February 7, 2023

Activism: Implications of Interlocking Directorate Enforcement

This Cleary memo discusses the outlook for shareholder activism in 2023. In addition to highlighting the potential implications of universal proxy, the growth of pass-through voting & the tug of war between ESG and anti-ESG activism, this excerpt from the memo points out that the DOJ’s renewed interest in the Clayton Act’s prohibition on director interlocks may also have a significant impact:

Activists may also find their directors under the microscope as a result of the DOJ’s stated intention to ramp up enforcement of the Clayton Act’s prohibition on interlocking directorates. This long-standing statutory provision, which bans competitive companies from having overlapping directors and officers in an effort to prevent collusion, has not been a primary focus of the U.S. antitrust agencies in the past.

This appears to be changing. In October 2022, seven directors from five companies resigned in response to an interlocking directorate probe from the DOJ, which also announced that its Antitrust Division would be “undertaking an extensive review of interlocking directorates across the entire economy and will enforce the law.”

The memo says that activist-nominated directors will need to be more closely assessed for antitrust and interlocking directorate concerns. These concerns will be particularly elevated when the nominee is an insider of the activist. The DOJ’s use of an agency or deputization theory of liability may present the greatest risk, because as the memo points out, even if one individual doesn’t sit on the boards of competing companies, the DOJ may find an interlocking directorate if different individuals representing the interests of the activist sit on the boards of competitors.

John Jenkins