aeronautics.129 Similarly, vertical and horizontal, direct and indirect interlocking relationships between the various companies that are engaged in different stages of the liquor manufacturing and distribution process 130 are subject to the Secretary of the Treasury's authority. d. Tests applicable

When the various regulatory bodies consider applications for approval of interlocking relationships that otherwise would be prohibited by the statute, the tests that are to be applied differ. The most common standard, used by the FCC, the FPC, and the ICC for railroads, requires the agency to find that "*** neither public nor privaté interests will be adversely affected thereby." The CAB's standard is only slightly different; it must find "*** that the public interest will not be adversely affected thereby." However, in passing upon an application for an interlock that involves a railroad and a water common carrier, the ICC must find that the interlock will not prevent the water carrier from "*** being operated in the interest of the public and with advantage to the convenience and commerce of the public, and that it will not exclude, prevent, or reduce competition on the route by water under consideration." The FRB, when it approves a vertical interlock between a securities underwriting organization and a member bank, must find "*** it would not unduly influence the investment policies of such member bank or the advice it gives to customers regarding investments." The SEC, in approving an interlock between a public utility and a banking organization, must find that the management tie is one "not adversely affecting the public interest or the interest of the investors or consumers." Similarly, the SEC, in approving the purchase of securities for which the principal underwriter is an officer, director, or employee of the company, must find that the exemption is "*** consistent with the protection of the investors." Management ties in the liquor industry for approval must meet the test that the dual service "*** will not substantially restrain or prevent competition in interstate or foreign commerce in distilled spirits." The generality and diversity in these several standards, when coupled with a disinterest that stems from a multiplicity of transactions, fosters mechanical and inconsistent application. e. Regulations

There are comparable variations in format, treatment of detail, and agency philosophy in the regulations that the various administrative bodies have promulgated to implement their statutory authority. These variations extend from the meticulous delineation in the FRB's regulations of examples of conduct that is permissible as well as conduct that is prohibited, to the omission of any reference to procedures from the Treasury regulations that govern applications for approvals by the liquor industry. Some agencies, notably the FRB and the SEC, have promulgated regulations that grant general exemptions and, thus, eliminate the necessity for applications that apply to particular transactions. These general regulations, while they lessen the administrative burden, preclude examination of the types of transactions actually in use in the industry. Other agencies, on the other hand, particularly the ICC, FCC, and FPC, have adopted regulations that require each transaction to be specifically approved.

129 49 U.S.C. 1379 (1958).

130 27 U.S.C. 208 (a) (1958).

CHAPTER III

EXPERIENCE

Notwithstanding the assertion by its advocates that there was an urgent need to control interlocking directorates, nor the satisfaction of its congressional managers that the Clayton Act was adequate to accomplish President Wilson's objectives, enforcement of its prohibitions against interlocking directorates was neither prompt nor vigorous. The Clayton Act fashioned a tool that was specifically directed against the common corporate management device that had figured so promi nently in investigations as the means by which competition had been eliminated or monopolies created. The hesitancy of the agencies charged with Clayton Act enforcement in applying this tool, however, indicates an uncertainty in its value.

Enforcement of section 8 by both the Federal Trade Commission and the Department of Justice has been irregular and feeble. Lack of an enforcement program is due in part to the difficulty involved in litigating a case. Frequently, on the filing of a complaint by the Department of Justice or the FTC, the directors involved would discontinue or abandon the prohibited relationship. Enforcement efforts were blunted further by the recognition that the limited coverage of the law permitted reestablishment of virtually the same relationship by the simple tactic of avoiding a directorship in both corpora

tions.

From its enactment on October 15, 1914, to January 1965, the FTC had filed a total of 13 complaints under section 8 of the Clayton Act. Only one of these complaints resulted in a cease-and-desist order, and this was by consent; the remainder were dismissed when the directors involved discontinued the prohibited relationship.1

1.

The Department of Justice did not undertake a systematic program with respect to interlocking directorates until after World War II, and the first cases to be litigated to a decision by a court were not filed until February 27, 1952, 38 years after enactment of the Clayton Act. As of January 1965, the Department of Justice had instituted a total of 10 cases to enforce section 8, and 5 cases to enforce section 10. During the same period, the regulatory bodies, whose enabling statutes authorized enforcement of prohibitions against interlocks, tended to slump into a pattern where approval generally was granted to industry applications for otherwise prohibited interlocks. Over the years, the tendency for a regulatory body to become identified with the industry problems in which it is immersed has manifested itself, insofar as the problem of interlocking managements are concerned,

1 Docket 205, dismissed November 1922; docket 457, dismissed October 1928; docket 573, dismissed May 1925; dockets 1180 and 1182. dismissed April 1926: dockets 6023, 6024, 6026, 6027, dismissed June 1954; docket 6025, dismissed October 1954; In re Union Bag and Paper Corporation, docket 6391, cease-and-desist order, May 10, 1956, 52 FTC Decisions 1278; docket 7333, dismissed November 1957; docket 8113, dismissed March 1961.

in sympathy for the industry viewpoint. In relation to the multitude. of other problems that the regulatory bodies daily confront, the problems of interlocks in corporate management apparently have not been considered to be of major significance.

With persistent regularity throughout the entire period of its enactment, congressional committees, enforcement agencies, and private organizations, have investigated and reported upon the existence of, and the problems involved in, interlocking corporate relationships. These investigations consistently have demonstrated, and generally criticized, the existence of numerous common management ties in the corporate structure. A. CLAYTON ACT

1. SECTION 8

Major activity in section 8 enforcement, in both the FTC and the Department of Justice, came after the conclusion of World War II. Prior to 1935, the Department of Justice had charged section 8 violations in three suits. None of these cases came to trial, either because they were settled by consent decree or because the directors resigned from the interlocking positions.3

In the latter part of 1947 the Department of Justice entered upon a novel technique to enforce the provisions of section 8. Administrative persuasion was relied upon, rather than the institution of lawsuits attacking particular cases. In that program, the Department of Justice surveyed 1,600 corporations, involving more than 10,000 directors. As a result of this survey it was found that approximately 1,500 individuals held directorships in more than 1 concern. The Attorney General reported that, when they were informed of the results of the survey, most of the persons who appeared to be in relationships that would constitute violations of section 8 resigned without further

contest.*

On June 30, 1950, the FTC submitted to Congress its report, entitled, "Report of the Federal Trade Commission on Interlocking Directorates." The FTC report contained information resulting from an inquiry into important interlocking relationships among the 1,000 largest manufacturing corporations, as measured by total assets, as of the end of 1946. In connection with the preparation of its report on this inquiry, the staff of the FTC prepared and filed five complaints which were dismissed when the interlocking relationships were terminated. As a result of its investigation, the FTC recommended amendatory legislation that would (1) broaden the definition of the prohibited relationships so as to include significant management officials, (2) include indirect as well as direct interlocks, and (3) include vertical as well as horizontal ties. One bill, S. 1659, was introduced in the 82d Congress in connection with these suggested amendments. No amendments to accomplish these purposes have been enacted.

2 "The Federal Antitrust Laws, 1890-1951." CCH case No. 316, U.S. v. Rand Kardes Bureau, Oct. 21, 1926 (S.D.N.Y.); case No. 346, U.S. v. General Outdoor Advertising Co., July 23, 1928 (S.D.N.Y.); case No. 408, U.S. v, William G. Mather, Feb. 7, 1935 (N.D. Ohio).

V. H. Kramer, "Interlocking Directorships and the Clayton Act After 35 Years," 59. Yale L.J. 1266, 1270 (June 1950).

On February 27, 1952, the Department of Justice, partly because it had encountered resistance in industry to its campaign of administrative persuasion, instituted four cases under section 8 that challenged two groups of interlocking relationships. The Assistant Attorney General in charge of the Antitrust Division, H. Graham Morison, announced that these cases represented the first move in a program aimed at securing strict observance of the requirements of section 8. His press release said:

The Antitrust Division will maintain a continuing watch over the directorship field and, in cases in which individuals continue to serve on the boards of competing companies after notification by the Division that they are violating this statute, it will proceed to file legal actions to terminate such directorships.

6

In the Weinberg case, the Antitrust Division challenged the tie between Sears, Roebuck & Co., of Chicago, Ill., and B. F. Goodrich Co., of Akron, Ohio, by their common director, Sidney J. Weinberg, an able and distinguished financier. The other cases involved three sets of interlocking relationships that involved John M. Hancock, partner in the investment banking firm of Lehman Bros.8

a. The Weinberg case

This case produced the first construction of section 8 of the Clayton Act since its passage in 1914. It establishes the test that is applicable when the clause "*** so that elimination of competition by agreement between them would constitute a violation of any of the provisions of any of the antitrust laws ***" is defined. The facts in the case were clear.

9

For many years, Sidney J. Weinberg had been a director of both Sears, Roebuck & Co. and the B. F. Goodrich Co. The parties admitted that these corporations were competitors in 7 product lines sold at retail in interstate commerce; in 97 communities, located in 31 States, Sears had 110 retail stores that competed with 112 retail stores of Goodrich. In 1951, the approximate total annual dollar volume of sales in the 7 product lines by Sears 110 retail stores was more than $65 million; in these lines, the total annual dollar volume of sales by Goodrich's 112 stores was in excess of $16 million. In each of the 97 communities, the approximate average annual dollar volume of sales of the 7 items for each Sears store was $592,000, and for each Goodrich store, $145,000.

The defendants argued that section 8 of the Clayton Act required a showing, before a violation could be found, that a hypothetical merger between the two corporations would violate the antitrust laws. This "merger" test was rejected. The Court, in adopting the so-called per se test, distinguished the merger test in section 7 from the interlocking directorate test of section 8. He pointed out that section 8 promul

The Federal Antitrust Laws, CCH 1952-56 supp., p. 69.

U.S. v. Sears, Roebuck & Company et al., 111 F. Supp. 614 (1953), CCH Blue Book No. 1117.

U.S. v. W. T. Grant Co., Blue Book No. 1118, interlock between W. T. Grant Co. and S. H. Kress & Co.; U.S. v. Sears, Roebuck & Co. et al., Blue Book No. 1119, interlock be tween Sears, Roebuck & Co. and Bond Stores, Inc.; U.S. v. The Kroger Co. et al., Blue Book No. 1120, interlock between the Kroger Co. of Cincinnati, Ohio, and Jewel Tea Co., of Barrington, Ill. These cases were considered together and are reported in 112 F. Supp. 336 (1952), 345 U.S. 629,(1953), and in 1952 CCH Trade Cases, par. 67330, and 1953 CCH Trade Cases, par. 67493.

(1) Refrigerators, washers, stoves, and other home appliances; (2) hardware; (3) automotive supplies; (4) sporting goods; (5) tires, tubes, and recaps; (6) radios and television sets; (7) toys.