ACKNOWLEDGEMENTS We deeply appreciate the assistance of the various members of the CSPI team for helping to make this report possible. Special thanks go to Michael Jacobson, James Sullivan and Barry Castleman for editorial comments, to Anne Anderson for cover and booklet design, and to Paul Coggins and Bill Millerd for technical assistance. Copyright 1974 Center for Science in the Public Interest No part of this publication may be reproduced by any means January, 1974 Directors are not likely to be scoundrels, they are likely to be gentlemen. And gentlemen respect other gentlemen And that is far with whom they are closely associated. more profound a problem than scoundrelism. The problem is that if gentlemen associate on boards, they are not likely to be something really hostile to the interests of the other gentlemen with whom they are associated. Professor Edward Herman Wharton School of Finance 5 Introduction The Federal Trade Commission has charged the eight largest oil companies (Exxon, Texaco, Gulf, Mobil, Standard of California, Standard of Indiana, Shell and Atlantic Richfield) with violation of the antitrust laws. The Commission says that these and other large companies have pursued a common course of action in restrictive practices including discrimination against independents, division of markets, and price fixing. The result has been a lessening or destruction of competition with adverse effects on independents and consumers. Although the Federal Trade Commission does not mention interlocking directorates, common action by oil companies implies close Furthermore, illegal association of those charged with illegal acts. practices described in the files of both the FTC and the Department of Justice have involved activities of directors and officers of large oil corporations. It is our contention that big oil combinations of directorships and other such connections result in action which has adverse effects on consumers and small business. It is time that the public takes a hard look at indirect interlocks of directors and advisory committees. The Clayton Act of 1914 forbids competing corporations from having common directors (direct interlocks). For example, an Exxon Board member cannot be a director of Texaco, or Shell, or Cities Service, or Amerada Hess, or Mobil, or Getty, or any other oil company. However, it is perfectly legal for him to sit with a director of another big oil company on the Board of Directors of a third (non-competing) corporation. In fact, a total of nine directors representing these seven oil giants are connected with the Chemical Bank of New York. Four of them are directors and five are members of advisory committees of Chemical Bank. Thus the oil companies are indirectly interlocked because directors of two competing corporations are also directors of a third corporation. Indirect interlocking directors have concerned various members of Congress for many years. A Congressional Committee in 1912 said, "When we find common directorships in banks and other businesses located in the same city and representing the same class of interests, all further pretense of competition is useless." The Holding Company Act of 1935 prohibits interlocks in utility holding companies (both direct and indirect). It is in accord with the House Committee Report which said: "Voting trusts, interlocking directors and officers, management contracts, the control of proxies and other means all have been facilely used to bring about a concentration or control in fewer and fewer hands." Authors of the Holding Company Act believed strongly that banks or corporations controlled by banks should not be allowed to control utilities. They prohibited both direct and indirect interlocks in managerial positions "where such links involve public utility companies and banking organizations or corporations controlled by banking organizations [emphasis added]," "Interlocks in Corporate Management," United States Congressional House Committee on the Judiciary, 1965. On March 12, 1965, Congressman Emmanuel Cellar, Chairman of the House Judiciary Committee, introduced a bill titled: "The Corporate Management Interlocks Act," which was designed to close loopholes in the interlock part of the Clayton Act. The bill followed the recommendations of a staff study which found that 1,480 directors and officers in a 74company sample had 4,428 common management connections in other corporations. Although the Federal Trade Commission staff several years ago re |