§ 2.4

• Jurisdiction: Arizona

§ 2.4 Formation of the Corporation Commission (1910)

In 1910, Arizona elected delegates to frame a constitution to be submitted to Congress as a condition of statehood. The constitution was completed in late 1910 and went into effect in 1912 when President Taft signed a proclamation creating the State of Arizona.¹⁸⁸

In the decades leading up to and following statehood, Arizona's mineral resources represented its wealth.¹⁸⁹ In 1910, the state operated through an economy whose economic interests centered on mining activities.¹⁹⁰ Mining, in turn, was dominated by the large copper companies and the railroads that facilitated the mining industry.¹⁹¹ The railroad and mining companies were able to control the territorial legislature without much effort.¹⁹² At times, they simply bribed public officials to obtain their goals.¹⁹³ Newspapers commonly described the territorial legislature as subservient to the railroads and other large corporations.¹⁹⁴

This view of corporations was held by most of the state constitution's framers, including George W.P. Hunt, who was elected president of the convention.¹⁹⁵ Hunt had lived in the mining environment of Globe and briefly worked in a copper mine.¹⁹⁶ Later, when he served in the territorial legislature, his legislative efforts were frequently blocked by corporate interests.¹⁹⁷ He saw the prospect of a new constitution as an opportunity for reforms that were impossible in the territorial legislature.¹⁹⁸

As the convention neared, Hunt and the progressive wing of the Democrats formed an alliance with the party's labor wing, which had threatened to form a separate party.¹⁹⁹ The mining and railroad interests attempted to head off the alliance.²⁰⁰ But the Hunt-labor alliance of Democrats held.²⁰¹ In the end, 41 of the 52 elected delegates were Democrats,²⁰² and all but a handful leaned toward the progressive side.²⁰³ As the convention proceeded, Hunt's progressive alliance dominated it.²⁰⁴

The progressive delegates had great confidence in experts and regulatory boards whose members were elected.²⁰⁵ They wanted an elected government free of the corporate influence that dominated the territorial legislature.²⁰⁶ In addition to direct democracy through the measures like the initiative and referendum that give rise to the propositions on today's ballots,²⁰⁷ the delegates favored corporate regulation through a corporation commission with elected commissioners.²⁰⁸

The original proposal for a corporation commission would have vested it with broad regulatory power over all corporations.²⁰⁹ But the delegates were sharply divided on whether a regulatory commission should be given power over private businesses.²¹⁰ As one opponent of the commission proposal described it, "the business of a private corporation is not a matter of public concern."²¹¹ The convention eventually voted to limit the commission's most sweeping powers to two categories of corporations: public-service corporations operating as common carriers or providing utilities²¹² and corporations whose stock was issued for public sale.²¹³

Unregulated stock promotion had been a problem for years.²¹⁴ Public interest in stocks, especially mining stocks, was widespread.²¹⁵ Trading on mining exchanges opened in Globe and Tombstone in the 1880s,²¹⁶ and bucket shops were prevalent at least until 1909.²¹⁷ The bucket shops allowed people to bet on the rise and fall of copper, gold, and silver and publicly traded stocks.²¹⁸ The rigged quotes and other frauds perpetrated by the bucket shops were notorious.²¹⁹ Hunt had successfully sponsored a bill the year before to outlaw bucket shops.²²⁰

Securities regulation became an issue during the debates. Fraudulent practices in selling securities by what the delegates called wildcat corporations were frequently mentioned.²²¹ Led by Hunt,²²² Michael Cunniff,²²³ Everett E. Ellinwood,²²⁴ and Seaborn Crutchfield,²²⁵ the corporation-commission proposal was amended to grant broad authority to the commission to regulate corporations that sold stock to public investors. The amendment gave the commission the right to require periodic reports and information from these public corporations as well as the right to inspect, investigate, and subpoena their records.²²⁶ Opponents of this investigatory power expressed concern that the commission "would go around sticking its nose into the affairs of clothing store corporations, and grocery corporations."²²⁷ The counter view, expressed most forcefully by Cunniff,²²⁸ Crutchfield,²²⁹ and Ellinwood,²³⁰ was that Arizona's reputation had been tarnished and the public left unprotected from stock fraud that needed to be controlled.²³¹ In a close vote, the amendment passed 25-22.²³²

Its passage made possible the administratively enforced blue-sky legislation that was enacted two years later.²³³ A hallmark of blue-sky laws like those enacted in Kansas in 1911 and in Arizona in 1912²³⁴ was their use of administrative agencies to enforce securities compliance.²³⁵ In Arizona's 1912 Act,²³⁶ that agency was the corporation commission, and in Kansas' 1911 Act,²³⁷ it was the state's banking department.

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Notes:

^[188] The history of the events leading to statehood is recounted in John D. Leshy, The Making of the Arizona Constitution, 20 Ariz. St. L.J. 1, 7-27 (1988) and Mark E. Pry, Arizona and the Politics of Statehood, 1889-1912 (May 1995) (unpublished Ph.D. dissertation, Arizona State University) (on file with the Hayden Library, Arizona State University); see also Gordon Morris Bakken, The Arizona Constitutional Convention of 1910, 1978 Ariz. St. L.J. 1 (1978).

^[189] David R. Berman, Reformers, Corporations, and the Electorate: An Analysis of Arizona's Age of Reform 6 (1992) [hereinafter Berman, Reformers].

^[190]Id. at xi.

^[191]See Berman, Politics, supra note 105, at 19-20, 24-25; see also Thomas E. Sheridan, Arizona: A History 169-71 (Univ. of Ariz. Press rev. ed. 2012) (describing the railroads and copper companies in territorial Arizona and the relationships between them).

^[192] Berman, Politics, supra note 105, at 25; Sheridan, supra note 191, at 180.

^[193] Berman, Politics, supra note 105, at 11, 25, 28; Sheridan, supra note 191, at 180.

^[194] Berman, Reformers, supra note 189, at 65.

^[195]See Leshy, Reference Guide, supra note 147, at 271, 284. On Hunt's views of the mining and railroad corporations, see Berman, Politics, supra note 105, at 7-12, 139-40; John S. Goff, George W.P. Hunt and His Arizona 7, 9, 21-22, 26-27, 30, 37 (1987); Wagoner, supra note 83, at 483 (explaining that during the 1911 election for governor, "Hunt flailed the corporations, which he said had controlled territorial politics to the detriment of the people. He called for the election of men to the Corporation Commission who would not bow to the 'big interests,' or 'coyotes' and 'skunks' as he was calling them by the end of the campaign."). See generally David R. Berman, George Hunt: Arizona's Crusading Seven-Term Governor (2015).

^[196] Berman, Politics, supra note 105, at 8; Goff, supra note 195, at 10-12 (describing Hunt's work in Globe as a waiter, mineworker, grocery clerk, and eventually a manager and then president of Globe's leading general store).

^[197] Berman, Reformers, supra note 189, at 29, 74; Peter Clark McFarlane, The Galahad of Arizona:...