Interlocking Directorates and Anti-Competitive Risks

An Enforcement Gap in Europe?Florence Thépot (Glasgow, D&C)

Florian Hugon (D&C)Mathieu Luinaud (D&C)

CRESSE CONFERENCERhodes - 2 July 2016

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Introduction

• US: Section 8 Clayton Act prohibits interlocking directorates between competitors

• The practice of interlocking directorates is the root of many evils. It offends laws human and divine. Applied to rival corporations, it tends to the suppression of competition and to violation of the Sherman law. Applied to corporations which deal with each other, it tends to disloyalty and to violation of the fundamental law that no man can serve two masters(Brandeis, 1914)

• “the Small World of Corporate Governance”/ “cooperative capitalism’

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DIRECTINDIRECT

NETWORK

Types of interlocks

Key facts & trends

• Continental Europe v. Anglo-American countries• Type of capitalism, Liberal or coordinated market economies, Role of the banks

etc.

• Since 1990s• Decline but persistance national corporate networks? • Banks, state, deregulation, internationalisation?

• Functions of corporate networks• Representation of investors, expertise, social elite…collusion

• Impact of interlocks on the value of the firm • Negative/Ambivalent (Prinz, 2006)

little information on intra-sectoral networks 4

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Kees van Veen & Jan Kratzer (2011)

Overview of paper• Anti-competitive effects raised by interlocks• Coordinated and unilateral effects

• Corporate law & Corporate Governance • Italy, France

• EU Competition Law• EU Merger Control• Article 101 TFEU• Article 102 TFEU

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Anti-competitive effects• Coordinated effects• Information exchange• Density of corporate networks and cartel statistics (J. Connor)

• 52 firms convicted for anticompetitive practices• 17 German or French 37% of the international cartels• 9 US or UK firms 15 % of cartels

• Unilateral effects• Reduced rivalry

• Efficiency gains7

Corporate law & Corporate Governance

• Italy• Protection of Competition and crossed structural links in the markets of banking

and finance (Law Decree No 201/2011)

• France• No more than 5 mandates to public limited companies (Code de Commerce)• Loi Macron (2015): no more than 3 mandates (listed companies)

• Principles of Corporate Governance • Independance and fiduciary duties• Generally non-binding & conflict of interest

Very limited solutions8

EU competition law• EU Merger Regulation• Interlocking directorates part of the assessment

• Thyssen/Krupp; AXA/GRE and Allianz/AGF• Need of lasting change in control

• BUT: Does not apply to interlocks in distinction

• Article 101 TFEU• Agreement between undertakings?

• Nomination of board member• Concerted practice

• Information exchange: YES but in practice?

• Article 102 TFEU• Dominance as a pre-requisite• Unlikely to apply

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Summary Corp Gov Principles

Corporate Law

EU Merger Control

Article 101 Article 102

THEORY Yes Partially Yes Yes Not really

LIMITATIONS Not binding

Conflict interest

Only a few MS

3 or 5 is too much

Only if part of an acquisition

Agreement?

Private board discussion

Unilateral effects?

Dominance

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Conclusion• Mind the gap!

• Does it matter?• Economic impact of interlocking directorates • Focus on ties between competitors

• Proxy for bigger issue? (corporate elite)

• How to remedy the enforcement gap• European ‘Section 8’• Member States through corporate laws

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