Second Wave Of Resignations Following The Department Of Justice’s Increased Scrutiny Of Interlocking Directorates
 

Following previous Clayton Act enforcement efforts prohibiting interlocking directorates, the Department of Justice (“DOJ”) announced on Thursday, March 9, 2023, that five directors have resigned from overlapping board positions, and one company declined to exercise its board appointment rights.^[1] This marks the second wave of resignations since DOJ increased its scrutiny of interlocking directorates, bringing the total number of unwound or prevented interlocks to at least 13 directors across ten boards in less than six months.

Section 8 of the Clayton Act prohibits any “person,” defined broadly to include individuals, corporations, and unincorporated entities, from serving as a director or board-appointed officer of two or more competing corporations if certain monetary thresholds are met.  Section 8 is intended to eliminate opportunities to coordinate and to prevent antitrust violations before they occur.  Importantly, unless certain safe harbor exemptions apply, it is per se unlawful for directors or officers to serve simultaneously on the boards of competitors.  As a result, DOJ need not show anticompetitive effects or injury to establish liability.  In case of a violation, the government may seek injunctive relief, requiring the director or officer to resign.

Although Section 8’s prohibition against interlocking directorates has existed since 1914, until recently enforcement efforts have been rare and limited to the merger review context.  In April 2022, DOJ Assistant Attorney General Jonathan Kanter stated that DOJ would increase its efforts to identify violations and would not hesitate to bring Section 8 cases to break up interlocking directorates.^[2]  Months later, in October 2022, seven directors voluntarily resigned from corporate board positions at five public technology companies in response to DOJ’s concerns regarding Section 8 violations.  In its corresponding announcement, DOJ warned that the resignations were merely the first in a broader review of potentially unlawful interlocking directorates.^[3]

While none of the companies listed in Thursday’s press release admitted liability, each voluntarily moved to allay DOJ’s concerns by unwinding interlocks or declining to appoint board members.

In the DOJ announcement, Jonathan Kanter restated that Section 8 enforcement “will continue to be a focus for the division just as Congress intended.”  Given DOJ’s continued focus on unwinding or preventing potentially interlocking directorates, companies should use increased caution when electing to appoint board members or exercise board rights for companies that could be seen as competitors.





 

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[1] Assistant Attorney General Jonathan Kanter’s Opening Remarks at 2022 Spring Enforcers Summit, Washington, DC (Apr. 4, 2022).
[2] Department of Justice, Office of Public Affairs, Directors Resign from the Boards of Five Companies in Response to Justice Department Concerns about Potentially Illegal Interlocking Directorates (Oct. 19, 2022); see also Shearman & Sterling, DOJ’s First Large Scale Crackdown on Potentially Unlawful Interlocking Directorates Led to 7 Board Resignations Across 5 Tech Companies (Oct. 24, 2022).
[3] Department of Justice, Office of Public Affairs, Justice Department’s Ongoing Section 8 Enforcement Prevents More Potentially Illegal Interlocking Directorates (March 9, 2023).