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Interlocking Directorates

Section 8 of the Clayton Act, 15 U.S.C.S. § 19, prohibits corporations from having the same directors or officers in some instances. Thus, under Section 8, a person may not serve as an officer or director of two non-bank corporations if one of the companies has more than $10 million (adjusted for annual GDP changes) in capital, surplus, and undivided profits and the companies compete so that an agreement between them would eliminate that competition and result in a violation of an antitrust law. An example of a violation of an antitrust law which Section 8 of the Clayton Act is designed to prevent is an agreement between two or more competitors on the prices they charge, which would be a per se illegal agreement under Section 1 of the Sherman Act, 15 U.S.C.S. § 1.

There are several "safe harbors" in Section 8 of the Clayton Act to allow for interlocking directorates on the basis that there is little risk that anticompetitive agreements would result. For example, interlocking directorates will not be of concern if the aggregate competitive sales of one of the competitors with the same director are less than a de minimis amount that is adjusted annually. There is another safe harbor if competitive sales of the companies sharing directors are below two percent of either company's total sales or below four percent of total sales for each of the companies.

A person may serve on both boards of directors of two companies that do not (or did not before an interlocking directorate) compete directly. Also, the statute prohibits interlocking directorates between direct competitors but not between companies with only a vertical relationship (such as the relationship between the manufacturer and a distributor of a product). A person may serve on the boards of two companies that may compete in the future but are not competing presently.

If Section 8 is violated, private parties and the federal government may seek an injunction and triple the amount of damages caused to those plaintiffs. The Federal Trade Commission may seek a cease and desist order requiring resignation from a board of directors or from a position as an officer of a corporation.

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.