DOJ Announces Resignation of Directors from Five Public Companies in Clayton Act Section 8 Enforcement Effort

What Happened: The Department of Justice (DOJ) announced on October 19 that seven directors have resigned from corporate board positions at public companies in response to concerns raised by the DOJ that their simultaneous service on the boards of “competitors” violates Section 8 of the Clayton Act’s prohibition on interlocking directorates.

The Bottom Line: The DOJ said these resignations were “the first in a broader review of potentially unlawful interlocking directorates,” signaling that additional enforcement is to come. Companies should be aware of the DOJ’s enforcement priority to avoid potential disruption and expense resulting from an investigation or enforcement action.

The Full Story: Following its announcement in April 2022 that it would be “ramping up” efforts to enforce Section 8 violations, six months later the DOJ has delivered on its promise. It is notable that the recent DOJ announcement involved companies whose board members are publicly available in SEC filings. Additionally, SEC filings made by public companies contain information about the nature of their business and revenues, which can be used to evaluate the de minimis exceptions under Section 8 that may allow a director to simultaneously serve on two boards where the “competitive sales” of the companies are small, or a small percentage of their overall sales. Thus public companies represent a prime target for enforcement efforts because much of the information necessary to allege a violation is publicly available. The DOJ expressed competitive concerns when it sent letters directly to the affected directors alleging that their simultaneous service on the boards of “competitors” violated Section 8. Here, as in most cases, the DOJ’s concerns were resolved through voluntary resignation rather than litigation, and DOJ did not file a complaint or settlement as a resolution. 

While non-public companies are subject to the same prohibitions of Section 8, detecting violations is much more difficult because the same level of detailed information about the businesses and their revenues is generally not available. Nevertheless, the Federal Trade Commission (FTC) has made clear that private equity (PE) firms may encounter Section 8 issues when they acquire board seats across a diverse portfolio of companies. In its recent announcement, the DOJ encouraged anyone with information about potential interlocking directorates to contact its Citizen Complaint Center. All companies should be aware of the antitrust agencies’ Section 8 enforcement priority with respect to their current boards or when selecting new members who serve on other boards.

Section 8 is aimed at eliminating the opportunity for competitors to coordinate their conduct—explicitly or implicitly—through common directors. Board members serve a unique role and generally have access to the most sensitive and important information available to the company. While it can be advantageous to appoint directors who are familiar with the company’s industry and specific business, including knowledge of the company’s competitors, the potential risks associated with interlocking directorates extend beyond merely requiring the resignation of the affected board member.

Although Section 8 has historically not been an enforcement priority at the antitrust agencies, DOJ’s recent announcement suggests corporations should now be more diligent about compliance. To the extent such monitoring does not exist, companies may want to consider compiling an ongoing list of all other companies where its officers and directors also serve on boards, and conduct regular assessments of whether those companies “compete” within the definition of Section 8 and whether certain exemptions may apply.