Interlocking Directorates in the European Union: An Argument For Their Restriction

The EU Commission has recently undertaken a review of the EU Merger Regulation. In this process it has published a White Paper that proposes to extend the Regulation to cover situations in which firms acquire minority shareholding in their competitors. However, the White Paper is silent about the closely related phenomenon of interlocking directorates (interlocks), which occurs when the same person sits on the board of two firms. This issue has never been directly addressed by the European Union, perhaps because the theory of interlocks is underdeveloped in Europe. This paper provides comprehensive antitrust arguments for why the EU should restrict certain interlocking activity. The main argument is that the EU should prohibit horizontal interlocks (interlocks between competing firms) per se, as they raise serious antitrust concerns. The paper further argues that non-horizontal interlocks should be monitored, and it addresses certain important policy questions that the EU might face when designing the regulatory framework.