bank, or trust company, or that active consideration is being given to the purchase of a substantial portion of the assets and the assumption of a substantial portion of the liabilities of the other institution;

(3) Any director, officer, or employee of a member bank which does not exercise trust powers may, at the same time, be a director, officer, or employee of not more than one trust company which does not receive or hold deposits. Conversely, any director, officer, or employee of a trust company which is a member of the Federal Reserve System and which does not receive or hold deposits may, at the same time, be a director, officer, or employee of not more than one bank, banking association, savings bank which does not exercise trust powers;

(4) Any private banker may at the same time be a director, officer, or employee of not more than one of the following:

(a) A banking institution organized under the laws of any State or the District of Columbia which is not a member bank; (b) Any member bank in which the private banker or a firm in which he is a member owns directly or indirectly more than 50 percent of the common stock;

(c) A member bank that is located in a city, town, or village that is not contiguous or adjacent to the city, town, or village in which the private banker or the firm in which he is a member maintains a place of business;

(d) A member bank engaged in a class or classes of business different from the business in which the private banker or the firm in which he is a member is engaged.

(5) Any director, officer, or employee of a member bank may at the same time be a director, officer, or employee of not more than one bank principally engaged in international and foreign banking and which does not receive deposits or make loans in the United States except as an incident to its international or foreign business.45

b. The Banking Act of 1933

Section 32 of the Banking Act of 1933 prohibits vertical management interlocks between organizations primarily engaged in underwriting, flotation, issue, public sale or distribution of stocks, bonds, or similar securities from serving as officers, directors, or employees of member banks of the Federal Reserve System.46

Section 32 authorizes the Board of Governors of the Federal Reserve System to exempt interlocking relationships in limited classes of cases from this prohibition, such exemption to be granted by general regulations. The statutory test for the exercise of this authority is that the exemption may be granted when, in the judgment of the Board,

45 12 CFR 212.3.

66***

46 48 Stat. 194, June 16, 1933, as amended by sec. 307 of the Banking Act of 1935; 12 U.S.C. 78 (1958). Sec. 32 is as follows:

"12 U.S.C., Sec. 78. Certain persons excluded from serving as officers, directors or employees of member banks.

"No officer, director, or employee of any corporation or unincorporated association, no partner or employee of any partnership, and no individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, shall serve the same time as an officer, director, or employee of any member bank except in limited classes of cases in which the Board of Governors of the Federal Reserve System may allow such service by general regulations when in the judgment of the said Board it would not unduly influence the investment policies of such member bank or the advice it gives its customers regarding investments."

it would not unduly influence the investment policies of such member bank or the advice it gives to customers regarding investments."

c. Banking Act regulations

The Board has issued Regulation R to implement the authority conferred by section 32 of the Banking Act of 1933 as amended.*7

Regulation R, in notes to section 218.1, points out that, by its terms, section 32 does not apply:

(1) To a person who is not an officer, director or employee of a member bank;

(2) To a person (a) who is not an officer, director or employee of a corporation or unincorporated association primarily engaged in the security underwriting activities specified; (b) who is not a partner or employee, or an employee of a partnership, primarily so engaged; and (c) who is not in his individual capacity primarily so engaged.

A broker who is engaged solely in the execution of orders in the purchase and sale of securities on behalf of others in the open market, is not considered to be engaged in the business referred to in section 32.

The Board construes section 32 as requiring it to grant exemptions only by means of general regulations; and that it does not authorize the Board to promulgate procedures for the issuance of individual permits. Regulation R, pursuant to this policy, grants a permit to any officer, director, employee, partner, or individual of the designated securities organizations, to be at the same times an officer, director, or employee of any member bank of the Federal Reserve System, unless otherwise prohibited, if the only securities involved in the business of such securities houses are bonds, notes, certificates of indebtedness, and Treasury bills of the United States, obligations fully guaranteed both as to principal and interest by the United States, obligations of Federal intermediate credit banks, Federal land banks, Central Bank for Cooperatives, Federal home and loan banks, the Federal National Mortgage Association, and general obligations of territories, dependencies and insular possessions of the United States.

3. FEDERAL COMMUNICATIONS COMMISSION

a. Communications Act of 1934

Section 212 of the Communications Act of 1934 prohibits horizontal management interlocks between the telephone and telegraph common carriers subject to the act that involve officers or directors.49 The FCC by order, may permit an officer or director of one carrier to serve in such a position in another carrier upon a showing, in form and manner prescribed by the Commission, that the arrangement will satisfy the

47 12 CFR 218.

48 12 CFR 218.2, note 2.

49 47 U.S.C. 212 (1958). The text of sec. 212 is as follows:

"47 U.S.C., Sec. 212. Interlocking directorates; officials dealing in securities. "After sixty days from June 19, 1934, it shall be unlawful for any person to hold the position of officer or director of more than one carrier subject to this chapter, unless such holding shall have been authorized by order of the Commission, upon due showing in form and manner prescribed by the Commission, that neither public nor private interests will be adversely affected thereby: Provided, That the Commission may authorize persons to hold the position of officer or director in more than one such carrier, without regard to the requirements of this section, where it has found that one of the two or more carriers directly or indirectly owns more than 50 per centum of the stock of the other or others, or that 50 per centum or more of the stock of all such carriers is directly or indirectly owned by the same person. * * *"

standard that "*** neither public nor private interests will be adversely affected thereby."

Willful or knowing violations of section 212, on conviction are subject to a fine of not more than $10,000 or a prison term not to exceed 1 year.

In its early years, the FCC, in the exercise of its authority in section 212, refused to permit interlocks between parent and subsidiary corporations. Over the years, however, the Commission reversed this position and it became the practice to approve dual holdings within integrated communications systems under common ownership and control on the ground that neither public nor private interests would be affected adversely by approval. In the light of these determinations, and because many of the applications for authority to hold dual positions that were received by the Commission involved companies under common ownership, such as the commonly owned or controlled Bell Telephone System of the American Telephone & Telegraph Co., in 1956 the Commission requested an amendment to section 212. This amendment consisted of a new proviso that authorized the Commission to permit persons to hold a position of officer or director in more than one carrier subject to its jurisdiction where it found that one of the two or more carriers, directly or indirectly, owned more than 50 percent of the stock of the other carrier, or where 50 percent of the stock of all the carriers is directly or indirectly owned by the same person.50 Part 62 of the FCC's Rules and Regulations covers the procedures that govern applications under section 212.51 As amended, the regulations give content to the words that describe the persons subject to section 212's prohibitions. Rule 62.2 defines "officer or director" to include the duties, or any of the duties ordinarily performed by, a director, president, vice president, secretary, treasurer, or other officer of a carrier, such as a general counsel, general solicitor, general attorney, comptroller, general auditor, general manager, general commercial manager, chief engineer, general superintendent, general land and tax agent, or chief purchasing agent.52 An "interlocking director" is defined to mean a person who performs the duties of an "officer or director" in more than one carrier.53

At one stage in its administration of section 212, the FCC had determined that, with respect to the particular applications under consideration, the term "officer" did not include within the prohibition against interlocks the titles: "General Manager," "Assistant Vice President," "Assistant Secretary," "Assistant Treasurer," "General Auditor," "General Counsel," "Purchasing Agent," "General Agent," "General Plant Superintendent," and "Traffic Superintendent." 54 In its comments on the 1957 revisions to rule 62, American Telephone & Telegraph Co. had suggested defining "officer or director" to mean only the persons performing the duties ordinarily performed by a president, vice president, secretary, or other officer. The FCC declined this suggestion, and remarked that the words "such as" in the definition permits the Commission to determine on a company-by

50 70 Stat. 931, Aug. 2, 1956.

51 47 CFR 62, et seq.

52 47 CFR 62.2(a).

53 47 CFR 62.2 (b).

4 See series of dockets In Re Interlocking Directorates, 3 FCC 698-713 (1936).

26-188-65- 4

company basis whether or not the incumbent in the position described by such a title in fact performs duties required of an officer.55

Section 62.12 of the regulation defines the type of information that an applicant is required to submit to establish a basis for a finding that it owns more than 50 percent of another or other carriers. Section 62.21 grants, after the FCC has found the companies to be under common ownership, a general exemption to any duly designated person to be an interlocking director of two or more of such carriers, for as long as the common ownership status exists. 56

b. Communications Satellite Act of 1962

The FCC has supervisory responsibilities with respect to the organization, and economic and operating functions of the Communications Satellite Corp.57 The Communications Satellite Act requires the board of directors of the Communications Satellite Corp. to be composed of 15 members: three appointed by the President; 6 elected annually by stockholders that are communications common carriers; and 6 to be elected annually by other stockholders. No communications common carrier is permitted to vote directly or indirectly for more than three candidates for membership on the board. This statutory requirement, accordingly, requires direct horizontal management links among the communications common carriers that are stockholders in the Communications Satellite Corp. To the extent that the individual who is appointed a director of Comsat is also an official or director of a stockholding communications common carrier, the prohibitions of section 212 would apply.

By order dated September 2, 1964, the Commission considered the applications, for approval under section 212, of the individuals who had been elected directors of Comsat by the communications common carriers, each of whom was an official or a director of a carrier subject to the act. In its order that granted approval to these interlocks, the Commission noted that there were conflicts between the interests of their carriers and their fiduciary obligations to the corporation. The order states:

It would appear that the carriers in their nominations have acted consistently with congressional intentions. They have named very high officials who have valuable and lengthy experience in communications and related fields and who therefore, will provide the corporation with the advice, assistance and expert knowledge that the carriers can furnish. * * *

We are confident that the applicants, notwithstanding their unique status, should be able to discharge their obligations in a manner fully consistent with the public interest and the policies and objectives of the Communications Satellite Act. However, the Commission intends to maintain a close surveillance over the entire situation so that we may be in a position to take such action as may be appropriate, including advising Congress on the basis of such actual experience, and to submit such legislative recommendations as may appear to be required in the public interest."

Report and Order, Docket No. 11894, In re amendment of pt. 62, Mar. 19, 1957. 50 47 CFR 62.21.

67 Public Law 87-624, sec. 201, 76 Stat. 421, Aug. 31, 1962.

68 Memorandum Opinion and Order, In re Applications of E. R. Black, T. B. Westfall, H. M. Botkin, J. E. Dingman, H. P. Moulton, and D. S. Guild, file Nos. 1-D-294 to 1-D-299, Sept. 2, 1964.

4. FEDERAL POWER COMMISSION

The Federal Power Act of 1935 authorizes the Federal Power Commission to administer the prohibitions against interlocking managements that involve officers and directors of electrical utility companies subject to the act and other companies. Section 305 (b) of the act forbids horizontal interlocks with other electrical utility companies, and two types of vertical interlocks with certain suppliers and banks. It is unlawful for any person (1) to hold the position of officer or director of more than one public utility; or (2) to hold the position of officer or director of a public utility and the position of officer or director of any bank, trust company, banking association or firm authorized to underwrite, or to participate in the marketing of, securities of the public utility; or (3) to hold the position of officer or director of any company that supplies electrical equipment to such public utility. The FPC, however, is authorized to exempt any such arrangement in accordance with procedures it prescribes, on a showing of compliance with the standard that "*** neither public nor private interests will be adversely affected thereby." 59

The Federal Power Act provides a penalty for willful or knowing violations of the prohibitions against interlocks. On conviction, violators may be punished by a fine of not more than $5,000, or by imprisonment of not more than 2 years, or both.60

Since it reaches horizontal interlocks that may affect competition between electrical utility companies subject to the FPC, and vertical interlocks with equipment suppliers and dealers in common securities, this statute is concerned with more classes of common management links than most of the regulatory acts.

61

Part 45 of the FPC's Rules and Regulations implement its authority to supervise interlocking positions. These regulations define positions for which approval must be sought, the procedures to be followed, and the information to be submitted by the applicant.

The terms "officer or director" include any person elected or appointed to perform the duties ordinarily performed by a president, vice president, secretary, treasurer, general manager, comptroller, chief purchasing agent, director or partner, or to perform any other similar executive duty or function in a corporation within the purview of the statute. The regulation reaches positions not specifically mentioned in a requirement that the applicant designate the source of authority for any position which he holds that is vested with executive authority.62

Corporations within the purview of the act are defined to include any public utility under the act, any bank, trustee, banking association

50 49 Stat. 856, Aug. 26, 1935; 16 U.S.C. 825d (b) (1958). The text of sec. 305(b) is as follows: "16 U.S.C., Sec. 825d. Officials dealing in securities; declaring dividends out of capital account; interlocking directorates.

"(b) After six months from August 26, 1935, it shall be unlawful for any person to hold the position of officer or director of more than one public utility or to hold the position of officer or director of a public utility and the position of officer or director of any bank, trust company, banking association, or firm that is authorized by law to underwrite or participate in the marketing of securities of a public utility, or officer or director of any company supplying electrical equipment to such public utility, unless the holding of such positions shall have been authorized by order of the Commission, upon due showing in form and manner prescribed by the Commission, that neither public nor private interests will be adversely affected thereby. ***"

60 16 U.S.C. 825 (o) (1958).

81 18 CFR 45, et seq.

02 18 CFR 45.2 (a).