September 27, 2022
Director Interlocks: DOJ Making Good on Its “Non-Merger” Warning
Earlier this year, the DOJ’s antitrust head warned that the agency would be taking a hard look at interlocking directorships that might violate Section 8 of the Clayton Act. That statute prohibits competitors from having overlapping directors or managers, regardless of whether any anti-competitive conduct actually occurs.
As John has written on DealLawyers.com, the DOJ’s scrutiny could have far-reaching implications for the private equity industry – but it’s an issue for all corporate secretaries to have on their radar. Especially because, as this Perkins Coie blog reports, the DOJ has now started sending letters of inquiry to some public companies. This excerpt explains the consequences if they find a violation:
Bear in mind that the DOJ and FTC can only seek injunctive relief for Section 8 violations (i.e., removing the interlock). As part of a Section 8 investigation, however, the agencies are likely to look for evidence of other anticompetitive conduct or collusive behavior in violation of other antitrust laws, including Section 1 of the Sherman Act (which regulates agreements that unreasonably restrain trade), which could subject the companies and individuals involved to additional costly and lengthy investigations and potentially civil or criminal penalties.
Finally, note that private parties may also sue to enforce Section 8 and, unlike the federal agencies, seek treble damages.
No public company wants to be in the DOJ’s spotlight – and it sounds especially painful when director relationships are involved. The blog points out that you may want to start examining whether any of your directors also serve on the board or management of any company that could be a competitor. As you head into proxy season, remember that our 95-page “D&O Questionnaire Handbook” has guidance on navigating the Clayton Act – and a sample question.
If you aren’t already a member with access to that resource, sign up now and take advantage of our no-risk “100-Day Promise” – During the first 100 days as an activated member, you may cancel for any reason and receive a full refund. John has also blogged about interpretive issues over on DealLawyers.com.
– Liz Dunshee