Section 8 of the Clayton Act prohibits competitors from having overlapping directors or managers, regardless of whether any anticompetitive conduct actually occurs. This Sidley memo provides a refresher on antitrust issues regarding the suitability of potential director appointments. This excerpt addresses highlights the application of Section 8 in proxy contests and M&A:
Interlocking directorate issues may arise when a person serves as an officer or director of two competing companies. In a proxy contest, activist investors should ensure that their candidates do not have any interlocking directorate issues, like in the recent proxy contest launched by activist investor Ancora Holdings, Inc. against Blucora, Inc. Press Release, Blucora, Inc., “Acclaimed Antitrust Expert Believes Ancora CEO Fred DiSanto Cannot Serve on Blucora’s Board of Directors” (Apr. 12, 2021).
The issue can also arise in connection with deals cleared by the U.S. antitrust agencies. Press Release, Dep’t of Justice, “Tullett Prebon and ICAP Restructure Transaction after Justice Department Expresses Concerns about Interlocking Directorates” (July 14, 2016) (allowing partial investment between parties under Section 7 of the Clayton Antitrust Act, but requiring the parties to remove director interlock). Most recently, two executives stepped down from a board after the Department of Justice (DOJ) expressed concerns that the appointments created an illegal director interlock between two companies that compete in ticket sales in sports and entertainment markets. Press Release, Dep’t of Justice, “Endeavor Executives Resign from Live Nation Board of Directors after Justice Department Expresses Antitrust Concerns” (June 21, 2021.
The memo also points out that even if a particular situation doesn’t involve an interlock prohibited by Section 8 of the Clayton Act, other provisions of the antitrust laws, including Section 5 of the FTC Act and Section 1 of the Sherman Act, may be implicated. Compliance with these provisions may require an officer or director to take steps to recuse himself or herself from participation in certain decisions and not access certain information provided to the board that is directly relevant to the competitive overlap.
– John Jenkins