Unlocking Interlocks

During the past year or two, federal trustbusters have gone after some of the biggest names in U.S. business. Antimonopoly suits are now in various stages of litigation against several giants, including AT&T, IBM, Firestone, Xerox and the big three in the rental-car field: Hertz, Avis and National. Last week the Justice Department turned its attention to some of the biggest banks and insurance companies, charging that they too are in violation of U.S. antitrust laws.

At issue are interlocking directorates--arrangements under which a director of one company serves simultaneously on the board of another. Interlocking directorates among competing firms have been forbidden since 1914 by Section 8 of the Clayton Antitrust Act. Yet the Justice Department suspects that as many as 400 banks and insurance companies may share directors. Its two civil suits filed last week name the Prudential Insurance Company of America, in Newark, the nation's largest insurance company, which has on its board a director of the San Francisco-based Bank of America, the largest U.S. bank, and another from New York-headquartered Bankers Trust Co. The suits further named three directors of San Francisco's Crocker National Bank, who also sit on the boards of Metropolitan Life Insurance Company, the Equitable Life Assurance Society of the United States and the Mutual Life Insurance Company of New York (MONY). The Justice Department charged that these arrangements are illegal.

The cases raise some questions of antitrust law. To begin with, the Clayton

Antitrust Act specifically prohibits sharing of directors between banks, but for 61 years it has been interpreted as not applying to links between the boards of banks and nonbanking firms. Now the Justice Department is saying that it does. To the defendants, this sudden new interpretation of the law seems very tenuous and unwarranted, and they intend to fight. Prudential refused to sign a consent order, and no company plans to fire its shared directors.

Another issue is an ancient one in antitrust law: under what circumstances can two companies be judged "competitors"? To most of their customers, banks and insurance companies may not seem to compete; not only are their main businesses different but they make different types of investments. Insurance companies, for example, sometimes buy buildings, like the Landmark office complex in Atlanta, owned by MONY, a practice uncommon to banks. The Government nonetheless argues, with some justice, that banks and insurers do compete. Both make mortgage loans, and both manage pension funds. In making loans to corporations, banks have traditionally concentrated on loans of five years or less, insurance companies on loans of 15 years or more. Recently, however, both banks and insurance companies have been making more intermediate-term (three-to ten-year) loans.

Gourmet Food. The Government has won interlocking-directorate cases on slimmer evidence. Several years ago, it won a ruling that R.H. Macy & Co., Inc., the New York-based department-store chain, and Safeway Stores, Inc., now the nation's biggest supermarket group, could not share a director because Macy's sold gourmet foods. If the Government can establish a precedent that ties between banks and nonbank companies are subject to the law, and that banks and insurance companies compete, it can be expected to launch more suits. It might contend that the same person cannot serve as a director of a bank and oil company because both issue credit cards.

What would that accomplish for the consumer who has a savings account, an insurance policy and a credit card? Hardly anything, say critics of the Government's action. If a bank and an insurance company want to conspire, say, to fix interest rates on loans, they can do it without having the same person serve as a director of both. On the other hand, insurance companies in particular have been anxious to put bankers on their boards, claiming that the bankers have more expert knowledge of what loans are wise; prohibiting the practice, they say, would deny policyholders the benefits of shared financial expertise. That contention points up the greatest problem for federal trustbusters. They deeply believe that concentrations of economic power injure everyone, but, as the antitrust laws are now written, they find themselves frequently unable to do more than take potshots at giant companies on peripheral issues.

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