March 31, 2023

Interlocking Directorates: The Heat is On

Earlier this month, the DOJ announced that five directors resigned from four corporate boards and one company declined to exercise board appointment rights in response to the Antitrust Division’s efforts to enforce Section 8 of the Clayton Act’s prohibition on interlocking directorates.

That proceeding follows one last October, in which the Antitrust Division’s Section 8 enforcement efforts prompted the resignation of seven directors. It also follows close on the heels of a letter from Senate Judiciary Committee Chair Dick Durbin (D-IL) urging the DOJ & FTC to investigate interlocks in the life sciences industry.

This Norton Rose Fulbright memo addresses the DOJ’s enforcement program and the recent Congressional interest in interlocking directors. This excerpt notes the DOJ’s broad interpretation of the prohibition and the potential implications for companies singled out for enforcement:

DOJ’s recent enforcement is significant beyond the numerical increase in resignations. Importantly, it illustrates the agencies’ commitment to a broad interpretation of Section 8. DOJ has not limited enforcement to the most obvious interlocks, such as where a director serves simultaneously on competitor boards or a company nominates its own officer to a competitor’s board. DOJ secured a resignation under Section 8 against an interlocked director who was nominated to both boards by an investment firm8 and also secured resignations of two directors where the alleged interlocks were only “affiliated” with the competitor (i.e. not officers or directors).9

Although enforcement of Section 8 is mostly limited to resignation of board members or abstention from exercising appointment rights, interlocking directors are relatively low-hanging fruit that can serve as the launch pad for a broader antitrust investigation.

The memo says that with the uptick in enforcement and antitrust regulators’ commitment to a broad interpretation of the prohibition on interlocks, Sen. Durbin’s letter “serves as a reminder for companies in the life sciences industry: a compliance program to actively monitor board membership and appointments is a crucial precautionary step to avoid Section 8 liability.” Sen. Durbin may have targeted the life sciences industry, but given the current climate, the memo’s advice about the need for a solid compliance program addressing interlocks is something that companies in all industries should heed.

John Jenkins