Advisory opinion on whether proposed interlocking directorate would violate provisions of Final Order entered against SCM

{I
Due to insufficient information supplied by respondent SCM
Corporation, Commission was unable to determine wheth-
er proposed interlocking directorate would violate provi-
sions of Final Order entered against SCM. (92 F.T.C. 416
(1978)) [Kraftco Corporation, et al., Dkt. 9035]
June 18, 1984
Dear Mr. Willis:
This is in response to your request for advice as to whether Dr.
Richard R. West may serve simultaneously on the boards of directors
of SCM Corporation ("SCM") and Bohemia, Inc. ("Bohemia") without
violating the prohibition against interlocking directorates contained
in the Commission's order in Docket No. 9035 ("the order") [92 F.T.C.
416 (1978)]. This request was made on behalf of SCM, which became
subject to the Commission's order on October 6, 1980 [14 C.D. 23 (612
F.2d 707 (1980), cert. denied, 449 U.S. 821 (1980)].
According to your request, Dr. West is presently a member of the
SCM board and would like to rejoin the Bohemia board, provided that
his simultaneous service on the two boards would not violate the
order. Your request involves a product overlap that occurs between
SCM's subsidiary, Allied Paper, Incorporated ("Allied") and Bohemia;
however, there is no direct product overlap between the two parent
companies, SCM and Bohemia. You advise that Dr. West is not a
director of Allied and that he is not involved with Allied's operating
policies.
Your request states that Allied owns and operates a lumber mill in
Jackson, Alabama which sells lumber products, primarily to custom-
ers in the Southeast, under the "M.W. Smith Lumber Company"
("M.W. Smith") trade name. For the fiscal year ended June 30, 1982,
the total sales of Allied and its subsidiaries were $288 million includ-
ing $6.9 million total sales of all forms of lumber. You state that
Bohemia and M.W. Smith both sell lumber products in 18 states. The
total annual sales of lumber products in the 18 states is $5.2 million
for Bohemia and $4.1 million for M.W. Smith. Bohemia and M.W.
Smith each have sales of $100,000 or more of lumber products only
in two states, Louisiana and Oregon and neither company is aware of
any instance in which they have sold products to the same customers.
The total sales of Bohemia and M.W. Smith combined account for less
than 1 % of all sales included under SIC Code No. 2421 - Sawmills &
Planing Mills, General. You state that the only information which the
SCM board sees with respect to M.W. Smith "would be a sales and a
profit line in the annual budget and in long range plans."
We believe that the order in Docket No. 9035 would be applicable
by its terms to this interlock. Paragraph I of the order prohibits SCM
,,,·
•ii-·

718 	FEDERAL TRADE COMMISSION DECISIONS
from having a common director with any corporation which competes
with SCM in the production or sale of any product or service. The
order does not contain any de minimis exception.
Nor can we say that any of the other possible grounds for exception
are applicable here. The Commission has considered whether the
Docket No. 9035 order is applicable to situations where the prospec-
tive interlock is between parent companies but the competition occurs
between one parent and the subsidiary of the other parent. As stated
above, the order prohibits SCM from having a director interlock with
Kraft or with any other corporation (other than a subsidiary, parent,
or sister ofSCM) which competes with SCM in the production or sale
of any product or service. The order thus contains a specific exemp-
tion for interlocks arising solely between SCM and its subsidiaries,
and it does not provide any exemption for the activities of subsidiaries
in other contexts. The Commission concludes that no such exemption
was intended and that the language of the order is broad enough to
encompass the prospective interlock described in your request.
The Commission has likewise considered whether it is appropriate
to impute Allied's activities to SCM for the purpose of determining
order coverage. In this connection, the Commission's opinion in Borg-
Warner Corporation, Docket No. 9120 (Slip Opinion, June 3, 1983) [101
F.T.C. 863 at 919], discussed the question of when it was appropriate
to impute a subsidiary's activities to a parent corporation for Section
8 purposes. The Commission stated that the relevant inquiry under
Section 8
is whether the parent company should be regarded as a "competitor" of the subsidiary's
competitors, and whether an· interlocked director is so placed as to be able to exercise
control or even to substantially influence decisionmaking at the director level so as to
dampen competitive relationships between divided corporate interests. The common
law "control" inquiry is relevant insofar as it is an indication of the likelihood of
collusion and anticompetitive transfer of information among competitors.
The staff invited you to supply detailed information on the control
and other factors deemed relevant by the Commission in Borg- Warner
as they relate to the relationship between SCM and M.W. Smith, but
you did not do so, with the exception of stating that SCM knows "of
no communication whatsoever between M.W. Smith (or Allied) and
Bohemia." Accordingly, based on the limited information that you
have supplied, the Commission is unable to determine that it would
be inappropriate in this instance to impute Allied's activities to SCM
for the purpose of determining order coverage.
In the light of the fact that the information supplied in your request
is insufficient to resolve the question of whether Allied's activities
should be imputed to SCM, the Commission is unable to determine

whether the simultaneous service of Dr. West on the boards of SCM
and Bohemia would violate Paragraph I of the order.
By direction of the Commission.
Letter of Request
February 15, 1983
Dear Mr. Feinberg:
This is a request made on behalf of respondent, SCM Corporation
("SCM"), for your determination that the simultaneous service of Dr.
Richard R. West on the boards of directors of SCM and Bohemia, Inc.
("Bohemia") would not violate the Order in the above matter.
Dr. West became a member of the Board of Directors of SCM in
Dece~ber, 1982. He had previously been a member of the Board of
Directors of Bohemia, but he resigned from that position pending
resolution of the question which we are raising in this letter. If you
determine that Dr. West's simultaneous service on the boards ofSCM
and Bohemia would not violate the Order, Dr. West intends to rejoin
the Bohemia board.
Dr. West is the Dean of the Amos Tuck School of Business Adminis-
tration, Dartmouth College. He is a director of The Dorsey Corpora-
tion (a manufacturer of cargo trailers and plastic containers), Liberty
Communications Inc. (a cable TV and TV broadcasting company),
Vornado, Inc. (a real estate holding company), and several investment
companies.
Bohemia has its principal office in Eugene, Oregon and is engaged
in the manufacture and sale of a variety of forest products, including
lumber, plywood, veneer, particleboard and laminated beams, in ma-
rine construction and in the production of rock, gravel and aggre-
gates. For the fiscal year ended April 30, 1982, Bohemia had total
sales of $155 million; of those sales $65 million were sales of lumber.
SCM has its principal office in New York, New York and had total
sales for the fiscal year ended June 30, 1982 of $1.9 billion. As you
know, the company's major businesses are chemicals, coatings and
resins, paper products, foods, and typewriters and appliances.
SCM owns Allied Paper, Incorporated, a Delaware corporation ("Al-
lied"), with its principal office in Kalamazoo, Michigan. Allied's oper-
ations include a 	paper 	mill 	located in Jackson, 	Alabama. 	In
conjunction with its paper mill, Allied owns and operates a lumber
mill, also located in Jackson, Alabama; the lumber mill sells lumber
products, mainly to customers in the Southeast, under the "M.W.
Smith Lumber Company" trade name ("M.W. Smith"). For the fiscal
year ended June 30, 1982, the total sales of Allied and its subsidiaries
were $288 million, including $6.9 million total sales of all forms of
lumber.

720 	FEDERAL TRADE COMMISSION DECISIONS
The lumber products of Bohemia and M.W~ Smith are all included
under SIC Code No. 2421 - Sawmills & Planing Mills, General. This
product line is dominated by such industry giants as Weyerhaeuser
Co. Inc., Louisiana-Pacific Corp., Georgia-Pacific Corp., St. Regis
Paper Co. Inc., Boise Cascade Corp. and many others. Bohemia's mar-
ket share of this category is approximately one-half of 1% and M.W.
Smith's share is infinitesimal.
There are 18 states in which Bohemia and M.W. Smith both sell at
least some quantity of lumber products. (See attached list.) The total
annual sales oflumber products sold in those 18 states is $4.1 million
for M.W. Smith and approximately $5.2 million for Bohemia (annual-
izing the six-months sales of the California mills-see footnote to
attached list). You will note that the list shows only two states (Louisi-
ana and Oregon) in which Bohemia and M.W. Smith each have sales
of $100,000 or more of lumber products.
Of M.W. Smith's lumber sales, approximately 46% are to "office
wholesalers" (non-stocking); 25% are to "yard wholesalers" (stock-
ing); and the balance are direct sales to retailers or manufacturers.
Of Bohemia's lumber sales, less than 15% are to office wholesalers;
and most of Bohemia's sales are to yard wholesalers, contractors and
retailers.
M.W. Smith and Bohemia have each checked with their sales per-
sonnel, and none knew of any direct competition between the two
companies, that is, instances in which both companies were compet-
ing for the business of the same customer. It is, of course, possible that,
unknown to the present sales personnel of the two companies, they
have sold some product or products to the same customers. Even here
there is not likely to be any substantial competition in view of the fact
that the sales were quite small in each state and the principal chan-
nels of distribution employed by the two companies differ.
Dr. West does not serve on the board of the SCM subsidiary, Allied.
Nor in his capacity as a director of SCM would he be involved with
the operating policies of Allied or M.W. Smith.
Although both Bohemia and M. W. Smith market some of the same
products, they market in only 18 states in common, the sales volume
is minimal in each state and one markets principally to office whole-
salers while only 15% of the other's sales are to such customers.
Further, the sawmills and planing mills category is so large that even
the combined share of Bohemia and M.W. Smith is miniscule.
In these circumstances, we do not believe that either the Act or the
Order were intended to bar Dr. West's service on the boards of SCM
and Bohemia.
We respectfully request that you indicate that you have no objec-
tion to service by Dr. West on the board of directors of Bohemia.

Thank you for your early consideration of this request.
Sincerely,
Isl William E. Willis
Sales of Board (''B"), Standard
Dimension ("D"), Industrial ("I"), Saps (''S"),
Flooring ("F"), Sidings ("Si"), Prime ("P"),
Wolmanized Lumber ("W") Products by
Bohemia, Inc., (FY ended 4/30/82)*
and M.W. Smith Lumber Co. (FY ended 6/30/82)
Bohemia 	M.W. Smith
State 	$000's 	Prod. 	$000's 	Prod.
AL 	70 	8,0 	2,340 	8,0,1,
S,F,Si,
P,W
FL 	100 	D 	90 	D
GA 	30 	8,0 	170 	8,0,1,
F,Si
IL 	50 	8,F 	30 	8,F,W
KY 	10 	B 	290 	8,0,1,
F,Si,W
LA 	470 	8,0 	100 	8,0,1,
Si,W
MD 	20 	8 	10 	8,Si
Ml 	110 	D 	10 	0,1
MN 	190 	8 	10 	8
MO 	160 	8,0 	70 	8,0,1
NC 	70 	8 	100 	8,0,1
NY 	30 	D 	20 	8,0,1
OH 	20 	D 	140 	B,O,I,
F,W
OR 	2,120 	8,0 	180 	B,D,F
PA 	20 	D 	5 	D
TN 	30 	8,0 	430 	8,O,F,
Si
TX 	950 	8,0,1 	50 	8,0,1
VA 	30 	D 	40 	O,I,S
• Sales for Bohemia in these states are based on annual sales for Oregon mills (representing 80% of all sales)
and six-months sales for California mills.

722 	FEDERAL TRADE COMMISSION DECISIONS
Second Letter of Request
August 26, 1983
Dear Mr. Feinberg:
In connection with our pending request on behalf of SCM Corpora-
tion ("SCM") for your determination that the service of Dr. Richard
R. West on the Boards of Directors of SCM and Bohemia, Inc. is not
in violation of the Order entered in the above Docket, I would like to
call your particular attention to the recent decision of the Commis-
sion In the Matter ofBorg- Warner Corporation, et al., Docket No. 9120.
[101 F.T.C. 863 (1983)]
The Borg-Warnerdecision confirms, I believe, that in view of all of
the circumstances the service of Dr. West on the Boards of the two
companies would neither violate the law nor the outstanding Order.
The Commission clearly articulated in Borg-Warner:"A parent cor-
poration is not a competitor of another corporation merely because its
subsidiary is. (citing cases)" (at p. 16), and further declared: "The
relevant inquiry under Section 8 is ... whether an interlocked direc-
tor is so placed as to be able to exercise control or even to substantially
influence decision making at the director level so as to dampen com-
petitive relationships between divided corporate interests" (at p. 18).
The Board of Directors of SCM is not involved in and does not
participate in the operation and policies of the M.W. Smith Lumber
Company, an operating group which is a part of SCM's subsidiary,
Allied Paper, Incorporated. As we have previously disclosed to you,
M.W. Smith's sales are a small fraction of 1 % of SCM's total sales.
M.W. Smith's sales are in a sense generated as a by-product of Allied's
principal business, the manufacture of pulp and paper products; thus,
the M.W. Smith Lumber Company is located near Allied's Jackson,
Alabama pulp and paper mill and was acquired by SCM, in 1981,
mainly as an adjunct to the pulp mill because it provided a local
source of wood chips, timber and timber cutting rights.
The monthly and annual financial operating reports which are
presented to the SCM Board of Directors include data as to each of
SCM's divisions with some breakouts for operating groups; but there
are no such breakouts for the small M.W. Smith operations. The only
such information which the Board sees with respect to M.W. Smith
would be a sales and a profits line in the annual budget and in long
range plans.
In the case ofSCM and M.W. Smith we have a relationship which
is even more remote than the Commission faced in Borg- Warnerinas-
much as the SCM subsidiary, Allied, is essentially a pulp and paper
producer and only this small group in Jackson, Alabama, represent-
ing about 2% of Allied's sales, is engaged in activities which could be
competitive with Portland, Oregon-based Bohemia, Inc ..

In fact, of course, as indicated· in our prior submission, neither the
Bohemia management nor the M.W. Smith management consider the
other company to be a competitor, and neither management knew of
any specific instances in which any of their products were sold in
competition with the products of the other company.
Unlike the situation in Borg-Warner, we know of no communica-
tions whatsoever between M.W. Smith (or Allied) and Bohemia.
The Commission in Borg-Warner placed great emphasis upon the
purposes of Section 8, noting that interlocking directorates were seen
by Congress as "likely to facilitate collusion" (p. 25) "and anti-com-
petitive transfer ofinformation among competitors" (at p. 18). It is the
possibility of such "collusion", the Commission declared, that renders
the "control" inquiry relevant.
The absence ofSCM Board involvement in the M.W. Smith activi-
ties, the fact that M.W. Smith itself is merely part of a larger subsidi-
ary of SCM and the fact that M.W. Smith's sales are tiny in
comparison both to the total sales ofSCM and of its subsidiary Allied,
render non-existent the risk of collusion which underlies the purpose
of Section 8 of the Clayton Act and the Order which has been rendered
in this proceeding. Furthermore, when one realizes that the total
share of the lumber market enjoyed by Bohemia and M.W. Smith
together does not reach 1 %, and that in fact the companies are not
even aware of any competition between them, any fear of collusion is
beyond belief.
We renew our pending request that you indicate no objection to the
service of Dr. West on the Board of Directors of Bohemia, Inc.
Sincerely,
Is/ William E. Willis