"Total employment and payroll of acquired companies grew less rapidly after the merger than before. This occurred despite the fact that "the 1963-67 period Udell studied was an era of rapidly growing employment in the state." In fact, employment growth not only slowed, it dropped 9.7 per cent to a negative level (fewer total jobs than before merger). In his study, Udell reports: "Among the firms acquired by conglomerates, such as Litton Industries, Tenneco Corp., Automatic Sprinkler and Bangor Punta, and quasi-conglomerates such as Beatrice Foods, FMC Corp. and Consolidated Foods, the premerger employment growth rate was 8.4 per cent and the post-merger rate was a minus 1.3 per cent. "One reason for the decline was a substantial reduction in employment among the conglomerate-acquired companies during the year of merger. This usually was not true of companies acquired by nonconglomerate corporations." If quasi-conglomerates are eliminated, the picture is even worse, Udell says: premerger employment growth rate 11.6 per cent, postmerger rate 1.8 per cent, for a 13.4 per cent adverse swing. Udell warns that this sharp drop is especially significant because it affects "the property of employees, the sales of . . . retail industries and the tax revenues of the state." (In Chicago, a spokesman for Consolidated Foods said the company does not agree with the findings for it.) ("The figures may be true for some companies, but it has always been our experience and philosophy to acquire successful companies with the idea of making them grow," the company said.) Economist Mueller declares: "Unions have felt the impact on collective bargaining. Often labor negotiations are forced to bargain with management personnel not empowered to make final decisions. "Or worse, these decisions may be made by management in terms of broad, nationwide personnel policies.... "Local management and labor, accustomed to bargaining on the profits of the company and the productivity of the labor force, suddenly find the bargaining dominated by a conglomerate balance sheet which considers products, plants and losses the local people will never see or know anything about." The late Sen. Estes Kefauver (D-Tenn.) warned against the transfer of control from local to distant managers, saying, "millions of people depend helplessly on their judgment. Through monopolistic mergers the people are losing the power to direct their own economic welfare. When they lose (that) they also lose the means to direct their political futures." Organized labor agrees, and for years has fought centralizing of economic power-even though labor itself has been accused of possessing similar economic clout. But to date, unionists have been unable to convince congress or the courts. And they see little real hope short of a major national depression that could bankrupt conglomerates--and that would throw even more workers out of jobs. NOTE. The article by Willard F. Mueller, "The Merger's Impact on the Community," will be found at appendix XII-A-8(b).—Committee editor. 9. Commentary on corporate social responsibility (a) Correspondence Between Dr. I. M. Jarett and Senator Nelson (i) Letter Dated December 20, 1971, From I. M. Jarett, Ph. D., Director, Department of Health Care Planning, School of Medicine, Southern Illinois University, to Senator Nelson, Chairman, Subcommittee on Monopoly SOUTHERN ILLINOIS UNIVERSITY, SCHOOL OF MEDICINE, Springfield, Ill., December 20, 1971. Hon. GAYLORD NELSON, Chairman, Small Business Monopoly Subcommittee, U.S. Senate, DEAR SENATOR NELSON: I have spent the last four years examining the relationship of for-profit organizations to society and developing a model social accounting system. I believe the testimony you have heard from Dr. John Kenneth Galbraith of Harvard, Dr. Willard F. Muller of the University of Wis consin, Dr. Walter Adams, University of Michigan, and Dr. Donald F. Turner of Harvard regarding the role of large organizations in society is erroneous. If you take the statement that large organizations are "public institutions" in its purest context, it may be true. All institutions are permitted to exist by society and society has the right to take away their permits. However, we should resist the installation of more and more controls that encourage a deviant social behavior rather than controls that encourage a positive social behavior. I believe an entirely new approach should be taken that would encourage positive investments in social benefits by large corporations, while taxing those who do not respond to social pressures. I have developed the basis for such a system and would be prepared to testify before your committee. As an interested citizen, I am terribly concerned that the approach Congress and many citizens are taking will eventually destroy the Capitalistic system. I am equally firmly convinced that the Capitalistic system is the only system that can adequately meet human needs over a long period of time. However, we need to re-think some of the more basic assumptions we have accepted with regard to taxation, ownership, and society if the full potential of Capitalism is to be realized in our tremendously complex and fast-moving society. I would appreciate the opportunity to be of service and look forward to hearing from you. Very truly yours, I. M. JARETT, Ph. D., Director, Department of Health Care Planning. (ii) Letter dated March 29, 1972, from Senator Nelson to Dr. Jarett U.S. SENATE, SELECT COMMITTEE ON SMALL BUSINESS, March 29, 1972. Dr. I. M. JARETT, DEAR DR. JARETT: Please excuse our delay in answering your letter of December 20, which was for a time mislaid. Your interest in our hearings on "The Role of Giant Corporations in the American and World Economies" is appreciated. At the present time we are unable to schedule an appearance by you but we are definitely interested in your ideas for "an entirely new approach . . . that would encourage positive investments in social benefits by large corporations, while taxing those who do not respond to social pressures." If you have available a paper or article describing your perceptions and proposals, we should like to have a copy to consider for inclusion in the printed record of the hearings. With best wishes, Very truly yours, GN/rwt GAYLORD NELSON, Chairman, Subcommittee on Monopoly. NOTE. As of closing time for this portion of the record (November 1972), no reply to the foregoing letter had been received.-Committee editor. (b) "Market Place" column by Robert Metz, "How To Press Pollution Fight," the New York Times, May 9, 1972 [From the New York Times, May 9, 1972] MARKET PLACE: HOW TO PRESS POLLUTION FIGHT It's easy to be against pollution and in favor of an improved quality of life in this country, but how do you go about getting the job done? As David F. Linowes, a certified public accountant and a professor of management at New York University, and he'll tell you, "You have to start with the individual company." Mr. Linowes, a 55-year-old partner in Laventhol Krekstein Horwath & Horwath, says: "When you reach my age and you've done fairly well financially, you begin examining what the world is all about. And if you have a practical background like I do, you look for specific ways of making an impact on our seemingly overwhelming problems." That's what has caused Mr. Linowes to seek a way to measure the "socioeconomic" performance of individual businesses. If he has his way-and he is regarded by his profession as the father of socio-economic accounting-every company will one day publish a socio-economic operating statement. "As I see it, it will be as common as the profit-and-loss statement and the balance sheet," he says. "It will undoubtedly be on file wih a government regulatory agency and it should be a part of every company's annual report." Mr. Linowes was asked to be more specific. The statement, he said, would reflect both action and inaction on the part of corporations. A company would get recognition for substituting lead-free paint for a poisonous compound, for voluntarily installing smoke-control equipment and for a minority hiring program. And the company would get demerits for neglecting to install a safety device on its power lathes, for refusing to properly landscape strip mining sites and for neglecting to neutralize poisonous wastes before dumping them into streams. Every company would be required to have an internal interdisciplinary committee headed by an accountant to make these determinations, Mr. Linowes said. Mr. Linowes, who plays tennis indoors when he can't play golf outdoors, was asked what too many demerits would mean to the company. "My emphasis is on the other end of the scale," he replied. "The company that took its social responsibilities seriously would get tax deductions. My plan—and I emphasize that I have no formal organization behind me-would be to convince the Government to allow deductions for expenditures in excess of 1 per cent of net worth. "Thus, a steel company that voluntarily installed unusually efficient equipment to eliminate smokestack emissions might benefit as follows: If static precipitators cost one million dollars and the company's net worth was $40-million, it would get to deduct $600,000 for the installation. This would be in addition to normal depreciation allowances and all other allowable credits." We asked him why he was pushing for something that might be regarded as visionary. He said: "It isn't visionary at all. Our society is in trouble. The most productive segment of our society is industry. If we don't get industry to apply its capabilities to this most pressing problem, it will never be solved. "Either we adopt some logical approach like this or aggressive consumer groups and government will force us to do something extreme." We asked Mr. Linowes if he is frightened by the figures often tossed around about the cost of preserving the quality of life. Some estimates range into the hundreds of billions of dollars. "I'm frightened about the general condition of our society and fear we may lose our basic free enterprise system," he declared. "The costs may be as high as the pessimists say, but we are talking about a trillion-dollar economy and we can afford it." What about foreign competitors? If they do nothing, how do we compete? "The other countries face the same problem," he replied. "Witness the face masks on the streets of Tokyo. In Greece the beautiful harbor of Piraeus is becoming polluted." What would a plan such as Mr. Linowes's mean to corporate profits? "We have to recognize that business today is no mere profit mill," he said. "It must take its share of the responsibility to society. Remember that the marginal company wouldn't be forced to spend anything. It simply wouldn't get the deduc tion, but it would have to pay the price of visibility." (c) Speech by David F. Linowes, "Measuring Social Programs in Business-A Social Audit Proposal for Immediate Implementation," Apr. 28, 1972 (c) Speech by David F. Linowes, "Measuring Social Programs in MEASURING SOCIAL PROGRAMS IN BUSINESS A Social Audit Proposal for Immediate Implementation by David F. Linowes So The worst present-day corporate abusers of the environment and of humanity look best on their current profit and loss statements. phisticated analysts have always been aware that those managements which neglect their machinery and equipment and do not make expenditures to train junior executives, often show a higher earnings picture during the short term than is justified. In time, of course, this neglect of equipment and executive personnel training takes its toll in the operating effectiveness of the company. In the same way, business management can show good operating profit results by ignoring the harm it is doing by dumping poisonous production waste into streams or polluting the atmosphere. - - In our present system or include in any statement of business reporting, we do not measure of its stewardship prepared by management the damage done to a stream when the poisonous pollutants are dumped into it, or to the landscape when the land is scarred and mutilated by machine-efficient strip mining techniques. Nor do we give proper reporting credit for the "good" that management does. Society will no longer condone avoiding accountability for these pro and con social actions. Challenges to the role of business have become so widespread that the business executive can no longer look to dollar profit measurement alone as an adequate reflection of his effectiveness. Because of the expanding exposure of business to the various facets of society, the traditional measurement of profitability and growth reflected both in the profit loss statement and balance sheet are no longer adequate. Business management today is functioning in a new environment and is being forced to assume its share of society's problems. |