Term and Definition of Interlocking
In the interlocking context, interlocking refers in legal terms to the overlap of management or control functions in companies, especially among several companies within a group structure or between competing companies. This issue is central in corporate law, competition law, and antitrust law. Interlocking arises when natural persons simultaneously hold management roles (e.g., as board members, managing directors, or supervisory board members) in multiple legally independent companies. These dual functions can lead to conflicts of interest, impairments of competition, or an intertwining of entrepreneurial decision-making processes.
Historical Development and International Context
The issue of interlocking was first comprehensively recognized during industrialization and the emergence of large corporations. In particular, the development of antitrust law in the USA specifically addressed interlocking as early as the beginning of the 20th century in order to prevent anti-competitive entanglements.
Interlocking in U.S. Law
In U.S. competition law, interlocking is explicitly regulated in Section 8 of the Clayton Act of 1914 . The law prohibits certain officeholders from holding management positions in competing corporations at the same time. The aim is to prevent cartel-like structures through personal interconnectedness.
Interlocking under German and European Law
Under German corporate and antitrust law, the protection of independent entrepreneurial decisions and the avoidance of conflicts of interest are also legally safeguarded. The German Act against Restraints of Competition (GWB) and the Federal Cartel Office’s merger control include interlocking constellations in their review mechanisms. Comparable regulations can be found in European competition law in Art. 101 and 102 TFEU, although there are no explicit statutory prohibitions on interlocking.
Legal Aspects and Issues of Interlocking
Corporate Law Regulations
In corporate law, for example in the Stock Corporation Act (AktG) and the German Limited Liability Companies Act (GmbHG), the independence of management is emphasized. Leaders must act in the company’s interest—considering the interests of shareholders and employees. In interlocking scenarios, conflicts of interest arise because decisions in favor of an affiliated company can compromise the duty to protect the company’s own interests. The law therefore requires responsible conduct and provides for removal and liability regulations in certain situations.
Conflicts of Interest and Fiduciary Duties
Governing bodies are subject to strict fiduciary duties toward their company. Simultaneously representing the interests of another, possibly competing company contradicts these duties. Violations can give rise to civil liability claims, including claims for damages or removal from office.
Antitrust Law Perspective
Antitrust law places further focus on interlocking, especially in the context of merger control and in preventing impermissible distortions of competition:
- Boycott effects: Interlocking may lead to coordination of competitive behavior, particularly through market or price agreements.
- merger control: In merger control, organic and personnel interconnections are included in the review. The existence of interlocking may lead to prohibition of the merger if there is a risk of establishing a dominant market position.
Aspects under Co-Determination Law
Co-determination law also considers interlocking. Here, it is particularly crucial that employee representatives and management act independently in order to avoid improper influence.
Impacts and Practical Relevance
Effects on Corporate Management and Control
Personnel ties resulting from interlocking can impair the decision-making freedom and effectiveness of supervisory and management bodies. They make oversight more difficult, lead to a lack of transparency, and may undermine competition. As a result, corporate groups and larger enterprises regularly implement compliance measures to prevent interlocking.
Sanctions and Legal Consequences
An established case of interlocking that leads to a legal violation or breach of duty may result in various legal consequences:
- Civil liability claims
- Antitrust prohibition of mergers
- Removal of board members
- Contract invalidity in cases of identified restraint of competition
Prevention and Compliance Measures
To avoid problematic interlocking situations, companies frequently introduce compliance systems, which, for example, establish reporting requirements in the event of conflicts of interest and require prior approval for certain mandates. This helps minimize the risk of legal violations or conflicts of interest.
Disclosure Requirements
In Germany and at the European level, there are disclosure and transparency obligations that make personnel overlaps visible to shareholders and supervisory authorities. This enables targeted review and, if necessary, the refusal of mandates.
References
- Act against Restraints on Competition (GWB)
- German Stock Corporation Act (AktG)
- Clayton Act, Section 8, USA
- European competition law (TFEU Art. 101, 102)
Summary: From a legal perspective, interlocking describes the overlap of management or control functions between different companies. It affects key areas of corporate law, antitrust law, and corporate governance. The aim of statutory regulations and compliance measures is to avoid conflicts of interest, ensure transparency and independence, and prevent distortions of competition. The control of interlocking is an important element of modern corporate management and the prevention of antitrust risks.
Frequently Asked Questions
Which statutory provisions govern interlocking in Germany?
Interlocking, the personal union of board members in competing companies, is regulated in Germany by various provisions. Central is in particular Section 88 of the German Stock Corporation Act (AktG), which stipulates a so-called non-competition clause for supervisory board members. According to this, supervisory board members may not hold a board position or consultancy role in competing companies unless otherwise provided by the articles of association or the supervisory board exceptionally consents. In addition, for managing directors of limited liability companies (GmbH), the provisions of Sections 6 and 35 GmbHG as well as general fiduciary duties apply. From an antitrust perspective, interlocking may be problematic under German and European regulations, particularly Sections 1 ff. GWB and Art. 101 ff. TFEU, if personal union could facilitate anti-competitive agreements. Industry-specific regulations, such as Section 21 EnWG (energy industry), may also restrict or prohibit interlocking.
What are the legal risks of violations of interlocking provisions?
Violations of the statutory provisions on interlocking can have significant civil, corporate, and criminal law consequences. Among other things, resolutions adopted by improperly involved board members can be challenged. A breach of the non-competition clause may result in removal from office or liability to pay damages to the company. In the antitrust context, substantial fines may be imposed; additionally, under European law, there is a risk that collusively arranged contracts may be declared void. The publication of breaches in the context of a compliance system can also significantly damage the company’s reputation.
What disclosure and notification obligations exist in connection with interlocking?
Persons holding dual functions must regularly disclose their other mandates to supervisory bodies, such as the supervisory board. Under statutory provisions, for example pursuant to Section 125 (1) sentence 5 AktG regarding general meetings, conflicts of interest and mandates must be disclosed. This disclosure applies not only internally but—such as in listed companies pursuant to Section 285 No. 10 HGB—may also need to be made externally to shareholders or in annual reports. Breach of these duties may render resolutions void or trigger liability claims against the board member in question.
Are there special rules for interlocking under European law?
In European law, particularly in the context of competition law, interlocking can be considered an indirect coordination between competitors (“interlock”). Art. 101 TFEU prohibits agreements and concerted practices which restrict competition. The European Court of Justice has established that personnel overlaps may qualify as ‘silent’ coordination if they promote or facilitate competition violations. In addition, there are sector-specific requirements—such as for financial institutions or energy suppliers—set out in EU directives and regulations. Member States may also impose stricter national measures to restrict interlocking.
How is interlocking assessed and reviewed under antitrust law?
Antitrust law assesses interlocking from the perspective of potential restraints on competition. Even the assumption of management functions or supervisory board mandates in competing companies can be considered a ‘structural cartel’ if it facilitates the exchange of information and concerted practices. The competition authorities (Federal Cartel Office, European Commission) examine, in particular, whether interlocking is being used to exchange sensitive market information or jointly steer market developments. If there are indications, the authority can launch an investigation and, if necessary, order measures such as prohibition of mandates or the imposition of substantial fines.
Are exceptions or permissions for interlocking possible?
In certain cases, exceptions to the statutory prohibitions on interlocking are possible. In stock corporations, the supervisory board may, pursuant to Section 88 AktG, lift the non-competition clause in individual cases if this is in the company’s interest and no serious conflicts of interest exist. The articles of association may also provide specific relaxations. At the European level, exemptions may be granted under Art. 101 (3) TFEU if efficiency gains can be demonstrated and negative effects on competition can be excluded. However, these exceptions are narrowly defined and must be thoroughly documented and plausibly justified.
What review and due diligence obligations does a company have regarding interlocking?
Companies are required, when appointing and monitoring their board members, to pay particular attention to potential interlocking conflicts. This includes checking mandate lists, ties of interest, and potential competitive relationships of candidates. To minimize risk, they should establish internal compliance guidelines, conduct regular training, and implement disclosure mechanisms. In the event of violations, the company is obliged to take appropriate countermeasures, such as removal or notification of authorities, to avoid further liability and reputational risks.
