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US antitrust agencies are adopting a more stringent approach towards directors who serve on the boards of competing companies, indicating an expanded crackdown on violations of federal law.
Interlocking directorates, where directors serve on competing groups’ boards, are mostly prohibited in the US due to the increased risk of illegal coordination between businesses. The Department of Justice (DoJ) announced that two directors from Pinterest resigned from the board of Nextdoor, a social media platform, in response to the agency’s scrutiny. This brings the number of board resignations instigated by the DoJ’s antitrust unit to 15.
The Federal Trade Commission (FTC) joined the DoJ in their efforts by preventing private equity firm Quantum Energy Partners from taking a board seat at EQT, the largest US natural gas producer, as part of a $5.2bn deal. The FTC invoked section 8 of the 1914 Clayton Antitrust Act, which prohibits interlocking directorates. This marked the FTC’s first formal section 8 enforcement action in nearly forty years.
Lina Khan, Chair of the FTC, stated that the actions taken by the DoJ and FTC aim to reactivate Section 8, ensuring participants in the market are aware of its regulatory measures. Jonathan Kanter, head of the DoJ antitrust division, emphasized that enforcing section 8 is an ongoing and permanent priority for the agency.
Khan expressed concern over a decrease in enforcement in recent years, leading to under-deterrence and a lack of understanding among corporate actors about section 8’s prohibitions.
Charles Rule, a partner at Rule Garza Howley, argued that the DoJ and FTC’s request for additional information on company directors in revised merger notification rules highlights their long-term enforcement interests.
Interlocking directorates have also become a focal point in the heightened scrutiny of private equity firms in the antitrust agencies. Executives from these firms often serve on the boards of multiple competing companies that they own or control.
Since Kanter’s appointment at the DoJ in late 2021, seven private equity executives have stepped down from corporate boards, including Thoma Bravo and Apollo Global Management. While Thoma Bravo and Apollo declined to comment, Prosus has not responded to requests for comment.
Rule suggested that interlocking directorates are less of a concern for well-counseled public companies, stating that most Fortune 500 companies are cautious in this regard.
A lawyer who primarily works with private equity groups acknowledged the anticipated approach from the DoJ and commented on the industry’s perception of interlocking boards as a pretext for targeting them.
A senior executive at a buyout group expressed minimal concern about section 8 enforcement but mentioned the firm’s intention to avoid antagonizing the DoJ.
Despite no company or director involved in the resignations admitting liability, the DoJ-triggered resignations have been substantial. Pinterest and Nextdoor did not provide immediate comments, while EQT expressed satisfaction with the completion of the FTC’s review. Quantum chose not to comment.
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