Key Takeaways:

• The Justice Department has made enforcement of Section 8 of the Clayton Act.
• Seven directors resigned from corporate boards in response to concerns from the Justice Department regarding potential interlocking directorates.
• Companies and investment firms should carefully, and immediately, review board appointments and any future appointments to avoid illegal interlocking directorates.

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In the single largest enforcement event in the history of Section 8 of the Clayton Act, it was recently revealed that seven directors have resigned from the corporate boards of five public companies in response to the Justice Department’s concerns about potentially illegal interlocking directorates. Section 8 prohibits directors and officers from serving simultaneously on the boards of competitors, and according to the DOJ (known as an interlocking directorate), these directors were doing just that. The Justice Department had previously announced its intent to reinvigorate Section 8 enforcement, but up until now, there was little public evidence of what that would mean. 

According to reporting elsewhere, the Justice Department likely used the companies’ own SEC filings to identify the potential interlocking directorates.

The following are the directors that resigned:

• Lawrence Illg, from the investment firm Prosus, resigned from Udemy Inc.’s board in response to the Justice Department’s concerns about an alleged interlock caused by him simultaneously sitting on the board of Skillsoft Corp. Both Skillsoft and Udemy are providers of online corporate education services.
• D. Randall Winn resigned from Definitive Healthcare Corp.’s board in response to the Justice Department’s concerns about an alleged interlock caused by him simultaneously sitting on the board of ZoomInfo Technologies Inc. Both Definitive and ZoomInfo operate go-to-market information and intelligence platforms used by third-party sales, marketing, operations, and recruiting teams across the United States.
• Gordon Hunter resigned from CTS Corp.’s board in response to the Justice Department’s concerns about an alleged interlock caused by him simultaneously sitting on the board of Littelfuse Inc. Both Littelfuse and CTS are manufacturers of components and technologies for use in transportation applications, including sensors and switches for use in passenger and commercial vehicles.
• Joanne Isham resigned from Redwire Corp.’s board in response to the Justice Department’s concerns about an alleged interlock caused by him simultaneously sitting on the board of Maxar Technologies Inc. Both Maxar and Redwire are providers of space infrastructure and communications products and services.
• Finally, three directors, all representatives of the investment firm Thoma Bravo, resigned from Solarwinds Corp.'s board in response to the Justice Department’s concerns about an alleged interlock caused by one of the directors simultaneously sitting on the board of Dynatrace, Inc. Both Solarwinds and Dynatrace are providers of Application Performance Monitoring (APM) software.

The Justice Department did not announce any additional sanctions for the directors or companies involved, but it described its announcement as “the first in a broader review of potentially unlawful interlocking directorates” and cautioned that companies, officers, and board members should expect that enforcement of Section 8 will continue to be a priority. It is unlikely that future targets of the Justice Department’s enforcement of Section 8 will get off as easily.

Companies—especially public companies whose directors are publicly disclosed—and investment firms should carefully review their board appointments to ensure that they do not raise any concerns regarding potentially illegal interlocking directorates. Resolving potential concerns before the Justice Department finds them is the only way to avoid the negative publicity and possible liability that can result from violating Section 8. It may be inconvenient, but with careful planning, there is always a way to ensure appropriate board representation without creating an interlocking directorate.