Friday, January 16, 2004

Capitalism & Law: Competing Directors

The FTC issued a new rule today raising what's known as the Section 8 threshold. Under Section 8 of the Clayton Act, a person may not serve as a director or officer of two competing corporations. The threshold for applying this rule is whether each corporation has a combined capital, surplus, and profits exceeding a given amount. The FTC raises this figure annually based on changes in GNP. The new threshold announced today sets the floor at a combined $20.09 million or total "competitive" sales of $2.009 million.

Like everything in antitrust, these standards and figures are wholly arbitrary. The FTC gets to decide what sales are "competitive" or how the combined capital, surplus, and profits figure is calculated. And on a more basic level, there's simply no cause for banning individuals from serving two "competing" companies. Remember, companies exist to make a profit for their shareholders; competition is a secondary function. If two competitors feel they can benefit from sharing the services of an individual, then that is their prerogative. It may not be a good idea, but that judgment should not be made by the FTC.

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