TheCorporateCounsel.net

On our “Q&A Forum” (#2280), members recently resurrected a 16-year-old discussion about interlocking directors – i.e., directors who serve on more than one board together. These relationships haven’t drawn a whole lot of scrutiny in the past, but that might be changing. It’s also important to keep an eye on all of the potential independence implications – including if the board is approving an item that could be challenged and you need to show that everyone voting was disinterested. Here’s the most recent back & forth:

Is there anything recent on this topic? I would think it would be possible to have a number of directors overlapping without a disclosable interlock; any guidance/practice on what that upper limit is or what institutional investors/proxy advisory firms think of the same? Thanks as always.

John responded:

I’m not aware of anything from proxy advisors on this topic yet, but I recently blogged about how the DOJ is promising to increase scrutiny of potential interlocking directorates under the Clayton Act.

Section 8 of the Clayton Act doesn’t require actual anticompetitive behavior, just the potential for it. In today’s antitrust enforcement environment, I think companies would be wise to take a hard look at whether overlapping directorships have the potential to raise Clayton Act issues. Skadden wrote a really good memo on this issue last year.

The latest follow-up:

A question to clarify here: Director A and Director B are on the Board of a NYSE listed pub company. Director A also works full-time at another non-competitor company where Director B is on the Board. Are there any issues and what should I be considering here? Neither director is on the Comp committee of either company.

John responded:

I don’t think their overlapping directorships necessarily raise independence issues under the NYSE’s categorical standards, although they might with respect to the director who is also an employee of the other company if the first company has made payments to the other company that exceed the amounts specified in the NYSE’s categorical standards. You’d also need to check your own independence guidelines to determine whether anything in there might be implicated.

I can also see situations where the independence of the director-employee might be called into question in a state law derivative action based on allegations that his or her status as an employee of a company for which the other director serves as a member of the board makes that individual somehow beholden to the other director. Not necessarily a great claim, but it depends on the facts and circumstances.

– Liz Dunshee