CHAPTER XIV

CORPORATE FIDUCIARIES

IN THE UNITED STATES SINCE 1900

By 1900 most of the essential features of the organization of industry and commerce as they are to-day had been developed. While it is true that many important minor changes representing inventions of improved technical processes have taken place, yet no such revolutionary change occurred as the development of railways and the opening up of a vast continent rich in natural resources had produced in the preceding half century. To accommodate itself to these economic conditions enterprise had marshaled together great aggregations of capital and labor had organized on a national scale in order to maintain bargaining position against such combinations of employers. The period since 1900 may be said to have been characterized by growth and improvement of economic agents which had been invented and received their trials during the preceding period. The development of the automobile and the aeroplane and the completion of the Panama Canal are outstanding exceptions.

Similarly by 1900 most of the essential features of the modern corporate fiduciary had been developed, and it was in the preceeding half century that practically all of the functions of the corporate fiduciary originated. In 1901 an advertising pamphlet published by the Knickerbocker Trust Company presented a list of services which contains the principles of all of the modern trust company functions. In 1903 a pamphlet published by the New Haven Trust Company gives the following classification of services:

1.-Trustee Pure and Simple.

Where money or other property is put into the care of the trust company, to manage and receive the income, pay the expense of the property, look out for its preservation and method of investment, and to pay the net income over to some designated person or purpose.

2.-Trusts Arising from Estates of Deceased Persons.

Trust companies may be legally appointed executor, adminis trator or guardian, as the case may be.

3.-Trustee in Insolvency.

Assignee in case of voluntary insolvency and receiver in case of involuntary insolvency.

4.-General Financial Agent and Advisor.

5.-General Agency for a Corporation or Person.

Where property is held, managed, and no care is had of it by the owner, except so far as he may wish to keep himself informed of what the agent is doing.

6.-Financial Agent.

Private and public corporations may engage the trust company to undertake to negotiate securities, to obtain loans, and act as trustee under corporate trust deeds. 7.-Registration of Securities.

Including transfer agent.

8.-Safe Deposit Department.

Thus while the classification confuses agencies and trusts, it nevertheless includes within itself the possibilities of expansion into the modern list of trust and agency services.

The period since 1900 has witnessed little in the way of new types of service, yet the history of the corporate fiduciary during that time is crowded with romance. There were the unexpected decisions of the Supreme Court resulting in the dissolution of the Tobacco Trust and the Standard Oil Trust, and others; and more complicated methods of attaining financial structure for large corporate enterprise had to be devised.1 There was the great industrial crisis and financial panic of 1907, followed by long overdue study into the principles underlying our defective banking and currency system by the National Monetary Commission in 1908-10; then came the Federal Reserve Act of 1913 and before the banks and trust companies could become adjusted to the new system of banking, the World War broke out. New kinds of taxes were levied-the federal income tax, the federal estate tax, excess profits taxes, surtaxes-taxes and taxes! Thus was the individual bewildered by a perfect maze of complexity suddenly thrown about his

1 Jones, Eliot, The Trust Problem of the United States, pp. 406-19.

personal investment problems. Large issues of government and municipal bonds, tax-exempt, still further complicated investment matters. An error in investment policy might result in tremendous losses to the estate in case of death-another error might diminish life income by astounding proportions due not to mistaken foresight as to the business possibilities of enterprise but due to an oversight of a tax complication.

Thus the earlier part of this period saw the trust company enmeshed in corporate trust and agency services due to the expansion of the great industrial organization movement coupled with the rebuilding of financial structures of trusts dissolved and later further reorganization and consolidations-after the Supreme Court adopted the "rule of reason" and federal legislation adopted a policy designed to let big business live but to regulate its activities.1 In the latter part of the period, while activity in the field of corporate trusts and agencies continued to grow, attention was focused upon the development of personal trusts and agencies for which a suddenly expanded market existed due to the complexities of investment problems introduced by government war finance and new taxation. It is erroneous to assume that evasion of taxes is a primary motive for the increase of personal trust business of trust companies during this period. The tax laws have been so devised that there are few cases where taxes can be evaded by the creation of a trust and reputable trust companies discourage the practice. of attempting to evade legitimate taxation. It is rather the great complexity of investment problems that has led the individual to delegate this task to specialists such as the trust company.

The characteristic features in the development of the corporate fiduciary during this period will be discussed under the following heads:

1. The rise of trust companies in the South and West and the spread of trust company services to country towns.

2.-The banking vs. trust company controversy and supervision, federal and state.

1 Jones, Eliot, op. cit., p. 406; Standard Oil Company of N. J., et al. v. The United States, 221 U. S. 1-106 (1911).

3.-Consolidation movement and departmentalization of servicescertain new services evolved based upon types already discovered. 4. The development of corporate fiduciary advertising-competitive and coöperative.

5. Standardization of policies and practices state supervision, accounting, forms, corporate trust and agency requirements, relations with lawyers and fees.

6.-Growth of the corporate trust business, particularly in the first part of the period-growth of personal trust business particularly after about 1915. New services developed based upon types already discovered.

7.-Municipal bond registration agencies, and the commercial paper registration agency episode.

8.-Fiduciary powers granted to national banks under the Federal Reserve Act.

The Rise of Trust Companies in the South and West. During the latter half of the 19th century there had been a somewhat rapid shift in the localization of industry-the iron and steel industry became identified with western Pennsylvania, the center of the packing industry had moved from Cincinnati to Chicago, the great northwest became the center of wheat production and flour milling. The economic development of the South had received a serious interruption due to the Civil War and the reconstruction era. The West, particularly the Rocky Mountain section, was still largely a pioneer country relatively speaking.

Financial and industrial development of the South began in the last decade of the 19th century, gained impetus and became an important feature of the economic development of the United States in the present century. Increasing production in cotton, tobacco, sugar, and fruit contributed to this growing prosperity, and for the South Atlantic states the increased prosperity was principally due to the manufacturing of cotton goods. In 1890 the southern cotton mills consumed less than 22% of the total for the United States. In 1900 New England spindles consumed approximately 50% of the total bales of cotton consumed by cotton manufacturers in the United States, while the southern states consumed less than 40% of the total. By 1921 this proportion had become 30% for New England,

including Massachusetts, Connecticut, Maine, New Hampshire and Rhode Island, and 58% for the southern states of North Carolina, South Carolina, Alabama, Georgia, Tennessee, and Virginia. Since 1921, North Carolina cotton spindles have consumed more bales of cotton than those of Massachusetts; and South Carolina and Georgia each has consumed nearly as much as Massachusetts and in 1924-25 each of these states consumed more cotton than Massachusetts. The southern states are more important manufacturers of cotton now than New England. The total number of cotton spindles in operation in the cotton-growing states increased from 4,368,000 in 1900 to 15,709,000 in 1921 and 17,292,000 in 1925, representing a relative increase from 22% of the total in the United States in 1900 to 44% of the total in 1921 and over 49% of the total active spindles in the United States in 1925 were in the South.1

With this economic growth of the South the trust company became an important institution in the community and its growth in the South is largely in the period since 1900.2 Florida has become important and prosperous as a fruit growing area, for famous winter resorts, and in recent years as a haven of protection to poor over-taxed millionnaires.3 The development of the trust and agency business, both corporate and personal, by trust companies in Arizona dates from 1900, and it is since 1900 that the beginnings of such business by trust companies has taken place in most of the western and Rocky Mountain states.5

1 Statistical Abstract of the U. S.

2 Hillyer, Wm. H., "Fiduciary Business in the South," Trust Companies, Vol. 15 (July, 1912), pp. 18–9. Cf. Johnson, E. F., "How the 'Trust Company Idea' has Prospered in Oklahoma," Trust Companies, Vol. 39 (July, 1924), pp. 61-3; Neill, Robert, "Trust Company Business in Arkansas," Journal of the American Bankers' Association, Vol. 16 (June, 1924), pp. 811-2.

The Florida Bank & Trust Company, Jacksonville, Florida, organized in 1905, is said to have been the first real trust company to be organized in Florida. Trust Companies, Vol. 2 (Mar., 1905), p. 191.

'Goldwater, Morris, "Trust Company Progress in Arizona,” Trust Companies, Vol. 2 (Feb., 1905), pp. 106-8.

5 Proceedings of the Trust Company Division, A. B. A., 1909, pp. 74-8, 83-4; 1910, pp. 475, 478-9, 490-1; 1911, pp. 555–6, 557, 558, 569, 572; 1913, pp. 392, 399, 406-7, 410-11; 1914, pp. 375, 381; in general the “Roll