The prohibition against one corporation entering into transactions with another corporation in which one of its directors is also interested, should apply even if his interest in the second corporation is merely that of stockholder. A conflict of interests in a director may be just as serious where he is a stockholder only in the second corporation, as if he were also a director.

One of the annoying petty monopolies, concerning which evidence was taken by the Pujo Committee, is the exclusive privilege granted to the American Bank Note Company by the New York Stock Exchange. A recent $60,000,000 issue of New York City bonds was denied listing on the Exchange, because the city refused to submit to an exaction of $55,800 by the American Company for engraving the bonds, when the New York Bank Note Company would do the work equally well for $44,500. As tending to explain this extraordinary monopoly, it was shown that men prominent in the financial world were stockholders in the American Company. Among the largest stockholders was Mr. Morgan, with 6,000 shares. No member of the Morgan firm was a director of the American Company; but there was sufficient influence exerted somehow to give the American Company the stock exchange monopoly.

The Pujo Committee, while failing to recommend that transactions in which a director has a private interest be prohibited, recognizes that a stockholder's interest of more than a certain size may be as potent an instrument of influence as a direct personal interest; for it recommends that:

"Borrowings, directly or indirectly by . . . any corporation of the stock of which he (a bank director) holds upwards of 10 per cent, from the bank of which he is such director, should only be permitted, on condition that notice shall have been given to his co-directors and that a full statement of the transaction shall be entered upon the minutes of the meeting at which such loan was authorized."

As shown above, the particular provision for notice affords no protection to the public; but if it did, its application ought to be extended to lesser stock-holdings. Indeed it is difficult to fix a limit so low that financial interest will not influence action. Certainly a stockholding interest of a single director, much smaller than 10 per cent., might be most effective in inducing favors. Mr. Morgan's stockholdings in the American Bank Note Company was only three per cent. The $6,000,000 investment of J. P. Morgan & Co. in the National City Bank represented only 6 per cent. of the bank's stock; and would undoubtedly have been effective, even if it had not been supplemented by the election of his son to the board of directors.