Securities Law Section

Message from the Chair

Section Chair: 

Charles Niemeier
Williams & Connolly LLP
Washington, D.C.

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The Federal Bar Association - Securities Law Section is a proud sponsor of the virtual museum and archive of the history of financial regulation at While the museum is free and accessible to everyone at all times, the Section will highlight specific material and information within the museum on securities law issues in the coming months, providing current and prospective Section members with unique insight and context.

The effort to merge the Pennsylvania Railroad (PRR) with the New York Central (NYC) began in 1957, was approved in 1962 by the PRR and NYC boards, and was completed in 1968. But, in June 1970, the newly formed Penn Central Transportation Company filed for what was then the largest bankruptcy in U.S. history. The disaster caused the SEC and Congress to examine corporate governance and auditing practices.

The merger might have worked had it occurred in 1957, but, by the late 1960s, most of America’s railroads were struggling due to highway competition, outdated regulations, and high legacy costs. Since they served what would soon be dubbed ‘the rust belt,’ the New York Central and Pennsylvania Railroad were in dire straits. Their marriage failed from the start due to incompatible computer systems, misrouted traffic, and significant delays for passengers. As day-to-day problems grew, Penn Central’s directors failed to grasp the calamitous situation. The SEC’s staff report on Penn Central’s collapse, issued in 1972, underscored that the board was, “accustomed to a generally inactive role in company affairs. They never changed their view of their role. Both before and after the merger, they relied on oral descriptions of company affairs.” Board members had never received, nor even requested, written budgets. As SEC Commissioner Harvey Goldschmid would later say, “they were perfectly ineffective.”

The staff’s analysis of Penn Central’s corporate governance drew upon the insights of academics, consumer activists, and regulators. In the wake of the Penn Central report, at a 1973 conference entitled, “The Greening of the Board Room,” Goldschmid, then a professor at Columbia University, suggested that corporate boards be comprised of independent directors and supported by a professional staff. Ralph Nader urged the creation of a federal chartering agency that would strictly regulate major corporations engaged in interstate commerce. In 1976, SEC Chairman Roderick Hills took a moderate approach to reform and directed the SEC to work with the New York Stock Exchange to require independent audit committees for all listed companies. Hills also encouraged SEC collaboration with the American Institute of Certified Public Accountants to create new standards that would bring important issues to a board’s attention.

On a parallel track (so to speak) to the focus on corporate governance, by 1976, the federal government had rolled back outdated rail regulations and retrieved the nation’s eastern rail system from chaos by spinning off passenger and freight services to the newly formed Amtrak and Conrail, respectively. Although the former still struggles and is dependent on government funding, the latter has long since been divided up between the Chesapeake & Ohio and the Norfolk and Southern, the only two eastern railroads to survive the tough times that led to the collapse of the Penn Central.


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