in any way. 

Mr. Douglas. Did you feel that you had to have the ballots in 
on time to get your O. K. slip for the cashier? 

Mr. Goldberg. Well, we haven't had that arrangement in our 
office that I know of. Our pay wasn't held up particularly for that 
or anything else, but we did have to get them in in a certain particular 
time. Generally it was at the last moment that most of the ballots 
went in, and of course they went in with the signatures right there in 
the office. 

The Vice Chairman. That is all. 

(The witness, Mr. Samuel Goldberg, was excused.) 

The Vice Chairman. Are you reacly to proceed with another 
witness? 

Mr. Gesell. Yes; I am. 

Mr. Douglas. Mr. Chairman, I think this might be a convenient 
stopping point for recess. We have some more agents to testify along • 
the same line. I do not know how much of this Imid of testimony the 
committee would be interested in hearing. I do not know how much 
testimony of this nature will be necessary to convince the committee 
that this was a common practice in the Metropolitan Life Insurance 
Co. I think it will not be an exaggeration, Mr. Chairnnan, for me to 
say that we could go on with additional agents' testimony of the same 
character that we have presented to date for a substantial period of 
time. Those are matters that the committee might want to discuss 
in executive session, and that is why I think that this might by a con- 
venient place to stop f^r recess. 

The Vice Chairman. I wonder if we may inquire how long a 
period the testimony which you are prepared to present today will 
probably occupy. 

Mr. Gesell. I should imagine about an hour and a half more 
today, if the committee wishes to hear it. 

The Vice Chairman. I believe without consulting with my col- 
leagues that we can take that much time probably from our other 
duties. Would you say then that we convene at 2 or at 2:30. 

Mr. Gesell. Either time. 

The Vice Chairman. Two o'clock. If there is no objection the 
committee will stand adjourned until 2 o'clock 

(Whereupon at 12:05 p. m., a recess was taken until 2 p. m. of the 
same day.) 

AFTERNOON SESSION 

(Whereupon the hearing was resumed at 3:15 p. m., upon the expira- 
tion of the recess.) 

The Vice Chairman. The committee will please come to order. 

The Chair wants to make one or two announcements. First, the 
witnesses who have already testified, I understand by agreement, are 
dismissed. They will not be further desired. I think that is correct. 



1366 CONCENTRATION OF ECONOMIC POWER 

Second, there is an effort being made to agree upon a stipulation 
which will shorten this particular branch of the examination. In 
order to give the persons interested and who are engaged in that 
effort full opportunity, we are adjourning the committee until 10 
o'clock tomorrow morning. All witnesses who have not testified 
will be in attendance in the morning. 

Senator King. Unless they are excused by their respective parties. 
They may excuse some of them. 

The Vice Chairman. Senator King has suggested that unless they 
are excused by the persons who have subpenaed them, and I believe 
that would be true. I think you may consider that added to the 
statement. 

I am very sorry to have disappointed, you all. 

(Whereupon, at 3:20 p. m., a recess was taken until Friday, February 
10, 1939, at 10 a. m.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, FEBRUARY 10, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met-ftt'10:50 a. m., pursuant to adjournment on 
Thursday, February 9, 1939, in the Caucus Room, Senate Office Build- 
ing, Representative Hatton W. Sumners, presiding. 

Present: Senator King; Representatives Sumners (the vice chair- 
man), and Williams; and Messrs. Henderson, Douglas, Ferguson, 
Patterson, Lubin, Joseph J. O'Connell (successor to Herman Ohphant), 
Peoples, Berge, Frank, and Hinrichs. 

Present also: Gerhard Gesell, Special Counsel, Securities and Ex-, 
change Commission. 

The Vice Chairman. The committee will be in order. The Chair 
would like first to announce the presence of Mr. Joseph O'Connell, 
special assistant to the General Counsel of the Treasury Deparment, 
who will represent the Treasury Department instead of our former 
colleague, Mr. Oliphant, whose untimely death robbed our group of a 
very valuable member. A proper resolution has already been adopted 
by the committee with reference to the decease of our friend. 

I am also glad to announce to my colleagues that Admiral Peoples 
will continue to assist the committee as the Treasury Department 
alternate. Admiral Peoples has many other responsibilities. The 
Treasury work of the committee of a legal nature is such that it would 
be unreasonable to expect him to carry the burden of the work alone. 
He will still continue to carry on the Government purchasing study. 

The committee is ready to proceed. 

Mr. Gesell. My next witness is Mr. Samuel Schlesinger. 
• The Vice Chairman. May I inquire if Mr. Schlesinger's testimony 
is expected to be in line with the testimony for the last two sessions? 

Mr. Gesell. It is, Mr. Chairman; yes. 

The Vice Chairman. Mr. Attorney, in that situation the Chair is 
of the opinion that any more testimony of the character that has been 
introduced during the last 2 days could be only cumulative, and 
after some consultation with my colleagues on the committee the 
Chair is prepared to hold that we do not at this time, at least, desire 
to have any additional testimony of that character from those persons. 

Mr. Gesell. Mr. Chairman, may I ask the instructions of the 
committee with respect to this matter? We intended to produce at 
a later time further evidence on this matter, indicating a wider geo- 
graphical distribution of the practice. Does the committee wish to 
hear that at some future time? 

1367 



1368 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. The committee at this time would hold with 
reference to that contemplated testimony just as we have held with 
reference to the testimony proposed by this witness, that it would be 
cumulative. 

Mr. John Lord O'Brian. Mr. Chairman, in view of the ruling of 
the committee, speakmg on behalf of the Metropolitan Life Insurance 
Co., I would like to say this: We have already instituted investigations 
as to this practice. In three of the agencies from which testimony 
was brought yesterday all of the agents deny that tlicy did engage in 
this practice. 

We are satisfied that it is not a general practice, and would be pre- 
pared to offer proof that it is not a general practice. 

But in addition to that, I want to say this: The testimony given 
here indicates that certain of the witnesses already produced have 
signed without authority the names of policyholders to ballots cast 
in the uncontested biennial elections of the company. These elec- 
tions are held in strict conformance with the laws of the State of New 
York. That statute requires the management of life-insurance 
companies to nomhiate a ticket, and it gives the privilege to policy- 
holders, by following certain requirements, to nominate an opposition 
ticket. Under this statute if no opposition ticket is placed in nomina- 
tion there can be no contest in the election. In the last 30 yeHrs there 
has never been any contested election, nor has there been any criticism 
of the management of this company. It is therefore apparent that the 
witnesses who say that they signed these names of policyholders did 
not by so doing in any way effect the outcome of the election. 

Nevertheless, the signing of these names- without the authority of 
the policyholders was, as the president of the company, Mr. Lincoln, 
has already said, utterly reprehensible. No responsible officer of the 
company has ever heard of the practice, and we are satisfied that the 
great body of our agents have not engaged in it. 

From the outset of the work of this inquiry we have cooperated to 
the fullest extent in the work of the committee. We shall continue 
that policy. 

As to this particular matter, we already have begun and we shall 
continue to make a searching and thorough investigation and see to 
it that appropriate action is taken to make sure that no such practice 
will ever obtain in any future election of the company. 

I make this statement because I do not wish the record to stand 
without any comment from the company. 

The Vice Chairman. I am very glad to have you make that state- 
ment, Mr. O'Brian. 

There is a correction that I think ought to be made. Some im- 
pression has got about that the adjournment of yesterday was not at 
the instance of the committee. The Chair would like to say that the 
adjournment yesterday was at the instance of the committee upon 
its own motion and it alone had the responsibility. 

The Chair would like, if he may, to express appreciation for the 
attitude of the committee, the attitude of the insurance company, the 
general attitude in dealing with this situation. We appreciate the 
delicacy of the general economic situation. The committee wants to 
do its work effectively, and I believe in making this statement I indi- 
cate the attitude of every member of this committee — we want to do 



CONCENTRATION OF ECONOMIC POWER 1369 

our work effectively and with as little hurt as we can possibly inflict 
in the doing of this job. 

We thank you gentlemen all for your cooperation and the com- 
mittee will stand adjourned 

Senator King (interposing). I don't think that we can meet on 
Monday morning. The Judiciary Committee of the Senate meets 
and I understand the Judiciary Committee of the House, and a num- 
ber of the members of this committee are members of those respective 
committees, so that it. would be impossible for us to meet on Monday 
morning. Perhaps Monday afternoon, I would say half-past 2. 

The Vice Chairman. Is there any objection on the part of any 
member of the committee to our adjourning until 2:30 Monday 
afternoon? (Assent from the committee.) 

We will stand adjourned until 2:30 Monday afternoon. 

(Whereupon, at 11 a. m., an adjournment was taken until Tuesday, 
February 14, 1939, at 2:30 p. m.) 



INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER 



TUESDAY, FEBRUARY 14, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:10 o'clock a. m., pursuant to adjourn- 
ment on Friday, February 10, 1939, in the Caucus Room, Senate 
Office Building, Representative Hatton W. Sumners, presiding. 

Present: Senator King; Representatives Sumners (vice chairman) 
and Reece; Messrs. Henderson, O'Connell, Douglas, Patterson, Frank, 
and Hinrichs. 

Present also: Mr. Gerhard Gesell, Special Counsel, Securities and 
Exchange Commission. 

The Vice Chairman. The committee will please be in order. The 
committee is rteady to proceed. 

Mr. Gesell. The first witness this morning is Mr. Judson. 

The Vice Chairman. Mr. Judson, will you be sworn? Do you 
solemnly swear that the testimony you are about to give will be the 
truth, the whole truth and nothing but the truth, so help you God? 

Mr. Judson. I do. 

TESTIMONY OF CHARLES EVERETT JUDSON, ASSISTANT 
SECRETARY. NEW YORK LIFE INSURANCE CO, NEW 
YORK, N. Y. 

election or directors — new york life 

Mr. Gesell. What is your full name, please, sir? 

Mr. Judson. Charles Everett Judson, 

Mr. Gesell. Are you connected with the New York Life Insurance 
Co.? 

Mr. Judson. I am. 

Mr. Gesell. In what capacity? 

Mr. Judson. I am assistant secretary of the New York Life. 

Mr. Gesell. As assistant secretary have you had responsibility 
for the conduct of the elections for the board of directors? 

Mr. Judson. I have had charge of the mechanics of the election. 

Mr. Gesell. How often are those elections held? 

Mr. Judson. Every year.' 

Mr. Gesell. On each occasion, how many directors are elected? 

Mr. Judson. Eight. 

Mr. Gesell. How many directors are there on the entire board? 

Mr. Judson. Twenty-four. 

(Senator King assumed the Chair.) 

Mr. Gesell. Will you tell us the procedure which is followed with 
respect to the elections? 

1371 



1372 CONCENTRATION OF ECONOMIC POWER 

Mr. JuDSON. The board of directors nominates the candidates for 
the administration ticket. After the board has nominated the 
candidate a certificate of that nomination, with the written accep- 
tance of each director, is filed at Albany and at the home office. 
Nothing further is done mitil the company receives a letter of instruc- 
tions from the superintendent of insurance as to the procedure to be 
followed at the election. 

The next step is the choosing of the publication. That letter of 
the superintendent's is reported to the board of directors. The 
newspapers for the publication of the election notice are selected and 
approved by the superintendent of insurance. The company is then 
advised of the appointment of the inspectors of election. 

Shortly before the election the necessary paraphernalia is prepared, 
the inspectors are reminded of the time and place for holding the 
election, and that brings it up to the time of the election. 
• Mr. Gesell. Well now, does the company do anytliing to advise 
the policyholders that they have a right to make an independent 
nomination? 

Mr. JuDsoN. No, sir. 

Mr. Gesell. There is no advertisement or announcement of any 
sort made?. 

Mr. JuDSON. No, sir. 

Mr. Gesell. How many policyholders has the New York Life, 
approximately, at the present time? 

Mr. JuDSON. I wouldn't want to say, I don't know. 

Mr. Gesell. Do you know how many policyholders are invited to 
vote? 

Mr. JuDSON. I do not. 

Mr. Gesell. It would be somewhere in excess of a million five 
hundred thousand? 

Mr. JuDSON. I think it would. 

Mr. Gesell. How many votes were cast in the last election? 

Mr. JuDSON. Two hundred ninety-seven. 

Mr. Gesell. Were those votes all cast in person? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. There were no proxy votes? 

Mr. JuDSON. No, sir. 

Mr. Gesell. No votes by mail? 

Mr. JuDSON. No, sir. 

Mr. Gesell. Does the company prepare proxies? 

Mr. JuDSON. No, sir. 

Mr. Gesell. Does it prepare ballots? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. Are those ballots sent out to the policyholders? 

Mr. JuDsoN. No, sir. 

Mr. Gesell. Those ballots are simply for the use of the people who 
come in to vote personally at the election? 

Mr: JuDSON, Yes, sir. 

Mr. Gesell. Who cast these two-hundred-odd votes, Mr. Judson? 

Mr. JuDSON. I don't know, Mr. Gesell. 

Mr. Gesell. Were they to a large extent home office employees? 

Mr. Judson. I would have no way of knowing. 

Mr. Gesell. Are you present at the elections? 

Mr. Judson. Not all the time; no, sir. 



CONCENTRATION OF ECONOMIC POWER 1373 

Mr. Gesell. Are you present some of the time? 

Mr. JuDSON. Yes; some of the time. I come down occasionally to 
see if things are in order and nothing is required. 

Mr. Gesell. Did you see the people who voted? 

Mr. JuDSON. I have seen some of them. 

Mr. Gesell. Are some of them home office employees? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. Does your company keep any list of who the people 
are who voted at the election? 

Mr. JuDSON. No, sir. 

Mr. Gesell. Would it be fair to say that some of those votes were 
cast by home-office employees? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. Have you any idea what percentage of the votes were 
cast by home-office employees? 

Mr. JuDSON. I have not. 

Mr. Gesell. Do you recall-how many votes were cast in the 1937 
election? 

Mr. JuDsoN. I have that right here, Mr. Gesell. 

Acting Chairman King. Was that the last election held? 

Mr. JuDSON. 1938 was the last election held. 

Mr. Gesell. You have already given figures for 1938, have you 
not? 

Mr. JuDSON. Yes, sir. In 1937, 318 votes. 

Mr. Gesell. Have you a schedule there showing the votes for a 
period of years? 

Mr. JuDSON. Yes, sir [submitting statementl. 

Mr. Gesell. Have you prepared the schedule? You know it is 
correct? 

Mr. JuDSON. I prepared the schedule. 

Mr. Gesell. Is it correct? 

Mr. JuDSON. As far as I know it is correct. 

Mr. Gesell. It covers the number of votes cast at all times from 
1908 to 1938, does it not? 

Mr. JuDsoN. Yes, sir. 

Mr. Gesell. I wish to offer this for the record. 

Acting Chairman King. It will be received. 

(The schedule referred to was marked "Exhibit No. 252" and is 
included in the appendix on p. 1549.) 

Mr. Gesell. What is the lowest number of votes cast in any year? 

Mr. JuDSON. Well, for 1908 on, the lowest number of votes was in 
1909, when there were 32 votes cast. 

Mr. Gesell. And what is the greatest number of votes cast? 

Mr. JuDSON. According to this sheet, 345. 

Mr. Gesell. When was that? 

Mr. JuDsoN. In 1921. 

Mr. Gesell. Now does the New York Life make use of its agency 
force in collecting votes for the board of directors? 

Mr. JuDsoN. No, sir. 

Mr. Gesell. No ballots or proxies are given to the agents to 
distribute to the pohcy holders? 

Mr. JuDsoN. No. 

Mr. Gesell. Now will you tell us a little about the type of notice 
which is given to the policyholders of the election? 



1374 CONCENTRATION OF ECONOMIC POWER 

Mr. JuDsoN. There is a notice appearing in the public newspapers, 
and there is a notice on the back of the premium receipt that elections 
are h'gld the second Wednesday of every April. 

Mr. Gesell. Now 

Acting Chairman King. How often are those premium receipts 
given to the policyholders or signed by them, or remitted by them to 
the company? 

Mr. JuDsoN. When they pay their premium. 

Acting Chairman King. And how often is that? 

Mr. JuDsoN. It can be quarterly — semiannually. 

Acting Chairman King. What is the rule? 

Mr. JuDSON. It depends upon the policy. 

Acting Chairman King. Well, generally speaking, are the premiums 
monthly or semiannually or quarterly? 

Mr. JuDsoN. Quarterly, semiannually, and annually. 

Acting Chairman King. Have you got a copy of the notice? 

Mr. Judson. Yes, sir. 

Mr. Gesell. That notice on the premium receipt, Mr. Judson, 
reads, does it not — 

The annual election of directors of this company is held at its home office on 
the second Wednesday in Apiil of each year. Every policyholder whose insur- 
ance is then in force and has been in force at least 1 year prior thereto is entitled 
to vote at such election, as provided in section 94 of the insurance law of the 
State of New York. 

Mr. Judson. Yes, sir. 

Mr. Gesell. Wlien was that notice first placed upon the premium 
receipt? 

Mr. JujDSON. I don't know exactly; I think it was approximately 
1936. 

Mr. Gesell. Prior to that time there had been no notice on the 
premium receipt? 

Mr. Judson. Not that I know of. 

Mr. Gesell. Was tliis notice placed on the premium receipts at 
the suggestion of the superintendent of insurance? 

Mr. Judson. I don't know. 

Mr. Gesell. Now you say that you also advertise in the news- 
papers? 

Mr. Judson. Yes, sir. 

Mr. Gesell. What newspapers do you advertise in? 

Mr. Judson. The papers are selected by an officer of the company 
and approved by the superintendent of insurance in his letter of 
instructions. 

(The vice chairman. Representative Sumners, resumed the chair.) 

Mr. Gesell. What newspapers do you advertise in? 

Mr. Judson. Various papers, they rotate. 

Mr. Gesell. More'than two any year? 

Mr. Judson. No; two, morning and evening. 

Mr. Gesell. And they are always New York City newspapers, are 
they? 

Mr. Judson. Yes, sir. 

Mr. Gesell. What papers have you used in the past years? 

Mr. Judson. The Sun, the Post, the Telegram, the Times, the 
Tribune, Morning American — we have used them all, I think. 



CONCENTRATION OF ECONOMIC POWER I375 

Mr, Gesell. Is there any advertising in any newspapers outside 
the city of- New York? 

Mr. JuDSON. No, sir; it is not required. 

Mr. Gesell. Your company simply complies with the minmium 
statutory requirements, does it not? 

Mr. JuDsoN. Yes. 

Mr. Gesell. Is it correct to say that the notice has been about 
the same each year in the newspapers? 

Mr. JuDsoN, Yes, sir. 

Mr. Gesell. Does it read like this: 

NOTICE OF ELECTION OF DIRECTORS 

Notice is here given that the election of directors of the New York Life Insur- 
ance Co. will be held at the home office of the company, No. 51 Madison Avenue, 
New York, in the State of New York, on Wednesday, the 13th day of April 
1938. The polls will be opened at 10 o'clock in the forenoon and will remain 
open until 4 o'clock in the afternoon of said day, at which time they will be 
closed. 

New York Life Insurance Company. 
By Frederick M. Johnson. 

Is that the type of notice? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. That notice is given after the date for the filing of 
independent nominations has gone by? 

Mr. JuDSON. That is right. 

Mr. Gesell. That notice does not even state, does it, that the 
policyholder has a right to vote? 

Mr. JuDSON. No, sir. 

Mr. Gesell. And in your notice on your premium receipt which 
we read a moment ago, you give no particulars as to where or how the 
policyholder may attain information concerning his voting. 

Mr. JuDSON. No, sir. 

Mr. Gesell. What happens when a policyholder writes in and 
indicates interest in voting, Mr. Judson? 

Mr. Judson. We have very few. I have only seen two or three 
during the time I have had charge of the mechanics of the election. 

Mr. Gesell. How long has that been? 

Mr. Judson, About 10 years. 

Mr. Gesell. And how many have you had in 10 years? 

Mr. Judson. Across my desk I have had only three or four; three 
in 1937 and one last year. 

Mr. Gesell. Is it your practice to send those policyholders a proxy 
or a ballot? 

Mr. Judson. No, sir. 

Mr. Gesell. You simply explain to them that there is no necessity 
of that in a noncontested election? 

Mr. Judson. Yes, sir. 

Senator King. You prepare the ballots, however? 

Mr. Judson. Yes, sir. 

Senator King. Have any of your agents or representatives in various 
parts of the country asked for ballots? 

Mr. Judson. No, sir. 

Senator King. Are the majority of your polic3^holders residents of 
New York? 

124491— 39— pt. 4 15 



1376 CONCENTRATION OF ECONOMIC POWER 

Mr. JuDSON. I don't know. 

Senator King. You have no idea of the proportion of your policy- 
holders who reside in New York? 

Mr. JuDSON. No, sir. 

Mr. Patterson. Are these elections annually? 

Mr. JuDSON. Yes, sir. 

Mr. Patterson. Every year you elect eight directors? 

Mr. JuDSON. Yes, sir. 

Mr. Patterson. How many agents have you? 

Mr. JuDSON. I don't know, offhand. I have nothing to do with 
that. 

Mr. Frank. If one ballot were cast at the election, would that be 
sufficient to elect the directors? 

Mr. JuDSON. Yes, sir. 

Mr. Frank. Suppose that one ballot were cast for the slate and 
there were thousands against, would that make any difference? 

Mr. JuDSON. I presume it would. 

Mr. Frank. Then no one would be elected. 

Mr. JuDSON. No, sir. 

Mr. Frank. What would be the consequence? 

Mr. JuDSON. I don't know. 

Mr. Gesell. If votes were cast against the ticket they would have 
no standing, would they, if the time of independent nominations had 
passed and there had been no independent nominations? 

Mr. JuDSON. That is right. 

Mr. Gesell. I have no further questions of this witness. 

Senator King. Does the statute of New York govern the procedure 
to which you have referred? 

Mr. JuDSON. Yes, sir. 

Senator King. You follow it? 

Mr. JuDSON. We follow it strictly. 

Senator King. Did the Armstrong investigation committee call 
attention to and challenge your method of procedure? 

Mr. JuDSON. I don't know, I wasn't with the company then. 

Senator King. How long have you been with the company? 

Mr. JuDSON. 30 years. 

Mr. Gesell. Has there been a contested election since 1906? 

Mr. JuDSON. No, sir. 

Senator King. Are the directors all from New York State or are 
they scattered throughout the country? 

Mr. Judson. No, sir; they are scattered. 

Mr. HiNRicHS. Is there any place on the ballot to indicate a "no" 
vote? 

Mr. Judson. No, siY; the form of ballot is prescribed by the super- 
intendent of insurance. 

Senator King. All of your procedure, then, is under the direction 
of the superintendent of insurance of the State of New York? 

Mr. Judson. Yes, sir; when no independent nominations have been 
made. 

Mr. Hinrichs. Then there is no way in which a ballot could be cast 
indicating an opposition to the slate that was presented? 

Mr. Judson. No, sir. 

The Vice Chairman. Is everybody who is to vote or who decides 
to vote required to come to New York to vote? 



CONCENTRATION OF ECONOMIC POWER 1377 

Mr. JuDSON. They can vote by mail, by proxy, or in person, under 
law. 

The Vice Chairman. They can vote by proxy or in person, but may 
not vote by ballot, by mail? 

Mr. JuDsoN. I don't know. 

Mr. Gesell. They may cast their ballot by mail, may they not? 

Mr. JuDSON. Yes; I think thoy may cast a ballot by mail. 

Mr. Gesell. The law provides, does it not, that a pohcyholder may 
vote in per.=on by proxy or by mail? The company does not, however, 
send out proxies or ballots to the policyholders so that they can vote 
by proxy or by mail. 

Mr. JuDSON. That is right. 

Mr. Gesell. So that the way the procedure is run, the only way a 
policyholder may vote is to vote in person? 

Mr. JuDsoN. That is right. 

Senator King. I suppose if he wrote for a ballot, he could obtain it. 

Mr. JuDSON. Yes, sir. 

Mr. Douglas. Did I understand you to say that during the last 
30 years there has been no independent slate of directors? 

Mr. JuDSON. No, sir; I say I had been with the company 30 years. 
Mr. Gesell's question was, had there been any independent nomina- 
tions since 1906, I believe. 

Mr. Douglas. There had not been? 

Mr. JuDSON. There have not been. 

Mr. Gesell. I believe you said in answer to Senator King's ques- 
tion that if a policyholder wants to receive a ballot or a proxy, it is 
sent to him if he asks for a ballot. May I ask you to examine this 
correspondence, Mr.' Judson, and express your recollection on that? 

(Senator King assumed the Chair.) 

Mr. Gesell (continuing). Does not that correspondence indicate 
that when a policyholder wishes a ballot or proxy it is not sent to 
him? 

Mr. JuDsoN. This letter does; yes, sir. 

Mr. Gesell. So you were mistaken? 

Mr. JuDSON. I was mistaken. 

Mr. Gesell. No further questions. 

Mr. Douglas. I am not sure, Mr. Judson, that I understand your 
last answer. Suppose I am a policyholder and write in and want a 
ballot. Don't I get one? 

Mr. JuDsoN. No, sir. 

Mr. Douglas. I couldn't vote by ballot if I wanted to? 

Mr. JuDSON. The ballots aren't prepared until shortly before the 
election and we are not required to send them out, by law. 

Mr. Douglas. So if I wanted to vote I would have to appear in 
person? 

Mr. JuDsoN. Yes, sir. 

Mr. Douglas. I couldn't, if I hve in the western part of the 
countrj^, mail in my ballot? 

Mr. Judson. We would advise that we weren't required by law 
to send out ballots or proxies where there were no independent 
nominations. 

Mr. Gesell. Is this the form of letter you have used in those 
instances? 

Mr. JuDSON. There were so few I don't think we have a form for it. 



1378 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. m this letter to a policyholder who lived in South 
Bend, Ind., you wrote: 

Furthermore, the company is not required to mail proxies or ballots where there 
have been no independent nominations. 

Did you not? 

Mr. JuDSON. Yes, sir. 

Mr. Gesell. I have no further questions. 

(Kepresentative Sumners resumed the Chair.) 

The Vice Chairman. May I ask the witness a question? 

If this witness has testified on this point I hope you will indicate it. 
From your experience, how is it feasible to expect a free expression of 
judgment, a free indication of judgment on the part, maybe, of a 
million policyholders scattered all over the country, with reference 
to the election of officers? 

Mr. JuDSON. I am afraid I am not qualified to answer that, sir. 

The Vice Chairman. That is all. 

Senator King. Have any considerable number of stockholders 
called your attention to the statute, which it seems you have rather 
rigorously adhered to, and suggested amendments to it so as to 
liberalize the method of election? 

Mr. JuDsoN. I have never seen any letters from policyholders to 
that effect. 

Senator King. Have you received any letters from policyholders 
suggesting some other method^ of holding the election or indicating 
that they desired to submit an independent panel of directors? 

Mr. JuDsoN. I have never seen any. 

Senator King. Of directors? 

Mr. JuDSON. I have never seen any. 

Senator King. The policyholders seem to have been satisfied with 
the law and foil owed the law, and the directors seem to have been 
satisfied with the law._ Is that your diagnosis of the situation? 

Mr. Judson. Yes, sir. 

Senator King. That is all. 

Mr. Gesell. I have no further questions. 

(The witness, Mr. Judson, was excused.) 

Mr. Gesell. The next witness is Mr. Mooers. 

The Vice Chairman. Will you be sworn, Mr. Mooers? Do you 
olemnly swear that the testimony you are about to give will be the 
ruth, the whole truth, and nothing but the truth, so help you God? 

Mr. Mooers. I do. 

i'ESTIMONY OF SAMUEL E. MOOERS. SECRETARY, ACACIA MUTUAL 
LIFE INSURANCE CO.. WASHINGTON. D. C. 

ELECTION OF DIRECTORS — ACACIA LIFE 

Mr. Gesell. Wliat is your full name, sir? 

Mr. Mooers. Samuel E. Mooers. 

Mr. Gesell. How do you spell it? 

Mr. Mooers. M-o-o-e-r-s. 

Mr. Gesell. With what company are you associated, Mr. Mooers? 

Mr. MooERS. I am with the Acacia Mutual Life Inusrance Co. 

Mr. Gesell. That is here in the District of Columbia? 

Mr. Mooers. That is right, here in the District. 



CONCENTRATION OF ECONOMIC POWER 1379 

Mr. Gesell. How old a company is that? 

Mr. MooERs. It was chartered in 1869, March 1869. 

Mr. Gesell. What are its admitted assets? 

Mr. MooERs. A little less than 80 millions of dollars, 

Mr. Gesell. How much insm-ance is in force? 

Mr. MooERS. $401,000,000. 

Mr. Gesell, How many policyholders are there? 

Mr. MooERS. There are 126,000. 

Mr. Gesell. In how many different States does it operate? 

Mr. MooERS. In 34 States, the District of Columbia, and the 
Panama Canal Zone. 

Mr. Gesell. Wliat type of insurance does it write'' 

Mr. M GOERS. Entirely mutual life insurance. 

Mr. Gesell. Does it write industrial insurance? 

Mr. M goers. No. 

Mr. Gesell. Straight life, endowment, and that kind of insurance? 

Mr. Mggers. That is right. 

Mr. Gesell. What is your position with Acacia? 

Mr. Mggers. I am secretary of the company. 

Mr. Gesell. As secretary is it. one of your duties to handle the 
elections? 

Mr. Mggers. Yes, it is. 

Mr. Gesell. WUl you tell us what the procedure of your company 
is with respect to handling elections? 

Mr. Mggers. Each year approximately eight directors come up 
for reelection. 

Mr. Gesell. How many directors are there on the board? 

Mr. Mggers. We have a board of 25 directors serving for a term 
of 3 years. In the latter part of November of each year we send out 
to every policyholder a nomination blank giving the names of the 
directors whose terms expire and who are coming up for reelection. 

Mr. Gesell. That nomination blank advises aU of your policy- 
holders that any policyholder may become a candidate for director? 

Mr. Mggers. That is right. There is a letter that goes along \yith 
that, Mr. Gesell, that explains in detail the procedure for the nomina- 
tion of directors. 

Mr. Gesell. Is that letter sent to every one of your policyholders? 

Mr. Mggers. That is sent to every one of the policyholders. 

Mr. Gesell. In all 34 States? 

Mr. Mggers. In all 34 States. 

Mr. Gesell. And with that letter goes a nomination blank upon 
which the policyholder may write the name of anyone he wishes to 
nominate? 

Mr. Mggers. That is right. 

Senator King. Under what law are you incorporated? 

Mr. Mggers. We have a charter from the Congress of the United 
States. I might say we are the only life insurance company that has 
such a charter. 

Representative Reece. When did you mutualize? 

Mr. Mggers. We have always been a mutual company. 

Senator King. WTien did you obtain your charter? 

Mr. Mggers. In 1869. 

Mr. Gesell. Is this the form of letter and nomination blank which 
is sent to the policyholder? 



1380 CONCENTRATION OF ECONOMIC POWER 

Mr. MooERS. That is right. 

Mr. Gesell. I wish to offer them for the record. 

(The documents referred to were marked "Exhibit No. 253" and 
are included in the appendix on p. 1550.) 

Mr. Gesell. At the same time do you also send to the policyholders 
a report on your company's activities for the previous year? 

Mr. Mooers. Yes. 

Mr. Gesell. WTiat kind of information is in that report? 

Mr. M GOERS. We give them a complete financial statement covering 
the activities of the company and its financial standing. 

Mr. Gesell. So when the policyholder receives this nomination 
blank he has some indication of what the company has done in the 
previous year, does he not? 

Mr. Mooers. Yes. 

Mr. Gesell. And he has that before him in determining whether 
he wishes to make a nommation of someone else for the board of 
directors? 

Mr. Mooers. Yes. 

Mr. Gesell. What is the procedure after that? 

Mr. Mooers. Then each policyholder has until the loth of January 
to send back to the company his nominations. 

Mr. Gesell. When does he receive this, sometime in November? 

Mr. Mooers. Yes; it is sent out the latter part of November. 
Under the bylaws it must be sent out prior to the 15th of December. 
It is our practice to send these nomination blanks and letters out the 
latter part of November. 

Mr. Gesell. So the policyholder, it is safe to say, has at least a 
month to consider this thing? 

Mr. Mooers. Oh, yes; more than a month always. 

Mr. Gesell. How many policyholders must nominate an individual 
for him to be included. on the slate? 

Mr. Mooers. Twenty-five. 

Mr. Gesell. In other words, if 25 of your polic3']ioklers nominate 
the same individual, he then is a candidate for the board of directors? 

Mr. Mooers. That is right. 

Mr. Gesell. Will you tell us what the procedure is when these 
nomhiations come in? 

Mr. MooERs. Then these nominations as they come in, of course, 
are counted and checked to see if any policyholder does receive the 
required 25 in order to put his name on the ballot, and then a report 
is made by ihe secretary to the board of directors at their meeting the 
fourth Wednesday in January, and merely as a formality the board of 
directors declares as nominees for directors those who have received 
the required number of numinations, and those names are automati- 
cally put onto the ballot. 

Mr. Gesell. ^\^lat happens after that? 

Mr. Mooers. Then, as I say, these names of tlie policyholders who 
have received at least 25 nominations arc printed on the ballot and 
we send out to the policyholders a ballot and a i)roxy form. There 
are two forms of proxies lliat go aloDg with the ballot, one to William 
Montgomery, as j^iresidcnt of the company; the other in blank for the 
policyholder to fill in any name that he might want to fill in. Along 
with that is the ballot itself, and we explain to the policyholder that 



CONCENTRATION OF ECONOMIC POWER 1381 

he can send in either proxy or he can send in the ballot itself by mail 
or, of course, he can vote personally if he wants to do so. 

Mr. Gesell. Let us see if I understand you. If I am a policyholder 
and receive this proxy and ballot, I can do one of three things, can 
I not? I can send my proxy in to the designee of the company; I can 
send my proxy in to anyone else whom I desire to designate as my 
proxy? 

Mr. MooERS. That is right. 

Mr. Gesell. Or I may file a ballot, voting for one or all of the 
directors I desire to have elected? 

Mr. M goers. Exactly. 

Mr. Gesell. Now on that ballot do you list both those directors 
who are up for renomination and the names of any directors who have 
l^een nominated by the policyholders? 

Mr. MooERS. That is right. 

Mr. Gesell. And has it happened in the history of your company 
that there are frequently men nominated by the policyholders? 

Mr. MooERs. Yes. 

Mr. Gesell. And the name of this new nominee along with the 
directors who are up for renomination appears on the ballot? 

Mr. M goers. That is right. 

Mr. Gesell. And the policyholder is instructed how many names 
he may vote for? 

Mr. M GOERS. That is right. 

Mr. Gesell. He can strike out somebody on the old management 
and substitute a new nominee? 

Mr. MooEKS. That is right. 

Mr. Gesell. Or he can vote for the old management? 

Mr. MoGERS. Exactly. 

Mr. Gesell. Or he can vote only for the new nominees? 

Mr. Mgoers. Yes. 

Mr. Gesell. Is this sheet which I show you the form of the proxy 
and ballot which is used by your company? 

Mr. M goers. That is the form. 

Mr. Gesell. Now is that sent to every policyholder? 

Mr. Mgoers. Yes. 

Mr. Gesell. With it is there sent an envelope with postage prepaid 
so that the policyholder may vote without cost? 

Mr. Mgoers. Yes; the business reply envelope which is the same 
thing, with prepaid postage. 

Mr. Gesell. If it is mailed. 

Mr. Mgoers. Yes; and of course there is notice of the annual 
meeting that goes along with that ballot, so they know the time and 
the place of the meeting, and the number of directors who are coming 
up for reelection. 1 believe you have that form there. 

Mr. Gesell. They do not have to attend the meeting to vote, 
however, do they? 

Mr. MoGERs. Oh, no. 

Mr. Gesell. I wish to offer this form of proxy and ballot. 

The Vice Chairman. They may be included in the record. 

(The dociimejits referred to were marked "Exhibit No. 254" and 
are included in the appendix on p. 1551.) 

Mr. Gesell. You actually ha\e meetings of your policyholders? 

Mr. Mgoers. Yes. 



1382 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Thf: election is held in a polling place where the 
lectors can gather and hold a meeting? 

Mr. MooERS. Yes; they can. 

Mr. Gesell. The management is there for questioning, is it not? 

Mr. MooERs. Yes. 

Mr. Gesell. Now when these ballots and proxies come in is any 
ttempt made to verify them? 

Mr. MooERS. Well, every proxy and ballot that goes out has the 
ame of the policyholder imprinted on it with the addressograph plate, 
and of course we have the signature of the policyholder when it comes 
ill. The ballots are kept in a ballot box as they are received. That 
ballot box is opened when we have our annual meeting, and the com- 
mittee on elections takes charge of the ballots and goes over every 
single one. 

Mr. Gesell. And verifies it? 

Mr. MooERS. And verifies them. 

Senator King. Under your charter is there any supervision exer- 
i ised by the Federal Government or any of its agencies? 

Mr. MooFRS. Not by the Federal Government. We operate 
tnder the jurisdiction of the States in which we are licensed. 

Senator King. However, your charter is a Federal charter? 

Mr. M GOERS. The charter is a Federal charter and can only be 
amended by act of Congress. 

Senator King. I was wondering if the Federal Government, after 
f::iving you the charter, reserved to itself any authority to superintend 
Iq any way the activities of your organization. 

Mr. M GOERS. As far as I know they have never exercised that 
light, although undoubtedly they have it. 

Senator King. But there is no provision in the charter as far as 
you know that gives to the Secretary of State or to some person 
representing the District of Columbia authority to supervise your 
organization? 

Mr. MooERS. Not as far as I know. 

Mr. Gesell. You are supervised by the insurance Commissioner 
of the District of Columbia? 

Mr. MooERs. Oh, yes. 

Mr. Gesei.l. "Do you use your agency force in any way to get in 
proxies and ballots? 

Mr. MooERs. Not at all. 

Mr. Gesell. No instructions go out to the agents, no ballots go 
out to them, no proxies go out to them? 

Mr. MooERS. None whatsoever; they receive their own ballo*^s, 
own notices,^ and own nomination blanks as policyholders of the 
company, but that is all. 

Mr. Gesell. And this procedure is entirely voluntary on the part 
of the policyholder, is it not? 

Mr. MooERS. Entirely.' 

Mr. Gesell. Now just for example, in 1938, am I correct in stating 
that there were some 43 different people suggested as new nominees 
for the board of directors by the policyholders? 

Mr. MooERS. I believe that is correct. 

Mr. Gesell. And there were sufHcient votes for one of those to 
warrant his name bein^ placed upon the ticket? 

Mtp MooERs. That is right. 



CONCENTRATION OF ECONOMIC POWER 1383 

The Vice Chairman. How many does that require? 

Mr. MooERS. Twenty-five. 

The Vice Chairman. You got 25 votes? 

Mr. MooERS. Nominations. 

Mr. Gesell. His name went onto the ticket as nominee? 

The Vice Chairman. How many votes did he get in the election? 

Mr. MooERS. I would say about 26,000, as I recall it. 

The Vice Chairman. This man did? 

Mr. MooERS. Yes. 

The Vice Chairman. Was he a very prominent man in Masonic 
•organization, or any other organization? 

Mr. MooERS. No; he is not a Mason. I will be glad to tell you his 
name, if you would like to know his name. He is quite prominent in 
Washington, D. C. 

The Vice Chairman. What is his name? 

Mr. M GOERS. James Colliflower. 

The Vice Chairman. How many votes were cast in that election? 

Mr. Mooers.. As I recall it — altogether you mean, the proxies as 
well as the ballots themselves? The total vote cast, as I recall it, was 
about 26,000 or 27,000. _ 

Mr. Gesell. Was tliis man elected? 

Mr. Mooers. Yes. 

Mr. Gesell. Have you before you sonie figures that would tell us 
the total number of votes that had been cast in your recent meeting, 
say from 1934 to date? 

Mr. Mooers. I do not have those figures. I can tell you quite 
closely what those figures were, because I have them pretty well in 
mind. 

Mr. Gesell. And will you indicate as you proceed about what 
percentage of the total policyholders qaalified to vote these votes 
constituted? 

Mr. Mooers. What percentage of the total number of policy- 
holders? 

Mr. Gesell. Yes. 

Mr. Mooers. Well we have had anywhere from 120,000 to 126,000 
policyholders durhig that period of time. I would say on the average 
about 1,000 or 1,200; that is approximately the current, figure anyway. 
The policyholders send in their ballots by mail. 

Mr. Gesell. What percentage, approximately, has voted during 
these elections? 

Mr. Mooers. Voted by mail? 

Mr. Gesell. Voted in any manner. 

Mr. Mooers. Well, now, by proxies there are about 25,000, I 
should say, ballots that are cast, and from 1,000 to 1,200 actually 
received through the mail. There are a few policyholders who actu- 
ally come and Vote in person because they have the right to vote by 
mail and seem to prefer to mail it in, or give a proxy. 

Mr. Gesell. My question is, taking the total number of policy- 
holders quahfied to vote, can you tell us what percentage of those 
policyholders approximately have voted in the recent elections? 

Mr. Mooers. Either by proxy 

Mr. Gesell. In any manner. 

The Vice Chairman. Each method. 

Mr. Mooers. That would run about 25 percent. 



1384 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Taking all manners, around 25 percent have voted? 

Mr. MooERS. Approximately. 

Mr. Gesell. Now, how many of those vote by proxy? 

Mr. MooERS. Most of them vote by proxy. 

Mr. Gesell. Do the rest of them vote by mail? 

Mr. MooERS. Yes; with the exception of a few. 

Mr. Gesell. Two or three vote in person? 

Mr. Moore. Yes. 

Mr. Gesell. Now will you give us the figures with respect to the 
number of policyholders that have voted in j^our recent elections? 

Mr. MooERs. In 1934 we have 24,339 here; in 1935, we have 20,864; 
in 1936, 26,587; in 1937, 27,002; in 1938, 26,400. 

Mr. Gesell. And during that time what did you say your total 
number of policyholders quahtied to vote was? 

Mr. MooERS. From 120,000 to 126,000. 

Mr. Gesell. So you had about 25 percent voting? 

Mr. M GOERS. Approximately. 

The Vice Chairman. And will you state what percentage or what 
number of those voting voted by a ballot? 

Mr. MooERS. By ballot, about 1,000 or 1,200. 

The Vice Chairman. In each of those elections? 

Mr. MooERS. Yes, about that, running from 500 up to 1,200, I 
would say. 

The Vice Chairman. How many of those who voted by proxy 
gave their proxies to other than officials of the organization? 

Mr. MooERS. Why, not a great many. There were a few but not 
many. You mean given proxies to other -than officers of the com- 
pany? 

The Vice Chairman. That is right. 

Mr. M GOERS. There were a few scattered, maybe 25 or 30 or a few 
more. 

The Vice Chairamn. A negligible number? 

Mr. Mggers. Yes. 

The Vice Chairman. So the situation is that most of the voting 
is done at least indirectly by the officers of the company? 

Mr. MooERS. That is right. 

Mr. Gesell. I have no further questions of this witness. 

Mr. Patterson. I would like to ask you, are you doing business in 
New York State? 

Mr. MooERs. No; we are not. 

Senator King. Are your directors selected from a few or a large 
number of States? 

Mr. Mggers. From a few. 

Senator King. What States? 

Mr. Mggers. There is one director from West Virginia; we have 
hnd one from Oregon; we have hnd two or three from Virginia; but 
most of the directors are from the District of Columbia. Our directors 
are very active in the operation of the company and the sui)ervision 
of all of the activities of the company. 

Senator King. How many directors reside outside of the District 
of Columbia? 

Mr. Mggers. Now? 

Senator King. Yes. 



CONCENTRATION OF ECONOMIC POWER 1355 

Mr. MooERs. One director resides in West Virginia and the rest 
are here in Washington, D. C. 

Senator King. So that those who vote in CaHfornia or Florida or 
any other State usually vote for residents of the District of Columbia? 

Mr. MooERS. Yes. 

The Vice Chairman. Wliat percentage of your policyholders are 
in the District of Columbia or the territory reasonably contiguous? 

Mr. MooERS. We have about 12,000 policyholders here out of our 
126,000— about 10 percent. 

The Vice Chairman. You send out on two different occasions 
letters to your policyholders each year, don't you? 

Mr. M goers. Yes; sometimes three. The president of the com- 
pany prepares a very complete report after the books are closed on the 
activities of the company. 

The Vice Chairman. Have you any estimate of the expense of 
sending out each letter to each individual? 

Mr. Mooers. Well, I was thinking the other day it might run 
around 10 cents a letter, and sending out 126,000, you see what the 
cost would be of sending them out. It is a real item of expense. 

The Vice Chairman. Ten cents for each letter or 10 cents for the 
three letters? 

Mr. Mooers. Ten cents apiece would be a nearer estimate of the 
cost, I would guess. 

The Vice Chairman. Stationery and postage? 

Mr. Mooers. Stationery, postage, return postage, handling through 
the addressograph department, and mailing them. 

Senator King. Do you frequently have any person elected who is 
not on the slate, who is not already a director? 

Mr. Mooers. Oh, yes. There are constant changes in the boftrd 
of directors, such as Mr. Colliflower, whom you just mentioned as a 
new man elected to the board. We must have a minimum of 21 direc- 
tors according to our charter. 

The Vice Chairman. Do those changes result from nominations 
by policyholders of new men to the board of directors? 

Mr. MooERs. All of the nominees for the board of directors must 
receive nominations of 25 policyholders. 

Mr. Gesell. Yes; but wdiere a new name has been added to the 
slate by reason of 25 policyholders making him a new nominee, has 
that new nominee been elected? 

Mr. Mooers. Usually not. 

Mr. Gesell. In some cases he has been elected? 

Air. Mooers. I don't know of an instance, Mr. Gesell, where he has. 

The Vice Chairman. You were speaking of Mr. Colliflower a 
moment ago. Did he go on, if I may use the expression without 
offense, as a slate candidate, or did he go on as a candidate running 
against somebody suggested by the management? 

Mr. Mooers. We don't have company slates and opposition slates. 
I am not familiar with the practices of other companies in that 
connection. 

The Vice Chairman. I know you don't. 

You send out the list of your present directors who are up for 
reelection? 

Mr. Mooers. Yes. 



1386 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. And Mr. Colliflower's name was not one of 
those suggested in that letter for reelection because he wasn't a 
director. 

Mr. MooERS. No. When the nomination blanks went out his 
name wasn't on there; only the names of those directors whose terms 
expire are on that nomination blank; but there is a space for the 
policyholders to put in the names of any other men whom they prefer 
to nominate instead of the men whose terms expired, and Mr. Colli- 
flower received at least 25 nominations to put his name on the ballot 
that went out later on. 

Senator King. I don't quite understand the mechanics yet. Sup- 
pose that you have an election next year and all of the present directors 
are candidates for reelection. How are the policyholders advised 
that those same persons are candidates for reelection? 

Mr. MooERS. Suppose I tell you what we are going through right 
now that might make that clear to you. "We sent out in the latter 
part of November a list of the directors whose terms are expiring, in 
this nomination blank that Mr. Gesell has just given you. We have 
already received back enough nominations to renominate those direc- 
tors whose terms are expiring and we have also received enough nomi- 
nation blanks from, policyholders to nominate a man from Birming- 
ham, Ala., a rather promhient man down there, whose name has been 
placed on the ballot along with the directors whose terms are expiring, 
who have been renominated. It has just been sent out to our policy- 
holders. 

Senator King. So that this so-called independent ticket would 
consist of one nonmember of the board, and all the rest are present 
members of the board? 

Mr. M GOERS. That is right. 

Senator King. In how many instances since you have been secretary 
has there been a nonmember of the board voted for; that is, received 
enough ballots to place his name upon the final ticket? 

Mr. MooERs. There have been a number, where there have been 
deaths on the board or where it was necessary to increase the number 
on the board. 

Senator King. In how many instances have there been contests 
where the contesting party defeated a present member or a sitting 
member of the board? 

Mr. MooERs. I don't recall such cases as that. I doubt that there 
have been. 

Senator Kir:G. You don't recall a case where a sitting member of 
the board was ever defeated by an independent candidate? 

Mr. MooERs. No. 

Mr. Patterson. I would like to know, have you had any contests? 
It isn't quite clear to me. Have you had any contests? 

Mr. MooERS. Just what do you mean by contests? 

Mr. Patterson. I mean contests. Have independent outsiders 
been proposed for membership on the board, and have they fought 
the candidates of the management? 

Mr. MooERs. No. Usually a policyholder who feels that it is 
good advertising for him to get his name on the ballot will get 25 or 
30 of his friends to send his name in. He may be engaged in some 
activity in another city and knows it is quite an honor to be a member 
of the board, and he will get his name in his local paper as being 



CONCENTRATION OF ECONOMIC POWER I337 

nominated, but he has never pushed it actively because I doubt if he 
expected to be elected. 

Mr. Patterson. That is all true, I quite agree 'W'ith you, but so far 
as you know, there have been no real contests for election to the board? 

Mr. MooERS. No. 

Senator King. As I understood the witness, there has never been a 
successful contest. 

Mr. MooERs. No. 

Mr. Douglas. In connection with the 25,000 or 26,000 who turn 
in their proxies, are most of those proxies signed by policyholders 
who were not employees or officers of the company? 

Mr. MooERS. Oh, yes. You see, we have only 400 employees here 
in the home office and there are about 25,000 proxies. 

Mr. Douglas. From your observation, would you think that the 
system that you employ would be a practicable one if your company 
doubled in size or trebled in size? Does it have any relationship to 
size? 

Mr. MooERS. Well, we have used this system ever since the com- 
pany has been in operation and we now have over $401,000,000 of 
business in force. I see no reason why the company couldn't be 
operated just as effectively when we have twice that volume of 
business. It would cost a litt|e bit more to send out the nomina- 
tion blanks, the election ballot forms, but the cost per policyholder 
should be even less as the company grows. 

Mr. Douglas. I understood you to say you do not write industrial 
insurance. 

Mr. MooERS. No; we have no policies less than $1,000, and no doubt 
that would have an effect on the cost. 

Senator King. If a great deal of your business were industrial 
business and in centers of population where a considerable part of the 
population consisted of Italians and others who perhaps were not 
fully indoctrinated into American ways, some different questions 
would be presented then. 

Mr. MooERs. Oh, yes; it might not be at all practicable then; if 
we had 2 hundred, 3 hundred, and 4 hundred dollar policies it might 
not be practical to follow this plan we follow. 

Mr. Gesell. I have no further questions of this witness. 

(The witness, Mr. Samuel E. Mooers, was excused.) 

Mr. Gesell. The next witness is Mr. Smith. 

The Vice Chairman. Mr. Smith, will you be sworn. Do you 
solemnly swear the testimony you are about to give will be the truth, 
the whole truth, and nothing but the truth, so help you God? 

Mr. Smith. I do. 

TESTIMONY OF HERBERT S. SMITH, LEGAL DEPARTMENT, MUTUAL 
LIFE INSURANCE CO. OF NEW YORK, NEW YORK, N. Y. 

ELECTION OF DIRECTORS MUTUAL LIFE 

Mr. Gesell. "WUl you state your full name, please? 
Mr. Smith. Herbert S. Smith. 

Mr. Gesell. Are you employed by the Mutual Life Insurance Co. 
of New York? 
Mr. Smith. I am. 



1388 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In what capacity? 

Mr. Smith. In the legal department of the company. 

Mr. Gesell. Are you familiar with the practices of your company 
in connection with the election of directors? 

Mr. Smith, I am. We call our directors trustees. 

Mr. Gesell. Is there any distinction at law between a trustee and 
a director? 

Mr. Smith. No; there is not. I believe the corporation law of 
New York classes directors and all people who act in that capacity the 
same as trustees. 

Mr. Gesell. Will you tell us the procedure which is followed by 
the Mutual Life Insurance Co. in connection with the election of 
directors? 

Mr. Smith. Well, section 94 of the New York insurance law makes 
it incumbent upon the present board at least 7 months prior to the 
date of election to nominate candidates for every vacancy on the 
board. ^ That will be in our case 36 candidates. 

Mr. Gesell. You have a board of directors of 36 people? 

Mr. Smith. 36; yes, sir. 

Mr. Gesell. Are all of those directors reelected each year? 

Mr. Smith. Yes; they have been and will be up to the election this 
year. 

Mr. Gesell. Or it is every other year? 

Mr. Smith. Every 2 years; pardon me. 

Mr. Gesell. Every other year all 36 directors come up for reelec- 
tion. 

Mr. Smith. That is correct. 

Mr. Gesell. Will you go on, sir. 

Senator King. Unless some of them die in the meantime, and I 
suppose you don't have immortality with your directors. 

Mr. Smith. Unfortunately we do not. 

The board having made the nominations, the certificate of nomina- 
tion is executed in duplicate and filed with the superintendent of 
insurance at Albany, and with the home office, and that ticket is 
designated by the statute, section 94, as the "administration ticket." 
Within 5 months of the election policyholders may make nomina- 
tions, independent nominations. If no independent nominations are 
filed, sometime subsequent to the expiration of the period the superin- 
tendent of insurance usually notifies the company of that fact and they 
prescribe the ballot, the form of the ballot, and as he is empowered to 
do under section 94, he prescribes rules and regulations for the conduct 
of the election. 

Mr. Gesell. Since 1913 there have been no contested elections at 
the Mutual Life, have there? 

Mr. Smith. No, there have not; and that was not a contested 
election. 

Mr. Gesell. We will come to that. Then do I understand that 
there has always been simply an administration ticket of the policy- 
holders since that time? 

Mr. Smith, That is correct. 

Mr. Gesell. What kind of notice is given to the policyholders of 
their right to participate in these elections? 

« See "EitJibit No. 232", appendix, p. 1522, at p. 1523. 



CONCENTRATION OF ECONOMIC POWER 1359 

Mr. Smith. Since about the first of 1536, I should say, along about 
1936, a notice has been printed on the premium receipts which are 
sent to the policyholders, either annually or semiannually or quarterly 
as their premiums may be paid. Every time they get a premium 
notice, they get a form of premium receipt which accompanies that 
with notice of the election on it. 

Mr. Gesell. Possibly you can answer the question I directed to 
Mr. Judson. Was the use of this notice on the premium receipt the 
result of a requirement suggested by the superintendent of insurance 
in the State of New York? 

Mr. Smith. Yes; I should say it was. 

Mr. Gesell. He wrote a letter, did he not, to all of the companies 
operating in 

Mr. Smith (interposing). Promulgated a ruling, I would say. 

Mr. Gesell. Which required this notice on premium receipts. 

Mr. Smith. That is correct. 

Mr. Gesell. Your company had not prior to that time given any 
notice on the premium receipt? 

Mr. Smith. We had not, to my knowledge. 

Mr. Gesell. Is it correct to say that you adhere to the minimum 
statutory requirements with respect to notice? 

Mr. Smith. Yes; that is so. That is, we do nothing in adition to 
what the superintendent of insurance prescribes and the statute 
prescribes we shall do. 

Mr. Gesell. You put notice in the New York local papers for the 
period of time prescribed, and you put notice on the premium receipt? 

Mr. Smith. Yes, sir; as directed by the insurance department. 

Mr. Gesell. Are any proxies or ballots sent out to your policy- 
holders at all? 

Mr. Smith. Only in very rare instances where there may he some 
special request for it. No ballots are sent out to anyone. 

Mr. Gesell. There are no ballots printed for general distribution 
to the policyholders. 

Mr. Smith. No. 

Mr. Gesell. You do send an occasional proxy to a policyholder 
who indicates an interest in voting? 

Mr. Smith. We would; yes. 

Mr. Gesell. There are not very many of those, are there? 

Mr. Smith. Very few. 

The Vice Chairman. How many of your policyholders request a 
blank upon which they can indicate their choice? 

Mr. Smith. To the best of my recollection, we probably have not 
had more than four a year, and maybe less, for the past three elec- 
tions. Previous to that I don't recall. 

The Vice Chairman. How many policyholders do you have? 

Mr. Smith. We have approximately 800,000, a Uttle over that. 

The Vice Chairman. Four out of 800,000 get nervous about the 
situation and want to vote. 

Mr. Smith. That seems to be the case; yes, sir. 

The Vice Chairman. What percentage of your people live in the 
neighborhood of New York; I mean what percentage of your policy- 
holders live in the neighborhood of New York? 

Mr. Smith. I don't know, I have never seen any record of that. 



1390 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You sell insurance in every State in the country, do 
you not? 

Mr. Smith. Every State with the exception of Texas. 

Mr. Gesell. And your policyholders may be more in one State 
and less in another, but you have policyholders in every State except 
Texas. 

Mr. Smith. Yes, sir. There are still some poHcyholders in Texas. 

The Vice Chairman. The point I was trying to get at is this: This 
newspaper publicity which is supposed to have some purpose is con- 
fined to two newspapers each time in the city of New York, is that 
right? 

Mr. Smith. That is correcr, and that is done in accordance with the 
regulation prescribed by the superintendent of insurance. 

The Vice Chairman. I understand. 

Representative Reece. What type of insurance do you sell? Do 
you sell industrial insurance? 

Mr. Smith. No; only straight life. 

The Vice Chairman. May I ask you this question as a practical 
proposition: All this arrangement with reference to the opportunity 
of policyholders to vote — has that arrangement at any time resulted 
in serious effort on the part of the policyholders to establish an inde- 
pendent control of the organization? 

Mr. Smith. Not in my experience. 

Mr. Gesell. Let me ask you this. Do you make any use of your 
agency force in any way in getting in proxies and ballots? 

Mr. Smith. Absolutely not. 

Mr. Gesell. Do you give your policyholders any notice that they 
have a right to make independent nominations to the board of directors? 

Mr. vSmith. Only the reference to the statute, section 94, in the 
notice on the premium receipt. 

Mr. Gesell. That is after the time for independent nomination has 
passed, is it not, Mr. Smith? 

Mr. Smith. No; they get that every time they get a premium 
receipt. 

Mr. Gesell. Oh, you mean the premium receipt recording the fact 
that the elections are conducted pursuant to section 94 of the New 
York statute. 

Mr. Smith. Yes, sir. 

Mr. Gesell. You do not specifically call to their attention that 
section 94 of the New York statute provides for independent nomina- 
tions to the board. ' 

Mr. Smith. Not by any public notice. We have done that some- 
times in writing policyholders who have inquired about the election. 

Mr. Gesell. If someone expresses an interest, you do give more 
details. 

Mr. Smith. Yes. 

Mr. Gesell. Have you with you a record of the voting in the 1938 
election? 

Mr. Smith. There was no election in 1938. 

Mr. Gesell. Your last was 1937? 

Mr. Smith. '37. 

Mr. Gesell. How many votes were cast in 1937? Was it 177? 

Mr. Smith. One hundred and seventy-seven, I think, is correct. 

I See "Exhibit No. 232", appendix, p. 1522, at p. 1523. 



CONCENTRATION OF ECONOMIC POWER 1391 

Mr. Gesell. Is it correct to state that all of those votes were cast, 
in person except for one vote which was cast by proxy and one which 
was cast by mail? 

Mr. Smith. I think that is so, I wouldn't want to say [examining 
records). Yes; one by proxy and one by mail, the rest were cast in 
person. 

Mr. Gesell. One hmidred and seventy-five votes were cast in 
person? 

Mr. Smith. Yes, sir. 

Mr. Gesell. Were those votes by home office employees, Mr. 
Smith, in large part? 

Mr. Smith. Probably they were. There may have been some 
policyholders who were not connected with the company who came in 
and voted, but undoubtedly a majority of them were home-offico 
employees, or someone connected with the company. 

Mr. Gesell. So the majority of the votes, then, were cast by some- 
one connected with the Mutual Life Insurance Co.? 

Mr. Smith. Yes. 

Mr. Gesell. Let us take your previous election. That was in 
1935, was it not? 

Mr. Smith, Yes, sir. 

Mr. Gesell. How many votes were cast then? 

Mr. Smith. I couldn't say. Those figures are all set forth in full in 
schedule L that accompanies the company's annual statement that 
goes to the insurance department of every State and is a public record. 

Mr. Gesell. I have handed you a docum.ent which will enable you, 
I think, to answer the question I have just asked as to how many 
votes were in cast in 1935. 

Mr. Smith. One hundred and forty. 

Mr. Gesell. Were those votes all cast in person? 

Mr. Smith. One hundred and thirty-nine were cast in person and 
1 was cast by proxy. 

The Vice Chairman. Just a minute on that point. Are those votes 
in the main cast by the office force, the organization in the building? 

Mr. Smith. Not necessarily in the building. They may come from 
the agencies, but a great many of them would come from the home- 
office building. 

Senator King. They were all policyholders, of course. 

Mr. Smith. No one but a policyholder may vote under the law. 
The election is entirely in the hands of the inspectors. 

Mr. Gesell. I would like to go back a little more into more ancient 
history a moment, Mr. Smith. In 1923 you had 36 directors up for 
election, did you not? 

Mr. Smith. Yes, sir. That is, the ticket was complete when the 
vote was cast. If a candidate should die or resign within a 5- 
month period the ticket could not be filled until the new board was 
elected and organized. 

Mr. Gesell. Your best recollection is that there were 36 directors 
on the 1923 election? 

Mr. Smith. We will assume that is so. 

Air. Gesell. How many votes wei^ cast at that election, Mr. 
Smith? Was it not 21 votes? 

Mr. Smith. That is right. 

124491— 3y—pt. 4 16 



1392 CONCENTRATION OF ECONOMIC POWER 

.Mr. Gesell. There were 21 votes cast for 36 directors. Do you 
know whether those votes were cast by home office employees? 

Mr. Smith. I believe they were. There are one or two names 
there that I am not quite sure of. 

Mr. Gesell. Looking at a list of the persons who voted at that 
election, am I correct in saying that except for one or two names you 
cannot identify, you identify all the names as being home office 
employees who voted on this occasion? 

Mr. Smith. That is correct. 

Mr. Gesell. With respect to the election immediately preceding 
that in 1921, is it correct to state that some 36 directors were elected 
by 25 votes? 

Mr. Smith. I am willing to accept your statement if that is in 
accordance with the record. 

Senator King. I suggest in order to expedite the matter the counsel 
just state what the fact is and let them answer because obviously 
there is no controversy. 

Mr. Gesell. That is the last one, Senator. 

Mr. Smith. That is correct. 

Mr. Gesell. Were those votes cast entirely by home-office em- 
ployees? 

Mr. Smith. Either by home-office employees, I should say, or per- 
sons connected with the company. 

Mr. Gesell. How many contested elections have there been in the 
history of the Mutual Life since 1906? 

Mr. Smith. That antedates my practical experience, but I think 
there were two. 

Mr. Gesell. One in 1906 and one in 1911, is that correct? 

Mr. Smith. That is correct. 

Mr. Gesell. In 1906 there was a complete rival slate, is that not 
correct? 

Mr. Smith. I think there were several. 

Mr. Gesell. And several different slates? 

Mr. Smith. Yes. 

Mr. Gesell. The administration's ticket won out, did it not? 

Mr. Smith. It did. 

Mr. Gesell. In 1911 there was simply one independent nominee, 
is that not correct? 

Mr. Smith. That is my recollection; yes. 

Mr. Gesell. He was defeated? 

Mr. Smith. I think that is also correct. 

Mr. Gesell. Have you a record as to the votes cast as opposed to 
the total votes cast for the administration's directors on that occasion? 

Mr. Smith. I am n6t certain we have. 

Mr. Gesell. Can you give me an approximate figure, Mr. Smith. 

Mr. Smith, I could not. Mr. Bell told me it was about 13,000. 

Mr. Haughton Bell (of counsel). I think it was about 13,000 to 
2,000. 

Mr. Gesell. About 13,000 to 2,000? 

Mr. Bell. That is my recoUection. We can verify it. 

Mr. Gesell. Were you connected With the company in 1913? 

Mr. Smith. Yes, sir. 

Mr. Gesell. Are you acqauinted with what happened on that elec- 
tion with respect to an independent nominee? 



CONCENTRATION OF ECONOMIC POWER 1393 

Mr. Smith. Very vaguely if at all. I had nothing to do with the 
elections prior to '21. 

Mr. Gesell. The gentleman who handled that is now dead, is he 
not? 

Mr. Smith. To the best of my knowledge there is no one now alive 
who would be familiar with the three elections. 

Mr. Gesell. For the benefit of the committee, at some later date 
would it be possible for you to prepare for us a memorandum of what 
happened on the occasion of those three elections so that we may 
have it for the record ? 

Mr. Smith. We could prepare a memorandum from such informa- 
tion as we can find in our files. 

Mr. Bell. The figures for the 1911 election were approximately 
13,000 to approximately 2,200. 

Mr. Gesell. That was in 1911? 

Mr. Bell. Yes. 

Senator King. Was that an entire new slate? 

Mr. Bell. Only one man was nominated on the independent ticket, 
sir. 

Senator King. He received 2,000 votes. 

Mr. Bell. Twenty-two hundred votes and the administration's 
ticket about 13,000 votes. 

Mr. Gesell. I believe you stated in the early part of your testi- 
mony that beginning in 1939 there will be a slightly different procedure 
followed with respect to the election of directors. 

Mr. Smith. There will be; yes. 

Mr. Gesell. Am I correct in saying that instead of reelecting the 
entire board every 2 jears, the charter of the Mutual Life has been 
amended to provide for the election of a tliird of the board every year? 

Mr. Smith. That is correct. 

Mr. Gesell. Are 30U acquainted with why that change was made 
in the charter of your company? 

Mr. Smith. It was, as far as I know, made — what I did in connection 
with it was done at the direction of the vice president and general 
counsel. 

Mr. Gesell. Some work on the mechanics? Do you know why it 
was done? 

Mr. Smith. No; I do not. I assume, if you want my assumption, 
that it was done because the New York law was amended permitting 
such a change, in 1927, I think, and it might have been deemed poor 
policy to have a board of 36 experienced men all go out in 1 year, 
possibly. 

Mr. Gesell. The result of it will be that if someone wishes to place 
a majority of his designees on the Board of Directors he will have to 
prevail in two contested elections, rather than in one, is that not 
correct? 

Mr. Smith. That is so ; yes, sir. 

Senator King. I assume the belief was that by staggering the mem- 
bership it would have some better results in administration. Instead 
of all of them going out at once you would have the majority of them 
remain in office constantly; that is to say, until the next election. 

Mr. Smith, That is probably so. Undoubtedly the fact that the 
company's original charter provided for four classes of trustees may 



1394 CONCENTRATION OF ECONOMIC POWER 

have had something to do with it; that was the original idea of the 
incorporators of the company. 

Senator King. With different terms of office when you had four? 

Mr. Smith. Prior to 1906 the board was in classes, the insurance law 
after the Armstrong investigation provided that the entire board 
should go out every 2 years, or at times, in 1 year. In 1927 the 
insurance law was amended to permit the companies to amend their 
charters so that the board could be set down in three classes, I 
assume the insurance department thought that was a wise thing. 

Senator King. So you just followed the changes made in the 
Statute of New York? 

Mr. Smith. Correct. 

Mr. Gesell. The statute was permissive and not mandatory, was 
it not? 

Mr. Smith. Yes. 

Mr. Gesell. I have no further questions. 

Mr. Davis. Mr. Smith, as T understand, your company observes the 
minimum requirements of the New York statute with respect to 
giving notice to policyholders of elections and nominees, but you da 
no more than that unless it be upon request. Is that correct? 

Mr. Smith. That is so. 

Mr. Davis. Is there anything in the New York statutes which 
restrict you to this particular character of notice; that is, advertise- 
ments in two New York papers and then the information on the 
premium receipts that elections are held according to a certain section 
of the statute? 

Mr. Smith. Do you mean that we might do something in addition 
to the statute? 

Mr. Davis. Oh, yes; if you desired to do so, it would be perfectly 
legal for you to give other further notice to your policyholders of 
those matters. 

Mr. Smith. It would be legal, I should say. The insurance depart- 
ment mi^ht question the additional expense. 

Mr. Davis. Have you ever made any inquiry of the insurance 
commissioner as to whether they had any objection to you informing 
your policyholders of these matters? 

Mr. Smith. Not to my knowledge. 

Mr. Davis. Do you really think they would have any objection? 

Mr. Smith. I couldn't say, sir. 

Mr. Davis. While theoretically yours is a mutual company in 
which each policyholder is legally entitled to participate in the 
elections of the board of directors, yet in actual practice is it not a 
fact that your board of directors and your officers are self perpetuating? 

Mr. Smith. In view of the experience in 1906, 1 would question that. 

Mr. Davis. That was an upheaval following the Hughes report, 
was it? 

Mr. Smith. Yes; that was immediately following the Armstrong 
investigation. 

Mr. Davis. But with that exception, the board of directors have 
been elected which were slated by the existing oflBcers, and the oflBcers 
in turn were elected by the board so elected. That is correct, is it not? 

Mr. Smith. Well, the statute gives the policyholders ample means 
of expressing their feelings if thej^ wish a change. The fact that they 
make no move I should say was indication that over a long period of 
years there was no general desire to do so. 



CONCENTRATION OF ECONOMIC POWER I395 

Mr. Gesell. Mr. Smith, if a policyholder didn't happen to read 
the New York Times or the New York Journal of Commerce, or 
happen to look on the back of his premium receipt, he would have no 
way of knowing that he had any rights in the matter at all, would he? 

Mr. Smith. He would have no public notice. 

Mr. Gesell. How would he get any private notice? 

Mr. Smith. If he was very much interested he certainly coiild be 
enlightened on the subject. There are insurance departments in 
every State who would undoubtedly inform any pohcyholder who 
wanted information on the subject. 

Senator King. Isn't there an assumption that a man who obtains a 
policy, if he is interested enough to go to a company, interested enough 
to inquire as to the best company, and he gets a policy, that he vnll 
make some inquiry as to his rights under the policy, the benefits to 
be derived, and the disadvantages which will result? 

Mr. Smith. I should think so. 

Senator King. Much the same as an industrial or other corporation, 
a man buying stock in a corporation, if he does not go to the law under 
which it is incorporated, the charter of the company to determine 
just what his obligation is and liabilities are, he may sometimes be 
rudely awakened and find that he had assumed obligations that he was 
not aware of? In other words, a caveat emptor has some little applica- 
tion if a man buys stock or if he obtains an insurance policy? 

Mr. Smith. I should say that was so. 

Mr. Gesell. Well, now, Mr. Smith, let us suppose I was well 
informed as a policyholder of your company concerning the election 
laws in the State of New York, and of the rights that I had as a policy- 
holder, I would still be a long way from having my opinions expressed 
through my representative on the board of directors, would I not? 
I would have to get a list of your policyholders first of all. I would 
have to petition the State insurance commissioner to get that. When 
you gave me the list it would contain many millions of names. I 
would then have to solicit that list at my own expense, would I not? 
There are some practical difficulties, in other words, if someone wishes 
to have his position or his point of view expressed on the board of 
directors of your company? 

Mr. Smith. Yes; there are some difficulties. I think there should be. 

Mr. Gesell. Well, I understood you to say to Senator King that 
the law gave ample opportunity to a policyholder in this regard and 
I was simply trying to find out whether you felt the law was such as 
to make it an easy and a relatively simple matter for the policyholder. 

Mr. Smith. Why, there are a great many policyholders. I should 
say that it would be much easier to find them. 

Mr. Patterson. Mr. Smith, what do you mean when you say there 
should be difficulties for the policyholder? I don't quite foUow you 
there. 

Mr. Smith. I meant a single policyholder. What I meant was 
that it is a very expensive thing for a company to have to file a list 
of all its policyholders, and if one policyholder out of one million or 
more could do that, why the company would be kept at a constant 
expense. 

Mr. Patterson. Mr. Smith, I don't mean to embarrass you. 
You really do not feel that there should be difficulties in the way of 
the policyholder? You want to make it as easy as possible, do you 
not? 



1396 CONCENTRATION OF ECONOMIC POWER 

Mr. Smith. I do not mean it that way at all. 

Mr. Patterson. But you did say there should be difficulties. 

Mr. Smith. I did not mean it that way. What I meant was that 
there should be some provision limiting the number of policyholders 
to put the company to the expense of compiHn^ policy lists, and 
sending out ballots to one million or more policyholders under the 
election law. 

Mr. Patterson. Thank you. 

Mr. Gesell. I have no further questions. 

Mr. Bell. May I ask one question? 

The Vice Chairman. May I ask one question, if you please, sir? 
Is there anything peculiar about the organization of insurance com- 
panies? I think I would like to withdraw that question. Is there 
anything distinctive about the insurance company that would make 
problems of election by people in interest any different from that of a 
railroad company or any other corporation that has a large distributed 
ownership? 

Mr. Smith. I should say that there would be an analogous situation. 

The Vice Chairman. Some things we are inquiring into here with 
reference to insurance companies are things that arc probably common 
to the organization and operation of corporations with distributed 
ownerships. 

Mr. Smith. I would imagine so. 

Mr. Bell. There were two communications from the superinten- 
dent of insurance, one of which has a bearing on the subject Mr. 
Patterson was asking about, which shows something of the evolution 
of the law, and the other is a letter which was found in our files 
addressed to the president of the New York Life Insurance Co. 
shortly after, or about the time of, one of these contested elections, 
which shows the theory of the law, and I think that perhaps while 
tliis subject is being considered, those might be read. They are not 
very long. 

The Vice Chairman. Would you hke to submit it for the consid- 
eration of the committee? 

Mr. Bell. Yes, I would; particularly this recommendation to the 
legislature which was made by the Superintendent of Insurance of 
New York in 1915, and which I think had reference to the contested 
election of the Mutual Life in 1911, and showing that the expense 
and difficulty which one of these contests inight put a company to 
would be great. Prior to that time nominations might have been 
made by 100 policyholders. 

The Vice Chairman. If you appear in the capacity of a witness, 
in view of the rule which we have had, perhaps it would be just as well 
to be sworn.. Do you solemnly swear the testimony you are about 
to give is the truth, the whole truth, and nothing but the truth, so 
help you God? 

Mr. Bell. I do. 

TESTIMONY OF HAUGHTON BELL, ASSISTANT GENERAL COUNSEL 
OF THE MUTUAL LIFE INSURANCE CO. OF NEW YORK, NEW 
YORK, N. Y. 

The Vice Chairman. Now give your full name and relationship 
to the company. 



CONCENTRATION OF ECONOMIC POWER I397 

Mr. Bell. Haughton Bell, assistant general counsel of the Mutual 
Life. 

The Vicrs Chairman. Does this interfere with your program? 

Mr. Gesell. I don't know how long it will take. It does not 
otherwise. 

The Vice Chairma Go ahead. 

Mr. Bell. This is an extract from the fifty-sixth annual report of, 
the superintendent of insurance for the State of New York, addressed 
to the legislature, under date of February 15, 1915. He says: 

ELECTION OP DIRECTORS IN MUTUAL COMPANIES 

A matter to which your attention has been drawn before is the provision of the 
Insurance Law respecting the election of directors of mutual companies. Under 
section 94 such companies are required to file with the department before each 
election of directors two complete lists of the names and post office addresses of 
their policyholders whose insurance has been in force twelve months prior thereto. 
Under the law it is a matter of no consequence whether there is a contest between 
opposing candidates for the position of director or not; the lists must be filed in 
any event. 

It is submitted for your consideration, and the recommendation is made that 
an amendment be adopted which will obviate the necessity of filing the lists where 
there is no opposition to the election of the board proposed by the company. 
The preparing of the lists involves an expense which cannot be justified if no use 
is to be made of them. The filing of them on such occasions but burdens the 
records of the department and fills its storage rooms with a mass of material 
which serves no purpose whatever, but requires the time and care of department 
employees without any compensating benefit to the State or the policyholders of 
the companies. 

Thore must be no weakening of the law which would impair in any way the rights 
of policyholders to select the directors of their respective companies, so I am not in 
favor of interfering with or amending those subdivisions of the section wherein 
the very elaborate and detailed method for conducting an election is set forth. In 
practice, the machinery proves expensive, but when used to determine a real and 
substantial contest for the election of directors it is worth all it costs, as it is at care- 
fully worked out system for insuring to the policyholders, no matter where located, 
their right to vote, and also the careful canvassing of all votes cast. When, how- 
ever, there is no opposition to the board nominated by the administration, or when 
there is a contest not instituted in good faith, then such expense is a sheer waste 
of policyholders' money, and is indefensible. The last contest of this latter kind 
in one of New York's largest mutual companies, although absolutely futile of 
result, cost over $40,000. 

To retain all that is precautionary and good in the election statute and at the 
same time overcome the defect pointed out, it is recommended that the law bo 
amended so as to give the Superintendent a discretion in the matter of requiring 
companies to file a list of policyholders. If the department satisfies itself that 
there is a genuine and bona fide desire on the part of any considerable number 
of policyholders to nominate a board in opposition to that nominated by the 
administration, then the Superintendent should be permitted to order the list, 
or such portion of the list to be filed as would permit the dissatisfied policyholders 
to secure the names and addresses of as many more of their number as would be 
Bufficient for their purposes in starting a campaign in opposition and placing a 
ticket of their own in nomination. In this connection it is suggested that in a 
company having over one hundred thousand policies outstanding, each in amoimt 
of $1,000 or more, no S':parate ticket from that named by the company should be 
nominated on the petition of policyholders less in number than one-tenth of one 
per cent, of such outhtanding policies. This would provide a very reasonable mini- 
mum number of nominators in a case where there w.as considerable dissatisfaction 
among policyholders with the management of a company, and at the same time 
would forestall contests begun merely from mercenary motives or for vindictive 
purposes and with no possibilities of success. The policyholders are surely entitled 
to protection, not only aeainst bad management, but also against the waste of 
contests begun in bad faith. 



1398 CONCENTRATION OF ECONOMIC POWER 

When, however, two or more tickets are duly placed in nomination, a list of all 
policyholders entitled to vote should be filed in the department, substantially as 
now provided by statute. 

There is, then, one further recommendation with regard to indus- 
trial poHcies which I do not think is so relevant. I will read it if you 
like. But the contest in our company, shown by its annual report 
for 1911, did cost approximately $40,000. 

Mr. Gesell. That was the election where a single independent 
nominee sought to become a member of the board of directors? 

Mr. Bell. Yes. Now the other communication I bad reference to 
was a letter, if I may read it, addressed to the president of the New 
York Life Insurance Co., and found in our files when the Securities 
and Exchange Commission representatives w^ere going through them, 
and shows the theory of the law where there is no contest. It states it 
so \i^ell that I thought I might read part of it. 

Mr. Gesell. Would it be possible, Mr. Chairman, for the letter to 
be inserted into the record and for Mr. Bell simply to tell us in summa- 
tion what the letter states? 

The Vice Chairman. Whichever you can do quickest. 

IVIr. Bell. I can do it quickest by saying in the first place that he 
refers to the election machinery, how nominations may be made, and 
so on, and pointing out that the law provides that unless an independ- 
ent ticket is put in the field, no one can be voted for except the people 
on the administration ticket. He then goes on: 

DIRECTORS 

Therefore, if the policyholders do not nominate any candidate for Directors, 
then there can be no candidates except those that the law requires the existing 
Directors to nominate, and these alone can be elected. It is undoubtedly the 
theory of the law that if the policyholders fail to nominate candidates for Directors, 
they are not dissatisfied with the existing management of their Company. It 
follows from the plain requirements of the law that when the policyholders fail at 
any given election to nominate an opposition ticket — the nomination of which 
the law has made simple and easy for them — the election of Directors becomes a 
mere formality. 

At no one of the three elections referred to did the policyholders of your Com- 
pany nominate any candidates for Directors. Therefore, there being no contest, 
the law does not contemplate that your Company incur the expense of mailing 
ballots to its policyholders or require it to take any other action for the purpose of 
bringing out the vote, for by the express requirements of the law itself, the election 
could have but one result. 

Senator King. Who signed that? 

Mr. Bell. This is from W. T. Emmet, Superintendent of Insurance, 
to Darwin P. Kingsley, president of the New York Life Insurance Co.^ 
dated January 3, 1913. 

Mr. Gesell. That in effect says that any efforts to get out the 
vote, whether or not as a noncontested election, are considered to be 
an excessive expense not warranted in the interest of the policyholder. 

Mr. Bell. .That is true; yes. 
(^ The Vice Chairman. We have testimony here, I believe, that one 
company has 29,000,000 policyliolders. It cost — I always hesitate to 
quote Jigures — but 10 cents; three letters would be about $2,900,000 
to get this business out to them. 

Senator King. It would be 30 cents for three letters. 

The Vice Chairman. That would be about $7,000,000. 

Mr. Gesell. I imagine, Mr. Chairman, the expense goes -down as 
the volume increases, you will recall. 



CONCENTRATION OF ECONOMIC POWER 1399 

The Vice Chairman. Maybe they got a reduction on stamps. 

Mr. Gesell. I was referring to the testimony of Mr. Tully wherein 
he stated that the expense ran at the Metropolitan something aroimd 
$10,000/ which would indicate that that 10-cents-a-letter cost does 
not continue as the volume increases. I have no further questions. 

Mr. Davis. Referring to the New York statute and suggestion made 
in a letter which you read, and also a letter from the insurance commis- 
sion, is it not a fact that a great deal of discretion is lodged in the 
insurance commission, or somebody else, to decide whether oppositions 
are formidable or whether they are in good faith, or otherwise ad- 
visable? 

Mr. Bell. I did not understand what you said about "discretion," 
sir. 

Mr. Davis. With respect to whether the names of the policyholders 
should be furnished or that notice should be sent out to the policy- 
holders. 

Mr. Bell. As to whether the names of the policyholders should be 
prepared in a list, discretion is vested in the superintendent of in- 
surance, on application of 25 policyholders, after hearing. 

Mr. Gesell. It comes down to this, does it not, that if an applica- 
tion is made for a list of policyholders to the superintendent of in- 
surance, he has som6 discretion in determining whether he thinks 
those policyholders are acting in good faith, with a desire really to 
participate in the management of the company, or simply engage in 
some kind of what might be called a strike suit. 

Mr. Bell. Right. 

Mr. ,\Gesell. That discretion rests in the insurance commis- 
sioner with respect to the preparatipn of the policyholders' list by the 
company. 

Mr. Bell. Yes. 

Mr. Gesell. Once the superintendent asks the compBny to present 
the list then that becomes mandatory upon the company tb prepare 
a list which is available to the opposition ticket, so thaf they can mail 
their ballots and proxies to the policyholders? 

Mr. Bell. Right. 

Mr. Davis. At the same time in the final analysis the discretion 
rests in the insurance commissioner to squelch initial uprising in the 
ranks of policyholders, and also it is placed in his discretion to be 
exercised after hearing? 

Mr. Bell. Yes, sir. 

Mr. Davis. And is it not a fact that unless there is an extraordinary 
situation such as occurred in 1906, that most movements start in a 
small way, and grow, and if they are not permitted to start, they will 
not be permitted to grow. That is true, is it not? 

Mr. Bell. I do not know of any contest or attempted contest since 
then, but I simply do not know anything about it. I don't know 
whether any 25 have ever petitioned. 

Mr. Gesell. We have an expression from the superintendent of 
insurance with respect to his policy in tliis matter, which we can 
present through the next witness. No further questions. The next 
witness is Dr. Donald Davenport. 

The Vice Chairman^ Have you been sworn? 

Dr. Davenport. I have. 



> Supra, p. 1312. 



1400 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF DR. DONALD DAVENPORT, SPECIAL ECONOMIC 
CONSULTANT, INSURANCE STUDY, SECURITIES AND EXCHANGE 
COMMISSION, WASHINGTON. D. C— Resumed 

ANALYSIS OF RECENT ELECTIONS IN MAJOR COMPANIES 

Mr. Gesell. Am I correct in stating that the Securities and 
Exchange Commission has through various questionnaires and corre- 
spondence with mutual life insurance companies obtained information 
concerning the voting practices of those companies in the election of 
directors? 

Dr. Davenport. That is right, Mr. Gesell. 

Mr. Gesell. Have you prepared a schedule showing with respect 
to the 12 largest mutual companies the number of policyholders, the 
possible votes, the votes actually cast per director, and the percentage 
ratio of votes cast to possible votes in elections held by those com- 
panies in 1935, 1936, 1937? 

Dr. Davenport. I have, Mr. Gesell. 

Mr. Gesell. Is this the schedule? 

Dr. Davenport. It is. 

Mr. GeSell. I wish to offer the schedule for the record. 

The Vice Chairman. It may be admitted. 

(The schedule referred to was marked "Exliibit No. 255" and is 
included in the appendix on p. 1552.) 

Senator King. Have you furnished the compaides to whom you 
refer in this schedule a resume of the results of this investigation? 

Dr. Davenport. The resume is just being drawn up, Senator King. 

Senator King. So that if they want to have an oi)portunity to 
negative or supplement or explain, they would have the facts before 
them as you present them? 

Dr. Davenport. Senator King, it is based upon correspondence 
with each one of the officers of these 12 compaides, an officer of each 
one of the 12 companies, I should say. 

Senator King. I am not objecting to this at all. The only point 
I had in mind was that the comj)anies themselves, if they were not 
familiar with the schedule and the facts you are presenting, ought to 
have an opportunity to be advised just what your chart shows. 

Mr. Gesell. This schedule covers the 12 largest mutual life insur- 
ance companies, does it not? 

Dr. Davenport. That is right, Mr. Gesell. The assets of these 12 
largest mutual companies amount to 72 percent of the total assets of 
all legal reserve life insurance companies as of 1937. They aggre- 
gated over $18,000,000,000 and we estimate that they amount to 
about 78 percent of the assets of all mutual life insurance companies, 
so we feel justified in considering that the practices that are developed 
by these 12 companies are those which are predominant in the hfe 
insurance field. 

Mr. Gesell. What is the highest percentage of votes out of ])ossible 
votes received by any company during these 3 years, and v/hat was 
the company? 

Dr. Davenport. If we take the election in 1937, the largest pro- 
portional vote was in the Prudential Insurance Co. of America. 

Mr. Gesell. That company is not. strictly a mutual company, is it? 



CONCENTRATION OF ECONOMIC POWER 1401 

Dr. Davenport. The Prudential Co. technically is still a stock 
company. However, of $2,000,000 of capital stock, $1,970,762 has 
been purchased for the policyholders under the mutualization plan. 
Moreover, the dividends on stock are limited to 10 percent in any one 
year. The company, therefore, is to all intents and purposes a mutual 
company, and is so considered in this study. 

Mr. Gesell. You say that in 1937, 2.51 percent of the possible 
votes were cast in the election? 

Dr. Davenport. That is right. 

Mr. Gesell. That is the largest of all of the companies in that year? 

Dr. Davenport. That is the largest proportional vote of any com- 
pany in any one of these 3 years. In two other companies only were 
the proportions greater than 1 percent. The Metropolitan Life 
Insurance Co. had 1.76 percent, and the Provident Mutual Life 
Insurance Co. of Philadelphia had 1.27 percent. In the other com- 
panies the proportions were less than 0.8 of 1 percent. 

Mr. Gesell. You mean to say that except for those 3 companies, 
in all of these 12 largest companies the percentages of votes cast was 
always less than 0.8 of 1 percent? 

Dr. Davenport. That is right. In 4 companies, the Northwestern 
Mutual Life Insurance Co., the Mutual Life Insurance Co. of New 
York, the Equitnble Life Assurance Society of the United States, and 
the New York Life Insurance Co., the proportion of actual votes to 
possible votes did not exceed 0.05 of 1 percent; that is, five-hundred ths 
of 1 percent. In fact, in these 4 companies the total number of votes 
cast in 1937 was only 1,101. As the total number of possible votes 
in these 4 companies was 2,562,000, it appears that their directors 
were elected by the equivalent of only 1 out of every 2,340 possible 
votes. 

The results of the elections in 1936 and in 1935 tell substantially 
the same story. Directors of mutual life-insurance companies are 
elected by a very small minority of the policyholders. 

Mr. Gesell. Well now, have you made, in connection with this, 
from the questionnaire replies received by the Commission, some 
analysis of the types of notice given by the companies to the policy- 
holders with respect to these elections? 

Dr. Davenport. We have, Mr. Gesell. 

Mr. Gesell. May I ask whether it is not a fact that the two com- 
panies having the largest percentage of votes, that is to say the 
Prudential and the Metropolitan, are the two companies which 
make use of their agency force in soliciting votes from the policyholders? 

Dr. Davenport. That is right. The Metropolitan Life Insurance 
Co. and the Prudential Life Insurance Co., which are the 2 that had 
the largest proportional vote, are the only 2 of these 12 that use their 
agency force in soliciting votes. 

Mr. Gesell. I notice that the third in line is the Provident Mutual 
Life Insurance Co., of Philadelphia. Will you tell us if there is any 
reason appearing from the questionnaires as to why there is a largo 
amount of voting relatively in that company? 

Dr. Davenport. There is a special factor in the Provident Mutual 
Life Insurance Co. Tliis company is the only company that sends 
out special notices by mail to policyholders. This company, however, 
sends out special notices of forthcoming meetings for the purpose of 



1402 CONCENTRATION OF ECONOMIC POWER 

electing directors to a group of 10,000 different policyholders each 
year. 

Mr. Gesell. Do you mean they choose 10,000 different poUcy- 
holders and send a special notice of the election to them? 

Dr. Davenport. That's right, Mr! Gesell. 

The Vice Chairman. How are they selected — at random? 

Dr. Davenport. We have no knowledge, except that it is a different 
list of 10,000 each year. The effectiveness of a special notice sent 
by mail shows up in the fact that they are the third largest with 
respect to proportional votes of these 12. 

The Vice Chairman. Do they solicit votes for the ticket of the 
organization? 

Dr. Davenport. We have no Knowledge of that. The question- 
naire did not ask that specific question. We merely asked how they 
acquainted policyholders with their rights. This was the only com- 
pany that sent special notices by mail of these 12. We learned a 
moment ago the Acacia Mutual does this with all of their policyholders. 

Mr. Gesell. We are coming in a moment to a detailed considera- 
tion of the types of notices in these companies. 

Is it safe to say, with respect to the other companies comprising 
these 12 largest mutual companies, that, generally speaking, the 
notice is given through the premium receipt, the newspaper, and on 
the poUcy? 

Dr. Davenport. That is the prevailing practice. 

Mr. Gesell. Have you a schedule showing the method of giving 
notice in each of these companies? ^ 

Dr. Davenport. We have, A'Tr. Gesell. 

Mr. Gesell. May I have it, please? 

Can you tell us briefly the types of notice given in the other nine 
companies? 

Dr. Davenport. In the New York Life Insurance Co., for example, 
the policyholders are notified of their right to vote for directors by 
advertisements inserted in certain newspapers published in the city 
of New York and by notice printed on the premium receipt. This is 
the prevailing practice in each one of the other nine companies, with 
the exception that in some cases they will, in addition to sending the 
notice on the premium receipt, also send the notice on the premium 
bill, or indicate that they have published on the policy jacket or on 
the poHcy itself a statement of when the annual meetings are held. 

The Vice Chairman. Do you find anything from your study to 
indicate any effective test of this newspaper publicity, or do you get 
into that? 

Dr. Davenport. We have received from the individual companies 
copies of the ads that they msert from time to time announcing the 
annual meetings. Invariably they are small advertisements published 
in the section of the financial part of the newspaper that contains 
company notices. 

The Vice Chairman. Let me ask you this question to get right 
down to the heart of this thiug, if you can. Did you find from your 
study that the right of tlie policyholders to participate is any more 
than a sort of gun behind the door, as the expression is, or the right, 
the power, and the opportunity of these people to participate agamst 
the management that they may be opposed to? 

> See "Exhibit No. 256", appendix p. 1553, at p. 1405. 



CONCENTRATION OF ECONOMIC POWER 1403 

Dr. Davenport. I think that is a very fair statement, Mr. Chair- 
man. That is about all it is. 

The Vice Chairman. That is about all it amounts to, no matter 
where you take it. 

Senator King. Would you deduce from the fact that the policy- 
holders have so seldom even tendered a candidate that there was satis- 
faction or dissatisfaction with the management of the company? 

Dr. Davenport. Senator King, since the hearings have started we 
have received a great many letters from individuals who have indicated 
great surprise that they were eligible to give a vote, that they had any 
right to participate whatever in the affairs of these mutual companies. 

The Vice Chairman. I wanted to ask one other question. Is there 
any difference in the relationship of the policyholder to his company 
and in his opportunity to be influential in its management and the 
stockholders in a raUroad company or any other corporation that has 
a distributed ownership, and if so, what is it? 

Dr. Davenport. I should say that in the case of the stockholders 
of large corporations the stockholders have a larger stake in those 
companies than is true in the case of most of the policyholders of the 
mutual Hfe-insurance companies. We have looked into the matter 
of the behavior of stockholders in industrial and public-utility com- 
panies at the time of election of their directors, and I have some 
figures that I can give you which are comparable to those that we 
inserted in the record a moment ago with respect to the participation 
of the policyholders in the Ufe-insurance companies in the election of 
directors.^ 

The Vice Chairman. I think you might at least put it in the record.' 

Mr. Gesell. We are coming to it in a moment when we get to the 
question of notices. 

Senator King. Has your experience demonstrated that the policy- 
holders take but very little interest in the company, believing that 
their investment is sound and that their rights are being fully protected 
by the law and by the corporation itself? 

Dr. Davenport. Senator King, the reason why they don't partici- 
pate is something that I cannot divine. We do have the factual in- 
formation that they do not participate, and it is a fact that the ways 
in which they are notified of the forthcoming meetings for the pur- 
pose of election are ways which are not designed forcefully to' call 
their attention to their rights. 

Mr. Patterson. I would like to ask the witness this question. 
I may have missed this, but it is not quite clear to me how or why 
these 10,000 policyholders are selected. At that rate, a policyholder 
would only have an opportunity once in 19 years to vote, as there 
are 189,000 policyholders. 

Dr. Davenport. That's right. I should imagine it was because 
of the expense involved. The company wants to make a gesture to its 
policyholders each year, and does send out these 10,000 specific 
notices that are designed forcefully to call to their attention their rights 
to vote. 

Mr. Gesell. Am I correct in saying that this is a special, fonn of 
notice in the case of the Provident Mutual sent to these 10,000 policy- 
holders? It is not, however, the only form of notice used by the 
company? 

» Subsequently entered as "Exhibit No. 257", see appendix, p. 1553. 



1404 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. That is right. 

Mr. Gesell. They also -advertise in certain newspapers in Philadel- 
phia and have a notice on the policy jacket and on the premium 
receipt, so that other policyholders in a less efficient way are notified 
of their particular right to vote? 

Dr. Davenport. They are not required by law to send notices by- 
mail to any of these policyholders, so they are going be3^ond the mini- 
mum requirements of the law, and it is the only 1 of the 12 companies 
that we found that did go that far. 

Mr. HiNRiCHs. Dr. Davenport, I notice the Mutual Benefit Life 
down here with an unknown possible number of votes. Is the 
charter of that company so set up that the possible number of votes 
is greater than the number of policyholders, or would it be less? 

Dr. Davenport. We asked the companies to give us the figures of 
the possible number of votes or the possible number of policyholders. 
This was the only company which didn't furnish us with an estimate 
of the possible number of votes that could be cast. 

Mr. HiNRiCHS. But do you know whether the number could possibly 
be greater than the number of policyholders? It is in some companies 
and in others it is smaller. 

Dr. Davenport. I should assume that the law with respect to the 
Prudential would possibly be the same as that affecting the Mutual 
Benefit Life Insurance Co. of Newark and consequently the possible 
number of votes would be somewhat smaller than the possible number 
of policyholders. 

Mr. Hinrichs. You, therefore, cannot figure the correct percentage 
in the ratio of votes, but the percentage in any event would be some- 
what greater than 2 percent and possibly as great as 2}^ percent? 

Dr. Davenport. That is about right. 

Mr. Hinrichs. So that Mutual does not fall into the category of 
the nine companies that were eight-tenths of 1 percent or less? 

Dr. Davenport. That is a perfectly fair statement; yes. 

Mr. Gesell. I have the bylaws of the Mutual Benefit Insurance 
Co. before me and section 3 states that in the annual election for 
directors each member of the company shall be entitled to one vote 
when the insurance is for a sum not exceeding $2,000; over $2,000 up 
to $5,000, two votes; over $5,000, three votes. That may assist us in 
the problem. 

Mr. Davenport, have you prepared a schedule showing the various 
types of notices sent by the 60 mutual companies replying to our 
questionnaire to the policyholders with respect to elections? 

Dr. Davenport. We have; Mr. Gesell. 

Mr. Gesell. Have you a copy of that schedule? 

Dr. Davenport. I think you have a copy there. 

Mr. Gesell. Will you state what that schedule shows on it? 

Dr. Davenport. In summarizing the rephes to the questions we 
sent to th& various companies we have drawn into one category all 
of the companies that employ special notices sent by mail to announce 
meetings for the forthcoming election of directors. Into another 
category, the companies that did not employ the method of sending a 
special notice by mail but which resorted to the method of inserting a 
paragraph on the premium receipt describing the time and place for 
the meeting for the election of directors. This was done in many 
instances in combination with advertisements and a statement on 



CONCENTRATION OF ECONOMIC POWER I405 

the policy itself. Of the 80 mutual life insurance companies that 
replied to our questionnaire 28 or 35 percent of the number send 
special notices by mail just as the Acacia Mutual does. 

Twenty-one companies use the method of the paragraph on the 
premium receipt, and on the pohcy and by publication, in various 
combinations. The remaining 31 employ methods that are not as 
effective as these, unless we should include the use of agents in the 
solicitation of votes. 

Mr. Gesell. Is it correct to say that 19 of these 80 companies 
place a notice on the policy or policy jacket alone and give no other 
form of notice to the policyholder? 

Dr. Davenport. The table shows that there are 19 such companies 
that use that, and only that, as a method of informing policyholders 
of their right. 

Mr. Gesell. I would like to offer this schedule which shows the 
various forms of announcement of meeting for the election of directors, 
and the schedule showing the method of giving notice used by the 
12 largest mutual companies for the record. 

The Vice Chairman. It may be admitted. 

(The schedules referred to- were marked "Exnibit No. 256" and are 
included in the appendix on p. 1553.) 

Senator King. Could you find any of these 80 companies failed to 
carry out the minimum provisions of the law with respect to giving 
notice of meetings? 

Dr. Davenport. In many of the laws there is no specification as to 
how they shall- notify their policyholders, but there was no mdication 
that we found that companies did not comply with the minimum 
requirement. 

Mr.. Gesell. The question of contested elections has come up. 
Am I correct in stating that in response to a letter addressed by tliis 
Commission tor Hon. Louis H. Pink, superintendent of insurance in 
the State of New York, he gave us certain information concerning the 
number of contested elections held in New York State since 1906? 

Dr. Davenport. That is right, Mr. Gesell. 

Mr. Gesell. Will you read that portion of his letter for the record, 
please? 

Dr. Davenport. Tlds is a letter dated January 10, 1939, from 
which I quote as follows: 

* * * Since the passage of section 94 of the insurance law of 1906, there have 
been the following contested elections of directors: 

New York Life, December 18, 1906; 

Mutual Life, December 18, 1906; 

Mutual Life, June 1911 (only 1 nominee named on independent ticket); 

Mutual Life, June 2, 1913 (only 1 nominee named on independent ticket); 

Buflalo Mutual Life, December 8, 1932. 

The administration ticket was successful in each of the above instances, with 
the exception of the Buffalo Mutual, where the independent nominees won. It 
might be mentioned that the Buffalo Mutual originally had been an assessment 
corporation, the mortality had been high, and extra rates had been required, 
resulting in certain dissatisfaction with the existing management. 

It is possible that there have been contested elections other than the above. 
A complete record is difficult to determine after the lapse of so many years. This 
fact is at least true, that there have been no contested elections during the past 
15 years other than the BuflFalo Mutual. 

Mr. Gesell. Just in passing, can you tell us what the size of ^ the 
Buffalo Mutual Life Insurance Co. referred to was? How big a 
company was that? 



1406 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. The Buffalo Mutual Life Insurance Co. was a 
«mall company. Best's in 1938 reported as follows, that effective 
November 20, 1935, the Union Mutual Life Insurance Co. of Port- 
land, Maine, reinsured the business of this company without lien. 
The Buffalo Mutual's insurance in force that was reinsured by the 
Union amounted to $16,540,000. 

Senator King. That was an assessment company that had some 
trouble, as I understood you. 

Dr. Davenport. It started out as an assessment company. 

Mr. Gesell. Did this letter from the office of the superintendent 
of insurance give any information which would assist Judge Davis in 
the question he asked the previous witness? You will recall the ques- 
tion arose as to how the superintendent of insurance would exercise 
h.is discretion where an effort was made by a group of policyholders to 
obtain a policyholders' Ust. 

Dr. Davenport. I quote from this letter: 

The original section 94 required the company to file with this department two 
lists of all its policyholders irrespective of whether or not the independent ticket 
was nominated. This requirement was changed in 1915 So that the filing of such 
lists would be omitted except where there was a request by at least 25 policyholders. 
So far as the writer knows, there has never been any denial by the superintendent 
of the preparation of such a list. The company, of course, would have no right 
of decision in the matter. The superintendent certainly would not make any 
arbitrary refusal where a request of at least 25 policyholders appeared legitimate 
and where there seemed any likelihood of an independent ticket being named. 

Mr. Gesell. Have you prepared a schedule showing the relation- 
ship between methods employed by mutual life insurance companies 
in notifying policyholders and by proprietary life insurance companies 
in notifying stockholders of meetings to be held for the election of 
directors? _ 

Dr. Davenport. We have such a list, Mr. Gesell. 

Mr. Gesell. Is this the schedule? 

Dr. Davenport. That is the schedule, sir. 

Mr. Gesell. I wish to offer this for the record. 

The Vice Chairman. It may be received. 

(The schedule referred to was marked "Exhibit No. 257" and is 
included in the appendix on p. 1555.) 

Mr. Gesell. Have you also prepared and collected certain state- 
ments which have been made from time to time by various representa- 
tive people concerning the mutuality problem? 

Dr. Davenport. Mutuality is a subject that has concerned writers on 
insurance since the beginning of insurance. For example, Mr. Eliziir 
Wright in his Politics and Mysteries of life Insurance, published in 
1873, stated as follows [reading from exhibit No. 258]: 

We have in fact the anomaly of a company, having an annual revenue of 
$15,000,000, with about $60,000,000 in hand, which though constitutionally 
"mutual" and theoretically perfectly democratic, is, de facto, autocratic, the 
<:hief officer holding proxies enough to secure his own reelection, in spite of any 
opposition short of the miraculous. An autocracy may be the best government 
in the world or it may not be, according to the character of the autocrat. The 
prejudices of our country are certainly not in its favor. 

Mr. Gesell. Have you also statements from the Armstrong Com- 
mittee report, from the report of the Commission to Recodify the 
Insurance Laws in the Commonwealth of Massachusetts, from the 
Pujo committee, which was a committee investigating this and other 
problems in 1913, from the New York State insurance reports in 1927 



CONCENTRATION OF ECONOMIC POWER 1407 

by Mr. James A. Beha, then superintendent of insurance, and from a 
recent publication by Edward Berman entitled "Life Insurance, a 
Critical Examination." 

Dr. Davenport. We have prepared all these comi. ents which indi- 
cate a continuity of interest in the subject of mutuality in life insur- 
ance companies. 

Mr. Gesell. I wish to offer these statements for the record. 

The Vice Chairman. They may be received. 

(The statements referred to were marked "Exhibit No. 258" and 
are included in the appendix on p. 1555.) 

Senator King. Who is the last man? 

Mr. Gesell. My understanding is tiiat Mr. Berman is now de- 
ceased. He was a professor of economics in the University of Chicago, 
is that correct? 

Dr. Davenport. At the time he wrote this I believe he was an 
employee of the United States Department of Labor. 

Mr. Henderson. The University of Illinois, not Chicago. 

The Vice Chairman. Whether the company is a mutual concern 
or whether it is owned by stockholders, it, after aU, has to be sup- 
ported by the money paid in by the people who get insurance, doesn't 
it? 

Dr. Davenport. That is right. 

The Vice Chairman. It is a difficult situation. 

Dr. Davenport. The entire amount of capital stock of the stock 
insurance companies is a matter of only $150,000,000. 

The Vice Chairman. That is a very interesting statement. The 
people who pay the money have to support each of them. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. May I ask the members of the committee to 
meet for executive session. We are adjourned until tomorrow morn- 
ing at 10 o'clock. 

(Whereupon, at 12:15 noon, an adjournment was taken until 
Wednesday, February 15, 1939, at 10 a. m.) 



124491— 39— pt. 



INVESTIGATION OF CONCENTKATION OF ECONOMIC POWER 



WEDNESDAY, FEBRUARY 15, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 11 a. m., pursuant to adjournment on 
Tuesday, February 14, 1939, in the Caucus Room, Senate Office Build- 
ing, Representative Hatton W. Sumners presiding. 

Present: Senator King; Representatives Sumners (vice chairman) 
and Reece: Messrs. Henderson, O'Conneil, Douglas, Patterson, 
Peoples, Berge, Franii, Davis, and Hinrichs. 

Present also: Gerhard Gesell, Special Counsel, Securities and Ex- 
change Commission. 

The Vice Chairman. The committee will please be in order. 

I am directed by the committee to make the following statemert 
with regard to the matter which was presented after adjournment of 
these proceedings yesterday. 

Since the beginning of this phase of the committee's proceedings 
which deals with insurance companies the committee has received 
many requests from individuals, both within and outside of the 
insurance business, desiring to be heard. The committee being fully 
cognizant of the pubUc character of these proceedings and beini."; 
desirous of obtaining an accurate portrayal of the character of the 
life insurance business, is eager that the facts should receive a fair 
presentation, which may add to the store of information which it is 
seeking to accumulate. 

However, it must be recognized that there must always be a point 
beyond which it is not necessary to go and also beyond which it is 
utterly impractical to proceed. A't its conclusion, the record of theso 
proceedings must, in the last analysis, be reasonable in proportion and 
intelHgent in content. Without that our effort would be futile and 
almost assuredly fruitless. The committee has heard evidence indi- 
cating that some insurance agents of the Metropolitan Life Insurance 
Co. have made a practice of executing false ballots. It has also heard 
counsel for the company state that the^ action of these agents was 
entirely without the knowledge of the officials of the company and these 
officials were satisfied that the great body of their agents had not 
engaged in the practice, and that these officials repudiated these 
actions. 

The particular issue has been given a distorted emphasis and signifi- 
cance. The Securities and Exchange Commission has told the com- 
mittee that the evidence as to some false ballots was presented merely 
to illuminate the character of the election machinery. We are ad- 
vised by the Securities and Exchange Commission that the evidence 
as to false ballots was not introduced to show that the practice was 

1409 



1410 CONCENTRATION OF ECONOMIC POWER 

widespread, but simply and solely for the purpose of showing some 
aspects of the procedure of elections. 

The committee quickly recognized that none of these ballots signed 
by the agents affected the outcome of the elections. It was for the 
foregoing reasons that the committee ruled on February 10, 1939, 
that it did not care to hear additional testimony as to ballots in con- 
nection with the election of the Metropolitan Life Insurance Co. 

The Committee, however, takes cognizance of the fact that present 
in this hearing room j^esterday was a delegation of 100 insurance 
agents of that company, and that a representative of that group asked 
to be heard on behalf of 1 ,800 agents and 89 districts of the companj 
in New York City. The committee has asked me to state that rt 
assumes these agents are prepared to testify under oath that they have 
not engaged in any of the practices mentioned in the testimony regard- 
ing false ballots, and that they have no knowledge of the existence of 
any such practice. The committee is of the opinion, however, that 
for the reasons heretofore stated, further evidence of this character 
would constitute an unnecessary burden upon the record of these 
proceedings, and therefore it will not be received. 

Mr. Roth. Mr. Chairman, just' to elaborate on this, am I to 
understand now that this statement is to be so received and recognized, 
and the fact that we agents may not refute the testimony that has 
already been entered in the record? 

The Vice Chairman. The committee has ruled that it is not to 
receive further testimony on this point. 

Mr. Roth. Well, is there any statement that may be made in be- 
half of these 1 ,800 agents and of other agents all over the United States? 

The Vice Chairman. The committee has ruled it is not now to 
receive any additional testimony on this point. I have stated very 
definitely 

Mr. Roth. The statement may be made as to the fact that this 
testimony was not offered, not only by 

The Vice Chairman. I am afraid the committee camiot hear you 
further. I am of course acting under the instruction of the com- 
mittee. I have made a statement with reference to the conclusion 
of the committee with reference to the testimony, which you have 
tendered or which you proposed to tender. 

Senator King. The gentleman ought to remember that this state- 
ment which has just been read by Judge Sumners states that the 
committee takes cognizance of the fact that you are here and a 
hundred agents are here, and that it is assumed that they would testify 
as indicated in the statement. 

Mr. Roth. Yes. 

Senator King. Not ©"nly the hundred agents that are here but any 
one of the body of 1,800 agents and of thousands of agents all over the 
country would be so willing to testify. 

The Vice Chairman. We have a pretty comprehensive statement, 
we think, to the effect that the committee, as Senator King says, will 
take cognizance of the fact that jou gentlemen here are prepared to 
testify that you have not engaged in this practice, and are not familiar 
with the practice, but the committee has decided, as we have an- 
nounced, and I am afraid I cannot continue the colloquy. 



CONCENTRATION OF ECONOMIC POWER I4II 

Mr. Roth. Just one point, Mr. Chairman, that this committee, 
then, has not received testimony as being binding upon all other agents. 
It was just binding upon those agents who gave that testimony. 

The Vice Chairman. The report speaks for itself, and now we 
have to ask you 

Mr. Roth. Allow me to thank the Honorable Chairman of the com- 
mittee and the entire committee. I just want to make one statement 
in reference 

The Vice Chairman. We cannot 

Mr. Roth. Just in reference to yesterday's demonstration. 

The Vice Chairman. There is no difficulty. Now, I want to be 
just as kind lO you as I can be, but you must sit down. 

Mr. Roth. I thank you. 

The Vice Chairman. We are very much obliged to you. 

Mr. Gesell. The next witness this morning is Mr. Follansbee. 

Mr. Ivy B. Estep (president. Association of Industrial Life Agents, 
Philadelphia). I have been sent as another representative in regard 
to that. Am I to take back the word or statement given to Mr. Roth 
is applicable to the agents throughout the country? 

The Vice Chairman. Yes. I am very much obliged to you gentle- 
men and consider that you have been very patient and we have done 
the best we could with 3^ou. We are very much obliged to you. 

Mr. Follansbee, will you solemnly swear the testimony you are 
about to give will be the truth, the whole truth, and nothing but the 
truth, so help you God? 

Mr. Follansbee. I do. 

Mr. Gesell. Before proceeding with the examination of Mr. Fol- 
lansbee this mornmg we are to consider with this witness and other 
witnesses to follow certain transactions entitled "Officers and directors 
not to be pecuniarily interested in transactions," between directors of 
mutual companies and the companies on which they are a director, 
and I thought that the record should show at the outset the provi- 
sions of the New York law, which governs such relationships, and with 
the permission of the committee 1 would like to read that section of 
the law into the record. It is section 36, and it states as follows 
[reading "Exhibit No. 259"]: 

No director or officer of an insurance corporation doing business in this State 
shall receive any money or valuable thing for negotiating, procuring, recommend- 
ing, or aiding in any purchase by or sale to such corporation of any property or 
anj' loan from such corporation, nor be pecuniarily interested either as principal, 
coprincipal, agent, or beneficiary in any such purchase, sale, or loan; nor shall 
the financial obligation of any such director or officer be guaranteed by such cor- 
poration in any capacity. And any such guarantee shall be void, provided that 
nothing herein' contained shall prevent a life-insurance corporation from making 
a loan upon a policy held therein by the borrower not in excess of the net value 
thereof. 

No insurance corporation doing business in this State shall make any loan to 
any of its officers, directors, or trustees, nor shall such officers, directors, or trus- 
tees accept any such loan. Any corporation or person violating any provisions 
of this section shall be guilty of a misdemeanor. 

I have copies of that section. 

The Vice Chairman. Would you put it in the record? 
Mr. Gesell. I would like to offer that for the record. 
(The section of insurance law referred to was marked "Exhibit No. 
259" and appears in full on this page.) 



1412 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF MITCHELL D. FOLLANSBEE, DIRECTOR, 
METROPOLITAN LIFE INSURANCE CO., CHICAGO, ILL. 

TRANSACTIONS OF MITCHELL D. FOLLANSBEE, DIRECTOR, 
METROPOLITAN LIFE 

?vlr. Gesell. Mr. Follansbee, you are a director of the Metropolitan 
Life Insurance Co., are you not? 

Mr. Follansbee. Yes. 

Mr. Gesell. How long have you been a director? 

Mr. Follansbee. Twenty-four years next April. 

Mr. Gesell. You were elected sometime in 1915? 

Mr. Follansbee. I was, at the time the company became a mutual 
one. 

Mr. Gesell. Will you state for the committee the circumstances 
under which you became a member of the board of directors? 

Mr. Follansbee. One of the stockholders of the company who with 
his sister controlled 51 percent of the outstanding stock when the 
Metropolitan was a stock company, was the moving man to mutualize 
the company, and I had known him a long time. Beginning with 
1880 my father was practicing law in Chicago and had been the 
attorney for the company and I had been the attorney up to 1899 in 
the firm of which we were both members, and so he knew me and I 
knew all about the company then and I was well acquainted with 
many officers of the company. He asked me to have leave to propose 
my name to go on the board. He wanted somebody in Chicago. 

Mr. Gesell. You were one of a group of directors who came on 
at this time, were you not? 

Mr. Follansbee. Yes. 

Mr. Gesell. What is your business, Mr. Follansbee? 

Mr. Follansbee. Lawyer. 

Mr. Gesell. With what firm are you associated? 

Mr. Follansbee. Now with Follansbee, Shorey & Schupp. 

Mr. Gesell. You have been in the practice of law in Chicago 
during the entire time that you were director of the company? 

Mr. Follansbee. And before. 

Mr. Gesell. Do you recall an occasion in January 1932, when 
Mr. Samuel Fordyce was nominated for membership on the board of 
directors of the Metropolitan? 

Mr. Follansbee. Yes. 

Mr. Gesell. He also was a lawyer, was he not? 

Mr. Follansbee. Yes. 

Mr. Gesell. Prior to that time he had represented the company 
as a lawyer in St. Louis? 

Mr. Follansbee. He had. 

Mr. Gesell. At the time of his nomination did any question come 
up with respect to whether or not he could serve on the board of 
directors as an attorney and continue to receive fees from the company? 

Mr. Follansbee. I think the company had had an old rule of 
convenience that no director of the company could go on the board — 
could do any law business for the board. That was because a very 
eminent gentleman was pushed off of the board to make room for me 
and my coadventurers, and that was an obsolete rule — it became an 
obsobte rule. 



CONCENTRATION OF ECONOMIC POWER 141Z 

Mr. Gesell. Let me see if I understand. You say there was a 
gentleman who had been taken off the board at the tune you came on. 

Mr. FoLLANSBEE. He was an attorney for the company in New 
York. 

Mr. Gesell. What was his name? 

Mr. Follansbee. Mr, Butcher, 

Mr, Gesell, Mr. Butcher? 

Mr, Follansbee. Yes. 

Mr. Gesell. Had he been representing the company while he was 
a director? 

Mr. Follansbee. I think so when it was a stock company, 

Mr. Gesell. And was it understood that when he went off the 
board and you came on, that no director of the MetropoUtan who was 
also an attorney would represent the company? 

Mr. Follansbee. Well, there was talk to that effect. 

Mr. Gesell. During the period from 1915-32, at the time of the 
nomination of Mr. Fordyce, did you ever represent the company? 

Mr. Follansbee. No; not at all. 

Mr. Gesell. This agreement was in effect as far as you were 
concerned? 

Mr. Follansbee. Well, it was and it was not. 

Mr. Gesell. What do you mean by that? 

Mr. Follansbee. They said it to save Mr. Botcher's feeUngs, and 
that was no principle. I am very famihar with the section you intro- 
duced of the statute, .and I don't think that it applies at all, 

Mr. Gesell. Well, I want to make very clear that I was not sug- 
gesting that that statute appHes to your situation in any way, sir. 
I was putting it in so that the committee would have clearly in mind 
what the statutory limitations are with respect to these matters. 

But now I am interested in knowing whether this agreement or 
understanding was a definite policy of the board of directors or not. 

Mr. Follansbee. No; I don't think so. 

Mr. Gesell. Was that policy mentioned when Mr, Fordyce was 
nominated in 1932? 

Mr. Follansbee. It was not. 

Mr. Gesell. No question came up as to whether or not he could 
contmue to represent the company? 

Mr. Follansbee. No; certainly not. 

Mr. Gesell. Well now, shortly after that you became associated 
as counsel with the Metropolitan, did you not? 

Mr. Follansbee. In Chicago, and our firm became one of the three 
law firms that represented the Metropolitan in Chicago, 

Mr. Gesell. You had asked to receive business for your firm prior 
to 1932, had you not? 

Mr. Follansbee. I think I had, when I got to know them better, 

Mr, Gesell. You had not received any business? 

Mr. Follansbee. No. 

_Mr. Gesell. On May 7, 1932, did you not write Mr. Leroy A. 
Lincoln, the then vice president and general counsel of the company, 
this letter [readmg from "Exhibit No. 260"]: 

When I came on the board a great many years ago, when the company was 
first mutualized, I, or someone else elected at the same time, took the place of 
Mr. Butcher, and Mr. Butcher was told in those days that the policy of the 
company forbade any director to represent, as counsel, the company in any way. 



1414 CONCENTRATION OF ECONOMIC POWER 

That policy was changed, as I understand, and the evidence of the change was 
that my friend, Sam Fordyce, retained his legal representation for the company 
after he became a director. 

The company is apt to have a lot of important real-estate foreclosures in this 
vicinity, and I write to you as general counsel asking you to give our firm, which 
has always had both knowledge and facility in such matters, consideration. 

My father in 1887 brought the business of the Metropolitan to his firm of 
Hoyne, Follansbee & O'Connor. On the dissolution of that firm in 1899, Mr. 
O'Connor, who has been dead almost 9 years, came on to New York and per- 
suaded one of your predecessors in office that ho was the man who had attended 
to the details of your cases. Now Mr. Hoyne is almost 89 years of age and the 
work is done by his partners. I do not want to interfere with his representation 
but I think the above historical statement would tend to make you feel that my 
request that I be counted iu is very reasonable. 

Do you recall writing that letter? 

Mr. Follansbee. I do, 

Mr. Gesell. I wish to offer this letter for the record. 

(The letter referred to was marked "Exhibit No. 260" and is in- 
cluded in the appendix on p. 1558.) 

Senator King. May I inquire, Mr. Chairman, if the purpose of 
this testimony is to show that this Avitness was a director and at the 
same time was acting as attorney? It seems to me we are going a 
long way around to get at a very small issue. 

Mr. Gesell. I think the circumstances under which Mr. Follans- 
bee's firm received the business, the nature of the business done by the 
firm, are all important matters to come before the committee. 

Senator King. I am not commenting on that. Is that the only^ 
point, to show that his firm, while he was one of the directors, received 
business from the company? 

Mr. Gesell. That is correct. He is just one of several witnesses to 
be called for this and other questions with respect to this matter. 

Senator King. Why don't you ask him if his firm, notwithstanding 
le was a director, received business? 

Mr. Gesell. I prefer to develop it in another way. 

Senator King. It seems to me it is an unnecessary consumption of 
time. 

Mr. Gesell. As a result of that letter, Mr. Follansbee, did your 
f rm receive business? 

Mr. Follansbee. It did. 

Mr. Gesell. And it has been receiving business from the company 
ever since. 

Air. Follansbee. For the last 6 or 7 years. 

Mr. Gesell. Am I correct in stating that during that period your 
firm represented the Metropolitan in 1,382 foreclosures for total fees 
amounting to $336,920; in six loan matters for fees amounting to 
$2,025; in six sales matters for fees amounting to SI, 250; and in seven 
miscellaneous cases for additional fees amounting to $18,885, making 
a grand total of $359,080 in business received since the writing of that 
letter? 

Mr. Follansbee. I should say, about $25,000 of that amount was 
paid by the owners of equities, and the otlier part of it was paid by the 
Metropolitan. 

Mr. Gesell. All but about $25,000 of this $359,000 odd was paid 
to your firm by the Metropolitan? Is that correct? 

\\t. Follansbee. Yes; and I nm ]U'0{)arod to defend the reasonable- 
ness of my charges or of our charges, now or at any time. 



CONCENTRATION OF ECONOMIC POWER 1415 

Mr. Gesell. I am quite willing to state for the record that there is 
no effort on my part to show that the fees were not earned, Mr. 
Follansbee. 

Now 3^ou are in regular attendance at the meetings of the board of 
directors of the Metropolitan, are you not? 

Mr. Follansbee. In very regular attendance. 

Mr. Gesell. You have one of the best attendance records of anyone 
on the board, have you not? 

Mr. Follansbee. I know all of the people who are officers of the 
Metropolitan and I have a sentimental interest in it. I have attended 
all the meetings that I could attend. 

Senator King. Are you the only representative on the board from 
Chicago? 

Mr. Follansbee. Yes; and have always been. 

Mr. Gesell. Now, Mr. Follansbee, at these meetings of the board 
of directors was the board called upon to consider whether or not it 
would approve these fees to your firm? 

Mr. Follansbee. Under the laws of the State of New York or the 
regulations of the insurance department, all firms or officers or probate 
firms or any others who are going to receive upwards of $5,000 in 
any calendar year must be reported to the board, and thej^ knew it 
from the start. These days, if we send in $5,000 worth of bills, they 
are especially approved by the board^every $5,000 at a time. 

Mr. Gesell. I have before me the minutes of the regular monthly 
meeting of the board of directors of the Metropolitan held at the 
home office of the company on January 26, 1937. These minutes 
record you as being one of the directors present, and I notice that on 
that occasion, on motion the board authorized payment of bills for 
legal services approved by the officers w^hich in the aggregate exceeded 
$5,000 for the year 1937, and included among these fees was a fee to 
your firm. 

Mr. Follansbee. Yes. 

Mr. Gesell. Did you participate in those discussions and vote in 
favor of the fees to your firm? 

Mr. Follansbee. I wag always very careful not to. I never voted 
for any fees of my own. Eemember, I am a lawyer and I have some 
experience in teaching legal ethics. 

Mr. Gesell. Well now, I ^vill show you the copy of the minutes 
and ask you whether they record your withdrawal from these dis- 
cussions or the fact that you did not vote. 

Mr. Follansbee. We never withdraw, but I ne\ er voted on any 
question of my own fees, I am sure. 

Mr. Gesell. The minutes do not record that you did not vote or 
that 3^ou withdrew from the room. 

Mr. Follansbee. Well, the Metropolitan has a very long agenda 
and those minutes are true minutes, but they don't record the fact 
that I was silent or did a thing like withdrawing from the room. 

Mr. Gesell. I was just wondering, Mr. Follansbee, whether your 
very presence in the board room when these fees were approved did 
not put your colleagues in a very embarrassing position, if they did 
not think the fees were justified. 

Mr. Follansbee. I don't think it did. They all know that we 
did work for not more than our two other firms would charge, and 



][416 CONCENTRATION OF ECONOMIC POWER 

they had a certain faith in me from a long and intimate acquaintance 
so that they couldn't have thought an;;^ such thing. 

Mr. Gesell. Now may I ask you this: Did this increase of business 
for your firm, over 1,000 foreclosure actions, oblige you to increase 
the personnel of the staff of your firm in any way? 

Mr. FoLLANSBEE. It did. We took on two young men and four 
young women, and more space. 

Mr. Gesell. Did you attend to this business j^ourself ? 

Mr. FoLLANSBEE. I did to this extent. The company had 
$200,000,000 worth of mortgages in Chicago when the disaster came 
along and I was told to be very lenient, as far as I could, and I talked 
to every equity holder about his obligation, and many times persuaded 
him to make up the delinquencies or I got a delay of a few months for 
him, and I am responsible for the contact of all those cases. Many 
times we did not charge anything; in many instances we charged him 
a very minor fee. 

Mr. Gesell. You are a partner of the firm, are you not? 

Mr. FoLLANSBEE. Yes. 

Mr. Gesell. And have an interest in its profits? 

Mr. FoLLANSBEE. Ycs, if any. 

Mr. Gesell. Can you tell me, Mr. Follansbee, whether your 
business exceeded the business which was given by the Metropolitan 
to the firm which had been regularly handling it prior to your letter 
in 1932? 

Mr. Follansbee. I don't know. 

Mr. Gesell. Do you know whether it was in excess or below? 

Mr. Follansbee. I don't really know. All foreclosures are a 
matter of record in our daily law bulletin in Chicago, and I think we 
ran about even. 

Mr. Gesell. Do you not know that your firm received more fees 
than Hoyne, O'Connor & Rubicam during this period? 

Mr. Follansbee. I don't know that. 

Mr. Gesell. I have no further questions of this witness. 

Senator King. That is all so far as I am concerned. 

Mr. Follansbee. I practiced law as attorney for the Metropolitan 
until 1899, and I did not come on the board until 1915. 

The Vice Chairman. Thank you very much, Mr. Follansbee. 

Mr. Follansbee. I shall be very happy to defend my charges. 

Mr. Gesell. The next witness is Mr. Thomas A. Buckner. 

The Vice Chairman. Mr. Buckner, have a^ou been sworn? 

Mr. Buckner. No, sir. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Buckner. I do. 



CONCENTRATION OF ECONOMIC POWER 1417 

TESTIMONY OF THOMAS A. BUCKNER, CHAIRMAN OF THE BOARD, 
NEW YORK LIFE INSURANCE CO., NEW YORK, N. Y. 

GROWTH OF NEW YORK LIFE — SELECTION AND ATTENDANCE OP 
DIRECTORS 

Mr. Gesell. What is your full name, please? 

Mr. BucKNER. Thomas A. Buckner. 

Mr. Gesell. You are cliaimian of the board of the New York Life 
Insurance Co., are you not? 

Mr. BucKNER. I am. 

Mr. Gesell. How many years have you been associated with that 
company, Mr. Buckner? 

Mr. BucKNER. Fifty-nine years this coming April. 

Mr. Gesell. How long have you been chairman of the board? 

Mr. Buckner. About 2 years, a little over. 

(Senator King assumed the Chair.) 

Mr. Gesell. Prior to that time, you were president of the company? 

Mr. Buckner. President, elected in 1931. 

Mr. Gesell. Will you give the committee some idea of the size 
and growth of your company and the type of insurance and business 
in which it is engaged? 

Mr. Buckner. We are engaged exclusively, of course, in the hfe 
insurance business, and we do only one class of life insurance, the 
ordinary, what is known as the ordinary insurance. I assume that 
I may be permitted to speak of the growth in a consecutive way. 
My experience with the company, of course — covering as it does my 
service with the company, nearly 59 years — covers essentially the 
entire growth of the company. When I entered the company's serv- 
ice the assets were under 40 millions, the insurance in force something 
over 100 milhons. Today the assets of the company are $2,000,000,900 
and the insurance in force is something under $7,000,000,000. 

With all modesty I would say tliat myself and my brothers, who 
entered the service at practically the same time, have contributed 
quite a part in the growth of the New York Life Insurance Co. 

Mr. Gesell. What did you say the admitted assets were at the 
present time, sir?- 

Mr. Buckner. Two billion— just a little bit under $2,700,000,000. 

Acting Chairman King. $2,600,000,000, you stated. 

Mr. Buckner. A httle less than $7,000,000,000 of insurance in 
force. Did I? I am sorry, I never had any head for figures. 

I would like to say, if you will permit me, a little as to the back- 
ground concerning the development and growth of the New York 
Life Insurance Co. My father v.as the manager of the company at 
Milwaukee, Wis., in 1879. He took myself and two brothers into the 
office one at a time, serially, so to speak, in the service of the company 
as oflice bo.ys, developing us along the line, for a few years, of exper- 
ience. Following that, I went out in the field as an agent in the State 
of Iowa, and I began my contribution toward the growth of the New 
York Life. My younger brother, a little later, went into Minnesota 
and North Dakota, and contributed his share in the growth of the 
New York Life, small as it might have been in those days. 



1418 CONCENTRATION OF ECONOMIC POWER 

My older brother remained in Milwaukee, continuing there as 
the head of the company's business, the production end of the business, 
for a little over 40 years. 

Acting Chairman King. Milwaukee was the headquarters of the 
office? 

Mr. BucKNER. At that time it was the headquarters; and upon 
the end of his service there he retired from active business. 

My younger brother handled tlie production end of the business as 
he developed into manhood in the Northwest, the near Northwest, 
while I v/ent into the Southwest. Later my brother was transferred 
to Paris, where he had charge of the European business of the com- 
pany, and was subsequently made a vice president.- He spent 10 
years there in developing foreign business very successfully, and tlien 
Ihe war came on, and with the aftermath of currency debasement and 
entanglements resulting from the war, we considered it wise to 
liquidate the foreign business, which my brother spent the next 10 
j^ears in doing, and very successfully. 

On my part I was eventually in Chicago. On the birth of my son 
I decided that he should likewise follow in the insurance business 
after he went through school. He finally went to Vale and about 20 
years ago 'my prececessor took him into the home office as a clerk, 
and he has been there for 20 years. Now that is a iittle background 
that I am giving because beginning in 1880 the development in New 
York Life started. I had charge of all the American business after 
T became fourth vice president of the company in 1900. My brother 
had charge of the European business, I mean the production end. 

Mr. Gesell. By production you mean the writing of insurance 
policies? 

Mr. BucKNER. Writing of new business, and so we of course have 
played somewhat a large part in the growth of the company. The 
growth of the company from 1880 on was just a moderate growth, 
such as a life-insurance company naturally has, until 1893 when the 
company got out a new policy form, very much more liberal to the 
policyholder; incidentally it extended all the benefits to the old 
policyholders, a policy containing loan privileges, and reinstatement 
privileges, and days of grace, and so forth and so on. That gave a 
great impetus to the business from 1893 on up to 1906; we grew 
rather rapidly. In the investigation of 1905 of course we got pretty 
hard hit, the agents did, and then the laws of 1906 which became 
effective, as I recall it, Mr. Chairman, on January 1, 1907. Those 
laws contained restrictions in most every direction, and I would like 
to say now wise restrictions with the exception of stunting the growth 
of companies. 

Mr. Hughes, then Governor of the State, still Governor of the State 
in 1910, realized this and approved an amendment to the limita- 
tion of new business, permitting growth, and as the result of that 
amendment we began to grow, from 1910 on until the war came along. 
Then we had several new factors en-ter into life insurance, notably 
the advent of women into the economic life of the country, hito 
business. We had a very small percentage of women, for illustration, 
in our home office in 1906; I should say less than 10 percent of our 
clerical force; while toda}^ out of 4,500 employees I am quite sure we 
have over two-thirds women. Thcj have gone into wage earning 
and of course they naturally took out life insurance with their earnings 



CONCENTRATION OF ECONOMIC POWER 14;[9 

as a protection to those whom they were helping to support, and 
particularly as a savings for old aee and for the purpose of buying 
annuities in old age. 

Acting Chairman King. If I may interrupt, my recollection is that 
the women of the United States have policies now greatly in excess of 
the lumber held by men, going into some twenty or thirty millions of 
policies? 

Mi Buckner. That just illustrates my point. That has accel- 
erateti quite a bit of new business, and of course it is a new business 
that increases insurance in force. Insurance in force means increased 
assets. The another element came in. A large part of the people had 
been considered by life insurance companies as impaired risks, not 
insurable. Our actuaries and medical department had, some years 
prior to 1906, developed a plan to cover the impairment and grant 
insurance to these impaired risks, but the coverage was not satis- 
factory. It was based on a wrong theory, that is an unpopular theory, 
of putting liens on the policy, so that if a man died in the first year lus 
wife would not get much; if he died in the fifth year she would get 
more, and so on the hens ran. However, that was not popular, and 
after 1906 the actuaries of the company devised a new method of 
meeting the impairment with very satisfactory results, which brought 
to these people a practical way of getting insurance without feelmg 
that the family would get less than the face of the policy. That was 
a system of advancing the age of the insured to meet the impair- 
ment. For example: if an impaired risk 35 years old had a calcu- 
lated life expectancy equal to that of a good risk 40 years old we 
insured him at the rate of age 40, and that way covered the hazard. 

That added materially to our new production and the prosperity 
of the company, and the company grew fauly fast after'1910, I would 
say, when the limits were off. Let me say, the hmitation bOl was 
amended to permit growth based on economy of management, and 
that is the economy of management which Mr. Hughes thought was 
the prime purpose, and if the company were able to keep its expenses of 
procuring business within the amount allowed by law, then they should 
be allowed a certain percentage of growth, based on those ratios. 

Acting Chairman King. Is that a present law in New York State? 

Mr. Buckner. Yes; that is a present law. It has been somewhat 
enlarged by taking a little different category of expenses into 

Mr. Gesell (interposing). There is a different limitation on costs. 

Mr. Buckner. Yes, sir; and if we stay within it percentage of 
growth is permitted. 

Then the war came on and gave us what we thought was going 
to be a back-set, but on the contrary the war popularized life insur- 
ance as no number of agents could ever have done. The Govern- 
ment of the United States did it in putting out, in establishing, the 
War Risk Bureau. There the Government, quite properly, insured 
the soldiers and the sailors, but they put a valuation on the life of men, 
young men without training, either mental training perhaps or any 
business experience. They put a valuation of $10,000 on that Hfe, 
and he was urged to take this $10,000 insurance. That, of course, 
went all over the United States. The father of the boy, with perhaps 
a wife and other children to support, said, "WeU, if my boy is going 
to carry $10,000 insurance for my protection, I am totally uninsured, 
or rather underinsured." It gave a great impetus to the business. 



1420 CONCENTRATION OF ECONOMIC POWER 

Following that came the influenza epidemic. That frightened the 
people of the country mto a realization of the uncertainties of life as no 
amount of ordinary argument could ever do. That gave life insurance 
a great impetus, and added to those other factors. The business grew 
very rapidly in the twenties. I think it was something like 2 billions of 
insurance we had in force in 1910 or thereabouts, and the business ran 
up to over 7 billions during the twenties. Then growth stopped dur- 
ing the depression. As a matter of fact, the factor that governs 
growth, the yardstick factor, is the insurance in force. Assets may 
continue to grow for a time, diminishing in growth after the insurance 
in force becomes static, but eventually it is bound to get down to the 
level of that insurance in force as the ages of policies become an aver- 
age age. 

Mr. Gesell. You mean by that, Mr. Buckner, that if you want a 
barometer from day to day of whether a company is growing, it is 
best to look at the insurance in force from day to day because the 
assets are always catching up with the insurance in force. 

Mr. Buckner. Exactly. I would like to say that our insurance in 
force December 31, 1928, was 7,000,000,000—1 think I have it here 
but if I haven't I will give it approximately — it was 7,266,000,000, in 
our company and at the end of 1938, that is bringing it right down 
to date — after 10 years our insurance in force is $6,793,000,000 so 
that we have $472,000,000 less insurance in force after 10 years from 
the high-water mark — it got a little liigher in '30 but I am taking the 
10-year period, in which there is a reduction. We have been standing 
still on the insurance account during the depression. 

Mr. Gesell. May I ask whether during this period, Mr. Buckner, 
your company has made a concerted eft'ort to write even your busi- 



Mr. Buckner (interposing). We have never ceased to do that. If 
you will permit me, I would like to finish up a little bit. 

Mr. Gesell. I am sorry. I thought you were through. 

Mr. Buckner. While the insurance in force has not increased, 
the assets on the insurance account, if no other factors are involved, 
would be only two or three — let's see if I am right — a couple of hundred 
millions, two or three hundred millions more at the end of 1938 than 
it was at the end of 1928. But there were other elements which en- 
tered into it, unexpectedly I may say, to increase assets and not 
increase insurance in force. 

Mr. Gesell. Do I take it, then, that your assets have increased 
since 1928 though your insurance in force has not? 

Mr. Buckner. That is it, though now the increase has been quite 
large to ^ 

Mr. Gesell (interposing). What has been the increase? 

Mr. Buckner. That I haven't the figures on, but it has been very 
substantial. I should say probably a billion dollars. 

Mr. Gesell. About a billion dollars. 

Mr. Buckner. That is just an approximation. I really don't have 
the figures in my head 

Now, the trend that brought the assets to growing way beyond what 
would be expected when the insurance stands still was the great confi- 
dence that the people of the country seemed to acquire in the life- 
insurance companies when their confidence had been shaken through 
the disasters, financial disasters and losses, stock-exchange securities, 



CONCENTRATION OF ECONOMIC POWER 1421 

and so forth and they began to turn their money toward us. One 
pomt was, people began to pay their premiums in advance, not one 
year in advance but years, on a discount basis. They would discount 
their premiums for 10 years in advance. They were afraid to put it 
anywhere else. 

Mr. Gesell. You became more and more in the banking business. 
Mr. BucKNER. I am sorry to say it has that aspect, but that was 
an option and that was a privilege they had. 

Then people, whose dividends were usable to reduce their annual 
premiums as they fell due, .paid the premiums in full and began 
to leave the dividends with the company as they had a right to do 
under the policy contract, 

Mr. Gesell. So with respect to those 

Mr. BucKNER (interposing). One hundred millions of dividends are 
now left with the company. 

Mr. Gesell. So in a sense your company is really an investment 
trust for that hundreds of millions of dollars? 

Mr. BucKNER. Well, if you want to construe it — that is probably 
a part of the picture of life insurance companies. As Governor 
Hughes said in an address, it is not only a protection but it is an outlet 
for the thrift of the people, for savings for themselves in old age or for 
their families or for annuities, and so forth. 

Then a bigger tide than that struck us and that was the purchase of 
annuities. Of course, we are in the business to sell annuities and life 
insurance. The reserve for annuities at the start of this period was — 
well, in 1905 we had a reserve to meet all annuities that had not been 
liquidated up to that date, all that had ever been taken with the com- 
pany, of $16,000,000. In 1928 we held 47 miUions as a reserve for 
annuities. Then the troubles came and — they may be due to the 
great confidence in insurance — ^and we are not alone; every company 
has the same story: At the end of 1938, the 47 millions of 1928 had 
risen to three hundred fourteen odd millions as reserve on annuities. 

Mr. Gesell. It would be safe to say, wouldn't it, that some of the 
previous charts we had here indicatuig that the insurance companies 
were taking more and more of the public savings were correct and that 
in recent years there has been an increasing turn of the people to the 
insurance companies? ' 

Mr. Buckner. I don't exactly like your phraseology of taking 

Mr. Gesell (interposing). Receiving, I should say. 
Mr. Buckner. We are just about in the same business in that 
respect that the United States Government is in, and all praise to 
the Government for the baby bond. 

Mr. Gesell. Yet the people are coming with money to you. 
Mr. Buckner. The people are saving the money that they earn, 
and, mind you, these are the small people; the big people don't cut 
much figure in the life-insurance game. Our average policy is only 
$2,400. It is the little fellow with the small savings he is accumulating 
with a life-insurance policy to protect his family and at the same time 
to save his money for his old age. 

Mr. Gesell. May I ask, your company is now, in terms of insurance 
in force, the second or third largest? 

Mr. Buckner. Well, we do one class of business. I should say if 
you eliminate the group insurance and industrial insurance, we would 

» See "Exhibit No. 221", supra, p. 1189. 



1422 CONCENTRATION OF ECONOMIC POWER 

still be third. I mean to say that I think we would be third, even on 
ordinary business; the Metropolitan and Prudential being the larger. 

Mr. Gesell. You have never written any industrial insurance? 

Mr. BucKNER. No. 

Mr. Gesell. Why is that? 

Mr. BucKNER. Well, to be frank with you, from time to time, not 
in the last 10 years, 15 years, perhaps, but even when I was vice 
president, we had talks about it, but we concluded the field was well 
covered and ably covered and there was no room for additional com- 
petition in that field. It is the kind of .business in which you cannot 
get a whole lot of people; if life insurance could take a square block in 
New York and each company going up to these people to insure 
them 

Mr. Gesell. Why not? That is what is happening m the ordmary 
field. . 

Mr. BucKNER. The ordinary field is as wide as the poles; this other 
is limited and concentrated. I don't know anything about the 
business, to tell you the truth. That is one reason why I objected, 
because I did not know anything about it. But we concluded that 
that business was well covered, plenty of coverage, and very ably 
done by people who knew about it, knew how to handle it, and made a 
study of it. We knew nothing; we stayed out. 

Acting Chairman King. You speciaHzed in the ordinary fife? 

Mr. BucKNER. We stuck to the straight and narrow path of insuring 
individuals, one at a time, on their own merits and own apphcations. 

Acting Chairman King. You think you have made a success along 
that line? 

Mr. BucKNER. I don't know; some people think so. 

Mr. Gesell. Do you think this growth of your company which 
you described has been in the interest of the policyholders? 

Mr. BucKNER. Why, certainly it has been in the interest of the 
people who insure. 

Mr. Gesell. I don't mean the new people who come in. 

Mr. Buckner, They all came in and whether one class came last 
year and another class came before and the doors are open for the 
class of 1939 

Mr, Gesell. Let me put it this way, so you wUl understand what 
I have in mind. Do you feel that the cost of insurance in your com- 
pany has decreased as the amount of the insurance in force has in- 
creased? 

Mr. Buckner. I think you are moving into a realm where no ordi- 
nary lay life insurance man would dare to intrude. 

Mr. Gesell. You are not a layman in the life insurance business, 
are you? 

Mr. Buckner. The cost of life insurance involves so many ques- 
tions that it would take an actuary, and a mighty good one, to finally 
get down to tell what jou mean by cost. 

Mr. Gesell. Let me 

Mr. Buckner. Now, I would say this, if you don't mind 

Mr. Gesell. Certainly. 

Mr. Buckner. By and large, and I think all the books will show, 
and that is about the only way I find out,- the New York Life dividends 
average well up toward the front. I don't claim that we are top, 
No. 1, on all counts; we are No. 1 on some and No. 2 on others, and 



CONCENTRATION OF ECONOMIC POWER 1423 

No. 3 on others. I want to get this in full. Pardon me, because 
this matter of cost in msurance has been a debatable question that 
goes around the ring from one January 1 to December 31, from all 
life-insurance agents in the country, but I want to make this point 
clear. The mutual life insurance companies are the factor that keep 
down the cost on stock companies as well as the mutual companies. 
In other words, they are the bulwark: stock companies have to meet 
the issue or go out of business. 

Mr. Gesell. Let us see if I understand you on that. If a stock 
company is selling insurance there is the danger that the proprietary 
interest will draw off to themselves such amount of profit that the 
insurance to the policyholder will become higher and higher and tho 
thing which prevents that from happening in some stock companies is 
the fact that 

Mr. BucKNER. Well, I am speaking not in particular, but by and 
large. 

Mr. Gesell. The thing that prevents — — 

Mr. BucKNER. They are paying just wliat insurance costs them. 

Mr. Gesell. Now coming back to my other question, I do not want 
to leave it. It would appear to me to be of prune importance in the 
operation of your business to determine whether your policyholders 
are getting cheaper insurance as the company gets larger because if 
that is not the fact it would be against the whole conception of 
mutuality for the company to grow, would it not? 

Mr. BucKNER. I don't think so. I think a company is a group of 
men, and women now, who have banded themselves together for 
mutual protection to insure each other's life at the lowest cost they 
can, but I do not think there should be any limitation. 

Well, to be frank with you, you could never see it as I do, Mr. 
Counsellor, because I look upon life insurance as the greatest bene- 
factor of humanity, next to religion; so that regardless of cost I would 
say that all who will may come into the New York Life and receive 
the protection of the company. 

Mr. Gesell. Yes, but coming to this later prosaic accounting side 
of it, your obligation in running a mutual company is to provide the 
cheapest possible insurance to the policyholders whom you have at 
any given- tin^e? 

Mr. Buckner. I would not say that. 

Mr. Gesell. You feel you have an obhgation? 

Mr. Buckner. I think there is a paramount obligation and it is 
absolute safety and security. 

Mr. Gesell. But assuming 

Mr. Buckner. You assume a good deal, but that is a matter of 
judgment. 

Mr. Gesell. We have assumed here that the policyholders are 
amply protected. 

Realizing that fact, isn't it essential that your company give the 
cheapest possible insurance to the policyholders at any given time? 

Mr. Buckner. That would be our ambition, first having been sure 
that the company is secure beyond peradventure. 

Mr. Gesell. Now, let us take in 1921, your company had so many 
policyholders, a certain amount of insurance in force. At that time 
you were actively interested in getting new business, new policy- 
holders into the company. Did you consider whether bringing in 

124491— 39— pt. 4 18 



1424 CONCENTRATION OF ECONOMIC POWER 

those new policyholders would increase or diminish the cost of the 
insurance to the policyholders to whom you had the obligation at 
that time? 

Mr. BucKNER. We did not because it is self-evident that the 
gathering of new policies does not increase the cost of insurance to the 
old policies. 

Mr. Gesell. Has your company made studies of that? 

Mr. BucKNER. Oh, yes; I am sure they have. 

Mr. Gesell. We have had the question up before. Would you 
provide us at some convenient time later on with such studies as you 
have made, showing the increase or decrease of cost of insurance as 
your company has grown? 

Mr. Buckner. Our actuary has some figures right now. 

Acting Chairman King. We had better conclude with this witness. 

Mr. Buckner. Well, we will furnish you with all the information 
we have and if we do not give you all you want, ask us for more. 

Mr. Gesell. Your studies show it has become cheaper as your 
company has grown? 

Mr. Buckner. I did not say that. I said the gathering of the new 
crop of business, an annual crop of new business, does not increase 
the cost of insurance to the old group. There is a distinction there, 
you see. 

Mr. Gesell. Does it become more expensive to the policyholder, 
taking the over-all picture, as the company increases its size? 

Mr. Buckner. Does it become more expensive? No; I said the 
new business does not add to the cost of old policyholders. 

Mr. Gesell. That is the acquisition of it? 

Mr. Buckner. Well, of course the general expense of the com- 
pany I would think would naturally decrease somewhat, slightly, by 
the enlargement of the business. That may not be so, but it ought 
to; but so many new elements have entered into this picture in 
the last 10 years that all calculations have to be revised. Losses have 
been sustained; there is immense expense now in connection with 
real-estate transactions, handling of property, and the diflEiculties in 
the mortgage loan field. Those elements did not exist 20 years ago. 

Mr. Gesell. So it is difficult to make a comparison of your figures 
now with your figures in 1920? 

Mr. Buckner. Yes. 

Acting Chairman King. Could I interrupt you? You made a 
statement which it seems to me deserves a little further elaboration, 
with which, if I understood you, I concur, namely that the paramount 
consideration is security? 

Mr. Buckner. That is right. 

Acting Chairman King. I suppose the funds which you accumu- 
late, your premiums, you must invest in order to secure some returns? 

Mr. Buckner (nodding his head). 

Acting Chairman King. And your investments are not always, 
no matter the care that you bestow upon them, successful? 

Mr. Buckner. True. 

Acting Chairman King. You have to take into account the loss or 
the decline in the values of real estate; you have to take into account 
the rise and fall in the business cycle, numerous business cycles; you 
have to take into account the possibility of conflict with other nations, 
and the effect which such a conflict would have upon security values, 



CONCENTRATION OF ECONOMIC POWER 1425 

whether the values consist of real estate or stock or bonds, and so 
on, so that in determining your premium it seems to me, as you have 
indicated, you have to consider the question of security, and in 
determining that, with all of the uncertain factors in life, our economic 
uncertainty, our pohtical uncertainty, you have to have a very large 
measure of safety in determining what 5^our security should be, and 
what your assets should be, and what your reserve should be. 
"■ Mr. BucKNER. Senator, you have stated it much better than I 
could. 

Acting Chairman King. Very imperfectly. 

Representative Reece. May I make just another observation. 
As one member, I readily agree that security is an essential feature, 
but I wouldn't want, myself, to admit that it was a param.ount feature 
over and above all other considerations that enter into or bear upon 
the scheme of life insurance, because in placing certain restrictions, 
security can be had, but it might be at a cost that would make it an 
an undesirable adventure. 

Acting Chairman King. You wouldn't want to buy a poUcy for 
$100,000 in a corporation that you didn't believe had ample security 
and ample reserves in order to protect your family when you died. 

Representative Reece. I said, Senator, that it was an essential 
feature. 

Mr. Buckner. Then you wouldn't like it very much if we in the 
meantime, just to make you feel very happy, reduced the cost of your 
insurance by increasing your dividends, against our better judgment, 
and then in the evil day told you that we would have to scale your 
policy down 50 percent? 

Mr. Gesell. Let me get at it this way, Mr. Buckner. Do you 
think your policyholders are any safer now that you hfive over 2 
billion dollars' worth of assets than they were when you had only 1 
bilUon worth of assets? Size doesn't relate to security because you 
have these reserves, is that not correct? 

Mr. Buckner. We have the reserves, and we are continually 
strengthening the reserves even at the expense of cost of the insurance. 
The conditions today, if I may say so, are different from anything in 
my 59 years of experience that I have ever known. I have known 
money panics when you couldn't get your money out of the bank, and 
I have known of panics of that kind, but cever an economic depression 
such as this that affected everything. Life insurance companies have 
suffered in this depression as well as the individuals. 

Representative Reece. Some people now even feel that the banks 
are placing too great a premium upon security and overlooking the 
possibilities of service, and thereby promoting the interests of not 
only their chents but of the business interests of the country generally. 

Mr. Buckner. I am not a banker, I wouldn't be able to speak on 
that line. 

Representative Reece. I only made that observation because you 
referred to banks. 

Mr. Gesell. We can come back to this question when we have had 
a chance to examine the figures we have talked about. 

Turning now to the composition of your board of directors, is tfcls 
schedule which I show you a correct statement of the members of the 
board of directors at the present time? 

Acting Chairman King. How many are there? 



1426 CONCENTRATION OF ECONOMIC POWER 

Mr. BucKNER. Twenty-four, Senator. Yes, sir; I see no name 
getting in there that doesn't properly belong there. 

Mr. Gesell. I would like to offer this schedule. 

Acting Chairman King. It may be received. 

(The schedule Teferred to was marked "Exhibit No. 261" and is 
included in the appendix on p. 1558.) 

Mr. Gesell. I would also Uke to offer for the record at the present 
time a schedule showing the various business affiliations of the direc- 
tors of the New York Life Insurance Co. This schedule has been 
prepared from data submitted to us by the company and is offered 
subject to the usual qualification that if there are any corrections 
which are necessary, they can be made. 

I might say that the schedule reflects, among other things, that the 
directors of the New York Life Insurance Co. at the present time are 
also directors of 20 banks and trust companies ; 44 industrial companies 

I Ufe-insurance company; 3 casualty and surety companies; 14 fire- 
and marine-insurance companies; 7 mercantile companies, such as 
department stores; 1 publishing company; 8 real-estate ventures; 

II railroads; 5 steamship lines and related ventures; 7 utilities; and 
10 miscellaneous companies; a total, if my figures are right, of 131 
different companies. 

Mr. Buckner. Of course, you don't mean all of our board are on 
these? 

Mr. Gesell. Not on all of them. 

Mr. Buckner. I think the majority of our directors are not on any- 
thing, in any industry. You took that from our statement? 

Mr. Gesell. That has been prepared from the statements you sub- 
mitted, sir. 

(The schedule referred to was marked "Exhibit No. 262" and is in- 
cluded in the appendix on p. 1558.) 

Mr. Gesell. Your board is constituted of twenty-four — ■ — • 

Mr. Buckner (interposing). Twenty-four elected directors, and the 
president is chosen by the board of directors as ex officio a member. 

Acting Chairman King. May he be outside of the board? 

Mr. Buckner. Yes; he is not necessarily one of the directors. He 
becomes a member of the board ex officio. 

Mr. Gesell. Does your board have a good or bad attendance record, 
Mr. Buckner? 

Mr. Buckner. I never had a chance to compare it with any other 
institution. I would say, however, that in my opinion they attend to 
business very well indeed, unusually well from what I would expect. 

Mr. Gesell. You have a rather high number of directors in attend- 
ance at each meeting? 

Mr. Buckner. I think the batting average is about 75 percent, if I 
am not mistaken. 

Acting Chairman KitTg. Do you have subcommittees? 

Mr. Buckner. Oh, yes; standing committees. 

Acting Chairman King. To whom or to which would be allotted 
special work? 

Mr. Buckner. They do the work. Every director is on a standing 
committee. 

Mr. Gesell. Has your company any working rule with respect to 
this matter of attendance? In other words, do you as chairman of the 
board, or does the board as a whole insist upon a director giving a valid 
excuse for any continued absence? 



CONCENTRATION OF ECONOMIC POWER 1427 

Mr. BucKNEK. He always gives an excuse and tells us why he is 
unable to attend the board meeting, although nobody made any rule 
on it. 

Mr. Gesell. You don't find, then, that some of your directors are 
such busy men that they are unable to attend to the affairs of the 
company? 

Mr. BucKNER. I don't think any of them ever stay away for that 
reason. The absences are due to illness or to vacations, fishing trips, 
hunting trips, travel around the world, and so forth. 

Mr. Gesell. Some of those are valid excuses. 

Mr. Buckner. I never heard of a director being excused on account 
of business. One of our directors is sitting next to me; sometimes he 
might have had a case in court and he couldn't quit, but I don't know, 

Mr. Gesell. How are these directors selected? 

Mr. Buckner. Well, of course you know that one-third of the 
board, eight directors, are elected -annually, at an annual election 
the second Wednesday of April of every year. 

Mr. Gesell. Mr. Judson has described to us that procedure. 

Mr. Buckner. And he told you about the mechanics. Eight of 
them are elected that way. That is compulsory under the law. 

The vacancies that occur hj death or resignation in the interiin of 
an election, or on the part of a man whose term does not expire, who 
may not be elected on that account, they are seletted by a nominating 
committee of directors of which I, as the chairman of the board, and 
the president, are ex officio members, as we are of all committees. 
Names are suggested to us by just anybody. W^e will be very glad 
to have a recommendation from any United States Senator or any- 
body. I wouldn't ignore the House, either. 

They are suggested by friends of the company, sometimes by agents 
of the company; usually, however, by directors of the company, in- 
cluding myself, and the various names that are suggested are con- 
sidered. 

Mr. Gesell. Are they considered by the full board or are they 
considered by this nominating committee? 

Mr. Buckner. They are considered by the nominating committee. 

Mr. Gesell. And the nominating committee, having made its 
decision, presents its recommendations for a single individual to the 
board. 

Mr. Buckner. Any member of the board can nominate somebody 
else. 

Mr. Gesell. As a practical matter 

Mr. Buckner (interposing). It never has happened. 

Mr. Gesell. It never has happened, and usually what has hap- 
pened is that this individual who is designated or chosen by the 
nominating committee is appointed to fill the vacancy. 

Mr. Buckner. I never knew the board to refuse to elect him. 

Mr. Gesell. Must your directors be policyholders? 

Mr. Buckner. No; there is nothing in our bylaws thc*t requires 
that, and there are 6 directors who are not policyholders out of the 24. 

Mr. Gesell. Do you try 

Mr. Buckner (interposing). Let me say they are all uninsurable. 
They would be. I could write a policy on their lives any minute. 

Mr, Gesell. These six men want to become policyholders and 
can't? 



1428 CONCENTRATION OF ECONOMIC POWER 

Mr. BucKNER. They would gladly take insurance. Several of 
them are beyond the age limit. 

Mr. Gesell. Do you attempt to have some geographical represen- 
tation on the board? 

Mr. BucKNER. Yes; we do. 

Mr. Gesell. Tell us about that. 

Mr. BucKNER. Under the law, of course, you know, we are required 
to have a majority of the board residents of the State of New York. 
For safety's sake we try to have a couple of extras in New York State, 
because you never know when a director is going to move over to 
Jersey or going to move to Connecticut, suburbs of New York. That 
has happened. Then the residue of the board we try to select with a 
view to the centers of, you might say, our policyholders, central 
points in a zone; we don't have any prescribed zones; I don't mean 
to give that impression, but who are fairly representative of the 
policyholders in a section of the coimtry. 

Mr. Gesell. You mean by "representative of the policyholders" 
a man who has established a reputation in some community? 

Mr. BucKNER. Reputation. We try to select men of national 
reputation because we are naturally doing a national business. 

Actmg Chairman King. I don't want to interrupt, but will you con- 
clude with this witness shortly? If not, I shall take an adjournment. 

Mr. Gesell. I think we had best adjourn, for I think we shall have 
to continue this afternoon. 

Acting Chairman King. We will take a recess until 2:30. 

(Whereupon, at 12:20 p. m., a recess was taken until 2:30 p. m., 
of the same day.) 

AFTERNOON SESSION 

The committee resumed at 2:40 p. m., on the expiration of the recess. 
The Vice Chairman. The committee will please come to order. 

TESTIMONY OF THOMAS A. BUCKNER, CHAIRMAN OF THE BOARD 
OF DIRECTORS, NEW YORK LIFE INSURANCE CO., NEW 
XORK, N. Y.— Resumed 

TRANSACTIONS INVOLVING INTERLOCKING DIRECTORS AND 
directors' AFFILIATIONS — NEW YORK LIFE 

Mr. BucKNER. Mr. Chairman, I was a little confused this forenoon 
in the question raised by the counsel concerning costs and concerning 
whether or not we had calculations such as we could submit, and I 
find I was in errdr. Tire question of cost is one that has to be very 
definitely defined and dissected to arrive at exactly what is meant. 
I would like to suggest that one of our actuaries will get in touch with 
the proper S. E. C. man and come to some agreement on exactly 
what they want, and then we will endeavor to make calculations just 
to fit the ideas that thej'- will present. 

(Mr. Frank assumed the Chair.) 

Acting Chairman Frank. Very good. 

Mr. Gesell. Mr. Buckner, on your board of directors you have a 
gentleman by the name of Mr. Harbord, have you not? 

Mr. Buckner. Yes, sir; General Harbord. 

Mr. Gesell. He is a director of the Bankers Trust Co.? 



CONCENTRATION OF ECONOMIC POWER 1429 

Mr. BucKNER. I SO understand. I only learned that from the 
statements which were got up by you. 

Mr. Gesell. He is also a director of your company? 

Mr. BucKNER. Yes, sir. 

Mr. Gesell. I want to read you a letter signed by himself dated 
June 21, 1932, addressed to Mr. Darwin P. Kingsley, who was then 
chairman of the board: 

Dear Mr. Kingsley: As a director of the Bankers Trust Co., I want to thank 
you for the deposit of a round million which the New York Life has recently made. 
As a director of your own company I want to express my appreciation. 

I regard the directorships in those two companies as quite the best thing that 
has come to me in business life, and it is very satisfactory to see this mutual 
relationship established between them. 

My cordial regards to you. 

Sincerely yours. 

Have you ever seen that letter? 

Mr. Buckner. I rather think I have; I am not sure. 

Mr. Gesell. Is it the practice of your company to make preferen- 
tial deposits in banks with which your company interlocks? 

Mr. Buckner. I don't know what you mean by preferential de- 
posits. 

Mr. Gesell. Do you know anything about the circumstances of 
this deposit? 

Mr. Buckner. I do not, but I am convinced that General Harbord 
never asked for that deposit. He learned of it probably from the 
bank. I am stating now what I think. Whenever he learned that 
we had done it, he wrote a note of thanks. 

Mr. Gesell. Is it not a fact that many of the largest deposits of 
your company — these are deposits without interest — are deposited 
with banks with which your company interlocks? 

Mr. Buckner. Some are, but many are not. 

Mr. Gesell. I have before me schedule E of the annual statement 
of your company for the year 1937. This statement shows that 
as of December 31 of that year, your company had approximately 
$63,000,000 on deposit with some 71 different banks, none of this 
moTiey at interest. There were 12 banks in which the deposits were 
in excess of $1,000,000. One of those banks is the Chemical Bank & 
Trust Co. Your company interlocks with the Chemical Bank Sr. 
Trust Co., does it not? 

Mr. Buckner. One of our directors is a director or an officer of the 
Chemical Bank. 

Mr. Gesell. Mr. Johnson is a director and officer of the Chemical 
Bank and also a director of your company. 

Mr. Buckner. Right. 

Mr. Gesell. Until a very short time ago Mr. Watts was also a 
director on both Chemical Bank and your company, was he not? 

Mr. Buckner. I so understand; yes, sir. 

Mr. Gesell. Now there is on deposit in excess of $7,000,000 in the 
New York Trust Co. Mr. Mortimer N. Buckner is an officer of that 
company and a director of your company, is he not? 

Mr. Buckner. Thatis right. 

Mr. Gesell. There is a deposit in excess of $5,000,000 with the 
Bankers Trust Co. Mr. Bliss, Mr. Harbord, and Mr. Hilles are 
connected both with that bank and with your company, are they not? 



1430 CONCENTRATION OF ECONOMIC POWER 

Mr. BucKNER. Correct. 

Mr. Gebell. I notice a deposit in excess of $2,000,000 with the 
National City Bank. Mr. MilHken of your board is also on the 
board of that bank. 

Mr. BucKNER. I understand he is on that bank board. 

Mr. Gesell. I notice a deposit of in excess of half a million dollars 
in the Lawyers County ; Mr. Smith is a director of the Lawyers County, 
chairman of the board, I believe. 

Mr. BucKNER. Yes; he is. 

Mr. Gesell. Also a director of your company. 

Mr. BucKNER. I don't know about chairman of the board. 

Mr. Gesell. He is on the board. 

Mr. BucKNER. I understand so. 

Mr. Gesell. He is also on the board of your company. 

Mr. BucKNER. Yes. 

Mr. Gesell. I notice a deposit in excess of $1,500,000 with the 
Northern Trust Co. of Chicago. Mr. Ryerson is on the board of that 
bank and on the board of your company, is he not? 

Mr. BucKNER. He is. 

Mr. Gesell. May I return to my original question and ask you if 
there is any relationship between the placing of these large deposits 
in either of these special banks and the fact that your company inter- 
locks with those companies? 

Mr. Buckner. I don't know what you mean by relationship. 
There is no advantage taken because of those banking relationships, 
because of the fact that one of our directors is a director, or vice versa. 

Mr. Gesell. It would be of an advantage to any bank to have 
$7,000,000 on deposit on wliich it did not have to pay interest, would 
it not? 

Mr. Buckner. In regard to not having to pay interest, of course 
you know, Mr. Counselor, that that is a matter over which we have 
no control. 

Mr. Gesell. I realize that, but still to have a deposit of $7,000,000 
is of advantage to the bank, is it not? 

Mr. Buckner. I am not sure; I would not know. We know it is 
an advantage to us to have our money safely banked. May I also 
be permitted to refer to the fact that there are a good many banks in 
New York City in which we have large bank accounts, where our 
director is not a director of the bank. 

Mr. Gesell. Yes; I think I stated this $63,000,000 was distributed 
among 71 different banks. Your large deposits are, to a considerable 
extent, with the banks with which you do have this interlocldng 
relationship? 

Mr. Buckner. I would not think any larger than one or two others; 
possibly so at some special time. 

Mr. Gesell. The records as of December 31, 1937, indicate that 
half the banks having deposits in excess of $1,000,000 are banks in 
which your company is connected through a director who is on both 
boards. 

Mr. Buckner. I have just been handed this statement about bank 
balances, in what we call our depositaries of funds available for 
investment. 

Acting Chairman Frank. As of what date? 



CONCENTRATION OF ECONOMIC POWER I43], 

Mr. BucKNER. December 31, 1938. In the Chemical Bank & 
Trust Co. we apparently had $5,366,000; in that bank we have a 
director who is a director in our company. The Chase National Bank 
had a balance at that time of $5,703,000, and a collection account, 
which is additional to that; that means it would be open to check the 
next day— $2,914,000, which would make a balance of over $8,000,000 
in that bank. We have no director — none of our directors, so far as 
I know, are coimected with that bank. The Central Hanover Bank & 
Trust Co., we had a balance of nearly four millions at the end of 1938. 
I knov/ of no director connected with that bank. I am not sure — I 
think I have a better statement checked off. 

Mr. Gesell. We will be glad to receive from jou at a later date 
through Mr. Ballantine a schedule of the deposits showing which 
banks you are connected with and with which banks you are not. 
Is it the practice of directors on the board of your company to sohcit 
the deposits of your company with banks v.dth which they are con- 
nected? 

Mr. BucKNER. I never knew it to be done. 

Mr. Gesell. You recall that Mr. Granger HoUister was at one 
time on the board of directors? 

Mr. Buckner. He was. 

Mr. Gesell. Of your company? 

Mr. Buckner. He was. 

Mr. Gesell. I wish to show you a letter addressed to yourself, 
dated February 15, 1910, in which he says, "I would appreciate very 
much the designation of this company as the depositary of the funds 
of the compan}^ for Rochester" — referring to the Securities Trust Co. 

Mr. Buckner. Let me say that when I made that statement I 
had in mind, of course, the banks where we really have funds for 
investment purposes. This is merely a branch office bank for the 
temporary deposit of premiums that are received in that office. We 
v.-ere going to open an office there and we asked him, I think, if he 
could tell us a good bank. That is my recollection 

Mr. Gesell. Do I understand that the directors sometimes do ask 
for deposits of small deposits? 

Mr. Buckner. They might because we have those all over the 
United States. I would not say that they do ofteij. That may 
have occurred. That evidently did occur. It is of no significance 
because the bank balance — as a rule those bank balances are so small 
that the banks try to charge us for having the account there. 

Mr. Gesell. Now Mr. Harper Sibley was elected to your board 
sometime in March of 1938? 

Mr. Buckner. Yes, sir. 

Mr. Gesell. May I call to your attention a letter from him ad- 
dressed to Mr. Aiken of your company calling attention to a company, 
with a bank with which he is connected? 

Mr. Buckner. In Rochester? 

Mr. Gesell. Yes. 

Mr. Buckner. The same answer I would give exactly as I gave 
to the Hollister question. That Hollister incident I think happened 
many years ago. 

Mr. Gesell. Now let us take the case of the Northern Trust Co. 
in Chicago. 



1432 CONCENTRATION OF ECONOMIC POWER 

Mr. BucKNER. Yes. 

Mr. Gesell. Mr. Ryerson of the board of directors of your com- 
pany is a member of the board of directors of that bank? 

Mr. BucKNER. Yes; he is. 

Mr. Gesell. You had on deposit there as of December 31, 1937, 
approximately $1,500,000? 

Mr. Buckner. That is one of our large depositaries. 

Mr. Gesell. Is it not a fact that Mr. Ryerson was instrumental 
in having that deposit made in that bank? 

Mr. Buckner. Certainly not, so far as I know. He learned of it 
and appreciated it, but he had nothing to do with it and never asked 
for it. 

Mr. Gesell. Do you recall that in July he had discussions with 
Mr. Alfred H. Meyers, your treasurer, with respect to that account? 

Mr. Buckner. I do not know about that. What do you mean? 
Mr. Meyers probably told him we were going to open an account in 
that bank. 

Mr. Gesell. Mr. Ryerson had nothing to do with that account? 

Mr. Buckner. Certainly not. 

Mr. Gesell. Wliy was the deposit made in that bank? 

Mr. Buckner. You would have to ask the treasurer about that, 
but I think it was because our balances were getting too big in his 
opinion in the other two banks we were dealing with, and he had felt 
that we should open up an additional account, and this trust com- 
pany was one of the strongest banks there in his opinion, and in mine, 
too. That accounts for our opening up accounts with a good many 
new banks, because of the large balances We were carrying. 

Mr. Gesell. Do these large deposits come before the board of 
directors for consideration? 

Mr. Buckner. Come before the finance committee. 

Mr. Gesell. And then the finance committee reports to the 
board? 

Mr. Buckner. The finance committee makes its monthly report 
to the board. 

Mr. Gesell. What part in those considerations do the directors 
who are involved both with the banks and with your company take? 
Mr. Johnson, Mr. Watts, Mr. Buckner, Mr. Bliss, Mr. Harbord, 
Mr. Hilles, Mr. Milliken, Mr. Smith, Mr. Ryerson, all those gentlemen 
who are connected both with the banks and the company? 

Mr. Buckner. I think I would say in nearly all the cases you name 
there, outside of Ryerson, they were bank accounts that were in 
existence before those men became directors of the New York Life. 
That certainly is true of the New York Trust and Chemical Bank. 

Mr. Gesell. Possibly before these particular individuals, but is it 
not a fact you have had representatives from these bank!=^;«n the board 
many, many years? 

Mr. Buckner. Not that I know of. 

Mr. Gesell. How long has Mr. Buckner been on your board, sir? 

Mr. Buckner. I could tell; I haven't the figures here, but we were 
doing business with the New York Trust I think 50 years ago. He 
has been on 17 years and we have had an account with that bank 50 
years. 

Mr. Gesell. Now let me take the case of the Bankers Trust Co., 
which we referred to at the opening of this discussion. That account 
was opened on June 17, 1932, was it not? 



CONCENTRATION OF ECONOMfC POWER 1433 

Mr. BucKNER. I think that is so, about that time. 

Mr. Gesell. Mr. Harbord come on the board of your company 
December 9, 1931? 

Mr. BucKNER. No doubt. 

Mr. Gesell. There was a case where the relationship took place 
before the deposit was made? 

Mr. BucKNER. Yes. The purpose in opening- that bank account 
was solely one of dividing our funds up into more banks at a time 
when we were carrying very large balances. We opened accounts in 
several banks, I think, around about that time. 

Mr. Gesell. Now how long before a man becomes director is his 
nomination placed before the board of directors? 

Mr. Buckner. Well the nomination is placed at the next meeting 
after the nominating committee nominates, the next meeting of the 
board. 

Mr, Gesell. Just a month intervening? 

Mr. Buckner. Well, it might not be a month. 

Mr. Gesell. A month or less? 

Mr. Buckner. A month or less. It would be less than a month; if 
it had been prior to the previous board meeting it would have been 
introduced and we make our report to the next board meeting. 

Mr. Gesell. Is it the practice of these banks to actively solicit 
deposits of your company? 

Mr. Buckner. . I would not know as to that, but I think not. The 
treasurer handles the bank balances aiid bank accounts. 

He makes his recommendations to the-finance commitee and they 
act upon them. 

Mr. Gesell. These instances where the deposits are with the banks 
on which a member of your board of directors is also a director, I 
understand, is purely a matter of coincidence in each case. 

Mr. Buckner. Well, I don't know — there is onl}^ one you have in 
mind, I presume, the Northern Trust Co., is it not? The others 
are since the time 

Mr. Gesell (interposing). What about the Bankers Trust Co.? 

Mr. Buckner. How long a time have they been? 

Mr. Gesell. I think Mr. Harbord came on in December of 1931 
and the deposit was made in June. 

Mr. Buckner. That was purely a coincidence. It was due to the 
fact that the treasurer and the finance committee agreed our money 
should be spread. We don't like to keep all our eggs in one basket. 

Mr. Gesell. Is there any particular reason why directors would 
sometimes suggest small deposits in out of the way banks, but not 
suggest large deposits in banks near at band? You have stated, I 
believe, the directors sometimes do ask for deposits of a small amount. 

Mr. Buckner. That has happened. You brought up two instances. 
I don't think that is a very common practice. I think it is more likely 
we ask the directors who are familiar with the situation the name of a 
good bank in a certain place where we are going to open up a new office. 

Mr. Gesell. Well now, let's go on to another aspect of this situa- 
tion for a moment. Mr. Harbord is a member of the board of direc- 
tors of the Employers Liability Assurance Corporation, is he not? 

Mr. Buckner. I never knew that, but I have heard that now. 

Mr. Gesell. Mr. Hilles is connected with the Employers Liability 
Assurance Corporation. 



1434 CONCENTRATION OP ECONOMIC POWEK 

Mr. BucKNER. He is the resident agent. 

Mr. Gesell. They write forms of insurance? 

Mr. BucKNER. Casualty and liability, public liability. 

Mr. Gesell. Is it again just a coincidence that the Employers 
Liability ^ Assurance Corporation writes the public and elevator 
liability insurance on your company, the workmen's compensation 
insurance, steam boiler insurance, power plant insurance, surety bond 
on agents doing a mortgage loan work, and writes similar insurance 
on the printing building of your company? 

Mr. Buckner. You mean the fact that we do business with them? 

Mr. Gesell. That you pay premiums to them. 

Mr. Buckner. There is no coincidence about it. We were doing 
business with that firm before Hilles was on our board. 

Mr. Gesell. Mr. Hilles did not ask for this business after he was 
on the board of directors? 

Mr. Buckner. Ask for more business? 

Mr. Gesell. Ask for more business. 

Mr. Buckner. I wouldn't know that, but I would presume that 
may be true. 

Mr. Gesell. The business has increased, has it not? 

Mr. Buckner. Business of that type has increased enormously. 

Mr, Gesell. The payment of these premiums again came before 
the board of directors for their consideration? 

Mr. Buckner. I am not sure about that. I don't have anything 
to do with that part of the detail of our company. 

Mr. Gesell. What do you think about the proprieties of a situa- 
tion where members of your board of directors are interested in 
another company which does a large amount of business with your 
company, such as this? 

Mr. Buckner. I wouldn't think that we should be debarred from 
utilizing the services of another corporation where we believe it to 
our advantage to do so, and where the cost is as low or lower than 
obtainable elsewhere, solely because one of our directors has a con- 
nection with that institution. 

Mr. Gesell. It is a little difficult to turn your director down, Mr. 
Buckner. 

Mr. Buckner. It would never be difficult for me if I thought he 
was taking advantage of us, and we have no directors who would do 
that. 

Mr. Gesell. You think it is quite proper, all other things being 
equal, for the New York Life Insurance Co. to give some particular 
line of business which it has to a company upon which other of its 
directors are associated? 

Mr. Buckner. Where it is to our advantage to do so and where the 
cost is no greater. Of course, there is such a thing as service, and fair 
treatment, and we have found Employers Lia,bility always gives that. 
It is one of tlio strongest companies and we were doing business with 
them before Mr. Hilles became a director of New York Life. I would 
see no reason — I have nothmg to do with that end of our business, 
it comes under the real estate dei)artment — but I would see no im- 
propriety whatever in our continuing to do it. I would think it 
would be improper for us to stop doing busmess with them solely 
because their representative, their agent, was a member of our board, 
always presuming that it is not to the disadvantage of our company 
but, on the contrary',' to our advantage to continue. 



CONCENTRATION OF ECONOMIC POWER 1435 

(Representative Sumners resumed the Chair.) 

Mr, Gesell Now what about the situation where you are buying 
securities, let us say, from one or more of the banks in which your 
directors are also interested? 

Mr. BucKNER. That you would have to talk to the treasurer about, 
because I never knew they did that except for Government bonds. 
They put in our orders for Government bonds. 

Mr. Gesell. You place orders for such bonds with the Bankers 
Trust and the Chemical Bank & Trust Co., do you not? 

Mr. BucKNER. They may represent us in getting some of those 
bonds for us. We don't buy the bonds from them. 

Mr. Gesell. Do you buy stocks on occasion from those people? 

Mr. Buckner. No, sir; not that I know of. I never heard of such 
a thing. 

Mr. Gesell. Do I understand that as part of what you say you 
feel it proper for a director to actively solicit such business from the 
company, one of your directors? 

Mr. Buckner. I would see no reason why he shouldn't bring it to 
our attention; if he knew that we have some new business to offer, he 
could bring it to our attention and say he could handle that. There 
is an advantage to the company, almost a necessity, and where this 
casualty and pubhc liabihty company is concerned, it has to be a good 
one, of course, and one that would give us fair treatment and the 
greatest service. The reason we have to do that is because we have 
to have blanket insurance, a blanket pohcy automatically putting 
them on the risk the minute we acquire a piece of property in Seattle 
or Los Angeles. Even before we know we have got that property 
they are on the risk. 

. Mr, Gesell. Let's take it aroimd the other way. If I am con- 
nected with Employers' Liability Insurance Corporation, let's say, 
and I know it is to the business advantage of my company to get on 
your board of directors, am I not more apt to be interested in the 
business of my company than in the interests of policyholders? 

Mr. Buckner. I don't think any director ever did that. 

Mr. Gesell. It is inherent in the situation, is it not, Mr. Buckner, 
if your company does business with directors who are also connected 
with other companies; does business with their companies? 

Mr. Buckner. If we are stopped from having any ordinary trans- 
actions that are necessary transactions for our company, if we are to 
be estopped from doing business with any institution where a director 
of our company was connected — well, we would just have to get a lot of 
directors that lived out where they never heard of investments or 
securities or anything of that kind. We couldn't get a board of direc- 
tors that could give us proper advice and counsel and help. 

Mr. Gesell. Well, you would say, would you not, that the strictest 
propriety would have to be observed in the situation? 

Mr. Buckner. Absolutely. 

Mr. Gesell. Now Mr. Alfred E. Smith is chairman of the board of 
the Meenan Oil Co., is he not? 

Mr. Buckner. I have heard that. I didn't know that until I 
heard it. 

Mr. Ges£ll. The Meenan Oil Co. does business with your com- 
pany, does it not? 



1436 CONCENTRATION OF ECONOMIC POWER 

Mr. BucKNER. I understand they have a very, very small contract, 
nowhere near the amount of oil we use in New York. 

Mr. Gesell. Let me read a memorandum to you. This is a memo- 
randum from ^^r. Van Anden, who is in your real estate department, 
to Mr. Van Schaick, who is one of your vice presidents, dated October 
11, 1937 [reading from "Exhibit No. 263" ^j: 

The oil requirements for 1 year for heating our properties amounts to approxi- 
mately 2,449,800 gallons. Of this amount, Meenan Oil Co. supply 1,275,000 
gallons. Last week we succeeded in giving them contracts amounting to 22,000 
gallons additional. 

The agents have already contracted with other companies for the purchase of 
927,000 gallons of oil for the coming year. There is open 225,000 gallons to be 
contracted for. 

The managing agent of the property where 200,000 gallons is to be purchased, 
has a price of 0.0370 a gallon, good until January 1, 1938. Their top price is 
0.0404. Meenan Oil Co.'s price is 0.0370, good until January 1, 1938. Their 
top price is 0.04285. We can contact Meenan and see if they will meet the price 
of 0.0404. If they will, we can direct the agent to give this additional contract 
to Meenan. 

Now that memorandum would suggest to me, Mr. Buckner 

Mr. Buckner (interposing). That is 1937? I was thinking of 
1938 when I remarked they got a very small contract. 

Mr. Gesell. A very substantial amount of business went to them 
in 1937. 

Mr. Buckner. Apparently. 

Mr. Gesell. Mr. Alfred E. Smith was a member of your board of 
directors in 1937? 

Mr. Buckner. Yes, sir. 

Mr. Gesell. He was chairman of the board of the Meenan Oil Co. 
at that time? 

Mr. Buckner. Yes. 

Mr. Gesell. Would you believe that the indications in this mem- 
orandum, which suggest a revision of bids from Meenan Oil Co, in 
order that they could get the oil business from your company, is 
observing the strict proprieties we were talking about a moment ago? 

Mr. Buckner. I wouldn't be able to express an opinion on that 
without knowing the facts, all the facts. I understand that all our 
supplies of that type, and every other type, are taken on bids. 

Mr. Gesell. Here a man bid lower than Mr. Smith and they go 
back to Mr. Smith to revise his bid, do they not? 

Mr. Buckner. Apparently, from what you said. That I didn't 
know anything about. 

Mr. Gesell. The situation becomes increasingly complicated by 
the fact that Mr. Smith has soUcited business from your company 
while he was a director. May I read you tliis letter from Mr. Smith, 
addressed to yourself, dated June 7, 1938 [reading from "Exhibit No. 
264"]: 

For several years our company has been supplying the fuel oil needs of some 
of the largest users in Greater New York, Nassau and Westchester Counties, as 
well as several thousand home owners. 

Our vice president, Mr. R. G. Phelps, advises me that most fuel-oil contracts 
are up for renewal between June 1 and late fall. It has occurred to me that you 
may own, or manage, buildings using fuel oil. I am taking this means to re- 
spectfully request that you give our company an opportunity to bid on your 
fuel-oil requirements, when you are in the market. 

> See letter subsequently submitted by George S. Van Schaick, vice president of New York Life Insur- 
ance Co., bearing on this exhibit, appendix, p. 1845. 



CONCENTRATION OF ECONOMIC POWER 1437 

Our source of supply comes from the Standard Oil Co. of New York, one of 
the world's largest oil companies. We are thoroughly equipped to render pr'ompt 
and efficient delivery service at all hours. The prices on all grades are fair, and 
the quality of fuel oil will be to your satisfaction. 

When you are in the market, any consideration you give Mr. Phelps and our 
company will be personally appreciated. 

Mr. BucKNER. I think that is a fair thing for him to say, that he 
would appreciate our giving them a chance to bid on the oil. 

Mr, Gesell. Here is another letter addressed to Mr. Aiken of 
your company in 1935, signed by Mr. Smith [reading from "Exhibit 
No. 265"]: 

If you can help the Meenan Oil Co. on the contract for oil in the Vanderbilt 
Hotel, I will appreciate it. 

It becomes increasingly difficult, doesn't it, Mr. Buckner, with 
that kind of solicitation from one of your directors 

Mr. Buckner (interposing). It would have no impression on me. 
I would simply say the Meenan Oil Co. could make a bid, and if the 
lowest bidder can render the service the others can, they would get 
the contract. 

Mr. Gesell. Here is another letter to your company from John F. 
James & Sons, Inc., in 1937, in which he writes to the attention of 
Mr. Cotter, who evidently is one of your employees in the real estate 
department, and says [reading from "Exhibit No!^ 266"]: 

We have acted under your verbal instructions to purchase all fuel oil from 
Meenan Oil Co. 

Ml. Buckner. I never heard of that. I don't know anything 
about it. I don't know who Cotter is. 

Mr. Gesell. I would like to offer for the record the four documents 
concerning which we have just referred. 

The Vice Chairman. They may be admitted, 

(The documents referred to were marked "Exhibits Nos. 263 to 
266" and are included in the appendLx on pp. 1562-1563.) 

Mr. Gesell. Just to go on a moment with this, Mr. Buckner. Mr, 
Ridley Watts was on your board of directors, was he not? 

Mr. Buckner. He is dead now. 

Mr. Gesell. He was on the board of directors in October 1937, was 
he not? 

Mr. Buckner. I think he was. 

Mr. Gesell. He wrote on that date to Mr. Kingsley, Walton P. 
Kingsley, vice president of your company, enclosing a letter from the 
America Fore Group, which is evidently a group of fire-insurance 
companies, and he says [reading from "Exhibit No. 267"]: 

Confirming our telephone conversation of yesterday, I enclose letter which Mr. 
Culver, president of the American Fore Group, received from our vice president 
in Chica,go, Mr. E. A. Henne. 

I shall appreciate it if you will check this matter up. Anything you can do to 
protect the interests of our good companies in their close association with the 
New York Life will be greatly appreciated by me. 

This correspondence would indicate that after one or two drafts of 
letters this draft was prepared by Mr. Van Schaick to Mr. Ridley 
Watts on November 16, 1937, stating in substance, after referring to 
the matter [reading from "Exhibit No. 268"]: 

We regret what happened and will try at appropriate opportunity to rectify 
what was done by giving to your companies an equivalent amount of insurance 
in that territory. 



1438 CONCENTRATION OP ECONOMIC POWER 

Does tliat not again indicate a preferential treatment to companies 
with which one of your board of directors was connected? 

Mr. BucKNER. I wouldn't think so. I would think the director 
of our company, who was director, if I understand it, of those four 
companies 

Mr. Gesell (interposing). He refers to them as "our" companies. 

Mr. BucKNER. I don't know in what sense they were his companies. 
From what you read — I know nothing about the facts — from what 
you read I would say that for some reason of local nature in the hands 
of our local representative down there they took the business away 
from those companies and gave it to some other company. I wouldn't 
think that was a square thing to do. 

Mr. Gesell. You mean square to your directors? 

Mr. BucKNER. No, no; I wouldn't think.it was square to those 
companies if they were good companies, and I presume the indications 
are from that letter that Mr. Watts thought that wasn't fair play 
either, and wrote and complained about it. 

Mr. Gesell. I would like to offer this correspondence for the 
record. 

(The correspondence referred to was marked "Exhibits Nos. 267 
and 268" and is included in the appendix on p. 1564.) 

Mr. Gesell. Does it come down to this, Mr. Buckner, that if a 
company with which your company interlocks can provide good 
service to your company and desires the business of your company, 
your company will favor them? 

Mr. Buckner. No; I wouldn't put it that way. 

Mr. Gesell. Will you try to state it your way? 

Mr. Buckner. I think we should not be barred from acquiring 
the services of a corporation whose business is a business where we 
have need, and where we can get — where the cost is no greater and 
we believe it to our advantage to deal with them. We shouldn't be 
barred just because our director has relations with them. 

Mr. Gesell, Even though the dealings may result directly or 
indirectly in some profit to the director? 

Mr. Buckner. Well, of course, a director would have, I imagine, 
some indirect profit in his directorship if the stock is any good, if it 
pays any dividends. If you carry out your theory as indicated by 
you to its logical conclusion, we never could send a radiogram, never 
buy a desk up at Macy's because Mr. Percy Straus is on our board ; 
we wouldn't be able to send a Western tJnion telegram. I don't 
know where, we could do business anywhere in any direction. 

Mr. Gesell, Then you say that buying a desk for one of your 
oflBces at Macy's is just the same as giving all of many lines of insur- 
ance to a single company with which you have two directors inter- 
locking? 

Mr. Buckner. It is the same principle; it may not be the same 
degree, but there are certain lines of business it is an advantage 
to the company to utilize — as in the case of Employee's Liability. 
When it comes to oil, the best man gets the bid. I don't think any 
director should take advantage of his directorship with us to profit 
at our expense, 

Mr. Gesell. But if he profits without its being to your expense, 
that is all right? 

Mr. Buckner. Well, I don't know. That is an ethical question I 
would rather not answer. 



CONCENTRATION OF ECONOMIC POWER I439 

Mr. Gesell. Would you coDsider tliat one of the benefits of inter- 
locking? 

Mr. BucKNER. I don't think that any of the directors of our com- 
pany ever dreamed of coming with the company because he would 
profit by it. 

Mr. Gesell. Let's turn to one or two more cases. You are 
familiar with the case of Frank Presbry & Co., are you not? 

Mr. BucKNER. Yes; knew him very well. 

Mr. Gesell. Mr. Frank Presbry used to be on the board of your 
company? 

Mr. BucKNER. Yes. 

Mr. Gesell. He is now deceased? 

Mr. BucKNER. Y"es; for some years. 

Mr. Gesell. Over a period of years, while he was on the board of 
directors you did business with liis company of an advertising nature. 

Mr. BucKNER. Before he came on the board and after. 

Mr. Gesell. While he was on the board it ran into several hundred 
thousand dollars a year? 

Mr. BucKNER. Very likely. 

Mr. Gesell. Mr. Presbry's firm made a profit, I imagine, from 
handling this advertising for you? 

Mr. BucKNER. From the newspaper, yes; but he didn't make any 
profit from us. 

Mr. Gesell. See if I correctly state what that situation was. At 
the beginning you paid Mr. Presbry direct for the advertising and he 
transmitted to the newspapers the amount of money owing them for 
the advertising. ■ 

Mr. Buckner. That may be; I don't know. 

Mr. Gesell. Less a 15-percent commission. 

Mr. Buckner. Possibly, I never knew that— as to which way it 
was handled, I mean. 

Mr. Gesell, Then the question came up as to whether or not that 
was in accordance with New York law, did it not? 

Mr. Buckner. I never heard that. 

Mr. Gesell. Well, may I ask you to examine a moment, then, your 
correspondence with him about that point, Mr. Buckner? 

Mr. BucKN.ER. Yes; I am familiar with this. I had forgotten that 
at one time he billed us the bill first, anS then furnished us with the 
proofs of the ads later, and the receipts. 

Mr. Gesell. So that for a while he was receiving 

Mr. Buckner (interposing). Evidently he was. I am sorry I had 
overlooked that and had forgotten that entirely, but it is not of any 
moment at all, so far as I can see. 

Mr. Gesell. At that moment, handling the account the way it was, 
there was a commission being paid directly to one of your directors 
for placing this advertising. 

Mr. Buckner. I would think that was highly technical. 

Mr. Gesell. You continued to do business with him and worked 
out a difi'erent method of payment? 

Mr. Buckner. I would presume we paid him after the ads were run. 

Mr. Gesell. And that business ran into several hundred thousand 
dollars a year? 

Mr. Buckner. Oh, yes. We must advertise through some adver- 
tising agency, and it wouldn't be wise to divide it. The advertising 

124491— 39— pt. 4 19 



1440 CONCENTRATION OF ECONOMIC POWER 

business may seem large in figures, but we have been doing business 
with the Frank Presbry Advertising Corporation for a long time before 
he came on our board, and when he came on, at the time Mr. Kingsley 
was president, he said right away that he wouldn't come on the board 
if it meant losing this business of advertising. His compensation is a 
matter solely between himself and the pubUcations, periodicals, news- 
papers, and so forth. I think it is the same with all advertising con- 
cerns. They get a reduction which is their profit in their advertising, 
and which we couldn't get and no other advertiser could get. 

Mr. Gesell. Do I understand that when he came on the board he 
made that as one of the conditions precedent, that he would continue 
to have the business? 

Mr. BucKNER. Yes, he did. He was assured that there was no 
impropriety in his going on with the business, and we are stUl going 
on with them since his death, 

Mr. Gesell. What about attorneys on your board, Mr. Buckner? 
Do you pay them fees? 

Mr. Buckner. I would like to make that singular. 

Mr. Gesell. You have one attorney — Mr. Ballantine? 

Mr. Ballantine is connected with the firm of Root, Clark, Buckner & 
Ballantine, is he not? 

Mr. Buckner. Yes; he is. 

Mr. Gesell. Did that firm receive any fees from your company in 
1932, 1933, and 1934? 

Mr. Buckner. I have no record of it, but if you have a record there, 
it is correct. 

Mr. Gesell. The answer is they received no fees in 1932, 1933, and 
1934, is it not? 

Mr. Buckner. You seem to have zeroes there. Evidently we were 
^ot acquainted 'with Mr. Ballantine in those years. 

Mr. Gesell. Then beginning with the year he came on the board 
fees have been paid to his company, have they not? Mr. Ballantine 
came on the board in April 1934, did he not? 

Mr. Buckner. If that says so, he did. 

Mr. Gesell. You are testifying, Mr. Buckner. 

Mr. BuqKNER. April 11, 1934. ^ 

Mr. Gesell. And his firm received fees in what amounts on what 
dates? 

Mr. Buckner. This schedule shows, and it is signed by one of our 
officials, for the year 1935 we paid the firm $3,262.20; 1936 they were 
paid $2,809.35; for the year 1937, during the year 1937, they were paid 
$12,200; and during the year 1938 they were paid a total amount of 
$16,392. The disbursement in 1938 amounting to $16,000 was on 
account of the reorgdfeization of the New York, Ontario & Western 
Railway Co. The New York Life's share of this total was $5,267.26 
and the company was reimbursed by the other life insurance companies 
for the balance. 

For the fee of $12,200, which looks like a very large fee for a la^-yer, 
it contained one fee of $10,000 paid to the firm of Root, Clark, Buckner 
& Ballantine, Mr. Root representing us in a suit brought by a policy- 
holder on behalf of himself and an entire class of policyholders, which 
was of very great importance to the company. It was a matter that 
might have meant anywhere from $15,000,000 to $50,000,000. It was 
a very important suit and the firm of Root, Clark, Buckner & Ballan- 



CONCENTRATION OF ECONOMIC POWER )44i 

tine were retained to represent us as New York counsel. The case was 
primarily tried by the special counsel, Marshall Bullitt, of Kentucky, 
and the fee of Root, Clark, Buckner & Ballantine in this case, which 
the company won in the top court, was $10,000, and that is why that is 
so large. 

Mr. Gesell. Even with these small fees, Mr. Buckner, Mr. Ballan- 
tine does not participate in the discussions wh(;n they come up for 
approval before the board? 

Mr. Buckner. He does not. In any case where there is a bill that 
he or any other director might be interested" in, when it comes up for 
a vote he asks to be excused from voting. 

Mr. Gesell. Is it the practice to remain in the room? 

Mr. Buckner. He remains in the room. He is not ashamed of the 
bill. 

Mr. Gesell. Are there any other cases that you can recall where 
your company does business with a company with which one of 3 
directors is associated as director and officer? 

Mr. Buckner. I can't recall any. A good deal of this is news to me. 

Mr. Gesell. That interests me very much, Mr. Buckner. You 
mean to say in your company you didn't know the fact that your 
directors were in regular business relationships with the company? 

Mr. Buckner. What I mean to say is their relationship as shown 
by their statements of their connections outside I have never known 
before. We don't ask the directors. Of course we know if they are a 
director in a bank or if they are a director in any of the enterprises 
whose services we are using. I knew that Mr. Hmes, and the Frank 
Presbry people, and of course I knew Mr. Ballantine, operated for us. 
Wliat I had in mind was the connections of our directors with numer- 
ous institutions, such as drawn out by the statements which you asked 
us for, I would not have known. 

Mr. Gesell. So that you don't know whether or not you are or are 
not doing business with other of your directors. 

Mr. Buckner. I do if it is any direct business. If it is very indirect, 
such as an instance like the American Telephone & Telegraph, or the 
Western Union, I wouldn't know whether one of our directors was a 
director there or not. 

Mr. Geselj.. I have no furtner questions of this witness at this time. 

(Mr. Frank assumed the Chair.) 

Mr. Buckner. Does that mean that I am excused, that I may go 
home? 

Mr. Gesell. Yes, sir; that is my understanding. 

The next witness is Mr. Wilfred Kurth. 

(Representative Williams assumed the Chair.) 

Acting Chairman Williams. Do you solemnly swear the testimony 
you are about to give in the matter now pending wiU be the truth, 
the whole truth, and nothing but the truth, so help you God? 
Mr. Kurth. I do. 



1442 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF WILFRED KURTH, CHAIRMAN OF THE BOARD OF 
DIRECTORS, HOME INSURANCE CO. OF NEW YORK, NEW 
YORK, N. Y. 

SELECTION OF DIRECTORS HOME INSURANCE CO. 

Mr. Gesell. Will you state your full name, please, sir? 

Mr. KuRTH. Wilfred Kurth. 

Mr. Gesell. With what company are you associated? 

Mr. Kurth. Home Insurance Co. of New York. 

Mr. Gesell. That is a fire-insurance company? 

Mr Kurth. Fire. 

Mr. GrESELL. What connection do you have with that company? 

Mr. Kurth. Chairman of the board. 

Mr. Gesell. How long have you been associated with it, Mr. Kurth? 

Mr. Kurth. Thirty-eight years. 

Will you tell us the practice of your company with respect to selec- 
tion of its board of directors? 

Mr. Kurth. Except for resignations or deaths or — I am speaking 
of my experience during my term as a director — there has been no 
change in the set-up. The directors originally serving when I was 
elected, except for deaths and resignations, are now serving. 

Mr. Gesell. Well, can you tell us what factors have guided the 
company in the selection of the men who are on the board of directors? 

Mr. Kurth. There are legal qualifications. The first is that a 
majority of the board must be residents of the State of New York. 
Then we have the charter provision that they must own 200 shares of 
stock in the company. The general requirement is that they must be 
representative citizens and must be of valu6 to the company, either as 
producers of business or in the financial set-up. 

Mr. Gesell. You say they must be of value to the company as 
producers of business? 

Mr. Kurth. Yes. 

Mr. Gesell. Will you elaborate that a little for me? 

Mr. Kurth. We have what we call the service department which 
develops business on Nation-wide accounts. Every large fire-insurance 
account has usually a broker. Now the service department would be 
acquainted with whoever is the broker on that account. For instance, 
take the Woolworth account, the service department would know the 
name of that broker. If by soliciting the broker we are unable to 
get a portion of that business, then we check up with Woolworth 
directors and our own directors and see what contact we can form. 
You understand that that contact would enable us to solicit that 
business, not direct to the company, but through their broker or 
insurance agent. 

We write no business except through insurance agents or brokers. 

Mr. Gesell. Each company has some particular broker who handles 
its fire-insurance business? 

Mr. Kurth. Broker or agent. 

Mr. Gesell. Or agent. If you want to get the fire-insurance 
business say of A corporation or B corporation, and it is being given 
out by that agent or broker to some other company other than your 
own, you call upon your directors? 

Mr. Kurth. No; we call on the agent first. 



CONCENTRATION OF ECONOMIC POWER 1443 

Mr, Gesell. Call upon the agent first. Let us assume you fail 
to get the business. 

Mr. KuRTH. Then we try to work out an interest through directors, 
a common interest. For instance, the brokers of one of the directors 
of a corporation might be a director of the National City Bank. 
Now we have a director of the National City Bank on our board and 
our service department would go through that director and see what 
contacts we could establish there. 

Mr. Gesell. And you use your board of directors as a means of, 
through various interlocking connections, getting hold of business 
which you otherwise would not be able to get? 

Mr. KuRTH. Very much so. 

Mr. Gesell. And you have a statistical department which keeps 
track of each man's connections and associations so that when you 
want to develop such a contact you have the material readily at hand? 

Mr. KuRTH. We keep the directorships, all of their directorships, 
pretty closely in hand all the- time in the service department. .^ 

Mr. Gesell. And it is an important factor for vou to have on your 
board men who have wide connections? 

Mr. KuRTH. Very important. 

Mr. Gesell. Of the character we have talked about? 

Mr. KuRTH. (Nods head, yes.) 

Mr. Gesell. Do you have on your board men who are connected 
with various life-insurance companies? 

Mr. KuRTH. We have three directors that I believe are directors of 
life-insurance companies. 

Mr. Gesell. Who are they? 

Mr. KuRTH. There is Mr. McAneny and Mr. DeBost on the Metro- 
politan, and Mr. Mortimer N. Buckner on the New York Life In- 
surance Co. 

Mr. Gesell. Previously, Mr. Duffield of the Prudential was on your 
board of directors, was he not? 

Mr. KuRTH. No; we tried to get him one time. 

Mr. Gesell. Now have these directors that you have on your board 
been of help to you in getting business from those two life insurance 
companies for your company? 

Mr. KuRTH. I am sorry to say, no. 

Mr. Gesell. Has it been the practice of your company to call upon 
them to try to get that business? 

Mr. KuRTH. Oh, yes. The service department keeps in contact 
with them. Every life-insurance company, for instance, is contacted 
by the service department; every bank, especially those we use as 
depositaries^ — we use them in cormection with getting contacts with 
business. 

Mr. Gesell. Generally speaking, then, the limits of the opei^ation 
of your company are somewhat determined by the interlocking nature 
of its connection through its board of directors? 

Mr. KuRTH. Well, not entirely so. We have 40,000 agents scat- 
tered all over the world and there is not a community in the United 
States where we do not have an agent. Then we have State agents, over 
500 of them, located in each State; that is where the bulk of our business 
comes from. But for instance an agent — well, we will say a little town 
in Illinois finds there is a factory or a store that is owned in New York 
or Chicago or some of the other large cities. He writes to our service 



1444 CONCENTRATION OF ECONOMIC POWER 

department to see if we cannot get that insurance for him, or have it 
sent by the broker to him to be written up. So the service depart- 
ment follows up the ownership, the broker the soHcitation of the broker. 
If that does not work out then we start on the list of directors to see 
what contacts or connections they have which would be of help, and 
we get the line sent to the local agent to be written up. 

Mt. Gesell. How much do you pay your directors a year? 

Mr. KuBTH. Pay them $4,000 a year. That started a little over 2 
years ago. 

Mr. Gesell. That is a flat salary? 

Mr. KuRTH. Flat salary. 

Mr. Gesell. Is it the purpose of the service department to see that 
they earn it by getting you this business? 

Mr. KuRTH. Yes, we see to that, too. As a matter of fact, about 
the time I became president we began to realize that we had not de- 
veloped through our directors possibilities in the way of getting busi- 
ness and we started about then and these calls became so great upon 
the directors that I finally suggested that we put them on a salary 
basis rather than a fee basis. 

Mr. Gesell. So that the inconvenience that was caused by getting 
new business would be compensated for? 

Mr. KuRTH. They earned it. 

Mr. Gesell. Well now what prompted you to institute this plan 
of paying your directors for getting business? 

Mr. KuRTH. Just as I say, we were calling upon them so frequently 
and they were really doing a lot of work and I don't think any ordinary 
fee pays a director that does his utmost in the interest of his company. 

Mr. Gesell. Did you find that without calling upon these con- 
nections you were excluded from businesses because of other connec- 
tions between other compainies? 

Mr. KuRTH. Not so much that; it is surprising how — perhaps I 
should not say it; perhaps our competitors have not realized the 
advantage of using their directors, but it has been a very prolific 
source of income with us. 

Mr. Gesell. Will you tell me a little more about the statistical 
department? Do they check up on the directors once a month? 

Mt. Kurth. There is no record kept of it. For instance, the 
service department which is the one that uses them most, their 
interest lies in their total production for each month as compared 
with the same month of the previous year. 

I don't believe they keep a dollar per dollar account against each 
director, but they have pretty general impressions as to who is the 
most valuable. Some are very active. Take the chairman of the 
finance committee and our oldest director in point of service; they 
are exceedingly valuable and active. 

Mr. Gesell. Can you run down your list of directors for us and 
give us some idea how it worked out as a practical matter? 

Mr. Kurth. We list our directors in length of service. Mr. Lewis 
L. Clark was former president of the American Exchange Bank, 
retired ; he is a director of American Locomotive, Bowery Savings 
Bank, Commercial Cable, Equitable Fire, police fund, Home Insur- 
ance Co., Hudson & Manhattan Railroad, Indiana, Illinois Telephone, 
Kenzel Corporation; Mackay companies; Montana, Wyoming & 
Southern Railroad; Montreal Locomotive Works; New York & 



CONCENTRATION OP ECONOMIC POWER 1445 

Honduras Rosario Mining Co.; Norfolk Southern Railroad Co.; 
Postal Telegraph Cable Corporation; Prospect, Guthrie & Big Ben 
Telephone Co.; Shell Union Oil Co.; Swift & Co.; Worthington 
Pump & Machinery Corporation. 

Mr. Gesell. Now taking that imposing list of his directorships, 
was he able to use those directorships to help your company? I 
would like to have specific instances to see how this works. 

Mr. KuRTH. Take the Bowery Savings Bank, like most savings 
banks they own a lot of real estate through foreclosure of mortgages.. 
Well, it is through Mr. Clark that we finally got an entry into that 
account. 

Mr. Gesell. And were able to write fire insurance on properties 
owned by the bank? 

Mr. KuRTH. Owned by the bank. 

Mr. Gesell. Now will you give us another instance of the 

Mr, KuRTH (interposing). The American Loconiotive Works. It 
is only recently we had an insurance on one of their plants; I forget 
the location; they have them scattered pretty well. We found our 
policy had not been renewed; the service department checked it up 
and through Mr. Clark we had that poUcy reinstated. Very fre- 
quently Mr. Clark does not wait to be called upon. If he has a 
friend or an acquaintance — he is just boosting aU the time. 

Mr. Gesell. Now, can you give us some other instances that any 
of your members of the board of directors is an example where you 
have gotten an entree to business which you would not have received 
otherwise by reason of this interiocking relationship? 

Mr. KuRTH. Well, Mr. Charies G. Meyer is another one we call a 
booster. He is in the office at least three times, 3 days a week. We 
had the case of the Ritz Cariton Hotel ; he is a director of that and the 
Ritz Cariton in Boston; we have the majority of the insurance on 
that, but that also comes through the fact that Mr. Robert Goelet is 
a director of our company; he is one of the owners. He is an alunmus 
of Columbia University and we found that the insurance on Columbia 
University was in British companies; that wiU be changed. He is a 
director of the Central Aguirre Association; that is a large sugar 
interest in Puerto Rico. He influenced that. They own 

Mr. Gesell (interposing). You say he influenced that; he got that 
business for you? 

Mr. KuRTH. That business transferred to us. 

Mr. Gesell. From some other company? 

Mr. KuRTH. From some other company, the Cord-Meyer Co, 
They have I would say, 10 millions of real estate in New York City. 
That all comes to us. 

Mr. Gesell. By reason of this? 

Mr. KuRTH. Yes. 

Mr. Gesell. So that it is of real consequence to your company to 
get other board men who by reason of their varied connections and 
directorships in other companies can bring business to your company 
or take it away from someone else? 

Mr. KuRTH. Very pointedly. 

Mr. Gesell. Your company is a proprietorship, is it not? 

Mr. KuRTH. It is a stock company. 

Mr. Gesell. I have no further questions of this witness. Thank 
you very much. 



1446 CONCENTRATION OF ECONOMIC POWER 

(The witness, Mr. Kurth, was excused.) 

Mr. Gesell. The next witness is Mr. Bottome. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God? 

Mr. Bottome. I do. 

TESTIMONY OF HARRY BOTTOME, GENERAL COUNSEL. NEW YORK 
LIFE INSURANCE CO., NEW YORK CITY 

NEW YORK LAW GOVERNING CONDUCT OF LIFE INSURANCE DIRECTORS 

Mr. Gesell. Mr. Bottome, you are connected with the New York 
Life Insurance Co., are you not? 

Mr. Bottome. I am. 

Mr. Gesell. In what capacity? 

Mr. Bottome. General counsel. 

Mr. Gesell. How long have you been general counsel, approxi- 
,mately, sir? 

Mr. Bottome. I have been general counsel twice; that is the reason 
I do not know. 

Mr. Gesell. You have been in the legal department of the com- 
pany for many years, have you not? 

Mr. Bottome. I have been with the New York Life since 1893. 

Mr. Gesell. Have you had occasion from time to time to con- 
sider section 36 of the New York law relating to the transactions 
which officers and directors may and may not have with their com- 
panies? ^ 

Mr. Bottome. Section 36; yes. The headhig is a little uncertain, 
a little imfortunate. 

Mr. Gesell. That is inviting officers and directors not to be 
pecuniarily interested in transactions? 

Mr. Bottome. There is no such word as "transactions" used in 
the law itself. 

Mr. Gesell. Am I correct in stating that in 1937 in connection 
•with one specific problem which came up before your company 
'relating to this section you stated [reading from "Exhibit No. 269"]: 

It seems to me that the statute in question a? it applies to life-insurance com- 
panies is a mere restatement of the general rule of law applying to those persons 
who fill fiduciary positions; that the}' shall not use them for their own benefit. 

Mr. Bottome. Yes; except those ones which are specifically — let 
me get the phraseology in section 36. 

Mr. Gesell. Section 36 is in the record.- 

Mr. Bottome. That has to do with the participation in negotiat- 
ing, procuring, or recommending or rating in any purchase or sale to 
such corporation. 

Mr. Gesell. It prohibits certain specific types of transactions? 

Mr. Bottome. Absolutely. 

Mr. Gesell. But then your statement was interpreting that law 
that it had a broader ai)plication, was it not? That it was a restate- 
ment in effect of the common law and that it meant that no director 
shall use his position for his own benefit, is that not what you stated 
in that memorandum? 

I +Pec "ExLibit No. 259", supra, p. 1411. 
« Ibirl. 



CONCENTRATION OF ECONOMIC POWER 1447 

Mr. BoTTOME. Possibly, but I do not think it is correct. 

Mr, Gesell. You mean that your memorandum of law submitted 
in 1937 you now feel is incorrect? 

Mr. BoTTOME. What I was trying to drive at in that particular 
memorandum, which was addressed to one of oiu- ofl&cers, Mr. Van 
Schaick, was whether the word "property" in section 36 of the Insur- 
ance Law would include an article such as "coal." Mr. Van Schaick 
had brought up the question as to whether the purchase of certain 
supplies hke coal would be prohibited within the meaning of tliis 
section. I did not think this meant that type of property. I thought 
it meant property which might be considered an investment for the 
company. I do not consider inventory is an investment. 

Mr. Gesell. Well, now I want to know two things. I do not think 
the record shows them. First, did you not advise Mr. Van Schaick in 
1937 that your understanding of section 36 of the New York law was 
that no director shall use Ids position for his own benefit? 

Mr. BoTTOME. To the disadvantage of the company; yes. 

Mr. Gesell. Are the words "to the disadvantage of the company" 
in your memorandum anywhere? 

Mr. Bottome. That, of course, I had in mind, because otherwise 
the memorandum would not have meant an3^thing. I said v;e could 
buy coal or anything else from a company in wliich a director was 
interested, provided it was not to the disadvantage of the company in 
dealing with that company; that is what I intended to convey. 

Mr. Gesell. Your memorandum to Mr. Van Schaick simply 
stated that your understanding of the law was that no director would 
use his position for his own benefit? 

Mr. Bottome. Well, there is more to it than that. I tliink that is 
taking one section. I ended up with this — "Legally the company 
may purchase supplies from another corporation ui which one of our 
directors is a stockholder, but every precaution should be taken to 
see that the proprieties are strictly observed by competitive bids or 
otherwise, and notliing shall be done or left undone to indicate or 
suggest that the corporation dealing with us secured any undue 
advantage by reason of the official relationship with this company." 

Mr. Gesell. Well now in order that we can understand what .you 
meant, what about this case of the Meenan Oil Co. which I discussed 
with Mr. Buckner a minute ago? There the fdes indicated that some 
business was sent back to the Meenan OU Co. for revision of their bid 
to see if they could meet a loAver price which had already been sub- 
mitted by some other company. Do you consider that an observance 
of the proprieties within the meaning of that statute? 

Mr. Bottome. Well, I am not very familiar with the method of 
letting bids but I have been informed by builders that they frequently 
ask for bids and if dissatisfied with the whole bids, ask someone of the 
bidders if he can meet a price below any one of the bids and they will 
give hmi the contract. 

Mr. Gesell, And if that was done with a company where a direc- 
tor of your company was also a director you would feel that was 
within the proprieties of the situation? 

Mr. Bottome. As long as the company received the supply of 
whatever it was, oil, at a figure not higher than the lowest bid, or 
possibly lower than the lowest bid. 



1448 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Then your interpretation of the law is that it is some- 
what different than stated in that memorandum, that as long as the 
company is not harmed by such a transaction it is proper. 

Mr. BoTTEME. That is what I intended to convey in my memoran- 
dum. 

Mr. Gesell. Now, what was the specific question that came up 
that prompted the writing of that memorandum, which is exhibit 
269? Who was the director? What was the company, and what was 
the nature of the dealing? 

Mr. BoTTOME. I do not recollect; I do not think it was ever conveyed 
to me at all. My recollection of it was Mr. Van Schaick called me up 
on the telephone as to whether the purchase of coal— it may have been 
a memorandum from Mr. Van Schaick, I don't know. 

Mr. Gesell. Whether you could purchase coal? 

Mr. BoTTOME, The question was whether coal was properly within 
the meaning of section 36. ^Mr. Van Schaick happened to be a lawyer. 

Mr. Gesell. You do not know the specific transaction that came 
up at that time? 

Mr. BoTTOME. It would only be a surmise on my part. I have not 
any definite information. It might well have been a coal company; 
I don't know; I cannot testify of my own knowledge. Mr. Van 
Schaick would know. 

Mr. Gesell. I would like to submit this memorandum of Mr. 
Bottome's to Mr. Van Schaick. 

Acting Chairman King, it will be received. 

(The memorandum referred to was marked "Exhibit No. 269" and 
is included in the appendix on p. 1565). 

Mr. Cox. Mr. Bottome, have you examined this memorandum Mr. 
Gesell was asking about a moment ago, the one dated October 11, 
relating to the Meenan OH Co.? ^ 

Mr. Bottome. Have I seen it? 

Mr. Cox. Have you seen it? 

Mr. Bottome. Yes, I have read that. I had no knowledge of it 
and it is the first time I have heard of it. 

Mr. Cox. I wanted to make sure you had seen the text of this 
memorandum because tlie question I want to ask you is not a ques- 
tion based solely upon the fact but rather a question that calls for 
your opinion if you care to express one. You said a moment ago in 
this other memorandum which you hadn't seen, you expressed the 
opinion tliat any dealings with companies with wliich director were 
interested, would be conducted with the strictest propriety, is that 
correct? 

Mr. Bottome. Yes. 

Mr. Cox. Just taking the memorandum you examined, the one 
dated October 11, 1937, with relation to the" Meenan Oil Co., I call 
your attention 

Mr. Bottome (interposing). What is the date of that memorandum? 

Mr. Cox. October 11, 1937, the one you just looked at. 

Mr. Bottoms. What is the date of my memorandum you just 
looked at? 

Mr. Cox. That is the one of October 18, the one Mr. Gesell was 
asking about. 

' See "Exhibit No, 263", appendix, p. 1582. 



CONCENTRATION OF ECONOMIC POWER I449 

Acting Chairman King. Do you mean there is any relation between 
the two? 

Mr. Cox. I asked if he had expressed the opinion in the second 
memorandum that the strictest propriety should be observed in 
dealing with the companies interested. 

Mr. BoTTOME. When I wrote that opinion for Mr. Van Schaick, 
I had never seen that other memorandum. 

Mr. Cox. I understand, and I am not suggesting you had. I want 
to caU your attention now to these two sentences in this memorandum 
which you just read [reading from exhibit No. 63]: 

Their top price is 0.04285. We can contact Meenan and see if they will meet 
the price of 0.0404. If they will, we can direct the agent to give this additional 
contract to Meenan. 

The question I should like to ask you now is whether, in your 
opinion, that kind of conduct suggested in that part of the memo- 
randum is consistent with observing the strictest propriety. 

Mr. BoTTOME. I am not at all familiar with the way contracts for 
such a thing as oil are let, but I have been informed — understand, 
this is from information so that I may be very much off — that the 
price mentioned there is what they calt^e selling price, that it shan't 
exceed that price, but they all agreed to deliver; I say all agreed to 
deliver — they agreed to deliver at another price which is the daily 
market price of oil. In other words, if the price of oil goes up beyond 
the maximum price, their contract is on that price. In other words, 
they protect the price. I have been informed of that. I don't know 
personally, myself. I have nothing whatever to do with the letting 
of contracts. 

Mr. Cox. I wanted to make it clear I am not trying to examine 
you about this transaction, because I assume from what you say you 
don't know anything about the facts, but let's take a hypothetical 
case. Suppose the company advertises for bids on oil. There are 
two bids, one by a company which is not connected in any way with 
your company, and the other by a company with which you have a 
common directorate. The bid of the first company is lower than the 
bid of the company with which you have the common directorate. 
Do you think that it is consistent with the strictest propriety to 
inform the second company that its bid is higher than what the lower 
bid was, and then to ask it whether it will meet the lower bid without 
giving the first company an opportunity to bid again? 

Mr. BoTTOME. Wouldn't that apply equally well if the company 
wasn't in any way associated by directorship with ours? 

Mr. Cox. I think it would. 

Mr. BoTTOME. I would say irrespective of whether there was a 
common directorate, the question of propriety would arise; but on 
the other hand, I understand it is the custom, not in the Government 
where they put out specifications and they agree to accept the lowest 
bid, but builders I understand, and other people are constantly doing 
this sort of thing — that is, I mean accepting bids and then deciding 
that the bids are too high anyway and going around to one of the 
men and asking for a lower bid. 

Mr. Gesell. Then what has competitive bidding to do with the 
relationship of directors of the company? If competitive bids are 
not taken on their face value and used as the basis for handing out 
contrac*^. if they can be changed at the discretion of the person who 



1450 CONCENTRATION OF ECONOMIC POWER 

has the service to sell, what has competitive bidding to do with 
whether or not directors' connections with other companies are proper? 

Mr, BoTTOME. It gives a pretty good line on business. If we get 
six men to submit a price and we get a man to agree to give us a con- 
tract for less, I think we would be rather foolish not to take it for less. 

Mr. Gesell. You didn't try to get it lower. You offered it at the 
same price. The memorandum suggested that you offer to meet a 
price wliich was the lowest price bid. 

Mr. BoTTOME. The purpose of tliis inquirj^ is to determine whether 
one who seeks bids has got to be bound by the lowest bid. 

Mr. Gesell. The purpose of this inquiry is to determine whether 
competitive bidding is any criterion in judging the relations between 
a director and his company, if those bids are subject to revision and 
variation at the will of the company. 

Mr. BoTTOME. Well, as far as I am concerned, I tliink if I was 
handling the bids, I would proceed along the line that I said I would — 
namely, I would ask for competitive bids, and I would take every pre- 
caution to see that in dealing with any company with which one of 
our Directors was associated, no undue profit would inure to that 
company to the disadvantage of the New York Life. 

The Vic^E Chairman. Let me ask a question. Would you give the 
person not connected with your organization the same opportunity to 
lower his bid that you would give somebody connected with your 
corporation? 

Mr. BoTTOME. You are asking me? 

The Vice Chairman. Yes. 

Mr. BoTTOME. I would say yes. 

The Vice Chairman. Well, that is just your notion. 

Mr. Gesell. Now the next question obviously, Mr. Bottome, is 
whether or not that was done in the New York Life Insurance Co.? 

Mr. Bottome. As far as I know. I don't have anything to do with 
the bids, you know. 

Mr. Gesell. Take a case like the Employer's Liability Assurance 
Corporation where the rate of the various types of insurance written 
is a standard rate met by all companies. How does the company 
determine within the proprieties of the situation that the bulk of its 
business should be given to this particular company with which it 
interlocks? 

Mr. Bottome. Well, you are asking about something that I know 
about now. As a matter of fact, the Employer's Liability Co., the 
coverage they give us is under a blanket policy with automatic cover- 
age, and that can only be handled in one company. You couldn't 
have automatic coverage in two companies. If we acquired a piece 
of real estate out in Spokane and we never knew we acquired it, we 
would be covered. 

Mr. Gesell. Certainly, but this blanket coverage doesn't have to 
be given by the Employer's Liability Corporation. It could be given 
by X Y Z. 

Mr. Bottome. Not necessarily because I don't think many 

Mr. Gesell (interposing). Why is the Employer's Liability Assur- 
ance Corporation selected here for this business? 

Mr. Bottome. I don't know why they were selected originally. 
They have given us wonderfully good service, I know that. Some of 
the service we have had from other linbility companies is not nearly 
so irood. Tliat was another matter. 



CONCENTRATION OF ECONOMIC POWER I45I 

Mr. Gesell. How would the proprieties]of the situation be observed 
in a case like this? 

Mr, BoTTOME. Well, as I understand it, the Employer's Liability 
Co. wrote some years ago the amount of pubhc liability insurance we 
carried. At that time we only owned the Home Office Building, the 
Printing Building, and the Kansas City Building. That was in 1929, 
and since that time through certain vicissitudes which you are doubt- 
less familiar with, we own a great deal more real estate and therefore 
our exposure is greater and we have to require a very much larger 
amount of coverage. 

Mr. Gesell. I want to know this one question. In giving that 
additional coverage, do you know whether the company tried to see 
whether it could get the same coverage from someone else? 

Mr. BoTTOME. I think they probably did. I am not sure of that. 
Of course, we get what is called a merit rating. 

Mr. Gesell. That could be given to you by any company? 

Mr, Bottome. Yes. Of course, that depends upon the character of 
the person insured, the corporation insured. 

Mr. Gesell. I have no further questions. 

Senator King. I have none. 

The Vice Chairman. The witness is excused. 

Mr. Gesell. That is all of the witnesses today. 

(The witness, Mr. Bottome, was excused.) 

The Vice Chairman. The committee will stand adjourned until 
ten o'clock tomorrow. I am advised by counsel putting on this testi- 
mony that he hopes to be able to put on in the morning all the testi- 
mony he will be prepared tomorow to present. 

(Whereupon, at 4 p. m., a recess was taken until Thursday, Febru- 
ary 16, 1939, at 10 a. m.) 



INVESTIGATION OF CONCENTBATION OF ECONOMIC POWER 



THURSDAY, FEBRUARY 16, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C. 

The committee met at 10:15 a. m., pursuant to adjournment on 
Wednesday, February 15, 1939, in the caucus room. Senate Office 
Building, Senator William H. King presiding. 

Present: Senator King (acting chairman); Representative Reece; 
Messrs. Henderson, Arnold, O'Connell, Patterson, and Ferguson. 

Present also: Mr. Gerhard Gesell, Special Counsel, Securities and 
Exchange Commission. 

Acting Chairman. King. The committee will be in order. Judge 
Sumners has been detained. Who is the first witness this morning? 

Mr. Gesell. Mr. Houston is the first witness this morning. 

Acting Chairman King. Mr. Houston, please come forward. Mr. 
Houston, hold up your right hand, please. Do you solemnly swear 
the testimony you are about to give in this proceeding will be the 
truth, the whole truth, and nothing but the truth, so help you God? 

Mr. Houston. I do. 

TESTIMONY OF DAVID FRANKLIN HOUSTON, PRESIDENT, MUTUAL 
LIFE INSURANCE CO. OF NEW YORK, NEW YORK, N. Y. 

transactions involving interlocking directors and directors' 
affiliations — mutual life 

Acting Chairman King, ifou will state your name, please. 

Mr. Houston. My name is David Franklin Houston. 

Mr. Gesell. You are president of the Mutual Life Insurance Co. 
of New York? 

Mr. Houston. That is correct. 

Mr. Gesell. How long have you been president? 

Mr. Houston. About UJ^ years — July 1927. 

Mr. Gesell. Are you also a director of that company? 

Mr. Houston. I am — a trustee. 

Mr. Gesell. How long have you been a trustee. 

Mr. Houston. I think I was elected in July 1927. 

Mr. Gesell. How much insurance in force has your company at the 
present time? 

Mr. Houston. About $3,787,000,000. 

Mr. Gesell. What are the admitted assets of your company? 

Mr. Houston. At present, approximately $1,399,000,000. 

Mr. Gesell. Do you operate throughout the United States? 

Mr. Houston. Except in Texas. 

1453 



1454 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. What type of insurance does your company write? 

Mr. Houston. Straight life, ordinary life insurance. 

Mr. Gesell. Do you write group insurance? 

Mr. Houston. We do not. 

Mr. Gesell. Do you write industrial insurance? 

Mr. Houston. No. 

Mr. Gesell. How many trustees are there of the Mutual Life 
Insurance Co.? 

Mr. Houston. Thirty-six. 

Mr. Gesell. They are elected — have been up to the present time — 
every other year? 

Mr. Houston. Every second year, in odd years. 

Mr. Gesell. I should like to offer for the record a schedule which 
has been submitted to us by the company showing the names of the 
board of trustees of the Mutual Life Insurance Co. of New York, and 
the dates of their election. 

Acting Chairman King. It will be received. 

(The schedule referred to was marked "Exhibit No. 270" and is 
included in the appendix on p. 1566.) 

Mr. Gesell. We have also to offer for the record at this time a 
schedule of the business affihations of the trustees of the Mutual Life 
Insurance Co. of New York. 

Acting Chairman King. Let it be received. 

(The schedule referred to was marked "Exhibit No. 271" and is 
included in the appendix on p. 1567.) 

Mr. Gesell. I might say that that schedule shows the directors of 
the Mutual Life Insurance Co., the trustees of that company, are also 
directors of 22 bank and trust companies, 31 insurance companies, 
principally fire and marine companies, 55 industrial corporations, 3 
mercantile companies, 1 publishmg company, 9 real estate ventures, 
29 railroads, 1 steamship company, 1 air line company, 8 utilities, and 
15 miscellaneous companies. 

There is a trustee of your company by the name of Mr. John H. 
Ottley, is there not? 

Mr. Houston. John H. or John K? 

Mr. Gesell. John K. 

Mr. Houston. Yes. 

Mr. Gesell. He is president of the First National Bank of Atlanta, 
is he not? 

Mr. Houston. Yes. 

Mr. Gesell. When was he elected trustee? 

Mr. Houston. In 1931, June 4. 

Mr. Gesell. I want to ask you whether you recall receiving this 
letter from him, a letter being dated September 7, 1933, forwarding to 
you a copy of a letter which he had written to Mr. Turner, treasurer of 
your company, under same date, the letter to Mr. Turner stating 
[reading from "Exhibit No. 272"]: 

In my conversation with President Houston I stated to him that the present 
business of the Mutual Life with this bank is satisfactory and is duly appreciated; 
however, I advised him that my desire to have the relationship broadened and 
increased is based on three propositions: First, that as I make my living as presi- 
dent of the First National my first interest is to build up its business; second, 
that as a trustee of the Mutual Life, which is an honor I appreciate, I want the 
full interest of my bank with its important sectional contacts in the company's 
southeastern activities. This I am sure you will agree I can properly .expect 



CONCENTRATION OF ECONOMIC POWER 1455 

only as the size and value of the Mutual Life's business with us is at least on an 
equal footing with other accounts of similar companies; third, that I believe 
these purposes can be accomplished without costing your company anything. 

The letter goes on, after discussion of banking arrangements to say 
[reading further from "Exhibit No. 272"]: 

You will understand that in going into this great detail I have tried to point 
out practical arrangements whereby my desire as president of this bank and 
trustee of the Mutual Life, could be accomplished with advantage to each and 
disadvantage to no one. 

Anything you can do for me in the matter will be greatly appreciated. 

Do you recall that letter? 

Mr. Houston. I do not. 

(The vice chairman, Representative Sumners, assumed the Chair.) 

Mr. Gesell. Do you recall whether as a result of that letter a de- 
posit was made in Mr. Ottley's bank? 

Mr. Houston. In the first place, when I first knew the situation 
there I think our account was in another bank which was a branch of 
the bank whose headquarters were outside of Atlanta, and it seemed to 
us that where we had an important agency, as we had in Atlanta, an 
important city, doing a considerable business, it would be preferable 
to have an account in a bank whose headquarters were in Atlanta. 
The change was made, I think, considerably before 1931 and a deposit 
was made in the Fourth National which was afterwards merged and 
becaxxire the First National, and subsequently the accounts were 
increased. The treasurer at the time when we were trying to find 
places where we could get some interest on deposits, made a time 
deposit in that bank of $500,000, 1 think it was, on which they allowed 
use one-half of 1 percent, and most banks were not allowing anything. 

Mr. Gesell. My question was, Mr. Houston, as a result of this 
letter, did your company make a deposit of $500,000 in the bank? 

Mr. Houston. I do not know. It may have been in spite of that 
letter. 

Mr. Gesell. On September 16, 1933, approximately 9 days later, 
Mr. Ottley wrote you, .did he not, and stated in part [readiiig from 
"Exhibit No. 272"]: 

Today I had the great pleasure of receiving from Mr. Turner a check for $500,- 
000 for the .establishing with us of a special 90-day time deposit account. I have 
written him direct how much I appreciate this "further substantial evidence of 
friendship as well as the recognition on his part of the ability of my bank to serve 
our company in a more important way. 

Mr. Houston. Well, he was correct as to the service; and he did 
take good care of the money and paid us interest on the account. 

Senator King. I suppose your company was interested, if you had 
funds and purposed depositing them in banks, to get banks that had 
prestige and standing and could be of some service to the community 
and to your organization. 

Mr. Houston. Yes, Senator; especially where we felt that the 
money would be safe and, as has been intimated, where we could get 
something on the deposit. 

Mr. Gesell. I would like to offer this correspondence in full for 
the record now. 

(The correspondence referred to was marked "Exhibit No. 272" 
and is included in the appendix on p. 1571.) 

Mr. Gesell. Mr. Houston, still considering the connection of 
Mr. Ottley's bank with your company, did you not receive— I would 

124491— 3^— pt. 4 20 



1456 CONCENTRATION OF ECONOMIC POWER 

like to read you a letter dated August 29, 1935, signed by Mr. Ottley, 
president, addressed to Mr. Turner, treasurer of your company 
[reading from "Exhibit No. 273"]: 

It was my intention to visit you before the last meeting of the board of trustees 
of the Mutual Life Insurance Co. as I very much desired the opportunity of dis- 
cussing with you and Mr. Houston using our bank to a larger extent for deposit 
of non-interest-bearing funds. 

The letter goes on to say that he wishes to have additional deposits 
and ends up by saying [reading further]: 

As stated before, I hope to have the pleasure of discussing this situation with 
you and Mr. Houston in person, but as there may be some further delay in the 
chances to do this, I am taking the liberty of asking your most careful considera- 
tion to this communication. 

With kindest personal regards and best wishes to you and your associates. 

Do you recaU having ever seen that letter? 

Mr. Houston. I do not remember it. 

Mr. Gesell. I wish to offer it for the record. 

(The letter referred to was marked "Exhibit No. 273" and is included 
in the appendix on p. 1573.) 

Mr. Houston. In addition to that tune deposit on which they paid 
us interest, I think there were deposits, as there would naturally be in 
Atlanta of nontime deposits because of the amount of business we do 
there; because of the strength and safety of that bank, irrespective of 
the fact whelher the president of it was a trustee or not. 

Mr. Gesell. Now, about 10 days later after that letter Mr. 
Turner wrote Mr. Ottley, stating [reading from "Exhibit No. 274"]: 

I have your letter of August 29 and appreciate the difficulty sound banks have 
at the present time to invest their funds and secure an adequate return after 
covering the expenses of Federal insurance and overhead. * * * 

I Am enclosing check for $250,000 to be credited to the company's special 
account with your bank. This will increase the balance to well over $300,000. 
Of course, if times change and we should have an opportunity to invest our 
funds more closely than at present it may be necessary to draw down the balance 
for this purpose. 

Did Mr. Turner discuss with you making this additional deposit 
with Mr. Ottley 's bank? 

Mr. Houston. He usually does; I suppose he did in that case. I 
think really the account increased and I had no objection to having it 
increased; I would not have any objection to increasing it further. 

Mr. Gesell. Do you know if the account would be increased because 
of the special request of Mr. Ottley, your trustee? 

Mr. Houston. Unless we had thought it was a wise and desirable 
thing to do we would not have done it because of Mr. Ottley's or 
anybody else's request. 

Mr. Gesell. But, Mr. Houston, it does not answer my question. 

Mr. Houston. Yes; it does; it answers the spirit of it. 

Mr. Gesell. My question was, did you know at the time you made 
this additional deposit that Mr. Ottley had made a specijBc request 
for it? 

Mr. Houston. I cannot answer that now. I do not remember, 
but it would not have made any difference with me one way or the 
other in deciding it. 

Mr. Gesell. I wish to offer this letter for the record. 

(The letter referred to was marked "Exhibit No. 274" and is 
included in the appendix oh p. 1573.) 



CONCENTRATION OF ECONOMIC POWER ^457 

Mr. Gesell. Now, the next letter, less than a year later, Mr. 
Turner, treasurer of your company, writes Mr. Ottley on May 5, 1936: 

Referring to our conversation of last Wednesday, I have arranged to increase 
the company's balance with your bank to say one million dollars, including the 
time deposit of $500,000, so that the relation between current and time funds 
may be equal. 

Do you recall anything with respect to why that additional deposit 
was made in Mr. Ottley 's bank? 

Mr. Houston. No. I would have had no objection to increasing it 
on general principles. 

The Vice Chairman. I presume you had to deposit your funds 
somewhere? 

Mr. Houston. We did; and we wanted a strong bank. 

The Vice Chairman. And if a strong bank happened to be in a 
district in which your company had a good many pohcyholders, and 
was doing considerable business, that was to that degree advan- 
tageous? 

Mr. Houston. And we had no objection to having it in that section 
of the country. 

Mr. Gesell. Now Air. Ottley replied to Mr. Turner's letter on 
May 10, 1936: 

My Dear Mr. Turner: It is highly gratifying to receive your letter of May 5 
indicating your intention to place this bank in your million-dollar class. I wish 
to assure you of my appreciation of this compliment, and at the same time to tell 
you how good this news makes your trustee feel. Regarding the last paragraph 
of your letter I recognize of course that your first responsibility is to look after 
the interests of the Mutual Life and we always expect to do business with you on 
that basis. 

Do you recall ever having seen that letter? 

Mr. Houston. No. 

Mr. Gesell. May I ask you, Mr. Houston, whether it is the 
practice of your company to make deposits with banks which interlock 
with your company through directors who are anxious for those 
deposits? 

Mr. Houston. No, sir: not necessarily. We try to select banks — we 
have, of course, many banks throughout the country^ specially where 
we have headquarters of agencies, and we try to select banks which 
we believe to be strong and sound, and which would withstand strain. 
One evidence of that is that during the depression I think the maximum 
amount that we had tied up for a time was about $280,000, scattered 
throughout the United States. 

Mr. Gesell. Now would you have made these non-interest- 
bearing deposits with Mr. Ottley 's bank if he had not naade a specific 
solicitation of your company for those deposits? 

Mr. Houston. In all probability. We were making them in 
diflFerent places. We had to put them somewhere. 

Mr. Gesell. Do I imderstand from your statement that you had 
funds to deposit and if directors sought those funds for those banks 
and you felt the banks were sound, you were willing to make the 
deposits with them? 

Mr. Houston. We made them in banks where we did not have 
directors. 
*Mr. Gesell. That does not answer my question. 



1458 CONCENTRATION OF ECONOMIC POWER 

Mr. Houston. I don't care whether it does or not. My disposition 
would be to do it, rather in spite of the fact the trustee is an officer 
of the bank. 

Mr. Gesell. I would like an answer to my question, whether you 
care to answer jt, sir. My question was if a director or trustee of 
your company is connected with a bank and solicits the deposit of 
your company, and you feel that bank is sound, is it your practice to 
make the deposit? 

Mr. Houston. I would not say it is our practice. We might make 
the deposit. 

The Vice Chairman. And have you made deposits in banks where 
those connections with the banks were not trustees? 

Mr. Houston. We have. 

The Vice Chairman. How many })anks throughout the United 
States have you utilized for deposits? 

Mr. Houston. I cannot give you the number, Senator, off-hand; 
I should say we have about one hundred and twenty-two odd ac- 
counts with some duplicates, agency accounts, or company accounts. 
Probably about 95 banks. 

Mr. Arnold. If there were two banks, one in the situation of the 
bank in Atlanta where the director was writing you suggesting that 
his connection entitled him to some consideration, and the other bank 
which had no connection with you, suppose the banks were equally 
sound, you would be moved in selecting your bank by the connection 
with directors, would you not? 

Mr. Houston. If we already had an account in the other bank 
we probably would not change it. 

Mr. Arnold. But on the question of new business, you would be 
very much moved of course by the fact that the gentleman soliciting 
the business was a director, would you not? _ 

Mr. Houston. To this extent, that I think it would be in the 
interest of the company in all probability to have an account in a 
bank whose head, or one of whose chief officers was one of our trustees; 
I think he would be inclined to look after it better for us. 

Mr. Gesell. Which comes first, Mr. Houston? Do you choose 
your bank and then take your trustee, or do you take your trustee and 
let him choose the bank? 

Mr. Houston. We do not let the trustee choose any bank. 

Mr. Gesell. Now may I call your attention to another instance 
in this matter? Mr. Stanley Field was until very recently a member 
of your board of trustees, was he not? 

Mr. Houston. He was for a while. 

Mr. Gesell. He was connected with the Continental Illinois Bank 
in Chicago, was he not? 

Mr. Houston. I do not recall. 

Mr. Gesell. Well now I call to your attention a letter signed by 
him, dated September 13, 1933, saying [reading from "Exhibit No. 
275"]: 

The Mutual Life Insurance Co. has about five accounts with the Continental- 
Illinois National Bank & Trust Co. of Chicago, with balances averaging around 
$200,000, and one of which is termed the home office account, amounting to 
$44,000. The others are agency accounts. These accounts are very much 
appreciated but in view of the very large balances which I notice you carry in 
various New York banks, I am wondering if you would not be disposed to carry 
a larger amount of the home-office account with the Continental-Illinois National 
Bank & Trust Co. of Chicago? 



CONCENTRATION OF ECONOMIC POWER I459 

The bank has private wire connections with New York and can make immediate 
transfer of funds, 

And so forth. You recall receiving that letter, Mr. Houston? 

Mr. Houston. I probably received it; I do not remember now 
about it. 

Mr. Gesell. Now this letter was written on September 13. On 
September 20 your treasurer, Mr. Turner, wrote Mr. Field saying 
that you had referred the letter to him and completed his letter with 
this paragraph [reading from "Exhibit No. 275"]: 

I am arranging to increase the balance in our home office account with .your 
bank. If you will kindly have analysis of our other accounts made, and it is 
found that the balances maintained are inadequate, I should be glad to raise 
them to the necessary level. 

Mr. Field replied to Mr. Turner on September 22 [reading further 
from "Exhibit No. 275"]: 

I thank you for yout letter of September 20, being an answer to a letter which 
I wrote President Houston with reference to the deposits of the Mutual Life 
Insurance Co. of New York with the Continental-Illinois National Bank & 
Trust Co. 

I am advised that the agency accounts are maintained on a satisfactory and 
profitable basis, and that what the bank was anxious to obtain was a larger 
deposit of the home office account. They were very grateful, therefore, when I 
reported to them the contents of your letter, and I wish to express my personal 
appreciation of the action which you are taking to increase this deposit with the 
Continental -Illinois National Bank & Trust Co. 

I wish to offer this correspondence for the record. 

(Senator King assumed the Chair.) 

Acting Chairman King. It may be received. 

(The correspondence referred to was marked "Exhibit No. 275" 
and is included in the appendix on p. 1574.) 

Mr. Gesell. Now may I ask you again, Mr. Houston, if you had 
not received this specific request from Mr. Field to make a deposit 
in that bank, would you have made that deposit? 

Mr. Houston. We might have, and if the bank itself had written 
to us we might have made it. 

Mr. Gesell. And the fact that the letter was from Mr. Field, one 
of your tiustees, had nothing to do with the matter? 

Mr. Houston. Not especially. 

Mr. Gesell. Would you have given as prompt consideration? 

Mr. Houston. I would have. 

Mr. Gesell. In the case of each of these two instances, was any 
time taken to make a thorough analysis of the bank's condition to 
determine whether or not it was a safe bank for the deposit? 

Mr. Houston. We knew it was, and I knew it was a relatively small 
account for such a bank and considering our cash balance. 

Mr. Gesell. Now, Mr. Sloan Colt is one of your trustees, is he not? 

Mr. Houston. He is. 

Mr. Gesell. Mr. Colt is connected with the Bank of New York 
& Trust Co., is he not? 

Mr. Houston. Bankers Trust Co. of New York. 

Mr. Gesell. With the Bankers Trust Co. of New York. 

Mr. Colt was nominated for trustee of your company on May 27, 
1931, and elected on June 4, 1931, was he not? 

Mr. Houston. June 4. 



1460 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. He is a member of the finance committee of your 
company? 

Mr. Houston. He is now. 

Mr. Gesell. Was he a member at that time? 

Mr. Houston. No, not at that time. 

Mr. Gesell. Do you recall receiving this letter from him on 
December 16, 1932, after he had become a trustee of your company 
[readmg from "Exhibit No. 276"]: 

I want to drop you this line to repeat the expression of appreciation which I 
made at the finance committee meeting in connection with the opening of the 
account of the Mutual Life Insurance Co. with Bankers Trust Co. 

I personally am delighted to feel that we are to have the responsibility of 
safeguarding some of your funds and all of us here are very pleased at the 
thought of a closer association between us. I am sure you know that I will do 
anything I can to make this association agreeable and profitable.] 

Do you recall receiving that letter? 

Mr. Houston. I do not recall it. I have no doubt I received it, 
and I was very glad to have a deposit in the Bankers Trust Co. It 
is one of the best and finest in New York City, and there is no finer 
man that I know of in New York City than Mr. Colt. 

Acting Chairman King. I assume that your company has a large 
amount of cash from time to time which it must invest, or failing to 
invest promptly, it has to carry the same in banks throughout the 
United States. 

Mr. Houston. Especially in these days. Senator, when it is very 
difficult to find suitable investments. We have to put the money 
somewhere, and we are glad to have the money in banks like the 
Bankers Trust Co. or the New York Bank & Trust Co. and others. 

(The vice chairman. Representative Sumners, resumed the Chair.) 

Senator King. I understood you to say that j^ou had deposits in 
89 banks. 

Mr. Houston. That is throughout the country. 

Senator King. I mean throughout the country. Now, you mean 
to accept banks of strength and character, so in the event o any 
depression, decline in values, you may feel the funds of which yoi. are 
the custodians may be safely guarded and protected. 

Mr. Houston. That is very true, and as I intimated a moment ag'\ 
I think that the evidence of the care is the fact that during the depth 
of the depression the amount of money we had in suspense and in sus- 
pended banks was negligible, practically. 

Mr. Gesell. The thing that interests me, Mr. Houston, is that in 
1928 tlie balance of vour companv with Bankers Trust Co. was a little 
in excess of $31,000; in 1929 a little in excess of $30,000; in 1930 a 
little in excess of $26,000; in 1931 a little in excess of $150,000, 
and then immediately after Mr. Colt becomes a trustee of your com- 
pany, the balance jumps to over $1,500,000. 

Mr. Houston. Yes. 

Mr. Gesell. Is there any connection between the fact that Mr. 
Colt becomes a trustee of your company and a member of vour finance 
committee and this large" deposit of $1,000,000 is made in this par- 
ticular bank? 

Mr. Houston. Not necessarily. I am rather surprised that it isn[t 
larger, in viow of the strength of the Trust Co. and the service it 
renders. 



CONCENTRATION OF ECONOMIC POWER 1461 

Mr. O'CoNNELL. May I ask a question? I have had a little diffi- 
culty in following the answers to the questions, because it doesn't 
seem to me that the questions asked by the examiner were intended 
to bring out anything particularly about the strength or weakness of 
a particular bank, but rather to investigate an entirely different ques- 
tion, that is the relationship between your banlc. or your insurance 
company and a bank upon which one of your trustees was also a 
member of the board. Do I understand you to mean that these 
instances which have been brought out where it was a matter of 
coincidence — you have said several times, "Not necessarily," for 
instance, when the deposit was substantially increased. You mean 
that your action was not influenced, or that it was? 

Mr. Houston. What I meant to say was that it was not entirely 
improbable that if Mr. Colt had never become a member of the board, 
we might have a deposit, and a lar^e deposit, in the bank, because 
I have confidence in his bank and -it is one which I believe would 
take good care of the funds, and as I said before in answer to a similar 
question, I think it is some advantage to have ' an account in a 
bank, one of whose responsible officers is a trustee of your company. 

Mr. O'CoNNELL. Then you mean you were influenced by the fact? 

Mr. Houston. Other things being equal, I certainly would have 
no objection to it. 

Mr. O'CoNNELL. I gathered from your last "answer that you do 
mean that you were influenced by his membership on your board and 
on the board of directors of the bank. 

Mr. Houston. We would not make a deposit in a bank simply 
because we happened to have a trustee who is connected with that bank. 

Mr. O'CoNNELL. I understand that, but I did understand you to say 
that you were influenced by the fact that he was a member of your 
board. You said it was to your advantage. 

Mr. Houston. Yes. 

Mr. O'CoNNELL. Which I understood you to say influenced you. 
Thank you. 

Mr. Gesell. I should like to offer for the record the letter from 
Mr. Colt to which the witness referred a moment ago. 

The Vice Chairman. It may be admitted. 

(The letter referred to was marked "Exhibit No. 276" and is in- 
cluded in the appendix on p. 1575.) 

Mr. Gesell. Mr. Houston. I have before ine a schedule, certified 
to by the treasurer of your company, showing the highest bank 
balances and the rate of interest paid on various deposits of your 
company with banks, certain banks, for the years 1928 to 1938 inclusive.* 
This schedule shows all deposits in banks with which your company 
is connected through interlocking directorships, and also shows the 
lack of deposits in certain banks with which your company is also 
similarly connected. 

I want to ask you, having this same problem in mind, whether it is 
not a fact that you have had on deposit with the National City Bank 
at the close of 1938 over $11,000,000? 

Mr. Haughton Bell. Isn't that the highest bank balance? 

Mr. Gesell. Yes, the highest during the year 1938 was over 
$11,000,000. 

1 See "Exhibit No. 277", appendix, p. 1576. 



1462 CONCENTRATION OF ECONOMIC POWER 

Mr. Houston.. At 1938 it seems to have been seven and three-tenths, 
four-tenths nearly. It was higher than that in other years apparently. 

Mr. Gesell. My record would show that it was in excess of 
$11,000,000. 

Mr. Houston. The National City Bank, that is correct. 

Mr. Gesell. Mr. Perkins, a trustee of your company, is connected 
with that bank, is he not? 

Mr. Houston. He is. 

Mr. Gesell. You have a deposit with the Central Hanover Bank 
& Trust Co. in excess of $2,000,000— in excess of $3,000,000? 

Mr. Bell. That is the highest balance again, isn't it? 

Mr. Gesell. Yes. 

Mr. Houston. That seems to be correct. 

Mr. Gesell. Mr. Cornelius Vanderbilt, a trustee of your company, 
is also associated with your bank? 

Mr. Houston. General Vanderbilt has been ill for sometime. 

Mr. Gesell. For how long was he HI, sir? 

Mr. Houston. I have forgotten. 

Mr. Patterson. You mean Gen. Cornelius Vanderbilt? 

Mr. Houston. He retired from our board. He was very ill for a 
long time. 

Mr, Gesell. Do you know when he retired, sir? 

Mr. Houston. I do not know whether I have the date. 

Mr. Gesell. Isn't it correct that he retired in October 1938? 

Mr. Houston. I, think so. 

Mr. Gesell. Your highest bank balance with that bank, with the 
Central Hanover Bank, in 1938 was in excess of $3,000,000, was it not? 

Mr. Houston. Apparently. 

Mr, Gesell. You have deposits in the First National Bank, have 
you not? 

Mr. Houston. We have, 

Mr. Gesell, Mr. Myron C. Taylor, a trustee of your company, is 
connected with that bank? 

Mr. Houston. And the president of it is a trustee. 

Mr. Gesell. Who is he? 

Mr. Houston. Mr. Leon Fraser. 

Mr. Gesell. You have deposits with the Bank of New York Trust 
Co., have you not? 

Mr. Houston. We have. 

Mr. Gesell. Mr. Choate and Mr. Traphagan and Mr. Colt your 
trustees, are all connected with that bank? 

Mr, Houston, They are, 

Mr. Gesell. You have a deposit, a small deposit, of $50,000 or in 
that neighborhood with- Citizens Union National Bank, have you not? 

Mr. Houston. I do not remember. Oh, yes, in Louisville, you 
mean. 

Mr. Gesell. Yes. 

Mr. Houston. Yes. 

Mr. Gesell. And Mr, Bulhtt, your trustee, is connected with that 
bank, is he not? 

Mr. Houston. I do not know. That is all right, perhaps he is. 

Mr, Gesell. I will come back to that in a moment. You have 
large deposits with the Guaranty Trust Co., have you not? 

Mr. Houston. We have. 



CONCENTRATION OF ECONOMIC POWER 1453 

Mr. Gesell. Those deposits during the period covered by this 
schedule have been as high as $23,483,000, have they not? 

Mr. Houston. They did run up to that apparently for a time in '37. 

Mr. Gesell. There are five trustees of your company connected 
with that bank, are there not? 

Mr. Houston. There are. 

Mr. Gesell. You have the greatest amount of money in that bank? 

Mr. Houston. We have. 

Mr. Gesell. Do you still wish me to understand that the deposits 
in these banks are entirely a matter of coincidence? 

Mr. Houston. It is a matter of service that we require from the 
bank and we regard it as safe. These balances that you speak of 
don't exist in normal times. Ordinarily we wouldn't have on hand 
anything like the amount of cash that we have at present. We 
would have it "invested up to 10 millions of dollars or some such a 
matter. We frequently make very large purchases of securities 
when we can get them and we use the balances in these large banks 
instead of having to make the additional deposit. 

Mr. Gesell. Yes; my question is, though, are not these large bank 
deposits made because of the connection between your company and 
that particular bank? 

Mr. Houston. I shouldn't say that. The fact that these men are 
members of both are in a way an advantage, but I should say that we 
would have had very large accounts if there was not a single officer 
on the board. The same thing is true of several other banks, 

Mr. Gesell. What same thing is true, sir? 

Mr. Houston. Well, you mentioned the National City, where we 
have a very large amount, and the First National and the Bankers 
Trust Co. We have to put our money somewhere and we need a great 
deal of it in New York City for the large purchases we make from time 
to time. 

Mr. Arnold. There is a tone in some of these letters of expectation 
on the part of persons who are du'ectors, or trustees, of your company 
that by virtue of that position they will get certain advantages by way 
of deposits. I recall one letter in particular which was read. You 
don't do anything to discourage those expectations, do you? 

Mr. Houston. Well, I don't say except that we will or will not 
make the deposit according to the needs of the company. 

Mr. Gesell. Do you recall any instances where your company has 
refused to make such a deposit M^here a director has solicited one in 
the manner we have been reviewing here? 

Mr. Houston. I don't remember any. 
■ Mr. Gesell. These deposits are very profitable to the banks, are 
they not? 

Mr, Houston. In these days, not as in normal times. 

Mr. Gesell. You mean it is no advantage to the bank to have 
$23,000,000? 

Mr. Houston. Not as in normal times. Well, we do not often 
have $23,000,000 on deposit in a bank. 
. Mr. Gesell. Well, that is not answering my question. 

Mr. Houston. Some of your questions are difficult to answer, but 
banks do not get very_much on loans in these days and have trouble 
in getting their funds out. 



1464 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Do I understand you to say that it is no advantage 
to a bank to have on deposit $23,000,000? 

Mr. Houston. No ; T would not say that it is no advantage. 

Mr. Gesell. The fact that these trustees have solicited dei)osit8 
of your company would, indicate there is some advantage in receiving 
it, would it not? 

Mr. Houston. That is correct, and I should very much prefer 
that they wouldn't solicit them. 

Mr. Gesell. It would be an easy thing to discourage by not giving 
in to their solicitation each time it is made. 

Mr. Houston. But sometimes we want the accoimts in their banks. 

Mr. Gesell. I woidd like to offer for the record this schedule state« 
ment showing the bank balances in the various banks we have been 
discussing for the period from 1928 to 1938, inclusive. 

(The schedule referred to was marked "Exhibit No. 277" and is 
included in the appendix on p. 1576.) 

Mr. Gesell. There is just one deposit that we didn't discuss on 
that schedule, a deposit in excess of $2,000,000 with the Chase Na- 
tional Bank, or equal to $2,000,000, in the Chase National Bank. 
Are you familiar with any facts or circumstances surrounding that 
particular deposit, Mr. Houston? 

Mr. Houston. No. 

Mr. Gesell. Were you solicited to make that deposit by any of 
your trustees? 

Mr. Houston. There may have been a suggestion. If there was, 
I don't remember the incident, or what it was. 

Mr. Gesell. Mr. Cornelius Vanderbilt was connected with the 
Chase bank, was he not? 

Mr. Houston. I think he was. 

Mr. Gesell. Did he solicit that account? 

Mr. Houston. I do not remember. 

Mr. Gesell. May I read you a paragraph to refresh your recol- 
lection from a memorandum from the files of the Chase Bank: 

Mr. Cornelius Vanderbilt, our director, is a trustee of the company, and Mr. 
Frank L. Polk, until recently one of our diiectors, is also a trustee. Mr. Vander- 
bilt has had the question of opening up an account with Mr. Houston, president 
of the company. He promised to keep Chase in mind. More recently the 
company has been solicited by Mr. Vanderpool through Mr. Turner, treasurer. 

Does that refresh your recollection with respect to the account. 

Mr. Houston. I think that is correct. 

Mr. Gesell. Was the deposit in the Chase made because of the 
solicitation of j^our trustee, Mr. Vanderbilt? 

Mr. Houston. Not necessarily. We had, as I recall it, no deposit 
in the Chase. It is just across the street from us, one of the biggest 
in the city, and it seemed to me not unnatural that we should have a 
deposit there. 

Mr. Gesell. It seemed surprising to me that you did not think of 
Chase. 

Mr. Houston. A lot of these things happen; you do not always 
think of everything. 

Mr. Gesell. It is a little hard to forget the Chase Bank across the 
street. 

Mr. Houston. I would not have remembered necessarily whether 
we had an account there or not, and I would have had no objection 
to General Vanderbilt asking us if we cared to open an account there. 



CONCENTRATION OF ECONOMIC POWER 1465 

Mr. Gesell. It is safe to say, is it not, from the facts that we have 
been reviewing, that the allocation of funds of your company which 
you have available for deposit with various banking institutions is 
made primarily as a sort of banking patronage because of the solicita- 
tion of your trustees? 

Mr. Houston. No. If we had not a single trustee on a single bank 
in New York City we would have the money in those banks as we 
have today. 

Mr, Gesell. You would have deposits in the same banks in the 
same amounts? 

Mr. Houston. I cannot say that, but I mean large deposits, because 
they are strong banks and we have to put our money somewhere. 

Mr. Gesell. Well now, may I ask you, for the benefit of the com- 
mittee, if you have anything further you wish to say with respect to 
this matter of banking deposits which I may not have covered? 

Mr. Houston. I do not know of anything, except that I am sure 
that none of these gentlemen were trying to do anything underhand or 
untoward. ^ They are men of character and standing. 

Mr. Gesell. May I ask you whether, apart from the banking 
phase of this matter, you have business relations with companies in 
wliich your trustees are connected? 

Mr. Houston. I do not recall any. 

Mr. Gesell. Do you recall whether or not the trustees of your 
company interested in one or another business have solicited your 
company for that business in the same manner as these bankers have 
solicited you for the banking patronage? 

Mr. Houston. I do not recall. Some may have done so, but I do 
not recall any instances. 

Mr. Gesell. May I read you this letter? By the way, Mr. James 
M. Beck was a trustee of your company, was he not? 

Mr. Houston. He was. 

Mr. Gesell. A letter addressed to you dated October 19, 1931. 
[Readuig from "Exhibit No. 278"]: 

You were good enouaih at my suggestion to instruct the treasurer of the Mutual 
Life to send some business to my brother-in-law, Howard E. Mitchell, of Abbott, 
Hoppin & Co., and I understand that he has always attended to his commissions 
satisfactorily. 

At present he is not having an easy time in bringing sufficient business to that 
brokerage house to justify his continuance and this is a matter of great concern 
to me. If he can just round this bad corner until times improve, he will have 
plenty of business, for he is a man of great energy and resourcefulness. Therefore, 
if at this time you could have our treasurer drift a little business toward Mitchell, 
it would come as a very timely aid to him. 

Of course he can buy and sell bonds on the stock exchange, as well as stocks, 
and 1 do hope that you can give him some encouragement at a time when he 
very sorely needs it. I will regard it as a favor done to me. 

Does that refresh your recollection with respect to this matter? 

Mr. Houston. I think so. 

Mr. Gesell. Now, in 1932 your company gave business to Abbott, 
Hoppin & Co., did it not? 

Mr. Houston. I do not know anything about Abbott, Hoppin & 
Co. 

Mr. Gesell. I show you that schedule and ask you if that does not 
refresh your recollection. 

Mr. Houston. No, I never saw that. 



1466 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. That is a schedule certified to by your Treasurer 
entitled [reading from "Exhibit No. 278"]: 

Memo of the amounts involved in the acquisition and disposition of securities 
to Abbott, Hoppin & Co. for years 1924-38, inclusive — 

and shows no business until 1931. On the acquired side in 1931, 
$97,090; on the disposed-of side, $308,271.45; and in 1932, on the 
acquired side, $10,675.00, and no business after that date. 

Mr. Houston. It is very possible that I called attention to this 
gentleman who w^anted to sell some securities or buy securities to our 
financial people, and that they let him sell some securities, but only 
on the merits of the case. 

Mr. Gesell. Mr. Beck's letter states: 

You were good enough at my suggestion to instruct the Treasurer of the Mutual 
Life to send some business to my brother-in-law. 

Mr. Houston. That is incorrect. 

Mr. Gesell. I wish to offer this correspondence for the record. 

(This correspondence referred to was marked "Exhibit No. 278" 
and is included in the appendix on p. 1578.) 

Mr. Houston. I did not instruct the Treasurer to do anything of 
the kind. 

Mr. Gesell. Mr. Frank L. Polk, of. the firm of Davis Polk Ward- 
well Gardner & Reed, is a trustee of your company, is he not? 

Mr. Houston. I am glad to say that he is. 

Mr. Gesell. Prior to the time Mr. Polk became a trustee, a loan 
of $90,000 at 6 percent for 5 years was made to him on a house in which 
he is interested. Is that not a fact? 

Mr. Houston. Which he occupies. 

Mr. Gesell. The loan was made to him, was it not? 

Mr. Houston. Yes. 

Mr. Gesell. Subsequent to that time he became a trustee, did he 
not? 

Mr. Houston. He did. 

Mr. Gesell. He became a member of the real estate committee? 

Mr. Houston. He did. 

Mr. Gesell. He became a member of a subcommittee of that real 
estate committee? 

Mr. Houston. He did. 

Mr. Gesell. Is it not a fact that the question cf rearrangement of 
this loan came before that subcommittee on one occasion? 

Mr. Houston. It first, as I recall if from the records, came before 
the committee itself. 

Mr. Gesell. Will you tell us the facts with respect to how this loan 
was handled and what Mr. Polk's participation, if any, was? 

Mr. Houston. Mr. Polk did not vote at any time on any of these 
matters, and in '34 the committe authorized the loan to continue open 
until '35, Mr. Polk not voting. 

Mr. Gesell. Was that done by the full committee or was that done 
by the small committee of two men? 

Mr. Houston. Tliat was done by the full committee and then, in 
1936, the case was l>ofore the subcommittee. 

Mr. Gesell. The subcommittee of two individuids, of which Mr. 
Polk was one member. That committee met, and with Mr. Polk not 
voting, reached a decision to change the loan to an open loan. Is that 
correct? 



CONCENTRATION OF ECONOMIC POWER 14g7 

Mr. Houston. That is correct, and then the full committee, with 
the payment of $15,000, reducing the mortgage to $75,000, authorized 
it to continue open at 5 percent. 

Mr. Gesell. Mr. Polk was not present on that occasion, was he? 

Mr. Houston. He was absent. 

Then later the subcommittee authorized it to continue open at 5 
percent. 

Mr. Gesell. Was Mr. Polk present at that meeting of the subcom- 
mittee of two men? 

Mr. Houston. Not voting; yes. Mr. Pollc, as you know, is one of 
the finest gentlemen I know. Under-Secretary of State at one time 
and one of the best public servants the Nation has had. My only 
regret is that we have not more loans of that quality. 

Mr. Patterson. With reference to Mr. Polk, I subscribe to every- 
thing you have said. I want that on the record. 

Mr. Gesell. I was not trying to suggest that Mr. Polk is not an 
honorable gentleman, Mr. Houston. I was sunplj^ trying to under- 
stand whether your company had felt that in this situation it might not 
be advisable for the matter of the disposition of his loan to be given a 
fuller consideration before more members of the board than for Mr. 
Polk to meet simply with another gentleman on a subcommittee of two 
and not participate in the decision. 

Mr. Houston. Those things are all finally considered by the whole 
board and approved by it. Mr. Polk at any time could easily have 
transferred that loan to some other company at a lower rate of interest, 
and could do so now, but it certainly would not be in the interest of 
the policyholders to have him transfer a good loan like that, paying 
us 5 percent. 

Mr. Gesell. I have no further questions of this witness. 

Mr. O'Connell. I should like to ask a general question. Going 
back to the discussion we had a little while ago about banks, in general 
who determines for the company the way that the deposits are made? 
Is it determined by the management, by the board of trustees, by a 
subcommittee, or in what way? 

Mr. Houston. You mean the deposits in banks? 

Mr. O'Connell. Yes. 

Mr. Houston. The treasurer has the matter immediately in hand, 
and then the finance committee considers the matter. Not infre- 
quently, if there is any question which he thinks I ought to be in- 
formed about, the treasurer consults me. Broadly speaking, our 
desire is to keep our money where it is needed and in the soimdest 
institutions which we can discover. That is our general principle. 

Mr. O'Connell. I understand that, but what I was interested in 
was whether the decision in the final analysis was made by the manage- 
ment or the board of trustees or some of the board of trustees on such 
questions as marking a deposit of a million dollars in this bank or that 
bank. 

Mr. Houston. These matters are all dealt with immediately. The 
committees and board fix maximum deposits in certain cases, and they 
are presented from time to time to the proper committee and then to 
the Board. 

Mr. O'Connell. You don't think that there is anything incon- 
sistent, or anything anomalous, let me say, about the position of some 
of your board of directors where there are so many members of your 



1468 CONCENTRATION OF ECONOMIC POWER 

board who are connected with banks, and at the same time as repre- 
senting your company have to make the determinations of general 
policy, in specific cases making deposits as between their bank and 
some other bank, 

Mr. Houston. I do not think so. We certainly have not suffered 
any handicaps. 

Mr. O'CoNNELL. That wasn't the question. 

Mr. Houston. And I don't think there is any inconsistency. There 
is certainly no onto ward motive and it gives us a fuller knowledge of 
such things. 

Mr. O'CoNNELL. You don't think tl at a particular member of your 
board of trustees might be torn between, let us say, two loyalties? 
I mean, he represents your company and also a bank, and the question 
if he is to determine as to whether your company will make a specific 
deposit in a bank — it just occurred to me in general that there was at 
least the possibility that a member of your board or several members 
of the board might find it difficult to act entirely in accordance with 
the interests of your policyholders. You don't think there is any 
such possibility? I am not thinking of any particular case but as a 
general proposition. 

Mr. Houston. I do not see anything that is unsatisfactory in the 
picture. 

Mr. Arnold. There are at least two conflicting interests represented 
by a man who is a director of a bank and a director of an insurance 
company with, respect to deposits, aren't there? He might not use it 
improperly, but those interests do exist, don't they? 

Mr. Houston. I do not know that they conflict materially. 

Mr. Arnold. They may not, but let's assume a purely hypothetical 
situation. Suppose that it was very important for this bank to 
bolster itself up and keep your deposit. The director representing the 
bank, and thinking it is going to pull out all right, would certainly 
be moved by very strong impulse to vote to keep the deposit in the 
bank, wouldn't he? 

Mr. Houston. If he had any suspicion of such a bank, no matter 
how many trustees might be on the board from that balik, we would 
not hesitate immediatel}^ to ■withdraw the deposit. 

Mr. Arnold. No doubt, but I am speaking about the conflicting 
interests of the particular director. There certainly would be in that 
case two conflicting interests which would move him, wouldn't there? 

Mr. Houston. There might be a disposition on his part. 

Mr. Arnold. But in that particular case, which has not been 
brought out in evidence, and in a purely hypothetical case, there 
would be an actual conflict of interests, wouldn't there? 

Mr. Houston. Yes. 

Mr. Arnold. And therefore you would say — and 1 am not rnaking 
this question by way of criticism — that there was at least a possibility 
of interested voting where you had a number of your directors repre- 
senting banks at the same time. 

Mr. Houston. A number of our directors who are also trustees of 
banks? 

Mr. Arnold. And I am speaking only in terms of possibility. 

Mr. Houston. The trustees, where there are several on banks, 
would be among the first to suggest that we withdraw the deposits. 

Mr. Arnold. They might lean over backwards. 



I 



CONCENTRATION OF ECONOMIC POWER l^QQ 

Mr. Houston. I know the men, I know that they are men of intelU- 
gence and that they are gentlemen. They would be the first to suggest 
that we get out. 

Mr. Arnold. I wasn't attempting to raise the question of the 
character of those men in any event, but only to clarify what seems to 
me to be a fact, that conflicting interests do exist. 

Mr. Houston. I do not think that the danger of conflict is very 
great. 

Mr. Arnold. It may not be very great, that is a matter of opinion, 
but they do exist, don't they? 

Mr. Houston. And certainly we haven't suffered any from it. 

Mr. Arnold. I wasn't raising that question. I was speaking simply 
for the benefit of the committee, for future consideration, getting your 
opinion. 

Mr. Houston. Well, I am trying to express the opinion that in no 
case have we found any impediment to the operations of the company, 
or any impairment of its resources or deposits, and I have to judge 
by experience. 

Representative Reece. What is the responsibility of the directors 
of the company? 

Mr. Houston. They have complete control of it. 

Representative Reece. The interests of the directors, then, should 
first be to conserve and advance the interests of the company — 

Mr. Houston (interposing). Of the pohcyholders. 

Representative Reece. In the case of an insurance company, of 
the pohcyholders. 

Mr. Houston. Yes. 

Representative Reece. Then the interests of the directors of a 
bank, of course, or the responsibility of the director of a bank is to 
advance the interests of the bank, or the responsibhty of a director 
of an industrial concern is to advance the interests of that concern. 
In case a man is a director of both the bank and of an insurance com- 
pany, if the two companies have interrelationship, there might be Ho 
conflict in his responsibility, but on the other hand, it is possible that 
there might be a conflict and put him in a position wheYe he would 
have to decide which institution should have its interests first advanced. 
Or do you think there is a possibility of that situation arising? 

Mr. Houston. There might be, in which case I think the trustee 
would resign from one or the other. I certainly should, if I were 
aware of a conflict of consequence. 

Representative Reece. I think so, and I would assume that a 
director would not do so. 

Mr. Houston. I do not know any member of our Board where any 
.real conflicts of interest developed or persisted, who would not tender 
his resignation from one or the other. 

Mr. Arnold. Which would he resign from? He is put in a very 
uncomfortable position, isn't he? 

Mr. Houston. Certainly. 

Mr. Arnold. And in general you would say directors shouldn't 
represent conflicting interests, wouldn't you? 

Mr. Houston. If real conflicts of interest exist. 

Mr. Arnold. Or thev shouldn't put themselves in situations which 
might in the future lead to conflicts of interest. 



1470 CONCENTRATION OF ECONOMIC POWER 

Mr. Houston. That might be the case. We have not been troubled 
by any conflict to date. 

Mr. Arnold. May I ask you questions on a sUghtly different Une, 
and I wish you would please understand that these are not questions 
directed in any way to criticism of past policy, but I only direct them 
to a consideration of the future problem. 

The fact that these directors on your company are enabled to have 
a possible preferred treatment gives your Board an enormous amount 
of power in building up one sound bank as opposed to another sound 
bank, doesn't it? 

Mr. Houston. I never think of building up any other institution. 

Mr. Arnold. You- hadn't thought of it but the power does exist 
there, doesn't it? 

Mr. Houston- It may exist; but it has never been exercised. 

Mr. Arnold.' Well, an $11,000,000 deposit would certainly build 
up a bank, wouldn't it? 

Mr. Houston. Such deposits in one bank do not usually exist. As 
a matter of fact, the normal cash balance of out company wouldn't 
exceed that amount. We don't often have that amount of money, 
and we wouldn't put that amount of money in a bank even temporarily 
which had not already built up and developed the strength. 

Mr. Arnold. I am assuming that in a community you would con- 
sider no unsound banks. I am only asking you if it isn't a fact that 
by virtue of this combination of directors of your company — I won't 
put it your company, directors of insurance companies, and directors 
of banks, an enormous centralized power is actually built up? 

Mr. Houston. Well, of course, there are large funds deposited in 
banks in various parts of the country, but not because we have trustees 
who are officers of the banks. 

Mr. Arnold. Granted, but in this case you have two powerful 
bodies getting together, one the large bank and the other the large 
insurance company, and the fact that the directors represent the 
bank does constitute a getting together of two already large forces, 
does it not? 

Mr. Houston. That getting together rather suggests that members 
of boards seem to lie awake at night conspiring to see what they can 
do. I have never heard in any of the boards of which I have been a 
member, discussion of anything at any time except the immediate 
matter before the Board on its merits and in the public interest. 

Mr. Arnold. I wasn't assuming 

Mr. Houston (interposing). But it comes down to that. 

Mr. Arnold. I wash't assuming by my question that the power, 
or that there was any evidence in this record that the power, had 
been used improperly. I was only asking you whether that power 
did not exist, and whether that combination had not occurred, when 
the bank and the insurance company joined forces by virtue of this 
directorship, 

Mr. Houston. Well, where we have bank officers on our board, or 
have our trustees on bank boards, there is no use made of that for 
any untoward purpose and it is not intended that there should be. 
May I suggest that we would be delighted tomorrow if we could find 
suitable investments to reduce all these balances by at least 60 per- 
cent, and we would do it without any 

Mr. Arnold (interposing). You keep giving to my questions an 
implication which I don't want made, and that is, that there is 



CONCENTRATION OF ECONOMIC POWER 147]^ 

something in this record, or something in my mind, suggesting that 
you have done something wrong. 

Mr. Houston. No; not that you have suggested anything. 
Mr. Arnold. I would only again hke to get your answer to the 
question. Isn't this combination the creator of a great reservoir of 
financial power in a very few people? 

Mr. Houston. Well, the reservoir does not arise because of the 
fact that bank officers are on our board or that our trustees are on 
bank boards. It would happen in any event. 

Mr. Arnold. The fact that the director representing a bank and 
having control of the bank joins with a company which has a control 
of a large amount of funds does mean the joining together of two 
powerful interests, does it not? 

Mr. Houston. In appearance, yes; but that they try to use their 
position for the purpose of control, I am not aware. 

Mr. Arnold. They try to use it properly; I wasn't raising that 
point. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. Mr. Houston, has there been developed the 
point as to whether or not there is any reciprocal advantage in this 
arrangement with reference to trustees? Do the insurance companies 
derive any benefit from strong associations, such as have been indi- 
cated? 

Mr. Houston. Judge, it is a very difficult matter always to find 
the right sort of a man to go on a board. Our sole aim is to find a 
man of high character, ability, experience, and knowledge who can 
be of the utmost service to the policyholders. We do not think of 
his connection with another institution except as it has a bearing on 
his experience. We try to get men who can be of the most service 
to the policyholders by reason of their experience, and I think we have 
men on the board who are invaluable for that reason, and whose 
services the ordinary poUcyholder couldn't buy, which we get for 
little or nothing. That is the sole object that we have in mind 

The Vice Chairman. If there are no further 'questions 

Mr. Patterson (interposing). I have a question, Mr. Chairman. 
Suppose a bank were about to fail, Mr. Houston, and the president 
of that bank was trustee- of your institution, would that trustee be 
likely to inform you of the possible failure of his bank? 

Mr. Houston. I hope he would, but if he did not, we would probably 
have wind of it, and if the conditions permitted, we would get out. 

Mr. Gesell. That would be a situation, would it not, Mr. Houston, 
where your director would find himself placed squarely in this conflict 
before he could have anticipated it, and his chance of resigning would 
not cure the situation by reason of the double responsibilities which 
he had. 

Mr. Houston. No. 
Mr. Gesell. No further questions. 
(The witness, Mr. Houston, was excused.) 
Mr. Gesell. Mr. HHles is the next witness. 

The Vice Chairman. Do you solemnly swear the testimony you 
are about to give will be the truth, the whole truth, and nothing but 
the truth, so help you God? 
Mr. HiLLES. I do. 

124491— 39— pt. 4 21 



1472 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF CHARLES D. HILLES, DIRECTOR, NEW YORK 
LIFE INSURANCE CO., RESIDENT MANAGER FOR THE STATE 
OF NEW YORK OF THE EMPLOYERS' LIABILITY ASSURANCE 
CORPORATION, NEW YORK, N. Y. 

TRANSACTIONS OF CHARLES D. HILLES, DIRECTOR, NEW YORK LIFE 

Mr. Gesell, What is your full name? 

Mr. HiLLEs. Charles D. Hilles. 

Mr. Gesell. Are you connected with the New York Life Insurance 
Co. as a director? 

Mr. Hilles. I am. 

Mr. Gesell. How long have you been a director? 

Mr. Hilles. Since 1922, the sprmg of 1922. 

Mr. Gesell. Are you also connected with the Employers' Lda- 
bility Assurance Corporation? 

Mr. Hilles. I am. 

Mr. Gesell. In what capacity? 

Mr. Hilles. Kesident manager for the State of New York. 

Mr. Gesell. What type of insurance does Employers' Liability 
write? 

Mr. Hilles. Liability insurance, commonly called casualty in- 
surance. 

Mr. Gesell. All forms of casualty insurance? 

Mr. Hilles. Yes, sir. 

Mr. Gesell. Has Employers Liability Assurance Corporation 
written insurance for the New York Life? 

Mr. Hilles. Yes, sir. 

Mr. Gesell. Since you have been a director? 

Mr. Hilles. Yes, sir. . 

Mr. Gesell. Did they also do business with^the company prior to 
that time? 

Mr. Hilles. I think for 40 years they have done business, sir. 

Mr. Gesell. The business has increased materially since you have 
been a director, has it not? 

Mr. Hilles. The business has increased smce I have been a director ; 
yes, sir. 

Mr. Gesell. Will you give us some idea of the amount of business 
done between the Employers and the New York Life Insurance Co. 
in recent years, the types of insurance, and the amount of premiums 
your company has received from the New York Life? 

Mr. Hilles. Well, we have workmen's compensation insurance; we 
cover them throughout the country in the buildings in which they are 
interested; we have general habUity insurance, elevator insurance, 
steam-boiler insurance, and to some extent, fidelity insurance. 

Mr. Gesell. Any other forms of insurance? 

Mr. Hilles. I think I have covered those that are important, sir. 
Workmen's compensation, general liability, wliich includes public 
liabiUty, elevator, steam boiler, and the bonds. 

Mr. Gesell. Is that business written simply on the property of the 
New York Life Insurance Co. in the State of New York, or is it 
written on the properties of the company throughout the country? 

Mr. Hilles. It is a policy that is written to cover the New York 
Life Insurance Co. wherever it may have buildings in the United 



CONCENTRATION OF ECONOMIC POWER I473 

States. Perhaps if you would give me a word, I could explain this — 
thai there' is what is called a mastrr policy issued for a term of years 
covering specific locations, and as additional locations are acquired by 
the company they are endorsed on the policy, and as locations dis- 
appear in owTiership or control they are subtracted from the policy 
by endorsement. 

Mr. Gesell. Well, have you any idea as to the number of prop- 
erties of the New York Life which are covered by your company in 
one form of insurance or the other? 

Mr. HiLLES. Well, as to properties, the nuijaber is 4,922 buildings, 
including the home-office buildings. 

Mr. Gesell. The New York Life Insurance Co. has an interest 
in that many buildings? 

Mr. Hilles. Yes, sir. 

Mr. Gesell. And you cover the insurance on them? 

Mr. Hilles. We do ; yes, sir. 

Mr. Gesell. "Wliat has been the average premium which your com- 
pany has received from the New York Life in recent years? 

Mr. Hilles. During the last 12 years the average premium paid to 
our company by the New York Life is $99,891.40. 

Mr. Gesell. Now can you tell us what the premiums received were 
in 1927? 

Mr. Hilles. The premiums in 1927 were $62,490. 77. 

Mr. Gesell. And what were the premiums in 1938? 

Mr. Hilles. 1938, the premiums were $182,658.43. 

Mr. Gesell. Some of those 1938 premiums are premiums against 
long-term insurance where you have written the risk for several years 
beyond 1938? 

Mr. Hilles. Three-year insurance. 

Mr. Gesell. Since you have been a director of the New York Life 
have you actively solicited business from that company for y-aitr 
companj^? 

Mr. Hilles. I do not think that I have, sir. As I have said, the 
New York Life was a client of our office long before I became con- 
nected with it, and we have had their business in this Ime of insurance. 
I cannot at the moment recall having solicited business. You have 
the record. 

Mr. Gesell. You were a director in May of 1933, were you not? 

Mr. Hilles. Yes, sir. 

Mr. Gesell. Do you recall having written this letter to Mr. Alfred 
L. Aikin, then vice president of the New York Life? [Reading from 
"Exhibit No. 279"]: 

I have tried two or three times to connect with you by telephone, but always 
when you were in executive committee meetings. 

Then you'mention some matter that is of no importance here, and 
say: 

Now, however, another matter arises due largely to the connection of the 
McCall family with the National Surety Co., the surety and fidelity items of 
the miscellaneous lines of insurance of the New York Life were turned over to the 
National. I assume that the business of that company will be liquidated. In 
that case I hope it will be agreeable to you to have your fidelity and surety placed 
with us. As to our financial position, I may say that we were the one company 
in a total of 103 in business in the country which made a gain in 1932 in volume 
in underwriting profit and in assets. 

Mr. Hilles. I wrote the letter; sir. 



1474 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. As a result of that letter did you receive the lines of 
insurance which you requested, the fidelity and surety lines of 
insurance? 

Mr. HiLLES. I think not; I think we received only a small amount; 
nothing in — that was written in '33; nothing in '33 and nothing in 
'34; $50 premium in '35. 

Mr. Gesell. Well, now on May 10 did not Mr. Aikin write you 
[reading from "Exhibit No. 280"]: 

I find that later in the month we have maturing a liability policy covering the 
Bridgeway Hotel in Springfield, Mass. This is now in the National Surety Co., 
and I shall have the new insurance written with the Employers, and from time 
to time as policies expire we £hall be glad to place additional business through 
your office. 

At your convenience, will you be good enough to send me the last annual state- 
ment of your company that we may have it in our files? 

That letter indicates to me that as insurance expired with the 
National Surety Co. it was placed with your company. Is that 
the fact? 

Mr. HiLLES. It was only I think as to that hotel, and that was as 
specified, liability insurance. 

Mr. Gesell. He says that from time to time as policies expire we 
shall be glad to place additional business through your office. 

Mr. HiLLES. But may I call your attention to the fact that he said 
the policy that was expiring on that hotel in Springfield was a liability 
policy? Your question was as to bonding, as I understood it. 

Mr. Gesell. Will you tell me, Mr. Hilles, whether as part of your 
business from day to day it is necessary for you to talk to various 
officers and employees of the New York Life Insurance Co. about 
business matters? 

Mr. Hilles. Yes, sir; I am there 2 days every week at meetings 
and I do meet officers, of course, and employees. 

Mr. Gesell. Well, now, I am talking about your communication 
with them as the resident agents of Employers Liability and not such 
a contact as is necessary by reason of your directorship. 

Mr. Hilles. I think my contact is chiefly with the president and 
chairman of the board in any matters of that sort. I do not recall 
having talked more than two or three times in several years to other 
officeris, but perhaps that is an exaggeration. I no doubt have talked 
to them. 

Mr. Gesell. It is necessary then for you as a businessman in the 
conduct of your business to be in a direct business relationship with 
the officers or employees of the company where you are a director? 

Mr. Hilles. Yes, sir. 

Mr. Gesell. Now I would like to call attention to one further 
letter, Mr. Hilles, written by yourself on August 2, 1938, on the 
stationery of Employers Liability Assurance Corporation to Mr. 
Van Anden of the N^ew York Life Insurance Co.^ You refer to 
steam boiler insurance and say you think it would be advisable to 
have periodic inspections made and believe that the best part of 
the steam boiler insurance is that it results in inspection, that a stitch 
in time may be taken, and again offer the services of your company. 
Do you consider these last letters that we have discussed a solicitation 
of business? And is it not a fact that it is necessary for you, no 
matter how you word your request, to as a businessman solicit busi- 
ness from the New York Life Insurance Co.? 



« See "Exhibit No. 281", appendix, p. 1579. 



CONCENTRATION OF ECONOMIC POWER I475 

Mr. HiLLES. Well, we have had steam-boiler insurance with the 
New York Life as a part of the casualty business and that steam boiler 
letter I believe was made necessary or thought to be necessary by 
the fact that the inspectors of our company who inspect each of these 
properties throughout the country reported that there were more 
boilers in the buildings owned by the New York Life than were on the 
boiler schedule, so that it seemed that they had not made an inspec- 
tion or had not reported to us for inspection all of the boilers that 
they owned ; perhaps they were overlooked v.ith new buildings com- 
ing into their possession, and it was done for the purpose really of 
making sure that the}^, depending upon us for insurance on their 
steam boilers, were not overlooking some of tJiose that should have 
been on the schedule. 

Mr. Gesell. It resulted in an additional Ime of insurance for your 
company, did it not? 

Mr. HiLLES. "\^'ell, as it turned out upon the check, it resulted in 
$125 of additional insurance and the expansion there, sir, is this, 
that wiiile it is true there were steam boilers that were in buildings 
owned by the New York Life that had come into their possession 
rather relatively recently, and were not on the schedule, that the 
explanation was made by Mr. Van Anden in a letter which you may 
have, or which certainly was at your disposal, that the practice of 
the real estate department was to insure only high pressure boilers 
and not to insure low pressure boilers, so that whereas the inspectors 
found more boilers than were on the list, only one high pressure boiler 
had been overlooked. That resulted in an addition of $125. 

Mr. Gesell. Now does your company write fire insurance? 

Mr. HiLLES. "We have a fire insurance company, but the Employ- 
ers Liability does not. I represent it also. 

Mr. Gesell. It is called the Employers Fire Insurance Co.? 

Mr. HiLLES. It is; yes, sir. 

Mr. Gesell. Have you ever solicited business from the New York 
Life Insurance Co. on behalf of that company? 

Mr. HiLLES. I talked with them about fire insurance on two occa- 
sions at the request of the president of the Employers Fire, but I cer- 
tainly did not solicit business in the ordinary sense. I do not write 
fire insurance. We represent the Employers Fire only as to fire insur- 
.ance on automobiles. 

Mr. Gesell. You have an interest in that company, do you not? 

Mr. HiLLES. We do have an interest in it, but I am not a fire-in- 
surance man and I do not represent them as to fire insurance on build- 
ings in New York City. Mr. McFalls does. 

Mr. Gesell. I want to call to your attention a memorandum on 
the stationery of the Employers Fire Insurance Co. entitled, "Inter- 
Office Correspondence, Personal," to yourself, from Mr. Edward Stone. 
I believe he is president, is he not? 

Mr. HiLLES. He is. 

Mr. Gesell (reading from "Exhibit No. 282"): 

In the past you have on a number of occasions attempted to prevail upon the 
New York Life Insurance Co. to use the facihties of our fire company. They 
have, I beheve, taken the position they cannot influence their property managers 
who in many instances arc insurance agents to place with any one particular com- 
pany the fire insurance on buildings in which they are interested as mortgaj!,ep. 

While I quite appreciate their position, I have recently loarned from Mr. 
Burton .J. Perry, president of the Massachusetts Mutual Life Insurance Co. of 
Springfield, Mass., that they and many other life companies have decided to use 
but one fire company to give thern the necessary coverage. 



1476 conceTntration of economic power 

And he goes on to discuss this and says: 

Possibly the New York Life Insurance Co. has considered a similar plan. At 
any rate, I am wondering if you would be so good as to find out v.hat they do, and 
more particularly whether or not you could in some fashion or other influence 
them to use the Employers Fire Insurance Co. as the company to handle their fire 
insurance on those properties they own. Such an arrangement obviously would 
help the fire company a great dea] 

Yours for profitable premiums. 

Mr. Gesell, That memorandum would indicate that on several 
occasions you have attempted to obtain business for the Employers 
Fire Insurance Co. from the New York Life Insurance Co. 

Mr. HiLLEs. I don't think it was intended to do that. At any rate, 
it didn't at the moment make that impression on me. He had from 
time to time spoken to me about the desire of the fire company to 
have some of the fire insurance and on each occasion, after talking 
with them up at the New York Life, I made the explanation to him 
that they up in the New York Life did not select the companies in 
the field. ^ 

Each time I made that, and I think perhaps you will find in the 
correspondence that I have written him to that effect. 

Air. Gesell. You wrote him subsequently on September 14, 1938, 
stating that you had an opportunity to talk to the appropriate offi- 
cials of the company and that they had made no changes in their 
pohcy.^ 

Mr. HiLLES. Yes, sir. Didn't I say, sir, that they had a policy 
with respect to the placing of fire insurance and they would not follow 
the lead of another fire insurance company in placing all their eggs in 
one basket? 

Mr. Gesell. That is right, they had not changed their policy in 
any way. I will offer that in evidence. 

Mr. HiLLES. Thank you. 

Mr. Gesell. Now just one further matter, Mr. Hilles. You have 
said that the premiums received by your company from the New 
York Life have averaged since 1927 close to $100,000 a year. 

Mr. Hilles. Yes, sir. 

Mr. Gesell. Am I correct in sajdng that your compensation on 
behalf of the Employer's Liability Assurance Co. is a flat salary which 
continues year in and year out regardless of the business and a per- 
centage of the premiums brought in? 

Mr. Hilles. Yes, sir; you are correct except in saying that it con- 
tinues regardless of the business. If the business were to disappear 
I fear the salary would also disappear. 

Mr. Gesell. I meant the business of the New York Life, sir. What 
percentage of the prem.iums do you receive? 

Mr. Hilles. You don't mean of the New York Life; you mean of 
the Employer's Liability. 

Mr. Gesell. Yes. What percentage of the premiums that are 
received from the New York Life Insurance Co. do you receive as 
your compensation? 

Mr. Hilles. I don't receive compensation based on the volume of 
business, but I do receive a profit sharing on the profits of the agency. 

Mr. Gesell. Those will be profits resulting from the New York 
Life business and other business? 

Mr. Hilles. From all of the business written in the agency; yes, sir. 

See "Exhibit No. 283", appendix, p. 1580. 



CONCENTRATION OF ECONOMIC POWER I477 

Mr. Gesell. What percentage is that? 

Mr. HiLLES. Ten percent of the profits of the agency, the net profits. 

Mr. Gesell. The premiums from the New York Life paid to your 
company have helped to accumulate those profits, have they not? 

Mr. HiLLES. Well, I think the New York Life has had a satisfac- 
tory experience as otherwise we wouldn't have continued indefinitely 
on the risk. 

Mr. Gesell. There is one other poirt I want to bring out. As far 
as the rates are concerned, your company charges the New York Life 
Insurance Co. the same rates as any other company would be obliged 
to charge because of the rating system that exists, is that correct? 

Mr. HiLLES. The rating system is one under which, as to workmen's 
compensation, there is a national council on compensation insur- 
ance, and that council has a manual committee, which committee 
prepares the basic manual for all compensation rates in the United 
States. Each State has a variant from that basic rate, but the basic 
rate is made by the manual committee, consisting of four stock com- 
panies and four mutual companies, and those rates are filed with the 
insurance department of each of the States. 

Then, in addition to that, there is a compensation insurance rating 
division which also files its findings with the insurance department, 
and they are subject to the approval of the department. 

Mr. Gesell. All I was trying to get at is that j^our company 
charges the same uniform rates that are set up tlirough this system. 

Mr. HiLLES. We do charge the same rate. 

Mr. Gesell. Any other company doing the business of the New" 
York Life Insurance Co. would be obhged to charge the same rate as 
you do? 

Mr. HiLLES. Well, any company that files its rates with the in- 
surance department of the State of New York and has those rates 
approved. by the department as to adequacy must charge those rates. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. If tjiere are no further questions, you are 
excused. 

Mr. Gesell. I wish to offer for the record at this time the various 
letters which I have referred to in the examination of Mr. Hilles. 

The Vice Chairman. They may be admitted. 

(The letters referred to were marked "Exhibits Nos. 279 to 283" 
and are included in the appendix on pp. 1578-1580.) 

Mr. Hilles. May I make this statement? 

The Vice Chairman. Yes, sir; you may make whatever statement 
you want. 

Mr. Hilles. The premiums of the New York Life since 1927 have 
increased by reason of the large number of buildings that the company 
has taken over, either as mortgjigee in possession or because of fore- 
closure. That is the reas6n for the increasing business. Further I 
would say that the business of the agency is approximately $7,000,000 
a year, or has been durmg those 12 years, so the New York Life sup- 
plies about one and one-third percent. 

Mr. Gesell. I wish to now read for the record two memorandums 
from the files of the New York Life Insurance Co., one a memo- 
randum 

The Vice CYIairman (interposing). Do they have to do with the 
testimony? 



1478 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Yes, they do. 

The Vice Chairman. The witness had better remain. 

Mr. Gesell. One a merrioradum by Mr. W. T. Hadley to Vice 
President Aiken, dated November 9, 1933 [reading from "Exhibit No. 
284"]: 

Please refer to the attached extract from minutes of the executive committee 
meeting of November 30, 1932, with reference to the bonding of residential loan 
correspondents in cases of individuals, partnerships, or small corporations. 

Up to August 31 of this year, the coverage referred to was placed with the 
National Surety Co. (later the National Surety Corporation). However, we were 
directed, after a conference of some of our executives, to place the coverage with 
the Employers' Liability Assurance Corporation from August 31, 1933. The 
Employers' Liability Corporation has furnished us v/ith the same type of bond 
as we formerly had, and the premium — $5 per $1,000 — for the bond is the same 
as it was in the case of the National Surety Co; 

That is the portion of the memorandum that I want quoted for the 
record. 

The other is from the superintendent of real estate to Mr. Claude 
W. Shimmon, dated February 6, 1936, relating to the property at 
Fourth Street, comer of Ludlow, Dayton, Oliio [reading from"Exhibit 
No. 285"]: 

We acknowledge receipt of yours of February 3 and the letter addressed to you 
by Sidney Eisenberger, receiver in the foreclosure action of the above property, 
and have noted what he has to say with regard to the several companies whose 
premiums he quotes. 

We find that the Buckeye Union Casualty Co. and the Shelby Mutual Co. are 
rather small concerns, and that the Employers' Liability and General Accident 
Cos. are the larger companies with whom we ordinarily would be willing to do 
business. 

Our recommendation is that the Employers' Liability Assurance Corporation 
be used for two reasons. First of all, the fact that our own blanket liability 
policy is carried in that company, and second, it is the writer's understanding 
that the General Accident Insurance Co. takes a very independent attitude in the 
handling of their business in New York. We have had very little insurance with 
them ourselves and cannot say just how they would react to any business we 
might be connected with. 

The writer knows that several of our officers would prefer that the Employers' 
Liability Assurance Corporation be used for this coverage if possible. 

I wish to offer those for the record. 

The Vice Chairman. They may be admitted. 

(The memoranda referred to M-ere marked "Exhibits Nos. 284 and 
285" and are included in the appendix on p. 1581.) 

The Vice Chairman. Is there any further testimony? 

Mr. Gesell. None. 

The Vice Chairman. Any further statement that you would like 
to mako? 

Mr. IIiLLEs. None. 

(The witness, Mr. Ililics, was excused.) 

The Vice Chairman. We are assured by counsel putting this tes- 
timony on that it is exi)cctcd tomorrow to conclude the testimony 
with reference to these insurance investigations. 

Mr. .Gesell. Tliis phase of it. 

The Vice Chairman. Tliis phase of it, whatever that phase is. 

"\Te will begin at 10 o'clock, in order to get through, and we will 
stay as long as necessary to get tlirougli, and fuiish it up tomorrow. 

Wo stand in adjournment until 10 o'clock tomorrow. 

(WluTcuDon, at 11:55 a. m., a recess wiis taken until Friday, Feb- 
i^>ai V 17, 1939, at 10 o'clock.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, FEBRUARY 17, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. C, 

The committee met at 10 a. m., pursuant to adjournment on Thurs- 
day, February 16, 1939, in the Caucus Room, Senate Office Building, 
Senator WilHam H. King presiding. 

Present: Senator King (acting chairman), Representatives Sumners 
and Reece; Messrs. O'Connell, Ferguson, and Frank. 

Present also: Mr. Gerhard Gesell, Special Counsel, Securities and 
Exchange Commission. 

Acting Chairman King. The committee will be in order. 

Mr. Gesell. The first witness this morning will be Mr. Chubb. 

Acting Chairman King. Do you solemnly swear the evidence you 
shall give in this hearing shall be the truth, the whole truth, and 
nothing but the truth, so help you God? 

Mr. Chubb. I do. 

TESTIMONY OF HENDON CHUBB, DIRECTOR, PRUDENTIAL LIFE 
INSURANCE CO. OF AMERICA, WEST ORANGE, N. J. 

transactions of HENDON CHUBB, DIRECTOR, PRUDENTIAL 

insurance company 

Acting Chairman King. State your name and residence. 

Mr. Chutbb. Heiidon Chubb; residence. West Orange, N. J. 

Mr. Gesell. Mr. Chubb, you are a director of the Prudential Life 
Insurance Co. ; are you not? 

Mr. Chubb. Yes, sir. 

Mr. Gesell. How long have you been a director? 

Mr. Chubb. Since 1923, 15 years. 

Mr. Gesell. In what business are you engaged, Mr. Chubb? 

Mr. Chubb. The insurance business, largely marine. 

Mr. Gesell. Largely marine? 

Mr. Chubb. Largely marine. 

Mr. Gesell. You are also interested in the casualty and fire in- 
surance business; are you not? 

Mr. Chubb. Largely. 

Acting Chairman King. You mean the company, not him indi- 
vidually. 

Mr. Gesell. Mr. Chubb individually. 

The Prudential Insurance Co. is a life hisurance company; is it 
not? 

1479 



1480 CONCENTRATION OF ECONOMIC POWER 

Mr. Chubb. Yes. 

Mr. Gesell. You are a partner of Chubb & Son? 

Mr. Chubb. Yes, sir. 

Mr. Gesell. Is Chubb & Son an insurance broker or an insurance 
manager, or just what business are they in? 

Mr. Chubb. They are managers for insurance companies. They 
are not brokers. 

Mr. Gesell. Among the companies thej' manage are the United 
States Guarantee and the Federal Insurance Co.? 

Mr. Chubb. The United States Guarantee Co. — they represent 
them for certain depnrtments only. 

Mr. Gesell. For their casualty department? 

Mr. Chubb. For their casualty department. 

Mr. Gesell. And they represent the Federal Insurance Co. for all 
of its ■ 

Mr. Chubb (interposing). Everything it does. 

Mr. Gesell. Including the fire business? 

Mr. Chubb. Including the fire business. 

Mr. Gesell. Are you yourself connected with the United States 
Guarantee Co.? 

Mr. Chubb. I am chairman of the executive committee. 

Mr. Gesell. You are also a director of that company? 

Mr. Chubb. Yes, of course. 

Mr. Gesell. Mr. Delafield 

Mr. Chubb (interposing). Mr. DufReld? 

Mr. Gesell. Mr: Dufiield, who was formerly president of the 
Prudential, was also a director of the United States Guarantee' Co., 
was he not? 

Mr. Chubb. Yes, sir. 

Mr. Gesell. He died in September, of 1938, was it? 

Mr. Chubb. I think it was September. 

Mr. Gesell. In the fall of 1938? 

Mr. Chubb. In the fall of 1938. I think it was September. 

Mr. Gesell. Are you also connected w4th the Federal Insurance 
Co.? 

Mr. Chubb. Yes, sir; I am president. 

Mr. Gesell. Are you also a director of that company? 

Mr. Chubb. Yes, sir. 

Mr. Gesell. Mr. Stedman, who is a vice president of the Pru- 
dential, is also a director of the Federal, is he not? 

Mr. Chubb. Yes, sir. 

Mr. Gesell. And Mr, Albert C. Wall, general counsel and director 
of the Prudential, is also a director of the Federal? 

Mr. Chubb. He is a director of the Federal. I didn't think he 
was now general counsel for the Prudential. You probably know 
that better than I. He is a director, anyhow. 

Mr. Gesell. He is a director on both the Federal and Prudential? 

Mr. Chubb. Yes; there is no question about that. 

Mr. Gesell. Do you have any connection with the Amicrican 
Insurance Co.? 

Mr. Chubb. None whatever. 

Mr. Gesell. Are you familiar with its business and the nature of 
its business in a general way? 

Mr. Chubb. In a very general way. 

Mr. Gesell. It is a fire company, is it? 



CONCENTRATION OF ECONOMIC POWER 1481 

Mr. Chubb. Principally. 

Mr. Gesell. Do you know that Mr. Barnard, a director of the 
Prudential, is a director of that company? 

Mr. Chubb. I didn't know it. 

Mr. Gesell. Do you know whether or not Mr. Duffield was 
formerly connected with that company? 

Mr. Chubb. I think he was at one time. Whether he was at the 
time of his death I don't know. 

Mr. Gesell. The United States Guarantee Co. receives premiums 
from the Prudential, does it not? 

Mr. Chubb. Yes. 

Mr. Gesell. The Federal Insurance Co. receives premiums from 
the Prudential, does it not? 

Mr. Chubb. Yes. 

Mr. Gesell. Can you tell us the nature of the business which the 
United States Guarantee Co. does with the Prudential? 

Mr. Chubb. Only in a very general way. I am not a liability 
expert, but my understanding of it is that there is a blanket pohcy 
covering property owned, the liability on property owned by the 
Prudential, and that on those a part of the business comes to the 
United States Guarantee Co. — I think it is a third, but I am not 
quite clear. I'd have to refer to a memorandum. 

Mr. Gesell. Can j^ou tell us the t^'pe of business which the Federal 
Insurance Co. does with the Prudential? 

Mr. Chubb. It does two types of business: One, which I frankly 
don't know the full particulars of, but it covers securities in transit 
and premiums — I have got them here if you want them later. The 
other is, just recently they have been given a share of the reinsurance 
by the American Insurance Company business, of all the fire insurance 
on all property owned by the Prudential. 

Acting Chairman King. The loud-speaking arrangements are not 
perfect this morning. "Will you speak a little louder, please. 

Mr. Gesell. I have in my hand a memorandum from Mr. J. M. 
Lynch, assistant supervisor of the Prudential Insurance Co., showing 
premiums paid to the United States Guarantee Co., the Federal 
Insurance Co., and the American Insurance Co., for the years 1932 
to 1938, 1935, to 1938, and 1930 to 1938, respectively. This memoran- 
dum indicates- that from 1933 to 1938 the United States Guarantee 
Co. received premiums totaling $159,432.26; that the Federal Insur- 
ance Co. received premiums from 1935 to 1938, inclusive, totaling 
$93,470.31; and that the American Insurance Co. from 1930 to 1938, 
inclusive, received premiums totaling $1,078,489.73. 1 should like 
to ofTer this schedule for the record. 

(The schedule referred to was marked "Exhibit No. 286" and is 
included in the appendix on p. 1582.) 

Mr. Chubb. Might I ask in connection with that scliedule and 
those figures, Does that mean the reinsurance received from the 
American or not? — because otherwise I am somewhat surprised from 
the figure. 

Mr. Gesell. The memorandum states it includes premiums paid, 
less returns on account of cancelations, reductions, and so forth, to the 
insurance company listed. 

Mr. Chubb. I am asking you to comment on it, unless it includes 
the reinsurance received from the American. In other words, it would 



1482 CONCENTRATION OF ECONOMIC POWER 

seem to mc with the very Httle knowledge I have of it that you had 
two items, one of which included the other. That is to say, the amount 
you show from the American, of which I have no knowledge whatever, 
probably includes the amount during the last 2 years, or year and a 
half, that they have paid to the Federal Insurance Co. 

Mr. Gesell. Do you feel that the Federal Insurance figure of 
$93,470 is too high or too low? 

Mr. Chubb. If it is direct business received from the Prudential, I 
should say it was high, but I haven't the figures before me. 

Mr. Gesell. If it includes the reinsurance? 

Mr. Chubb. Then I haven't any opinion, but it wouldn't surprise 
me. 

Mr. Gesell. May we ask, Mr. Chubb, that at a time convenient 
for you, you submit to us the figures for the Federal Insurance Co. to 
include that reinsurance item in order that we can compare them wdth 
this figure. 

Mr. Chubb. We will do so. I understood our office had done so, 
that they had given your examiner a memorandum, but I was away 
at the time your examiner v.ent through the oflrtce. 

Acting Chairman King. I think you had better confer with counsel, 
and if there is any discrepancy here, rectify it. 

Mr. Gesell. With respect to the business of the United States 
Guarantee Co,, were you instrumental in obtahiing that business for 
the United States Guarantee Co. from the Prudential? 

Mr. Chubb. Not by any direct action on my part whatsoever. I 
think possibly my recollection of the whole incident v/ould give you a 
clear picture of the thing as I understand it, if you care to have me 
do so. 

Mr. Gesell. Certainly. 

Mr. Chubb. As I recollect it, in about '32 or '33, Prudential asked 
me to come in and discuss with them, as they had before, questions 
of the standing of various companies with which they did business. 

Mr. Gesell. Various insurance companies? 

Mr. Chubb. Various insurance companies, and j'ou will recollect 
at that time that not only were insurance companies, a great many 
of them, in very bad shape, but I think that particularly applied to 
those doing a surety business and bank guaranty business. 

I went down — and this is some time ago — and went into those things, 
and without any suggestion on my part, because I have never made 
any suggestion to tlie Prudential about doing business with me, they 
asked me certain questions about the position of our companj'', and I 
said when it came to the question of liability insurance, I was not an 
expert, I had a very slight knowledge personally, and that I would be 
very glad to send the head of our department over to confer with them. 

Out of that we got an interest in the business, but I want to make 
it very clear that there was no solicitation by me of the officers of the 
Prudential toward getting business for the United States Guarantee. 

Mr. Gesell. Do you recall this letter, which I think helps explain 
your testimony, Mr. Chubb, on January 3, 1933, addressed to Mr. 
Woodruff, of the Prudential: 

Referring to our conversation of yesterday, this will introduce ^tr. H. G. White, 
who is the head of this department in our organization, and who has our full con- 
fidence. I am quite sure that the United States Guarantee Co. can be of consider- 
able uee to you in this situation. 
Yours sincerely, 



CONCENTRATION OF ECONOMIC POWER 14§3 

Mr. Chubb. Yes. 

Mr. Gesell. As the result of the conversation which ensued be- 
tween Air. White and Mr. Woodruff, the United States Guarantee 
Co. commenced to do business with the Prudential. 

Mr. Chubb. Yes. 

Mr. Gesell. Did you have any feeling that your participation to 
the extent shown by the record in this matter placed you in a conflict- 
ing position in any way? 

Mr. Chubb. Absolutely not. 

Mr. Gesell. Do you receive individually a share of the profits 
resulting from the payment of the premiums? 

Mr. Chubb. Yes; I do; but by the time it gets to me it is not a 
very important matter. 

Mr. Gesell. But you do receive an interest? 

Mr. Chubb. Yes; I do. 

Acting Chairman King. Personally? 

Mr. Chubb. As a member of the firm, Senator. 

Acting Chairman King. You mean the firm of Chubb & Son? 

Mr. Chubb. The firm of Chubh & Son receive a contingent, as is 
customary in that class of business, and I have an interest in that 
firm which I could not outline now, how much it was in those years, 
but the whole business is a very small business in the premium income 
of the United States Guarantee Co. 

Mr. Gesell. Now, coming to the Federal Co. for a moment, I 
believe you said you wrote fire insurance? 

Mr. Chubb. Yes. 

Mr. Gesell. And have received premiums from the Prudential for 
fire insurance business? 

Mr. Chubb. Well, now there is just a technical difference. I do not 
think they have received any premium for fire insurance business from 
the Prudential. I think the Federal has received premiums on the 
Prudential's business through the American. It is merely — there is a 
technical difference, and I just want to make it clear I do not think 
it is of any importance in this discussion. 

Mr. Gesell. It results in the Federal Insurance Co. writing the 
risk? 

Mr. Chubb. Yes, sir; that is perfectly true. 

Mr. Gesell. Now, up until 1933 the Federal Insurance Co. had 
not been writing any fire insurance, had it? 

Mr. Chubb. Well, not for some time; it had been in the fire business. 

Mr. Gesell. Years ago? 

Mr. Chubb. Not so very many years ago. 

Mr. Gesell, But immediatelj^ prior to 1933 it had not written any 
fire insurance, had it? 

Mr. Chubb. Not for I should say 2 years before that. 

Mr. Gesell. Now, in 1933 did you discuss with officials of the 
Prudential the general fire insurance situation? 

Mr. Chubb. Yes. 

Mr. Gesell. In connection with those discussions did you refer 
to the possibihty of the Federal Insurance Co, writing some of that 
business? 

Mr. Chubb, I did not. 

Mr. Gesell. Starting in '33 the Federal Insurance Co. reentered 
the fire insurance field? 



1484 CONCENTRATION OF ECONOMIC POWER 

Mr. Chubb. Yes, sir. 

Mr. Oesell. And in 1938 it received its first business from the 
Prudential? 

Mr. Chubb. That is my recollection. 

Mr. Gesell. Now, who handled for your company the necessary 
business dealings which resulted in the Federal receiving these 
premiums? 

Acting Chairm-an King. When you speak of his company, you are 
referring to Chubb & Son? 

Mr. Gesell. I was referring to the Federal. 

Mr. Chubb. Well, in this particular case it would be synonymous 
because we are the managers of the Federal. There were a number 
of people — I think Mr. Byron May and Mr. Witholm, who is the 
manager of the fire department. 

Mr. Gesell. Do you recall ever having seen this letter, a letter 
from Mr. May to Mr. Rogers, vice president of the Prudential Insur- 
ance Co., dated April 18, 1938? It says: 

I want to thank you for your courtesy to Mr. Wrenn and myself when we 
called at your office on April 5 to discuss the possibility of the Prudential's placing 
a share of its fire insurance with the Federal Insurance Co. This is the same 
question that Mr. Witholm and I considered with you on October 7, 1937, during 
our previous call at your office. 

The Federal Insurance Co.'s fire business has been steadily growing since we 
reentered the fire insurance field on December 1933 and it would be very grati- 
fying if our writings could be augmented by an interest in the fire insurance 
which the Prudential places with the American Insurance Co. of Newark. We 
understand that there are five other companies participating in this business as 
reinsurance, although you contemplate that there may be some change in this 
arrangement in the future. 

In view of the Federal's possibility as a strong New Jersey company we would 
be very pleased to have you consider including our company among those which 
now reinsure the American. 

For your records we are enclosing a copy of the Federal's latest statement and 
we feel certain that if your company can give favorable consideration to our 
request the details of the Federal's inclusion for a share of your business can be 
worked out to your entire satisfaction. 

Did you know that Mr. May of your organization was going to seek 
this business from the Prudential? 

Mr. Chubb. Yes; I knew that they came to me, and they came to 
me on tM-o or three other occasions on the subject, and I said "No; 
I want hands off. You can't make any use of my name." Finally 
they said, "When we go over there and do not make any use of your 

name in the matter at all " I said, "You can do that, but I am not 

going to say anything and I will never use any influence to get that 
business for you." 

Mr. Gesell. Just gets to be kind of a difficult situation, doesn't 
it, Mr. Chubb? 

Mr. Chubb. No; I do not think so at all. 

Mr. Gesell. You yourself anxious to keep completely removed 
from the obtaining of this business, having your organization with . 
aggressive men who are seeking the business; they approach another 
company with which you are affiliated and connected; those officers 
they approach naturally must have mixe*' feelings in the situation, 
must they not? 

Mr. Chubb. Well, I think to my mind, as to my responsibility as 
director of the Prudential, what I have in mind is that I would do 
n-O thing that would create any obligation on my part to any officer of 



CONCENTRATION OF ECONOMIC POWER 1485 

the Prudential Insurance Co. Now I do not think that is a difficult 
distinction to make at all. I think as a director of the Prudential I 
owe a very definite duty to the Prudential and I must not use it. 

They must not use it any way except for the Prudential's use, and 
without regard to my own interest. That is what I have lived up to. 

Mr. Gesell. And you felt that it was absolutely essential for you 
to keep your hands completely off any solicitation of business fot your 
company? 

Mr. Chubb. I felt that that was a position I wished to be in, that 
I was under no obligation to any officer of the Prudential for anything 
they gave me because being director 1 did not want to be in that 
position. I am not judging others; 1 am just stating my own position. 

Mr. Gesell. "From the point of view of the officials of the Pru- 
dential, they might be inclined to give busmess to your company in 
preference to some other company, quite apart from any position 
you took because of the situation which existed, might they not? 

Mr. Chubb. They might be quite inclined to give business to my 
company because they would know the character of management 
which it had if I was the head of it. 

jVIr. Gesell. They would have confidence in you, having had 
business relations ^ith you and having known you for many years? 

Mr. Chubb. I can see no impropriety in that. 

Mr. Gesell. Now in 1938 a new arrangement with respect to the 
writing of the fire insurance of the Prudential resulted with four 
different companies, each writing 25 percent of the business, is that 
not correct? 

Mr. Chubb. I believe so; yes, sir, 

Mr. Gesell. The American Insurance Co., the Fireman's Insur- 
ance Co., and Insurance Co. of North America, and the American 
Insurance Co. has 25 percent, and each of the other companies 25, 
including the Federal? 

Mr. Chubb. I know there is 25 percent, but I would not be quite 
sure as to the companies that have the insurance; American does; 
I know the Federal does, and I know the Insurance Co. of North 
America does, and I probably knew who the fourth company was. 

Acting Chairman King. For my information may I interrupt with 
this question? Were these companies whose names have just been 
presented doing anything besides casualty and fire insurance? 

Mr. Chubb. The companies he just mentioned, Senator, were fire 
insurance companies an.d I think all the questions I have been reply- 
ing to in the last 5 minutes have had to do purely with fire business. 

Mr. Gesell. We had mentioned the United States Guarantee Co. 
which did the liability business? 

Mr. Chubb. Yes. 

Acting Chairman King. What is the rule with respect to insurance 
companies, fire and Hability insurance, one compan;y taking out a 
large poHcy and then dividiiig it among other companies? Is not that 
the practice? 

Mr. Chubb. That is very often done. I do not think you could 
say there was a practice that way, Senator, it is done both ways. 
Of course nearly every company that takes a large line does it in 
turn, passes it out to other companies. 

Acting Chairman King. They divide the Habihties? 



1486 ' CONCENTRATION OF ECONOMIC POWER 

Mr. Chubb. They divide the liabilities to get an average. 

Acting Chairman King. To divide the risk? 

Mr. Chubb. Yes, sir. 

Acting Chairman King. Then it is not an uncommon thing for these 
casualty liability and fire-insurance companies to divide the risks by 
apportioning to various corporations? 

Mr. Chubb. Oh, not at all, sir. 

Acting Chairman King. Part of the pohcy and part of the risk. 
Would that be true with respect to Ufe insurance, ordinary hfe 
insurance? . 

Mr, Chubb. I probably know less about that than any other class 
of insurance, but I think the large lives are handled exactly the 
same way, but I really do not know enough to answer that question. 

Acting Chairman King. Well, what is the general line of business 
of the Prudential, just in a word? 

Mr. Chubb. Life insurance entirely, and such disability insurance 
as goes with it. 

Acting Chairman King. That is all. 

Mr. Gesell. Now, are you familiar with the memorandum, a 
portion of which I am about to read, dated April 23, 1938, from Mr. 
Wrenn concerning the Prudential Life Insurance Co.? The memo- 
randum states — 

Mr. Bucknell and the writer todav visited the offices of the American Insurance 
Co. of Newark and spoke to Mr. Paul B. Summers, the president, who informed 
us that he was deHghted to notify us of Mr. Roger's decision to give us a partici- 
pation of 25 percent of all the business of the Prudential Life Insurance Co. as 
reinsurance of the American of Newark. He requested us to keep this infor- 
mation confidential until it had been released by Mr. Rogers. 

In the couise of our conversation he mentioned that the premium last year had 
been $5^8,000 approximately, of which about one-third covered farm properties. 
The lost ratio on farm properties amounted to approximately 52 percent and the 
lost ratio on the balance about 28 percent, making approximate average of about 
35 percent. He stated — and this is the part I want to call particularly to your 
attention — that "the companies participating in this business would be the 
American of Newark, the Insurance Co. of North America, the Firemen's of 
Newark, and the Federal." 

He also stated that he expected eventually there would be only two companies 
interested in this insurance and that the two would be the American and the 
Federal. He stated that Colonel D'Olier, the official in charge of this matter, is a 
Philadelphia man and that for a number of reasons connected with financing 
Philadelphia issues the Prudential desires to have the North American 
participating. 

He also stated that as part of the reason for the American's participation the 
five or six of the American directors are also directors of the Prudential. He 
stated that there would be no expenses in connection with the handling of this 
business other than a very nominal charge for printing and stationery, and that 
the cost to us would be exactly the commission cost to the American, which is on 
the basis of association commissions wherever the risks are located. 

Do you recall that memorandum? 

Mr. Chubb. No; I doubt very much if I saw that. I recall it now 
because it was sent to me by my office. I don't recall, and I am sure 
I should have recalled it if I had read it. 

Mr. Gesell. The memorandum indicates to me that one of the 
factors involved in the allocation of the fire insurance is this question 
of interlocking directorships. 

Mr. Chubb. Well, after all, such inference as you draw from it 
would be drawn from what Mr. Summers said, and I am not qualified 
to speak for Mr. Summers. I never discussed this matter with him 
in any way, shape, or form. Mr. Bucknell and Mr, Wrenn, who 



CONCENTRATION OF ECONOMIC POWER 1487 

went over there, are men concerned with the practical detail of work- 
ing it out; they are not concerned with the contract or the under- 
writing of the business. I have read it within thp last 2 days, because 
it has been sent to me. My mipression is that the statement as to 
directors is entirely wrqng, but I may be wrong as to that. I don't 
think there are five or -sLx interlocldng directors. 

Mr. Gesell. As to number but not as to the fact of the mterlocking 
directorate? 

Mr. Chubb, I have no knowledge as to whether that was a factor in 
its going to the American or not, I think there are a great many other 
things that you can think of for its going there, other than that, 

Mr. Gesell. You have, I tliink, advised on many occasions with 
the Prudential concerning their fire and casualty insurance problems, 
quite unrelated to your business at all. 

Mr. Chubb. Oh, particularly during the times following the crisis 
in, well, from 1932 on. 

Mr. Gesell. They sought your advice with respect to the kind of 
fire insurance which is to be written on their properties, the kind of 
casualty insurance to be written on theii* properties, what companies 
to choose, matters of that character? 

Mr. Chubb. They have consulted me as to the strength of the com- 
panies that were doing their business at that time, and as to the risks 
they were taking at a period of that kind. They have consulted me 
as regards fire, as to the method they used in doing it. I think they 
sought to consult with me about the habiUty, but I didn't know enough 
about it to advise them. 

Mr. Gesell. Well, now, did you feel at any time that it w^as diffi- 
cult to talk to the Prudential about their i^nsurance problems when 
you, yourself, were an insurance man interested, quite properly, in 
the development of certain companies engaged in the types of insurance 
which were under discussion? 

Mr. Chubb. Never. 

Mr. Gesell. I have no further questions of this witness. 

Acting Chairman King. The interest the Prudential Co. had in fire 
insurance I understand was merely the protection of properties w hich 
came to it in the conduct of its life insurance business. 

Mr. Chubb. To a large extent they were foreclosed properties, and 
of course that account has been going dov^n. 

Acting Chairman King. How did it acquire so many praperties? 

Mr. Chubb. Through foreclosure duiing the time of the crisis. 

Acting Chairman King. It made loans? 

Mr. Chubb. Yes, sir. 

Acting Chairman King. And it had been compelled, then, to 
foreclose some of its loans, and while it had made those loans, of course, 
it was interested in seeing that the property was protected by legitimate 
and proper fire insurance, 

Mr. Chubb. Yes, sir. 

Acting Chairman King, But it wasn't engaged in writing fire 
insurance? 

Mr. Chubb, Not in any way. 

Might I say a word, Mr. Chairman, if it is in order? There have 
been certain inferences as to the power of interlocking directorates in 
afl"ecting this business, and I have been asked a question as to whether 
I felt there was any conflict. I -would hke to state emphatically, I . 

124491— 39— pt. 4 22 



1488 CONCENTRATION OF ECONOMIC POWER 

would draw attention to the fact that back in 1933 I was consulted 
about the companies that should be on that policy. I wasn't asked 
to recommend companies, but I was asked to pass on the financial 
responsibilities of companies during a crisis. 

Acting Chairman King. Were you asked as a director of the 
Prudential? 

Mr. Chubb. I was asked purely as a director of the Prudential. 
During that time I was president of a company that I think I can say 
was financially the strongest company in New Jersey and perhaps in 
the country. I never recommended its use, I never suggested its use. 
Now I am not making that statement lo put myself in a special 
position. I believe that the idea of responsibility to the Prudential 
has been general with every director that has been there. I have been 
on that board 15 years. I have never seen a case of conflict between 
the duties of a dii'ector of the Prudential and his duty to his companj^. 
I have never seen it affect the duties to the Prudential adversely m 
that whole time. That is 15 years of the biggest financial stress 
this country has been in in my lifetime, or even the younger men's 
lifetime. I have never seen such a case, and I will go further and say 
that during that time— the question was asked of Mr. Houston 
yesterday about the bank directors. During that time I have seen 
many times when the special knowledge they possessed was itself of 
great value to the Prudential at such a time, just as I believe my 
knowledge of the insurance, which I never seek to capitalize and 
never make use of, was of very great value in considering the carriers 
of insurance. • 

Mr. O'CoNNELL. The thing you last said caused me to think of a 
question I would like to have clarified a bit. I understand it is your 
position, and you and the other directors of the company, are very 
sure that you and none of them ever has taken advantage in any way 
of the particular situation vnth which we have been dealing, and I 
think we are perfectly willing to concede that. I also understood 
from your testimony that you were at all times very careful to see to it 
that no such possibility would come to fruition, that you observed 
the strictest proprieties of the situation, so to speak. Is that correct? 

Mr, Chubb. Yes, sir; I hope so. 

Mr. O'CoNNELL. That gives me to think that you realize, during 
this period, that there was a very real possibility that such a conflict 
was inherent in the situation if the strictest sense of the proprieties 
was not observed by each of the persons in such a situation. 

Mr. Chubb. I think that is a question of the way a person would 
look at it. The only tiling I had in my mind in my attitude was, I never 
saw anything embarrassmg to the Prudential, but I saw sortie thing 
that might be embarrassing to me if I felt that I was under obligation 
to any of the officers, who after all are accountable to the directors, 
and I would never put myself in the position of asking favors on that 
account. 

Mr. O'CoNNELL. I see. 

Mr. Gesell. Just one further question, since you brought up Mr. 
Houston's testimony of yesterday. There we had indication of direct 
solicitation by the directors of deposits and business from that com- 
pany. . That is the type of situation which here you kept completely 
away from, is it not? 

Mr. Chubb, Yes, sir; I have kept away from it. 



CONCENTRATION OF ECONOMIC POWER 1489 

Mr. Gesell. You didn't mean to say that your situation was 
identical with that of the bankers in the case of the Mutual Life 
Insurance Co. 

Mr. Chubb. I don't think I referred to .that, Mr. Chairman. 
What I referred to was the question of whether there would not 
inevitably arise a conflict between the duty of a director, of a man 
that was connected with a bank, and with a director as a- director 
of a life-insurance company, and I said that during 15 years I had 
never seen such a conflict arise. That has had nothing to do with 
whether they solicited business or not. I know only about myself; I 
don't know about the others. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. May I ask you a question to clarify tho 
record? Are the rates charged by the various insurance companies 
imiform rates? 

Mr. Chubb. In most cases, but not in all cases. 

The VlCE Chairman. Then the choice would be 

Mr. Chubb (interposing). Well, may I qualify that? For in- 
stance, we have been talking about fire insurance.. I think that they 
are all the same as regards that. I am really much more of an expert 
on marine than I am on fire; I don't want to dodge, but I might not 
know quite so much. 

The Vice Chairman. Then the matter of choice would be as to 
solvency of the company and not the rate to be had? 

Mr. Chubb. Well, I think there would be a third consideration. I 
think the first question, of course, is as to solvency; the second ques- 
tion, to my mind, is whether the management is of the type that 
recognizes the equities of a situation rather than the technicalities 
of a situation. 

The Vice Chairman. That is interesting. Do 3^ou mean that in 
the settlement of fire losses you want a company that recognizes the 
equities of the situation as distinguished from the technicalities? Are 
you referring to adjustments now? 

Mr. Chubb. I am referring to adjustments; yes, sir. 

The Vice Chairman. I never thought of that. Thank you. 

Mr. Chubb. Well, I think perhaps your experience has been fortu- 
nate. 

Acting Chairman King. Sometimes agents do resort to technicali- 
ties in the construction of their contracts after there has been casualty. 

Mr. Chubb. I regret to say that is sometimes so. 

The Vice Chairman. I always thought that was a matter of the 
meanness of the agent as distinguished from the policy of the com- 
pany. Do poUcies h^ve that? 

Mr. Chubb. I think you are asking me a pretty hard question. 

Tire Vice Chairman. No; I won't ask it. 

Acting Chairman King. The rates are usually fixed by statute, are 
they not, in a given State — take New York? 

Mr. Chubb. In New York, I wouldn't say — they are based on 
experience. They are what you call filed rates. The rates are filed 
by all the companies and the department approves of those as being 
both adequate and not high and not discriminatory, so you file those 
rates and you have to abide by them. 

Acting Chairman King. So, after all, there is a good deal of uni- 
formity, in the rates. 



1490 CONCENTRATION OF ECONOMIC POWER 

Mr. Chubb. Almost entirely uniform. 

Acting Chairman King. Because you have to submit data to the 
representative of the State insurance department, and he approves or 
disapproves of the rates which are submitted, so that the policy tends 
to uniformity and prevents what some persons have called cutthroat 
rates being given which might result in serious losses to the company. 

Mr. Chubb. Yes, sir; or insolvency to the company. I think 
that is the theory of it. 

Acting Chairman King. There were during the depression a num- 
ber of companies that suffered materially. 

Mr. Chubb. More, perhaps. There were a great many of them. 

Mr. HiNRiCHS. May I ask one question, please. In your discus- 
sion of the equities of adjustment that you have just mentioned, does 
•that raise potentially any continuing conflict of interest in the two 
positions; that is, your position is involved not only in connection 
with the writing of insurance but potentially, except where the greatest 
care is used, also throughout the hfe of the policy? Would that bo 
an incorrect interpretation? 

Mr. Chubb. Now, I don't want to appear "holier than thou." I 
say we have always had regard for the equities and, as a director, the 
Prudential wouldn't expect me to ask for anything more, so I can't 
conceive of any conflict there. 

Acting Chairman King. That is all. Call your next witness. 

(The witness, Mr. Chubb, was excused.) 

Mr. Gesell. Mr. Michael J. Cleary is the next witness. 

Acting Chairman King. Do you solemnly swear the testimony 
you are about to give in this hearing shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Cleary. I do. 

TESTIMONY OF MICHAEL J. CLEARY, PRESIDENT, NORTH- 
WESTERN MUTUAL LIFE INSURANCE CO., MILWAUKEE, WIS. 

NORTHWESTERN MUTUAL LIFE — ELECTION AND SELECTION OF 

DIRECTORS— DUTIES AND STANDARDS OF DIRECTORS' CONDUCT 

policyholders' COMMITTEE 

Mr. Gesell. Mr. Cleary, you are president of the Northwestern 
Mutual Life Insurance Co. ; are you not? 

Mr. Cleary. I am. 

Mr. Gesell. How long have you been president? 

Mr. Cleary. October 1932. 

Mr. Gesell. Were you connected with the company before 1932? 

Mr. Cleary. I was. 

Mr. Gesell. How long have you been with the company? 

Mr. Cleary. 1919. 

Mr. Gesell. How old a company is the Northwestern Mutual? 

Mr. Cleary. Eighty-one. 

Mr. Gesell. How much insurance has it in force? 

Mr. Cleary. About three billion nine. 

Mr. Gesell. What are its admitted assets? 

Mr. Cleary. A billion, two hundred thirty-odd. 

Acting Chairman King. Did you state the headquarters of your 
office? 



CONCENTRATION OF ECONOMIC POWER 1491 

Mr. Cleary. Milwaukee, Wis. 

Acting Chairman King. And organized under the laws of 

Mr. Cleary. Wipconsin. 

Mr. Gesell. What type of insurance does it write? 

Mr. Cleary. Ordinary only. 

Mr, Gesell. Ordinary life insurance? 

Mr. Cleary. Yes. 

Mr. Gesell. No group, no industrial, no what we might call mass 
insurance? 

Mr. Cleary. No. 

Mr. Gesell. \\Tiat are the number of States in which it operates? 

Mr. Cleary. Fort3^-two and the District. 

Mr. Gesell. How many trustees or directors of the company are 
there? 

Mr. Cleary. Thirty-six. 

Mr. Gesell. I wish to offer for the record at this time a schedule 
showing the names of the trustees of the Northwestern Mutual Life 
Insurance Co., the date of their election, their period of service, their 
principal business connections, their other business connections, and 
their homes. 

Acting Chairman King. Have you seen the schedule? 

Mr. Cleary. I am sure I have. 

Acting Chairman King. As far as you Imow it is correct? 

Mr. Cleary. Correct, yes. 

Acting Chairman King. It may be received. 

(The schedule referred to was marked "Exhibit No. 287" and is 
included in the appendix on p. 1583.) 

Mr. Gesell. Now, am I correct in saying that nine of your trustees 
are elected every year for a term of 4 years? 

Mr. Cleary. That is correct. 

Mr. Gesell. Your policyholders have one vote apiece? 

Mr. Cleary. That is correct. 

Mr. Gesell. Your company is a mutual company, is it not? 

Mr. Cleary. Yes. 

Mr. Gesell. Do you make any use of your agency force in getting 
votes at the annual elections .'* 

Mr. Cleary. None whatever. 

Mr. Gesell. You give notice in accordance with the Wisconsin law 
in Wisconsin papers and on the policy, on the premium notice and on 
the premium receipt? 

Mr. Cleary. That is right. 

Mr. Gesell. You get in a little less than 1 percent of the votes, is 
that correct? 

Mr. Cleary. Yes, sir. 

Mr. Gesell. Am I correct in statmg that proxies are prohibited 
under the Wisconsin law? 

Mr. Cleary. Have been since 1907. 

Mr. Gesell. Must the majority of your directors be residents of 
Wisconsin? 

Mr. Cleary. Yes. 

Mr. Gesell. Must they be policyholders? 

Mr. Cleary. They must be. 

Mr. Gesell. All of your directors? 

Mr. Cleary. All of them. 



1492 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Must they have any particular amount of insurance, in 
force? 

Mr. Cleary. No requirement except that they be insured for at 
least 1 year, and I think $1 ,000 minimum 

Mr. Gesell. Has your company ever had a contested election? 

Mr. Cleary. Not so far as I know. 

Mr. Gesell. Certainly not in recent years. 

Mr. Cleary. No. 

Mr. Gesell. Under the Wisconsin law will you tell us what the 
procedure is in case of a contested election? 

Mr. Cleary. One hundred policyholders may nominate an inde- 
pendent ticket. 

Mr. Gesell. One hundred policyholders are all that are necessary 
to get an independent ticket before the policyholders? 

Mr. Cleary. Yes. They file a certificate of their nominees with 
the insurance department and the secretary of the company. In case 
that happens, a form of ballot is prescribed by law. 

Mr. Gesell. To save your voice, Mr. Cleary,, is it correct to say 
that this ballot is a single ballot which lists botli the independent 
ticket and what might be called the administration ticket? 

Mr. Cleary. That is true. 

Mr. Gesell. One ballot with both, tickets on it. 

Mr. Cleary. Yes. 

Mr. Gesell. That ballot is sent at the company expense to every 
policyholder? 

Mr. Cleary. That is right. 

Acting Chairman King. The ballot is prescribed by law, is it? 

Mr. Cleary. Yes. 

Mr, Gesell. And there is no use of proxies, even in a contested 
election? . 

Mr. Cleary. Not at all. 

Mr. Gesell. There is no use of the agency force in a contested 
election? 

Mr. Cleary. It is prohibited specifically. 

Mr. Gesell. Each poUcyholder receives at the company expense 
this single ballot, listing the names of both tickets. 

Mr. Cleary. That is right, with »n envelope in which he may vote 
by mail. 

Mr. Gesell. Supposing there are nine directors, as would be the 
case, up for election on both tickets, and I am a policyholder. I 
would have, so to speak, nine votes. Would I be able to put all those 
votes on one man? 

Mr. Cleary.- Yes. 

Mr. Gesell. So that if there is an independent nomination and a 
group is interested in placing on the board some individual, by poohng 
their votes all against his name they have a much better chance of 
electing him, do they not? 

Mr. Cleary. Tlioy do. 

Mr. Gesklt,. I would like to offer for the record, and also as a way 
of saving Mr. Clearv's voice, a copy of the Wisconsin law with respect 
to the procedure followed in contested elections, showing the form of 
the ballot prescribed by law, and other relative matter. 

Acting Chairman King. If there is no objection, it will be received. 

CT'ne Wisconsin law referred to was marked "Exhibit No. 288" and 
is Uicluded in the appendix on p. 1588.) 



CONCENTRATION OF ECONOMIC POWER 1493 

Acting Chairman King. For the record may I inquire, how miny 
policyholders have you in your company? 

Mr. Cleary. Approximately 700,000. 

Acting Chairman King. Scattered throughout the various States? 

Mr. Cleary. Yes. 

Acting Chairman King. Where is the residence of the greatest 
number? 

Mr. Cleary. The greatest amount of insurance is in force in the 
State of New York; Illinois second; Wisconsin, I think, third; and 
so it goes over the country. 

Mr. Gesell. Mr. Cleary, how many meetings of the board of 
directors of your company are there a year? 

Mr. Cleary. Four. 

Mr. Gesell. Am I correct in saying that the Wisconsin law pre- 
scribed that these directors must attend a certain number of meetings 
each year? 

Mr. Cleary. That is true. 

Mr. Gesell. What is the law about that? 

Mr. Cleary. Three consecutive absences automatically removes 
a man from the board and makes him ineUgible to reelection for a 
fixed period of time. 

Acting Chairman King. Would sickness be an excuse? 

Mr. Cleary. No; there is no excuse. 

Mr. Gesell. If a man is ill, if a man wants to travel, if a man is 
very busy, if a man doesn't want to come, if he Uves too far away-r- 
none of those things is an excuse? 

Mr. Cleary. None at all. 

Mr. Gesell. Am I correct in saying that the operation of that law 
has resulted from time to time in eliminating from your board of 
directors men who do not show sufficient interest to attend three 
meetings? 

Mr. Cleary. It has. 

Mr. Gesell. Also men who have fallen into bad health or by 
reasons of age or otherwise are unable to attend. 

Mr. Cleary. That is true. 

Mr. Gesell. So that through this statute you do have an active 
board of directors in constant attendance on the affairs of the com- 
pany. 

Mr. Cleary. I would say that was true. 

Mr. Gesell. Is it fair to say that most of your directors attend 
at least three meetings a year? 

Mr. Cleary. My recollection is that the tabulation showed an 
attendance record of approximately 80 percent. 

Mr. Gesell. Now we have already covered the fact, I think, that 
the majority of your directors must be residents of the State of 
Wisconsin. 

Mr. Cleary. Yes. 

Mr. Gesell. With respect to the selection of men from outside 
the State, will you tell us what the policy of your company is in that 
selection? 
_ Mr. Cleary. We seek for a geographic distribution, for a voca- 
tional distribution, and really seek for men who represent a fair 
cross-section of the policyholders. 



1494 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. First of all geographically, you try to place your 
directors ail around the country? 

Mr. Cleary. Yes; as far' as I know we never have two men from 
one State. 

Mr. Gesell. Other than Wisconsin. 

Mr. Cleary. Yes; of course, that is compulsory. 

Mr. Gesell. You try to get men who are not all bankers, or who 
are not all of a particular occupation or class, but who represent 
lawyers, doctors, mercliants, teachers, and so forth. 

Acting Chairman King. Don't complete the statement. 

Mr. Gesell. Let me ask you this, Mr. Cleary. Supposing you 
have a vacancy somewherp out of the' State of Wisconsin and you 
want to fill it. Let's say you have a New England man that j^ou 
want to bring on your board. Wliat kind of procedure does your 
company go through in selecting him? We have already said the 
man must be a policyholder. 

Mr. Cleary. Well, .it varies, of course. We had a vacancy in 
Boston. We made up a list of New England policyholders, consider- 
able in size. 

Mr. Gesell. That was a list of 2,000 policyholders, wasn't it? 

Mr. Cleary. I think probably that many. 

Mr. Gesell. What did you do with that hst? 

Mr. Cleary. It was submitted to our trustee in Connecticut, to 
our agents in Massachusetts, and probably some of the other New 
England territory, with the purpose of finding a man tbat would seem 
to lit into the board from the Boston area. 

Mr. Gesell. You mean, you took 2,000 policyholders of your 
company who came from this Boston area and submitted that list 
to representatives of your company in order that they could, make a 
check of the qualifications of these 2,000 men to see who would be 
best suited for the directorship? 

Mr. Cleary. That was the purpose, sir. 

Mr. Gesell. What sort of investigation was made in selecting a 
man off that list? What type of inquiry was made? Whom did you 
talk to, and so forth? 

Mr. Cleary. Our general agents in that territory, our trustee in 
Connecticut who was well acquainted with New England. My 
recollection is that an officer of the company went into the area and 
checked with policyholders, and probably others, as to the availabilit3\ 

(The vice chairman, Representative Sumners, assumed the Chair.) 

Mr. Gesell. Coming to this question of selection frpm another 
point of view, do you look to see whether or not the man is in any 
way subject to becoming in a conflicting position if he comes on the 
board of your company? 

Mr. Cleary. We have frequently given thought to that phase of 
it, and on soveraloccasions eliminated men from consideratiou because 
of that factor. 

Mr. Gesell. Since conflicting interest is subject to a difficult 
definition, will you toll us just the type of men and the type of situa- 
tions that have arisen where vou have felt that you had to eliminate 
.t. man because of this confiicting relationship? 

Mr Cleary. Weil, 1 miglit use the case of Mr. Way, of the Mil- 
w;iil<ce Eloctric (^o. Mr. Way is presidoiit. At the time his name 
was ' ousidcrod the company owned between eight and nine mifiion 



CONCENTRATION OF ECONOIMIC POWER 1495 

dollars of securities of that company. We. had considered the ques- 
tion as to whether the holding might not be too large, what our 
attitude would be in the event of refunding. It was felt that it would 
be embarrassing to Mr. Way, and possibly to the company. We 
dropped his name. 

Mr. Gesell. That was a case simply where your company had a 
large investment in his company", was it not? 

Mr. Cleary. Yes. 

Mr. Gesell. Well now, what about any other instances that j^ou 
have? 

Mr. Cleary. Oh, I don't know that 1 recall specific detail, Mr. 
Gesell, on another case. 

Mr. Gesell. Do 3'Ou remember the case of Mr. Fred W. Sargent 
of your company? 

Mr. Cleary. Yes. 

Mr. Gesell. He became a trustee, did he not? 

Mr. Cleary. Yes. 

Mr. Gesell. He was president of the Chicago & North Western 
Railroad Co.? 

Mr. Cleary. Yes. 

Mr. Gesell. Your company had an investment in that railroad 
prior to his coming on the board? 

Mr. Cleary. Yes. 

Mr. Gesell. His railroad got into difficulties. 

Mr. Cleary. Yes. 

Mr. Gesell. The securities went into default. 

Mr. Cleary. Yes. 

Mr. Gesell. Your company still held them, and as the result, the 
situation was felt to be such as to warrant Mr. Sargent's leaving the 
board of directors of your company. 

Mr. Cleary. That is true. 

Mr. Gesell. What about banking and investment banking con- 
nections, Mr. Cleary, do you seek bankers and investment bankers 
as your trustees? 

Mr. Cleary. No. Five or six years ago we had a vacancy in New 
York and my recollection is that we announced to the agents and 
others with whom we considered a selection that we preferred to 
select outside of the banking and the investment house group. 
• Mr. Gesell. Why was that, Mr. Cleary? 

Mr. Cleary. Well, we want to be perfectly free, naturally, without 
any embarrassment in buying and selling securities. We also want 
to be perfectly free in dealing with our deposits in the New York 
area. Probably supercautioiis, but 

Mr. Gesell (interposing). You mean that there was the prospect 
that at some time if you had a banker on your board, that you would 
want to deposit money in his bank, and then his presence on your 
board would be embarrassing, or you might want to buy securities 
through some investment banking house and the presence of that 
man on your board would be embarrassing. 

Mr. Cleary. That is a possibility, and I imagine one of the view- 
points that -entered into our conclusion. 

Mr. Gesell. I notice another instance here on a memorandum 
rf^lnting to the selection of a Chicago trustee for your company i' 
VJ'Sb. where a gentleman was eliminated by retison of a conflict oi 



1496 CONCENTRATION OF ECONOMIC POWER 

interests. Mr. Albert F, Wetten. Are you familiar with that case, 
and why he was eliminated from consideration? . 

Mr. Cleary. I am familiar with the existence of the case, and my 
recollection is that Mr. Wetten's activity in the real estate field, 
which is very large and widespread, might bring him in conflict with 
company interest, as we, too, owned some Chicago real estate, have 
•mortgages on some very sizable properties there. 

Mr. Gesell. This mian was a prominent real estate operator in 
Chicago and your company was a prominent investor in rcrd ( state 
and owner of real estate in Chicago, and that in itself was felt by 
the trustees sufficient reason not to bring this man on the board. 

Mr. Cleary. I think that is a fair statement of the facts. 

Mr. Gesell. I notice that another man was eliminated because he 
was too busy. Is that because he is unable to give enough attention 
to the affairs of the company, is that what 3''ou mean by "too busy"? 

Mr. Cleary. Well, we have always talcen the position that the 
law requires attendance at meetings, that the trusteeship carries 
responsibility, and naturally v/o don't want to put men on who may 
be forced off by failure to function. 

Mr. Gesell. I noticed that two men who were lawyers were 
eliminated. Why was that? Did you have too many lawyers on 
your board? 

Mr. Cleary. In what case was this? 

Mr. Gesell. In the selection of the Chicago trustee; sir. 

Mr. Cleary. We have no grievance against lawj-ers. I used to 
pretend to be one myself. I think we did discuss in this case the 
rather wide variety of interests that we have in Chicago and preferred 
to be quite free in the decision as to who would represent us legally. 
I recall that now, 

Mr. Gesell. On this whole matter of your trustees and directors 
doing business with your company, directly or indirectly, what posi- 
tion has .your company taken in that regard? 

Mr. Cleary. We have had a very rare instance, outside of some legal 
business, where that question ever could come up. 

Mr. Gesell, Would your company feel free to give its fire-insur- 
ance premiums to a fire insurance company with which one of j^our 
trustees was connected, regardless of whether that trustee had or 
had not solicited the business? 

Mr. Cleary. Well, that is a theoretical question, Mr. Gesell, 

Mr. Gesell, I am simply trying to get at your companjf's policy. 

Mr. Cleary, Then ask me about what we do with our fire in- 
surance. 

Mr. Gesell, You distribute your fire insurance widely among 
many companies ; do you not? 

Air. Cleary, Yes; and through local agents, not through direct 
dealing with the company, except in the case of a contract with the 
National Fire of Hartford which provides automatic coverage if 
a borrower lapses insurance or otherwise the insurance is terminated. 

The Vice Chairman. May I ask one question at this point? Your 
policy of doing bushiess with the local agent, is that for the purpose of 
protecting the mterests of your concern or for helping you get business? 

Mr. Cleary. Well, I wouldn't say it was either. It is doing busi- 
ness, I might say, in the normal way. We are solicited by practically 
every fire-insurance agency in Milwaukee. We place about $6,000,000 



CONCENTRATION OF ECONOMIC POWER 1497 

of fire insurance on our home office property. That business is divided 
among some fifty- agencies. 

The Vice Chairman. The general agencies? 

Mr. Cleary. Well, they are local fire-insurance agencies. 

The Vice Chairman. What I am trying to get at is, if you should 
do business, for instance, in the city of Dallas, you would there do that 
business through the local agent in the city of Dallas as distinguished 
from doing it thi'ough some company that he represents? 

Mr. Cleary. Yes. 

The Vice Chairman. Is that for the purpose of helping you to 
establish yourself locally and get business and tie in with the com- 
munity or for the purpose of security with your organization? 

Mr. Cleary, I don't know what discussions resulted in the policy, 
Judge. 

The Vice Chairman. But I imagine you know why you do it. 

Mr. Cleary. The practice was established long before I had any 
connection. 

The Vice Chairman. Then I will ask you why do you continue. 

Mr. Cleary. Because we think it is good policy. 

The Vice Chairman. That is what I thought. 

Mr. Ges'ell. Mr. Cleary, apart from lawyers and banks, we will 
come back to that in a moment, does your company to your knowledge 
do any business with any company with which one of its directors 
interlocks? 

Mr. Cleary. We have. 

Mr. Gesell. What type of cases have those been? Apart from 
investments, have you done any business? We will come to the 
question of investments in a second. You have bought supplies and 
that type of thing? 

Mr. Cleary. No; so far as I am able to determine. As the result of 
a rather careful check, no director of the company and no officer of 
the company is connected with an organization from wliich we buy 
supplies, and we buy great quantities, of course, of paper, labor-saving 
machinery and other equipment and supplies for the home office. 

Mr. Gesell. Now, you have occasionally 

The Vice Chairman (interposing). I don't believe he fully answered 
your question. Is there anything further on that point. You asked 
a rather important question. 

Mr. Gesell. We asked in respect to supplies. What about ad- 
vertising? Have you given advertising business to anyone connected 
through an interlocking directorship? 

Mr. Cleary. Not at all; no connection. 

Mr. Gesell. Have you given any of your casualty insurance, 
fire insurance, or other forms of miscellaneous lines of insurance to any 
company with which your board interlocks? 

Mr. Cleary. We do no business directly with any company. 

Mr. Gesell. With which your company interlocks? 

Mr. Cleary. No. 

The Vice Chairman. Do you do business mth local agents repre- 
senting companies on which you have directors. 

Mr. Cleary. I think we have two directors who are also directors 
of the Northwestern National Fire Insurance Co. It is probably 
that some of the agents to whom we give business have placed some 
with the Northwestern National Fire. 



1498 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. In the case 

The Vice Chairman (interposing:). Let's clear that up. But in 
that case you do not have your business WTitten by an agent, having 
in mind that he may be doing that business with this company? 

Mr. Cleary. Not at all. 

Mr. Gesell. In the case of the bank deposits, am I correct in saying 
that your company has six principal bank deposits at the present 
time? 1 

Mr. Cleary. Yes. 

Mr. Gesell. You have two in Milwaukee with tlie First Wisconsin 
National Bank and the Marine National Exchange Bank. You have 
two in Chicago with the Northern Trust Co. and the First National 
Bank of Chicago. You have two in New Yorlc wath the Bankers 
Trust Co. and tlie Chase National Bank. Is tliat correct? 

Mr. Cleary. That is correct. 

Mr. Gesell. Now, your company interlocks \\ith none of the Chi- 
cago or New^ York banks, but interlocks with both of the Milwaukee 
banks. 

Mr. Cleary. That is correct. 

Mr. Gesell. The interlocking connection ^vith those two Mil- 
waukee bfinks has occurred since the deposits were made in those 
banks by your company originally? 

Mr. Cleary. Yes; that is true. 

The Vice Chairman. Let's catch those dates, if you don't mind. 

Mr. Gesell. Am I correct in saying that the accounts in the 
Marine National Exchange Bank and the First Wisconsin National 
Bank, or their predecessor institutions, are of long standing and ante- 
date the election of any of your trustees who interlock with those 
baidvs? 

Mr. Cleary,, That is true. 

Mr. Gesell. Am I also correct in saying that your company has 
adopted a policy of maintaining equal balances in the Milwaukee, 
Chicago, and New York banks, and have not favored any bank as 
opposed to any other bank? 

Mr. Cleary. Substantially equal balances; yes. There is a daily 
transfer. 

Mr. Gesell In order to keep those balances equal. Is that 
correct? 

Mr. Cleary. Yes. 

Mr. Gesell. And you don't put a particularly large deposit in 
either of these two Milwaukee banks with which you interlock? 

Mr. Cleary. No ; and I may say that we substantially are compelled 
to use the two Milwaukee banks. We have three what might be 
termed large banks in Milwaukee. We have a small dormant account 
with one. We have active accounts with the other two that you have 
mentioned. That is a necessity to our business, and has been over 
the years. 

The ^'ICE Chairman. May I ask a question on that point? The 
one Milwaukee bank which is also a strong ban]^:, in which j'cu have 
a smaller deposit, is that a bank where there is or is not an interlocking 
directorate? 

Mr. Cleary. There are, I think, two trustees who are directors of 
that smaller bank; that is, the bank with the smaller deposit. 

' See "K.thibit No. 2S'.r', aprpndix, p. 1501. 



CONCENTRATION OF ECONOMIC POWER I499 

Mr. Gesell. And you have made no deposit in that bank. You 
have no deposit at the present time? 

Mr. Cleary. I tliink $100,000. That is a dormant account. 
That is the Marshall & Ilsley Bank. 

Mr. Gesell. You have a deposit of $100,000 there. 

You interlock with all three of the banks in Milwaukee? 

Mr. Cleary. That is correct. 

Mr. Gesell. I notice that in 1938 you had $1,736,000 in the First 
Wisconsin National Bank; $1,718,000 in the Maine National Exchange 
Bank; $1,734,000 in the Chase National Bank; $1,572,000 in the 
Bankers Trust Co.; $1,560,000 in the First National Bank of Chicago; 
and $1,557,000 in the Northern Trust Co. Is that close evenness of 
deposits maintained by your company at aU times as a matter of 
pohcy? 

Mr. Cleary. It is. 

Mr. Gesell. I would like to offer this schedule showing the deposits 
maintained in these banks from 1933 to 193.8 in the record after it 
has been verified by Mr. Cleary. Is that a correct schedule? 

Mr. Cleary. I am willing to accept that as correct. The figures 
you read are the average daily figures for 1938 as I understand it. 

(The schedule referred to was marked "Exhibit No. 289" and is 
included in the appendix on p. 1591.) 

Mr. Gesell. You keep these deposits even by transfer of funds on 
a daily basis. 

Mr. Cleary. Yes. 

Mr. Gesell. You referred to the fact that on occasion you have 
done some business with law firms, members of whom were directors 
of the company. 

Mr. Cleary. Tha-t is true. 

Mr. Gesell. Does the schedule which I show you reflect the total 
amount of busmess of that character that you have done? 

Mr. Cleary. Yes, sir; it does. 

Mr. Gesell. I notice the fees are rather small. Was there some 
special reason why this business was given at all? What was the 
character of the business? 

Mr. Cleary. Largely mortgages that came into trouble; occasion- 
ally a contest regarding liability under a policy. That is very infre- 
quent, however. 

Mr. Gt^sell. Was any of this business solicited from your company 
by the trustees who are also partners? 

Mr. Cleary. I would say no. Certainly no one, either the trustee 
or the partners, in no instance, spoke to me, and I can only repeat 
Mr. Swanson's, the general counsel's, statement that none solicited 
him. 

Mr. Gesell. I wish to offer this schedule for the record. 

(The schedule referred to was marked "Exhibit No. 290" and is 
incladed in the appendix on p. 1591.) 

Mr. Gesell. Now just in passing, Mr. Cleary, is your company a 
member of the Association of Life Insurance Presidents? 

Mr. Cleary. No. 

Mr. Gesell. Is there any particular reason why your company 
has not joined that association? 

Mr. Cleary. No. We are a bit far away g^d we maintain very 
friendly and satisfying contact with the associatimi. 



1500 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Are you providing it with such statistical material as 
they want for their studies? 

Mr. Cleary. Yes; always. 

Mr. Gesell. I want to ask you now about your policyholders' 
examining committee, and ask you to explain to the committee just 
what that policyholders examining committee is and how it operates. 

Mr. Cleary. I hate to inflict this voice on you gentlemen, but under 
the bylaws a policyholders' examining committee is chosen each year. 
That committee is made up of five men who have no connection what- 
ever with the company, except the fact that they are policyholders. 
Under the bylaw it is the duty of this committee to thoroughly examine 
into the plans, methods, policies, and results of the company. It is 
authorized to employ an audit company. It does that each year, ex- 
cept in the years when the State insurance departments are examining 
the company. The committee meets about November 1 each year 
and its audit company is put to work promptly. It holds usually 
three meetings, running from 2 to 3 days. The audit company is at 
work continuously, winding up its task in the neighborhood of Janu- 
ary 20, having spent approximately 2K months on the job. 

Mr. Gesell. Well now I want to show you a schedule which shows 
the members of the policyholders examining committee since 1929, 
their occupations, their address, their age, and by whom they were 
suggested, and ask you whether that is a correct schedule? ^ 

Mr. Cleary. That is. 

Mr. Gesell. Now, I notice that in addition to Wisconsin repre- 
sentatives of the policyholders' examining committee you have had 
five from New York, four from Illinois, three from Minnesota, two from 
Michigan, two from Missouri, and one apiece from Kentucky, Ari- 
zona, North Carolina, Indiana, California, Oklahoma, Pennsylvania, 
Tennessee, Washington, Iowa, Massachusetts, Ohio, South Dakota, 
and the District of Columbia. I gather from that that you attempt 
to distribute your committee around the country to represent each 
time a different group or different interest of the policyholders? 

Mr. Cleary. That is true. 

The Vice Chairman. May I ask a question there? Who is it you 
distribute? The members of the committee? 

Mr. Gesell. These are members of the policyholders' examining 
committee. I notice that these members have been on occasions 
attorneys, presidents of banks, ranchers, deans of agricultural col- 
leges, manufacturers, business managers, professors of economics; do 
you try to obtain a broad vocational distribution of people on this 
committee? 

Mr. Cleary. We do. 

The Vice Chairman. What do they do? How do they do it? 

Mr. Gesell. I am covering that, Mr. Chairman, in just a second. 
Would you prefer to go ahead? 

The Vice Chairman. Yes. 

Mr. Gesell. This committee is selected in what way? 

Mr. Cleary. We receive each year, I should say, 25 to 40 names 
from agents, general agents, sometimes a suggestion outside of the 
agency force, of men that would seem in the eyes of this person to fit 
on this committee. Out of the names that have, been suggested by 
agents, trustees, others, the committee is chosen with the purpose of 

> See "Exhibit No. 291", a:)pendiT, p. 1592. 



CONCENTRATION OP ECONOMIC POWER 1501 

diversifying geographically, diversifying vocationally, diversifying in 
size of policyholder interest. 

Mr. Gesell; Now, is the committee ultimately, after these names 
have been suggested, chosen by the trustees of your company? 

Mr. Cleary. Names are recommended to the board of trustees by a 
nominating committee? 

Mr. Gesell. Of the trustees? 

Mr. Cleary. Of the trustees, and chosen finally by the trustees as 
a board. 

Mr. Gesell. Now, who pays the expenses of this committee? 

Mr. Cleary. The company. 

Mr. Gesell. The company pays tor the transportation of the 
committee to the meetings, for the audit of its affairs, for the printing 
of such material as is necessary, and all of those costs? 

Mr. Cleary. That is true. 

Mr. Gesell. What does that run to, about, a year? 

Mr. Cleary. The audit, in the neighborhood of $10,000. The 
policyholders' per diem and travel probably $2,500, total, per year. 

Mr. Gesell. Now, this committee then meets in formal session, 
does it not? 

Mr. Cleary. It does. 

Mr. Gesell. It selects the auditor to make the examination of the 
company's affairs? 

Mr. Cleary. It does. 

Mr. Gesell. Does the company in any way attempt to dictate 
or influence the selection of the auditor who is to make this examina- 
tion on behalf of the pohcyholders? 

Mr. Cleary. Absolutely not. No suggestion of any kind is made 
by officers or trustees. The committee examines or interviews 
from ten to a dozen different nationally known audit companies and 
from that list selects a company to function with it. 

Mr, Gesell. I notice on the list that they have chosen in recent 
years Peat Marwick, Mitchell & Co.; Arthur Anderson; HcLskins & 
Sells; Price, Waterhouse & Co. ; Pace, Gore & McLaren; the Audit Co. 
of New York, and several other companies? 

Mr. Cleary. Yes. 

Mr. Gesell. Now, after the auditors have been appointed by the 
committee who determines the specifications of the audit that will be 
made? 

Mr. Cleary. The audit company and the committee. 

Mr. Gesell. Does the company participate in any way in deter- 
mining the type of audit that is going to be made of its affairs on the 
part of the policyholders^ 

Mr. Cleary. Absolutely no. 

Mr. Gesell. Now, is it the practice of tliis committee to sit in 
formal sessions? 

Mr. Cleary. Yes. 

Mr. Gesell. Does the committee call before it various _ executives 
and officers of the company and question them concerning the pohcies 
and the operations of their divisions? 

Mr. Cleary. It usually calls all of the so-called senior officers and 
many of the junior officers for questioning and discussion. 

Mr. Gesell. You mean they might take the man in the farm 
mortgage loan division and call him up and ask him about the distri- 



1502 CONCENTRATION OF ECONOMIC POWER 

bution of his loans, how they are made, and how foreclosures are 
coming, things of that character? 

Mr. Clear Y. Yes; and then call in his farm man, his city man, his 
sales manager, and so forth', so tliat it does not mean just the head of 
the department, but major subordinates also. 

Mr. Gesell. They go right down into the daily operations of the 
company and question people concerning the way the company is 
managed? 

Mr. Cleary. That is true. 

Mr. Gesell. Now, am I correct in saying that the auditors submit 
a preliminary report of their findings, which is the basis for considera- 
tion by the committee, and that the committee then gives additional 
instructions as to the types of transactions which it wants followed 
up and more thoroughly examined, and that then a final report is 
submitted by the auditors. 

Mr. Cleary, I understand that to be the practice; yes, sir. 

Mr. Gesell. Now, does the policyholders' committee prepare a 
report of its findings? 

Mr. Cleary. They do. 

Mr. Gesell. Is that report sent to all of the policyholders? 

Mr. Cleary. It is. 

Mr. Gesell. ^Vho writes the report? 

Mr. Cleary. The policyholders' committee. 

Mr. Gesell. The company does not have anytning to do with the 
writing of that report? 

Mr. Cleary. Absolutely not. 

Mr. Gesell. Is that report then sent at the expense of the company 
to the policyholders? 

Mr. Cleary. It is. I might add the auditors' ^ort also is sent 
to the policyholders. 

Mr. Gesell. And this is a yearly proposition, is it not? 

Mr. Cleary. Yes. 

Mr. Gesell. Now, I notice from examining the minutes of these 
meetings that they discuss very varied problems and I want to ask 
you whether this list which I am about to read you would be generally 
the type of thing which the policyholders' committee inquires into: 
Labor and personnel problems; policies in the mortgage loan field; 
the management of the real estate; the securities account; the policy- 
holders' ability to undei'tetand the financial reports; the ability of 
every second man in line in a department to take over the work of his 
superior, should his superior die or be removed; the interest rates on 
policy loans, the reorganization of the comptroller's department; the 
maximum single safe investment which the company may make; the 
agency problem; the relations of the managers to the agents and their 
compensation; the advertising budget; the limitations and the amount 
of F. H. A. loans to $10,000,000; the fees for medical examination; 
substandard risks; genera] agents' loans and amounts thereof to the 
company; the salaries of the officers and clerks; the acquisition cost of 
insurance; the efficiency expert surveys into management of the com- 
pany; the loading of premiums and mortality experience; real estate 
for foreclosures; pension plans — things of that character? 

Mr. Cleary. Yes. 

Mr. Gesell. They go into it rather thoroughly, do they not? 

The Vice Chairman. How long does it take to work through that 
agenda? 



CONCENTRATION OF ECONOMIC POWER 1503 

Mr. Cleary. The committee itself is there three times, usually 
from 2 to 3 days each time. 

The Vice Chairman. Two to three times a year? 

Mr. Cleary, From November 1 to January 20, approximately. 

The Vice Chairman. You mean they come and then go back home 
and come again? 

Mr. Cleary. Yes; the audit company is on the job continually. 

The Vice Chairman. They come in and put the auditor on the job, 
do they, and do they attend to any other business when they come the 
first time? 

Mr. Cleary. Usually they call in several. 

They call in several officers. In recent years of course they have put 
emphasis upon the investment departments. 

The Vice Chairman, Now, may we get back — I want to get this a 
Uttle more clearly in my mind. As these people come from the body 
of your poUcyholders, they are recommended in the first instance by 
your agent in the field who believes that this man John Smith or Bill 
Brown might be a good man on the committee? 

Mr,, Cleary. Yes; largely. 

The Vice Chairman. Do you make some independent selection? 
Do your trustees make any independent selection? 

Mr. Cleary. Oh, we get suggestions from officers, trustees, some- 
times from other sources. 

The Vice Chairman. Well, my question was do you make any in- 
dependent determinations outside of the recommendations that come 
in from the field? 

Mr. Cleary, Oh, indeed; we check up on these. 

The Vice Chairman. I did not ask you about the check; I asked if 
you make independent determinations as distinct from those that come 
in from your agents in the field. 

Mr. Cleary. You mean do we consider names other than those 
suggested? 

The Vice Chairman. Yes; the names that are suggested to the in- 
dividual members of your trustees. 

Mr. Cleary. Oh, yes; we do. 

The Vice Chairman. What percentage of this group of people, 
what is the answer now? 

Mr. Cleary. One member of this committee is always chosen in 
conference with or at the suggestion of the insurance commissioner of 
the State. That is one outside. 

The Vice Chairman. One man comes in representing the insurance 
commissioner? 

Mr. Cleary. Partly so. 

The Vice Chairman. The big partly so, too, is it not? I am just 
trying to get the picture. 

Mr. Cleary. He is either suggested by or selected in conference 
with the commissioner so that he is semipubHc. 

The Vice Chairman. Then there are members of this group who 
are selected from recommendations that are made by individual mem- 
bers of the trustees? 

Mr. Cleary. Yes. 

The Vice Chairman. What percentage would that be? 

Mr. Cleary. Oh, I should say a small percentage. 

124491— 39— pt. 4 23 



1504 CONCENTRATION OF ECONOMIC POWER 

The Vice Chairman. But they are not small in influence when 
seated with the group usually, are they? 

Mr. Cleary. Which, who? 

The Vice Chairman. Those who are selected by the trustees? 
I mean do you not have to have somebody who knows the general 
run of your business pretty well when these men get up there? 

Mr." Cleary. In recent years we have a holdover, one or two 
holdover members, so as to permit the committee to start functioning 
promptly and with more direction. From this list, Judge, I would 
say that a large percentage of the men chosen are first suggested by 
agents in the field. 

The Vice Chairman. How many constitute the group? How 
many persons? 

Mr. Cleary. Each committee? 

The Vice Chairman. Yes; each group as it meets, how many 



Mr. Cleary. Five. 

The Vice Chairman. I do not believe I understand. There are 
only five of these representatives of the policyholders who meet 
together? 

Mr. Cleary. The committee consists of five members. 

The Vice Chairman. Now, that five — there is one that represents 
the insurance commissioner in part at least? 

Mr. Cleary. Yes. 

The Vice Chairman. And there are some that come up from the 
body of the policyholders upon recommendations made in the field? 

Mr. Cleary. (Nods his head.) 

The Vice Chairman. What percentage of that five would they be 
in the ordinary run of things? 

Mr. Gesell. I might help you. 

The Vice Chairman. I would rather the witness would help me. 

Mr. Gesell. We have an exhibit which shows every policy- 
holders committee since 1929. 

The Vice Chairman. Just wait a minute. I am taking care of 
this myself right now. 

Mr. Cleary. I shovld say that an average of three of each com- 
mittee is chosen as the result of a suggestion by the agency force, that 
is three of the five. One through the insurance department contact, 
the other through suggestion of trustee, officer, or otherwise. 

The Vice Chairman. That gives' us a pretty clear picture of the 
construction of that personnel, and how many of the five that assemble 
are usually holdovers from some preceding group? 

Mr. Cleary. One. 

The Vice Chairman. That gives you four new persons each time? 

Mr. Cleary. Yes. 

Mr. Hinrichs. Is the holdover now the one who is characteristic- 
ally suggested by the trustees or oflBcers? 

Mr. Cleary. No. 

The Vice Chairman. I was going to ask that. What I want to 
know is — well, the same thing. Who determines the hold-over? 

Mr. Cleary. In other words, how is the hold-over member deter- 
mined upon? 

The Vice Chairman. That is the next thing in the picture. 



CONCENTRATION OF ECONOMIC POWER I5Q5 

Mr. Cleary. In many- cases it is a question of elimination, of 
getting a member of last year's committee to consent to serve again; 
in some cases such as the last 2 or 3 jears, we have chosen the Mil- 
waukee member, and I might say there is always a Milwaukee member. 
It is practically a necessity to keep in constant touch with the auditors, 
with the company, and with the other members of the committee 
while they are back home between meetings. I do not know that I 
could be specific as to any policy; it is largely a question of who is 
wilUng to serve, who has shown the type of interest that would make 
him a good hold-over member. 

The Vice Chairman. Who determines whether he would be a good 
hold-over member or not? 

Mr. Cleary. Oh, I suppose largely the officers of the company, 
because they are the ones 

The Vice Chairman. Could you eliminate the word "suppose," or 
not? 

Mr. Cleary. I will do that; yes. 

Representative Reece. While you were being interrogated I 
glanced at the poUcyholders' committees for a number of years and 
it appeared to me that there had been no hold-overs until the last 3 
years. 

Mr. Cleary. I think a Uttle further back than that, Mr. Congress- 
man. 

Mr. Cleary. The bylaw was amended, as I recall, in 1933, pro- 
viding for the hold-over, and on the 1933 committee Mr. Dempsey, 
who had served on the 1932 committee, held over. That was the 
first hold-over. 

Mr. Frank. Mr. Gesell, may I ask whether the questionnaire in- 
dicated that any other insurance company of comparable, size has a 
similar committee, or anything of similar character. 

Mr. Gesell. I know of none. Do you know of any, Mr. Cleary? 

Mr. Cleary. I do not; no. 

Mr. Gesell. I would like to offer for the record this schedule 
showing the composition of the policyholders' examining committee 
for '29 to '38, their occupation, their address, their age, and who they 
were suggested by. 

(The schedule referred to was marked "Exhibit No. 291" and is 
included in the appendix on p. 1592.) , • . . 

Representative Reece. May I ask if the Wisconsin law requires 
such a committee? 

Mr. Cleary. It does not. It is a voluntary committee. 

Mr. Gesell. This is a matter of company pohcy entirely, is it, Mr. 
Cleary? 

Mr. Cleary. It is. 

Mr. Gesell. Is this document I show you the form of report which 
was sent by the policyholders' committee to the policyholders at the 
end of their audit in '38. 

Mr. Cleary. Yes. 

Mr. Gesell. I wish to offer it for the record. 

(The report referred to was marked "Exhibit No. 292" and is in- 
cluded in the appendix on p. 1595.) 

Mr. Gesell. Now, in view of the recent questions let me ask you 
this: Does the company prepare some kind of set program for this 



1506 CONCENTRATION OF ECONOMIC POWER 

policyholders' committee when they meet, so it all runs off like clock- 
work, or does the poUcyholders' committee itself determine what it 
wants to go into and what it is interested in? 

Mr. Cleary. The company in no way attempts to prepare for or 
suggest to this committee its program. 

Mr. Gesell. May 1 ask you this: Do you feel that this procedure 
which your company has adopted results in putting an effective check 
upon each man in your company which he has in the back of his head 
at all times as he conducts the day to day business of the company? 
. Mr. Cleary. I have said a good many times that we are not per- 
mitted to — decide that we own the company. We are kept con- 
scious of the fact that we are hired men up there and that the policy- 
holders are the boss. These fellows put us through real examinations 
with reference to what we are doing, how we are doing it, what 
results we are getting, why we aren't doing something different. 

Mr. Gesell. In conclusion I would like to offer for the record the 
minutes of the meetings of the examining committee of policyholders 
of the Northwestern Mutual Life Insurance Co. held in connection 
with the examination in 1938. 

(The minutes referred to were marked "Exhibit No. 293" and are 
included in the appendix on p. 1635.) 

Mr. Gesell. I have no further questions of this witness. 

Mr. HiNRicHS. Mr. Cleary, you made it very clear that you tried to 
avoid any kind of interlocking relationship between your trustees and 
the business activities of the company. In the process of eliminating 
people who might have an interlocking interest, has it ever been 
necessary for you to turn down a man that you regarded as superbly 
qualified and accept somebody whose qualifications seemed to you to 
be inferior to those that you could have had if it were not for that 
interlocldng relationsliip? 

Mr. Cleary. I wouldn't say that. My experience is that there is 
no superman. You can always find a duplicate, 

Mr. HiNRicHs. That leads me to another question. Do you feel 
that this policy of yours, of avoiding interlocking directorates, could 
be successfully applied 14 or 15 or 16 times over in building a similar 
Board of Trustees provided the policy were carried out not instan- 
taneously, but over a period of time? It is a question of, are there a 
sufficiently large number of men avaOable whose interests don't 
interlock? Would it be your judgment that this same policy could be 
applied in many other situations of companies of your size or larger? 

Mr. Cleary. Well, of course, I am just guessing. I should think it 
could be. 

Mr. Gesell. May I ask you this one other question right along that 
line. Is it not a fact -that on several occasions a vacancy on your 
Board of Trustees has been filled by a man who Had previously served 
as a member of the pohcyholders' committee, and that the policy- 
holders' committee in a way is turning out to be a proving groimd for 
directors? 

Mr. Cleary. That is true. 

Mr. Gesell. I have no further questions. 

The Vice Chairman. Are there any further questions? 

Mr. Patterson. Do you suppose that your trustees are satisfied 
rather completely with this Wisconsin law? 

Mr. Cleary. In what respect? 



CONCENTRATION OF ECONOMIC POWER ^507 

Mr. Patterson. As to its provisions in protecting you. Do you 
like the Wisconsin law? 

Mr. Cleary. I do. I think our trustees generally are in sympathy 
with it. I have heard no complaints against it. 

Mr. Patterson. Have you ever had suggestions from the trustees 
that the law might be amended?, 

Mr. Cleary. Not so far as I can recall. 

Mr. Gesell. Does the Wisconsin law prescribe qualifications for 
trustees? 

Mr. Cleary. They must be policyholders, must have been a 
policyholder for at least 1 year and own, as I recall, not less than a 
$1,000 policy. 

Mr. Gesell. Those are the only qualifications? 

Mr. Cleary. The only qualifications, further, that at least half 
must be residents of the State. 

Mr. Patterson. Between meetings of your board you have an 
executive committee that acts with full power? 

Mr. Cleary. With certain limitations — election of ofl&cers, amend- 
ment of the bylaws. 

Mr. Patterson. The usual hmitations, but they really run the 
company. 

Mr. Cleary. They run the company. 

Mr. Patterson. Mr. Cleary, I may have missed it, but what is 
the compensation of your trustees? 

Mr. Cleary. As a trustee, $25 per diem plus expenses for attend- 
ing trustees' meetings. The executive committee member gets 
$2,500 per year. The finance committee member, who meets regu- 
larly at least twice a week and as often in addition to that as there is 
occasion, gets $6,000 a year. No officer, of course, receives any 
compensation for service on committees other than his fixed salary. 

Mr. Patterson. Then these trustees really have Hfe "jobs unless 
they are weeded out by absence as prescribed by the Wisconsin law, 
or for the reasons that you gave this morning? 

Mr. Cleary. By and large, that is true. 

Mr. O'Connell. Mr. Cleary, would it be fair to say that the testi- 
mony that we have Ustened to this morning, and your opinion, is 
that your company is an example of a mutual company in which, 
well, let's say, mutuality actually works, and one which would tend 
to indicate that there is nothing inherently impossible about the 
operation of a mutual company in the broad sense that I am speaking 
jof, one in which the mutuality works? I have had a feeling that the 
testimony that you have given this morning and the exposition of the 
way your company actually operates is somewhat in contrast to some 
of the material we have been hearing a little bit about before, and I 
wonder if you would think it a fair statement that your company is 
one of a type I have suggested. 

Mr. Cleary. I wouldn't like to make comparisons, and I do not 
make comparisons. We believe that our set-up is practical, that it 
functions efficiently, that it does, in as large a degree as possible, 
recognize the fact of mutuaUty. 

Mr. O'Connell. Tkank you. 

Mr. Gesell. I have no further questions. 



1508 CONCENTRATION OF ECONO.MIC POWER 

Representative Reece. Do the policyholders' committees fre- 
quently make suggestions with reference to the pohcy and conduct 
of the company? 

Mr. Cleary. Yes, yes. I think it might be more accurate to say 
they inquire into, in detail, such matters as the dividend pohcy of the 
company, the investment policy as it applies to securities, to mort- 
gages, policies of management in case of trouble in the bonds, in the 
mortgages. I think it would be accurate to say that, by and large, 
they have not been critical of the program when they have probed 
into it; but they do with frequency make suggestions, sometimes in 
writing, for transmission to the board of trustees, sometimes where 
the suggestions are more or less routine by bringing the officer, in 
whose department the suggestion applies, in before the committee 
and discussing it with him and making the suggestion directly to him. 

Mr. Berge. May I ask, are those suggestions sometimes in the 
direction of recommending some changes in policies or practices of 
the company? 

Mr. Cleary. Oh, yes; with some frequency. 

Mr. Berge. And those suggestions are sometimes followed, or 
often followed? 

Mr. Cleary. Often followed, sometimes rejected because of the 
unworkability — the theory sounds fine, but in practice it sometimes 
won't work. 

Mr. Berge. But they are taken seriously by the management? 

Mr. Cleary. They are. 

The Vice Chairman. That is a field I want to explore a little bit my- 
self. This committee, of course, is interested primarily in finding out 
the facts, and we asked you gentlemen here to help us. That is 
what we want. As one member of the committee, I can appreciate 
the very great difficulty of a scattered lot of policy-holders, maybe 
running up around several hundred thousand, really and actually 
controlling a business centered away off somewhere, dealing in amounts 
of tremendously big figures, and running the detaUs of management. 
Has any important suggestion come up to the management from the 
source indicated which the management has adopted? 

Mr. Cleary. I think so. Judge. You take the committees for the 
last 4 or 5 years have raised the question, discussed it with the officers, 
of so-called jumbo loans, putting too much money in one spot, either 
in a mortgage or in a bond issue, urged the importance of diversifica- 
cation. In considerable degree the committee miofht be credited 
with an expansion of research in connection with security investments, 
security holdings, and so forth. Frequently they make studies of that 
kind and suggestions. 

The Vice Chairman. You mean, if 1 may interrupt, that it had not 
occurred to the management, the wisdom of distributed invest- 
ments and loans? 

Mr. Cleary. Oh, there is no question about it having occurred to 
the management, but probably made somewhat more specific in 
the mind of the management as a result of these men's discussion 
of it, and an expression of their views. 

The Vice Chairman. Well, now, this group, this advisory board, 
is suggested by your employees in the field ; it comes from the managing 
agency of the Government in your State; or comes from the officers 
•of the company. I can soo tlie vahie of getting people in the field, and 



CONCENTRATION OF ECONOMIC POWER 1509 

that might contribute something to making effective the mutual 
features of your organization. But before you leave, and we are 
closing this part of it soon, I haven't myself as an individual member 
come to any conclusion as to how a really effective, workable ma- 
chinery could be put into operation which would actually give this 
distributed body of policyholders the power to control the manage- 
ment of a mutual concern, and I am not certain that if they had the 
power they could wisely exercise it. Those are the things that present 
themselves to my mind. 

Now, one company can do it one way and another do it another 
way. You have this advisory group that comes from these sources 
indicated and somebody else doesn't have them, but the great big 
diflficulty stands in my mind, even at the conclusion of this very 
illuminating, helpful presentation, how can these poUcyholders really 
control under any plan? I feel we are all indebted to the gentlemen 
of the insurance companies and others who have come here during 
this hearing. This has been a good presentation. 

I understand that this phase of the investigation is now concluded 
and it is not certain when the committee will resume. It will de- 
termine that later and then will resume at the call of the Chair. I 
understand that is the announcement which it is desired that I make. 

(Whereupon, at 12:05 p. m., an adjournment was taken pursuant 
to the call of the chairman.) 



APPENDIX 



Exhibit No. 215 

[Prepared by the Securities and Exchange Commission insurance study staff] 

Life Insurance in Force Throughout the World 

[Monetary units of foreign countries converted to equivalents in thousands of dollars] 



Companies of— 


Dec. 31, 1936 


Dec. 31, 1937 


Companies ot— 


Dec. 31, 1936 


Dec. 31, 1937 


United States i 


$104, 667, 206 

7,172.444 

102, 966 

179. 186 

51,850 

24, 368 

16, 757 

5,894 

K-, 290, 297 

7, 334. cm 

2,891,422 

2.004.470 

1, 953, 109 

1,741.351 

1, 556, 556 

544,081 

468, 604 

405,758 

385, 201 


$109, 572, 451 
7. 349, 276 


Finland 

Poland ' 


J245, 839 
136,389 

M')2,000 
71, 058 
57, 222 

26^040 
23, 049 
4,971,289 
726,012 
154, 258 

981,928 
1, 393, 807 

542, 583 
6,729,808 




Canada 




Mexico' 






Brazil' 




Rumania '_ .... 


$78, 025 


Chile 


67, 227 


Bulgaria ' 


61,681 


Peru' 














6,565 
16,789,824 
7,919,400 
2,096,253 






United Kingdom 


ja°panL.'::::::::::::: 


6, 584, 3.55 


India 




France 


Java' 


138, 641 




Union of South 
Africa'..- 




Italy* 


1.5^0,480 
1, 3r.fi, 257 
1, 001, 903 




Switzerland 


Australia « • 




Sweden 


Neu Zealand' 

iher countries » 

Total 














Austria 




164,000,000 




Czechoslovakia.. .... 


351,513 







• Not including Oovornment war-risk insurance. 

' Amounts cover insurance in force on lives of residents of country in both domestic and foreign com- 
panies. For all other countries, amounts cover insurance in force in domestic companies including their 
foreign business. 

' Including Government insurance. 

' Estimated on basis of amounts of other years. 

» Estimated at from 4 percent to 5 percent of the world's total. 

Sources: Special reports received through the courtesy of the U. S. Department of Commerce, oflScial 
publications of foreign countries, and foreign and domestic trade publications. 



Exhibit No. 216 

[Chart based on following statistical data appears in text on p. 1169] 

Classes of Life Insurance in Force 1900-37 

[.^mounts In billions of dollars] 

Figures include domestic and foreign business of United States companies 
but do not include operations of the Veterans' Bureau or United States business 
of foreign companies. 



Year 


Am.ounts 


Percentages 


Ordinary 


Industrial 


Group 


Total 


Ordinary 


Industrial Group 


Total 


1900 


7.1 
13.2 
135.1 
79.7 
70.1 


1.5 
3.2 
7.2 
18.3 
20.6 




8.6 

16.4 
42.3 
107.9 
109.6 


82.6 

80.5 

183.0 

73.8 


17.4 


100 


1910 




19.5 


100 


1920 


"V. 

12.9 


17.0 (>) 
17.0 0.2 
18.8 11.8 


100 


1630 . . . 


100 


1937 


100 







• Group Insurance was included with ordinary in 1920. It is estimated that the amount so Included In 
1920 was $1.6 billions. 



Sources: Statistical Abstract of the United States and Spectator Year Book. 



1511 



1512 CONCENTRATION OF ECONOMIC POWER 

Exhibit No. 217 
[Chart based on following statistical data appears in text on p. U73] 

LIFE INSURANCE IN FORCE AND POPULATION IN THE UNITED STATES 1890-1938 

Population in continental United States at decennial periods, annual estimates since 
19S0; amount of life insurance policies in force at 10-year intervals, annual totals 
as of Dec. SI, after 1930 



Years 


Population « 


Insurance In 
force • 


Years 


Population » 


Insurance in 
force » 


1890 


62, 900, 000 
70, 000, 000 
92, 000, 000 
105, 700, 000 
122,800,000 
124, 100, 000 


$4, 100, 000, 000 
8, 600, 000. 000 
Ifi, 400, 000, 000 
42, 300, 000, 000 
107, 900, 000, 000 
108, 900, 000, 000 


1932 


124, 800, 000 
125,700,000 

126, 400, 000 

127, 200, 000 
128,400,000 
129, 300, 000 


$103, 200, 000, 000 


1900 


1933 


98, 000, 000. 000 


1910 


1934 


98, 500, 000, 000 


1920 


1935 


100, 700, 000, 000 


1930 


1930 


104, 700, 000, 000 


1931 


1937 


109, 600, 000, 000 









» Bureau of the Census, Department of Commerce, Statistical Abstract of the United States, 1937. 

• The Spectator Insurance Yearbooks, Statistical Abstract of the United States, 1937. Figures include 
domestic and foreign business of United States companies but do not include operation of the Veterans' 
Bureau, or United States business of foreign companies. The number of companies reported in Spectator's 
1937 total was 308. In recent years these figures have been as follows: 1936, 315; 1935, 340; 1934, 313; 1933, 318; 
1832, 328; 1931, 342; 1930, 352. 



Exhibit No. 218 

[Chart based on following statistical data appears In text on p. 1177] 

INCOME AND EXPENDITURES OF LIFE INSURANCE COMPANIES, 1865-1937 

Total income from all sources, total premium income, and total expenditures for all 
purposes for all life-insurance companies reporting 

[Amounts in millions of dollars] 











Excess of 










Excess of 




Total In- 




Total ex- 


total in- 




Total In- 




Total ex- 


total In- 




come 


Total 


pendi- 


come 




come 


Total 


pendi- 


come 


Year 


from 


premium 


ture for 


over 


Year 


from 


premium 


ture for 


over 




all 


Income 


all pur- 


total ex- 




all 


Income 


all pur- 


total ex- 




sources 




poses 


pendi- 
tures 




sources 




poses 


pendi- 
tures 


1865 


25 


22 


11 


14 


1922 


2,149 


1,686 


1,494 


655 


1870 


105 


90 


64 


41 


1923 


2,427 


1,900 


1,693 


734 


1875 


109 


84 


80 


29 


1924 


2,703 


2,122 


1,813 


890 


1880 


80 


65 


69 


11 


1925 


3,018 


2,3S4 


1,936 


1,082 


1885 


112 


84 


86 


26 


1926 


3,330 


2,624 


2,124 


1,206 


1890 


197 


l.W 


134 


63 


1027 


3,673 


2.874 


2.295 


1,378 


1895 


272 


220 


190 


82 


1928 


4,088 


3,146 


2.548 


1, .540 


1900 


401 


325 


268 


133 


1929 


4,337 


3,350 


2,882 


1,455 


1905 


642 


516 


412 


230 


1930 


4, 594 


3,524 


3,199 


1,395 


1910 


781 


593 


540 


241 


1931 


4,850 


3,661 


3. 53S 


1,312 


1915 


1,043 


784 


769 


274 


1932 


4,653 


^3.504 


3,998 


655 


1916 


1,118 


648 


792 


326 


1933 


4,622 


3,322 


3,917 


706 


1917 


1,249 


929 


846 


403 


1934 


4,786 


3,521 


3,662 


1, 124 


1918 


1,325 


994 


99S 


326 


19.35 


5.072 


3, 692 


3, 593 


1,479 


1919 


1,660 


1,207 


1,106 


454 


1936 


6. 180 


3, 083 


3,518 


1, 662 


1920 


1,764 


1.385 


1,198 


566 


1937 


= 6, 257 


3,702 


3,010 


1,647 


1921 


1,951 


1,537 


1,289 


662 













Sources: Spectator Insurance Yearbooks. 



"Exhibit No. 219" appears in text on p, 1181 



CONCENTRATION OF ECONOMIC POWER 



1513 



Exhibit No. 220 

[Chart based on following statistical data appears in text on p. 11831 

TOTAL INCOME OF UFE-mSliEANCE COMPANJES AND UNITED STATES NATIONAL INCOME 



Year 


Total In- 
come ' of 
life-in- 
surance 
companies 
(millions of 
dollars) 


United 
States > 
national 
income 
(billions of 
dollars) 


Percentage 
ratio of life- 
insurance 
income to 

total 
national 
Income 


Year 


Total in- 
come ' of 
life-in- 
surance 
comoanies 
(millions of 
dollars) 


United 
States > 
national 
income 
(billions of 
dollars) 


Percentaee 
ratio of life- 
insurance 
Income to 

total 
national 
Income 






2.2 
3.6 
6.7 
7.4 
12.1 
18.0 
30.7 
37.1 
68.1 
72.8 


Percent 


1930 


4,594 
4,850 
4,653 
4,822 
4. 7^6 
6,072 
5,180 
5,257 


68.3 
53.8 
40.0 
42.3 
50.1 
63.2 
63.6 
69.8 
3 61.5 


Percent 

8.7 








1931 


9.0 


1870 






1932 


11.6 


1880 


SO 

197 

401 

781 

1,043 

1,764 

3,018 


0.1 
1.6 
2.2 
2.6 
2.8 
2.6 
4.1 


1933. 


10.9 


1890 


1934 


9 6 




1935 


9.3 




1936 


8.2 


1915 


1937 


7.6 


1920 


1938 

















1 Sources: Spectator Insurance Yenrbooks. 

• Table 5 submitted for the record of the hearings before the Temporary National Economic Committee 
by Dr. Isador Lubin, Commissioner of Labor Statistics, Department of Labor. Based upon estimate* 
made by the Department of Commerce, Kuznets, and King; spliced into a single reasonably comparable 
series by the Department of Commerce. See Hearings, Part I, appendix, p. 194. 

» Estimated. 



Exhibit No. 221 

[Chart based on following statistical data appears in text on p. 11S9] 

Assets of formal savings .institutions in United States {1910-37) 

[In billions of dollars] 



Year 


Life-insurance 
companies, ad- 
mitted assets ' 


Mutual-savings 

banks, total 

assets' 


State and 

national banks, 

savings and 

other tim.o 

deposits • 


Building and 
loan associa- 
tions, total 
assets* 


1910 


$3, 876 
4,164 
4,409 
4,059 
4,935 
5,190 
5,537 
5,941 
6,475 
6,769 
7,320 

8;652 
9,455 
10, 394 
11,538 
12,940 
14, 392 
1.5. 961 
17, 482 
18,880 
20,160 
20,754 
20. 896 
21,844 
23,216 
24. 874 
26, 249 


$3,652 


(») 
$4,604 
4,796 
4.737 
4,802 
4,862 
5.357 
6,537 
7,153 
8,308 
10, 131 
10, 932 
11,761 

13, 453 

14, 495 
15, 982 
17, 171 
18,051 
19, 745 
19, 315 
19, 273 
18, 186 
14, 241 
ll,3fi5 
11,950 
12, 742 
13,453 
14, 329 


$940 


1911 
















1914 








4,319 


1,4S4 






1917 






1918 




1,898 






2,127 


1920 . . 


6,619 
6,040 
6,352 
6,905 
7,365 
7,913 
8,422 
9,011 
9,688 
10,007 
10,295 
11, 192 
11, 134 
10, 967 
11,065 

ll!409 
11,645 


2,634 


1921 


2,891 


1922 


3 343 


1923 


3; 943 


1924 


4,766 


1925 - 


6,509 


1926 


6,334 


1927 


7,156 


1928 


8,016 


1929 - 


8,695 


1930 


8,824 


1931 


si 413 


1932 


7,745 


1933 


6,072 


1934 


6,445 




5,884 


1936 


5,620 


1937 


5,706 


1938 















' Statistical Abstract of the U. S., 1937, p. 277, and the Insurance Yearbook of the Spectator Co. 

• Statistical Abstract of the U. S., 1937, p. 242, and the Annual Report of the Comptroller of the Currency, 
1937. 

« Statistical Abstract of the U. S., 1937, p. 253, from American Bankers' Association. 

* Statistical Abstract of the U. S. 1937, p. 257, from United States Building and Loan League. From 
1934 on, institutions operating under a Federal charter are included. 

» Not avftilahle 



1514 



CONCENTRATION OF ECONOMIC POWER 
Exhibit No. 222 

[Chart based on following statistical data appears In text on p. 11951 
ASSETS OF LIFE-INSURANCE COMPANIES 

Admitted assets of the 16 largest life-insurance companies in comparison with the 
admitted assets of all 308 companies reporting as of Dec. 31,. 1937 

(Arranged according to size of admitted assets to show extent of the concentration of control In a few 





Admitted assets- 


- 


Company and home office 


In millions 
of dollars 


As a per- 
centage of 
the total of 
308 com- 
panies re- 
porting 


As a cumu- 
lative per- 
centage of 
the total 
30« com- 
panies re- 
porting 




4,720 
3,584 
2,520 
2,106 
1,349 


18.0 
13.7 
9.6 
8.0 
5.1 


18.0 


2. Prudential Insurance Co., Newark, N. J _ 

3. New York Life, New York 


31.7 
41.3 




49.3 


5. Mutual Life, New York 


54.4 








14, 279 


54.4 








6. Northwestern Mutual, Milwaukoc, Wis 


1,178 
914 
855 
CC8 
646 
610 
577 
402 
359 
331 
312 


4.5 
3.5 
3.3 
2.5 
2.5 
2.3 
2.2 
1.5 
L4 
1.3 
1.2 


58 9 




62.4 


8. John Hancock Mutual Life, Boston, Mass.. 


65 7 


9. Penn Mutual Life, Pliilpdelphia, Pa 


68 2 


10. Mutual Bent'iit Life, Newark, N. J 


70.7 
73.0 


12. Aetna Life, Hartford, Conn 


75 2 




76.7 


14. Union Central, Cincinnati, Ohio 


78.1 


15. Provident Mutual, Philadelphia, Pa 


79 4 




80.6 






Subtotal 


6.852 


26.2 










21,131 
5,118 


80.6 
19.4 


80.6 


All other companies (292 companies) 


19.4 








26, 249 


100.0 


100.0 







Source: The Spectator Insurance Yearbook, 1938-39. 

ASSETS OF LIFE-INSURANCE COMPANIES 



Admitted assets of the 25 largest life-insurance companies in comparison with the 
admitted assets of all 308 companies reporting as of Dec. 31, 1U37 

[Arranged according to location of home office to show extent of the geographical concentration of control] 





Admitted assets— 


Region 


In millions 
of dollars 


As a per- 
centage of 
the total of 
the 308 com 
panics re- 
porting 


New York City and Newark, N. J.: 


4,720 
3.584 
2,520 
2, lOfi 
1,349 
646 


18.0 


Prudential Insurance Co. (Newark, N. J.) 

New York Life 


13.7 
9.6 




8.0 




5.1 


Mutual Benefit Life (Newark, N. J.) 


2.5 


Subtotal . 


14,925 


56 







CONCENTRATION OF ECONOMIC POWER J 5^5 

Admitted assets of the 85 largest life-insurance companies in comparison with the 
admitted assets of all 308 companies reporting as of Dec. 31, 1937 — Continued 





Admitted assets 


Region 


In millions 
of dollars 


As a per- 
centage of 
the total of 
the 308 com- 
panies re- 
porting 


New England: 

Travelers Insurance Co 


914 
855 
610 
577 
402 
312 
227 
223 
196 
176 


3 6 










Aetna Life 


2 2 


New England Mutual 












Phoenix Mutual .. 


85 


National Life 












Subtotal 


4,492 


17 2 






Philadelphia: 

Penn Mutual Life 


331 


2 5 


Provident Mutual 


1 3 






Subtotal 


999 








Ohio and Indiana: 


359 
164 
139 
















Subtotal 


662 


2.5 






California, Iowa, and Wisconsin: 

Northwestern Mutual, Wisconsin.. 


1.178 
227 
216 
170 


4 5 


Pacific Mutual, California 


86 




.82 










Subtotal . 


1,791 


6 8 






Total (25 largest) 


22,869 
3,380 


87.2 


All others (283 companies wherever located) . . .. 


12.8 






Grand total (308 companies) 


26,249 


100 







Source: The Spectator Insurance Yearbook, 1938-30. 



Exhibit No. 223 

[Source: Report of the Joint Committee of the Senate and Assembly of the State of New York appointed 
to Investigate the Affairs of Life Insurance Companies, February 22, 1906. State of New York Assembly 
Doc. No. 41, pp. 392-396] 

Limitations of New Business 

The business of the Mutual, the Equitable, and the New York Life has grown 
beyond reasonable limits. Notwithstanding the fact that they have long since 
passed the point where further enlargement can benefit their policyholders, they 
have resorted to every effort to obtain new business, regardless of the expense 
which is reflected in diminishing dividends. Fearful of losing prestige, the chief 
concern of each has been to keep up with the others. Extravagant commissions 
have been paid and these have been supplemented by liberal bonuses and prizes. 
Clubs have been formed, conventions held, and money lavishly expended for the 
entertainment of agents to excite them to their utmost endeavor. Some have 
sought to justify this mistaken course by the claim that they were fulfilling a duty 
in distributing broadcast the benefits of life insurance. Much has been due to 
pride of growth and zeal for impressive totals, while the huge accumulations of 
the companies and the great responsibilities involved in their management have 
furnished pretexts for increased salaries and extravagant administration. 



1516 CONCENTRATION OF ECONOMIC POWER 

Not only has the rivalry of the three companies proved detrimental to them- 
selves, but it has acted as a spur to the smaller companies, which, to keep their 
footing, have been compelled to make outlays disproportionate to their abilities. 
There will be no proper reform of the insurance business unless these wasteful 
measures are stopped. 

The growth of the three companies has long been a matter of grave concern to 
students of insurance conditions. No useful purpose will be served by their 
becoming larger. Their membership is so large and their resources are so vast 
as to make the question of responsible control and conservation management one 
of extreme difficulty, and their magnitude if permitted to grow unrestricted will 
soon become a serious menace to the community. The prohibition of the issu- 
ance of new policies whenever the assets of the company reach a prescribed volume 
is impracticable. As premiums are constantly being received and reserves 
increasing, no company could calculate with certainty whether it was entitled to 
receive new business and the limit would not aflFect the three companies with a 
just degree of uniformity. Thus if the limit were placed at $500,000,000 of assets 
the Mutual would be close to the line, while a considerable margin would remain 
for the other twQ companies, permitting them greatly to extend their business, 
while the Mutual, with less outstand