Can you sit on the board of a competitor?

Understanding this issue means we need to clarify two things: 

• The laws in place that govern it, and
• How this relates to the common practice of sitting on multiple boards in general – in other words, why does the “competing companies” part change the legality?

Two individuals have resigned from the board of Nextdoor Inc. – a company specialising in social networking services for neighbourhoods. 

They also serve on the board of Pinterest – another social network globally recognised and specialising in image sharing. 

The thing about this case is that the resignations were not organic or voluntary. They were ordered by the anti-trust division of the US Department of Justice, which explained the action in a mid-August statement.

Because holding these particular directorships simultaneously (a so-called interlocking directorate) was deemed a violation of section 8 of the American Clayton Act – a 1914 law governing antitrust measures. 

“We remain steadfast in our commitment to protect competition by preventing interlocking directorates that we believe violate Section 8 of the Clayton Act,” said deputy assistant attorney general Andrew Forman of the Justice Department’s Antitrust Division. 

“Enforcement involving interlocking directorates will continue to be one of the top priorities of the Antitrust Division.”

No. It just means it’s against the law to sit on the boards of two competing companies, with few exceptions. 

If you’re wondering why any company would allow this to begin with, don’t think of it in terms of giving away corporate secrets; think of it in terms of market manipulation and unfair influence. 

If someone sits on the board of two competitors without restriction, it gives them a boosted influence over industry norms such as wages, labour relations and pricing. It also puts them in a prime position to benefit if the two companies were soon to merge. 

In short, it undermines fair competition in the marketplace.

No. That’s one of the main points from this story: the US DOJ is only starting to crack down on the practice recently. 

It had openly admitted the need for a renewed focus as it clamps down on illegal interlocking directorates. 

It means that directors (potentially) acting illegally through competitor board positions should seriously consider their future in at least one of those roles.

Other jurisdictions pursue interlocking directorates as the US does, but the US Clayton Act is a dedicated, codified legislation that specifically deals with the practice. Nothing like this exists elsewhere. 

In other regions, like the EU and India, there have been calls for this “legal gap” to be filled so that antitrust standards become universal and set in stone. 

That said, both regions still have antitrust and fair competition laws, which can be applied to interlocking directorates, depending on the context.