Enforcement of Prohibition on Interlocking Directorships Remains an FTC Priority

The Federal Trade Commission (FTC) on Tuesday made clear its continued commitment to enforcing Section 8 of the Clayton Act when it announced that two health care companies, Sevita Health and Beacon Specialized Living Services, Inc., had agreed to have three directors who were serving on the Board of Directors of Sevita resign their positions.

Section 8 generally prohibits directors and officers from serving simultaneously on the boards of competitors. A Section 8 violation is a per se violation, i.e., the interlocking directorate is illegal irrespective of whether it results in competitive harm.

In this case, Sevita and Beacon are competitors because both provide services to individuals with intellectual and developmental disabilities, including residential facilities. Notwithstanding their competitive relationship, they had common representation on each of their boards of directors.

In Tuesday’s announcement, the Commission also encouraged all firms to review their board memberships to avoid any overlaps with competitors and it singled out instances in which new board members are added as a result of investments by private equity firms or other new shareholders.

The FTC’s enforcement of Section 8 in this case is consistent with the enforcement activities of the Department of Justice in recent years with respect to companies with interlocking directorates.^[1]

^[1] By way of example, in March 2023, the Justice Department announced that five directors had resigned from four corporate boards, and one company had declined to exercise board appointment rights in response to the enforcement efforts of its Antitrust Division and that this brought the number of interlocks unwound or prevented to at least 13 directors from 10 boards in recent years