Voting Trusts and Antitrust in Illinois: Rethinking the Role of State Corporation Law in Competition Policy (co-authored with Naomi Lamoreaux, Yale University)
The conventional history of antitrust policy argues that state law played an active role early on and then largely ceded the field to the federal government by the early twentieth century. While federal law and enforcement certainly played an important role in shaping and limiting corporate combinations, this paper argues that state policy remained an important – though neglected – legal domain for democratic protest against corporate consolidations. Our investigation of Illinois courts of equity reveals numerous suits brought by stockholders that challenged the legitimacy of corporate mergers conducted through voting trusts. Jurists’ receptivity to stockholders’ private actions against consolidation changed over time, seemingly responding to widespread concerns about the so-called trusts. Initially, in the late nineteenth century, courts rejected these claims in favor of privileging the internal decision-making of corporate directors. However, during two periods of widespread public discontent with the trusts state jurists became more willing to intervene in the internal affairs of corporate boards. At the turn of the century, jurists issued injunctions against the formation of voting trusts that would consolidate businesses, holding these to be anti-competitive and against public policy. These private stockholder suits rendered the voting trust a less useful form of corporate consolidation; yet, voting trusts remained a useful tool in finance capitalism. J.P. Morgan and his affiliates used this device to control management decisions in banks, railroads, insurance companies, and other industrial corporations. In the second decade of the twentieth century, jurists again responded to shareholder suits against voting trusts, largely in response to the Pujo Commission’s interrogation of Morgan and the bright light of publicity shone on the use of voting trusts to implement finance capitalism. In 1915, the Illinois supreme court issued its strongest indictment of irrevocable voting trusts as a violation of democratic principles. These private shareholder actions reflected the changing legal thinking on the competitive effects of corporate mergers as well as the evolving rights and responsibilities of shareholders. Ultimately, this story contributed to the limitations on finance capitalism that shaped the trajectory of American corporate capitalism in the early twentieth century.