Academic journal article Journal of Corporation Law

Serving More Than One Master: A Social Network Analysis of Section 8 of the Clayton Act

Academic journal article Journal of Corporation Law

Serving More Than One Master: A Social Network Analysis of Section 8 of the Clayton Act

Article excerpt

I. INTRODUCTION

An interlocking directorate "occurs when a person affiliated with one organization sits on the board of directors of another organization."1 Section 8 of the Clayton Act prohibits "persons" from serving as a "director or officer in any two corporations that engaged in commerce if the corporations are competitors."2 Under current Supreme Court section 8 jurisprudence, competition is judged on qualitative factors3 as opposed to a market analysis.4 This Note uses Social Network Analysis (SNA) to examine whether the standard for determining the legality of interlocking directorates under section 8 of the Clayton Act should be changed.

This Note is organized as follows: Section II.A describes interlocking directorates and section 8 of the Clayton Act. Section II.A then gives a brief historical context for the passage of section 8. It then catalogues section 8 jurisprudence over time and notes important and proposed changes to section 8. Section II.B explains the Horizontal Merger Standard used under section 7 of the Clayton Act. Finally, Section II.C gives a background on SNA.

Section III.A begins with a discussion of the scholarship on interlocking directorates. Section III.B then introduces the Maximum Likelihood Estimator (MLE) regression methodology used in the analysis. Next, Section III.C introduces the data used in the SNA and gives a table of the descriptive statistics5 of the data. Section III.D then explains the creation of the Social Network and presents a graphical depiction.6 Section III.D gives the relevant descriptive statistics of the Network.7 It then explains the MLE model used to measure the effect of interlocking directorates on corporate performance. Next, Section III.E gives the regression results8 of the MLE models. Section III.E.2 also explains the impact of the regression results on the understanding of interlocking directorates and section 8 of the Clayton Act. Finally, Section III.F discusses the popular criticism of section 8 of the Clayton Act.

Part IV recommends that section 8 of the Clayton Act be changed to implement a hypothetical horizontal merger analysis, which would allow two firms' boards to interlock where a hypothetical merger between the corporations would be allowed under section 7 of the Clayton Act. Part IV first recommends the Supreme Court adopt the Seventh Circuit's rule from Robert F. Booth Trust v. Crowley and apply a hypothetical horizontal merger standard to interlocks. Finally, Part IV recommends that Congress alter section 8 to change the standard of interlocking directorates from a per se rule to an abbreviated hypothetical merger standard ensuring that the benefits of interlocking directorates could be enjoyed while minimizing the costs of anticompetitive interlocks.

I. BACKGROUND

This Part will first give background on interlocking directorates and section 8 of the Clayton Act. It focuses specifically on the evolution of section 8 caselaw. This Part then outlines section 7 of the Clayton Act and the Horizontal Merger Guidelines. It concludes by introducing SNA and explaining its application in legal analysis.

A. Interlocking Directorates and Section 8 of the Clayton Act

An interlocking directorate "occurs when a person affiliated with one organization sits on the board of directors of another organization."9 Section 8 of the Clayton Act prohibits any "person[]" from serving as a "director or officer in any two corporations that engaged in commerce if the corporations are competitors" so that the elimination of competition by agreement between them would violate any of the antitrust laws.10 This prohibition does not apply to corporations: (1) with profits less than ten million dollars,11 (2) with competitive sales of less than one million dollars,12 (3) where "competitive sales of either corporation are less than 2[%] of that corporation's total sales; [or (4) where] the competitive sales of each corporation are less than 4[%] of that corporation's total sales. …

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