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Memorandum of Disapproval of Bill To Amend the Interstate Commerce Act.

July 30, 1947

I AM withholding my approval from the enrolled bill (H.R. 2331) "To amend section 20a of the Interstate Commerce Act."

Section 1 of this bill would amend the definition of "carrier" in section 20a of the Interstate Commerce Act, as amended, so as to include sleeping-car companies among the carriers whose financing is subject to approval by the Interstate Commerce Commission. There appears to be no reason why sleeping-car companies, which are common carriers subject to the Interstate Commerce Act, should not be regulated by the Commission in respect of their financing, and I find no objection to this section.

Section 2 of the bill, however, is highly objectionable in that it would facilitate banker control of railroads and would sanction a departure from the long-established policy against interlocking directorates.

Paragraph 12 of section 20a of the Interstate Commerce Act, as amended, now prohibits an officer or director of any carrier to receive for his own benefit, directly or indirectly, any money or thing of value in respect of the negotiation, hypothecation, or sale of any securities issued by such carrier, or to share in any of the proceeds thereof.

Section 2 of the bill here under consideration would provide an exception to this prohibition in regard to dealings in securities with another corporation, firm, partnership, or association, when the carrier shall have as officer or director any person who is at the same time a director, member, manager, or purchasing or selling officer of, or who has any substantial interest in, such other corporation, firm, partnership, or association, if such dealings shall be with the bidder whose bid is the most favorable to such carrier, to be ascertained by competitive bidding under regulations prescribed by rule or otherwise by the Interstate Commerce Commission, and if such participation is due solely to such officer's or director's relationship with such other corporation, firm, partnership, or association,. and not to his relationship with such carrier.

It has been stated that one of the results of the existing law was to make it difficult or impossible for a railroad to award prospective security issues to banking or investment concerns with which some of its directors were connected and that since regulations now require that railroad securities be marketed as a general rule through competitive bidding, the restriction is unnecessary. It was the express purpose of existing law to make it difficult or impossible for railroads to deal with banking or investment companies with interlocking directorates and the requirement of competitive bidding is established, not by statute but by a recent Commission decision and is, therefore, subject to change at any time. Moreover, this bill would facilitate and encourage the banker control of railroads, which is the subject of complaint in an important government antitrust suit now pending against the railroads. The eradication of such control is sufficiently difficult, without the enactment of new legislation, to facilitate the establishment of such control. The evil of the kind of transactions here involved has long been recognized. It is merely one species of the general principle, recognized in the law governing the conduct of fiduciaries, that dealings in which both parties to the transaction are under common control, should be avoided. The companies on both sides of the transaction are entitled to arm's length dealing by independent managements.

It is for the foregoing reasons that I am withholding my approval from the bill.

HARRY S. TRUMAN

Harry S. Truman, Memorandum of Disapproval of Bill To Amend the Interstate Commerce Act. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/232123

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