Monday, 07 December 2020 16:55

Common Ownership, Interlocking Directorates & Competition: A Transatlantic Perspective

JCLE Conference under the auspices of the Hellenic Competition Commission, December 7th, 2020

The aim of the Journal of Competition Law and Economics (JCLE) Conference of December 7th, 2020 organized under the auspices of the Hellenic Competition Commission (HCC) on “Common Ownership, Interlocking Directorates & Competition: A Transatlantic Perspective” was to discuss existing evidence and competition policy implications on common ownership and interlocking directorates in a transatlantic perspective with the contribution of legal and economic experts, as well as policy makers.

The introductory remarks were addressed by event coordinatorFlorence ThépotUniversity of Glasgow, and Ioannis Lianos, President of the Hellenic Competition CommissionFlorence Thépot remarked that the issue at hand lies at a crossroads between corporate governance and competition policy, mentioned the different approaches adopted by US and EU Law and announced that article contributions by speakers at this event will be featured in a special issue of the Journal of Competition Law & Economics on the topic to be published in 2021. President Ioannis Lianos briefly discussed common ownership across rivals and mentioned that incentives created by cross ownership and common ownership is partly linked to the financialisation process of the global economy and have been recognized in theory. There is also empirical evidence in some economic sectors, hence the topic is certainly mature for discussion and for reflection on policy responses to the issues at hand.

The 1st Panel on the topic of “Interlocking directorates” was chaired by Amelia Fletcher, CCP, University of East AngliaFlorence Thépot made a presentation on “Interlocking Directorates in Europe: An enforcement gap”, whereby she highlighted the differences between US and EU law on the topic, presented the types and trends of interlocks, the potential anticompetitive effects and concluded that there is in fact an enforcement gap in the EU assessing the extent to which this matters, given that the economic impact of interlocking directorates is a work in progress and posing the question of the optimal remedy, namely the adoption of a legislative provision equivalent to Section 8 of the Clayton Act or through the corporate laws of individual member states. In the context of his presentation “Horizontal Directors”, Yaron Nili, University of Wisconsin-Madison, outlined the situation regarding Interlocking Directorates in the US and concluded that the existence of a legal framework in the US doesn’t imply its full enforcement effect. Chiara Picciau, Bocconi University, made a presentation on “The curious case of Italian Interlocking Directorates”, in the context of which, shereflected on the ban imposed in 2011 in Italy on interlocking directorates in the banking, insurance and financial sectors and displayed the results of an empirical analysis of the last two months in the Italian banking sector undertaken in partnership with Federico Ghezzi, Bocconi University. José Azar, University of Navarra, dealt with the topic of “Common Shareholders and Interlocking Directors: The relation between two corporate networks” and pointed out that there is a positive association between interlocking directors and common ownership at the firm-pair level, that a firm with higher increase in common ownership over time is more likely to go from no interlock to having an interlock, and that there is evidence to suggest that shareholders influence board appointments, even if they do not have seats on the board, however noting that this doesn’t answer the causality question. Policy insights were provided by Tommaso Valletti, Imperial College London, who concluded that although academic research on the topic borrows from a variety of fields, e.g. finance, network analysis, industrial organization, it is nonetheless advisable to provide practical advice to policy makers. 

The 2nd Panel on the topic of “Common ownership” was chaired by Martin Peitz, University of MannheimJo Seldeslachts, KU Leuven, made the first presentation of the panel on the topic of “Common Ownership Pattern in European Banks: Pre- vs Post- Great Financial Crisis” making the point that the stake of the common investors remains large in Europe and there are gains for both common and non-common investors, but in different ways: on one hand, investment managers widen their common ownership network and on the other hand the Government, individuals and corporations increase their individual stakes as top investors, while ownership in US banks continues to be dominated by the investment managers. Anthony Medina, City, University of London, based his presentation on a project undertaken by himself,Ioannis Lianos, President of the HCC and Alina VeliasCity, University of Londonon the topic of “Investor Influence in Vertical Markets”. The project reflects, among other points, on how to capture ownership influence across vertical markets and how to measure this influence, by testing predictions such as the relationship of ownership levels to price competition and whether suppliers affect the competitive pricing behavior and by analyzing the Greek supermarket network and supply market. Nathan Shekita, Yale University School of Management, analyzed the topic of “Interventions by common owners” and pointed out that regulators and scholars have called for evidence to determine the mechanisms through which common owners influence firm behavior by uncovering a common owner’s channel of influence and with this motivation Mr. Shekita has offered concrete evidence regarding 30 such cases found in the public domain, while acknowledging the likelihood of the existence of many more, and finally called for significantly greater disclosure in order to uncover the full extent of common ownership actions. Anna Tzanaki, Lund University, in the context of her presentation on the “Varieties and Mechanism of Common Ownership: A Calibration Exercise for Competition Policy”, analyzed the concept of control, the varieties and the mechanisms of common ownership and the policy implications on structuring the various merger control regimes, as well as the interplay of competition and corporate governance. Mike Walker, Chief Economic Adviser, Competition and Markets Authority, in the course of offering policy insightspointed out that in the matter of common ownership, although the horizontal theory of harm is clear, there is less potential of a vertical theory of harm, as the empirical analysis is controversial, and suggested that policy makers should continue to be concerned with common ownership even in the absence of enough empirical evidence, noting however that they should be wary of bringing common ownership concerns into merger control, because this may mean the relaxation of merger control. Albert Banal-Estanol, Universitat Pompeu Fabra, joined the discussion and advocated for the need for further research, while mentioning that he and his research partners are in fact looking into detailed aspects of common ownership in various sectors and will publish the results of their work soon. Alina Velias, City, University of London, provided further insight on the project regarding the Greek supermarket network and supply market, in which she participates, and argued that prior to expressing concern about the impact of common ownership in vertical structures it is important to consider the mechanisms at play and the extent to which welfare impact may vary. 

The 3rd Panel on the topic of the “Policy perspective on common ownership/interlocking directorates” was chaired by Frédéric Jenny, Chairman, OECD Competition CommitteePierre Régibeau, Chief Economist, DG Competition, European Commission, observed that the gravity of the problems arising from common ownership depends on the type and particular organization of common ownership, as this determines the mechanisms regarding control and transmission of information in horizontal and vertical chains. Ioannis Lianos, President, Hellenic Competition Commission, discussed the possibility of implementing the insights and literature on common ownership in the issue of family ties, as this may constitute an area for further research, and suggested the more careful mapping of markets for the detection of family ties, as these may lead to problems comparable to those of common ownership especially in more traditional economies. Fiona Scott Morton, Yale University School of Management, advocated for a proposal supported by the academic community regarding regulation in the US, that investors in firms in well-defined oligopolistic industries would benefit from a safe harbor from government enforcement of the Clayton Act, provided they either limit their holdings of an industry to a small stake (no more than 1% of the total size of the industry) or hold the shares of only a single “effective firm” per industry. Jean Bergevin, Head of Unit, DG Competition, European Commission noted the need for a better mapping of the situation in Europe and for the monitoring of the potential correlation between the increase of common ownership as a result of mergers. Pierre Régibeau, Chief Economist, DG Competition, European Commission was reluctant to support the concept of the adoption of a safe harbor in Europe, arguing that a safe harbor needs to apply independently of the mechanism for transmission of influence and information and that a judge will most certainly be concerned with conduct, namely the manner in which influence was exerted, therefore it would be necessary to accurately document the transmission mechanism from incentive to action, which is not always easy. However, he did mention that the adoption of a safe harbor in Europe may be debatable provided that there is evidence of a problem and that a requirement is not set for unrealistic thresholds. Scott Hemphill, NYU School of Law, suggested that it may be necessary to outline more domain specific rules by determining characteristics distinctive to common owners and potentially troubling conduct distinctive to common ownership and expressed his confidence on relying on merger control provisions and operating on a case-by-case basis until general predictions may be made and a general rule may be developed.      

In his closing remarks, Ioannis Lianos, President of the Hellenic Competition Commission, noted that there is aproblem the seriousness of which depends on the particular industry in question and argued for the need for more empirical research in the US, the EU and other parts of the word. On the issue of intervention, he observed the need to take into account the degree of certainty with regard to the problem necessary for the purpose of intervention and questioned whether the same degree of certainty is necessary in merger cases and antitrust in choosing the right tool for intervening. Finally, he suggested other alternatives drawing from article 11 of the Greek Competition Act (Law 3959/2011) on sectoral inquiries and the opportunity provided by this tool to act on the basis of evidence collected.           

You can watch the video from the conference here.

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