A recent enforcement by the Federal Trade Commission (FTC) of Section 8 of the Clayton Act could have an impact beyond corporations and impact family offices.
The decision could mean that board members of some family-owned portfolio companies will be forced to resign. Section 8 of the Act prohibits a practice known as interlocking directorates, which occurs when the director or officer of one company serves on the board of a competitor. The rule dictates that the individual must leave one board seat to avoid potential conflicts of interest.
While the rule was designed with corporations in mind, Dan Berick, partner at law firm Squire Patton Boggs and head of the global family office team at the firm, thinks that it could reach family offices too. This is because family offices often make multiple investments in a few sectors, leaving them vulnerable.
"Family offices tend to land on very specific industry sub-sectors that are of interest to them, either because of their family wealth creation background or otherwise,” said Berick.
And Chris Gordon, an antitrust partner at Squire Patton Boggs in Washington, D.C., said the regulator deciding to enforce this section of the act could surprise some families.
The act tends to impact private equity firms with multiple portfolio companies, said Gordon, who felt that many family offices may not even be aware that Section 8 of the Clayton Act exists. "It is not something that most clients have even heard of,” he said. “It is a liability trap.”
But as family offices in the U.S. grow in stature and size, and become increasingly interested in direct investments, it is more likely that the FTC will start to take action. The regulator has yet to announce an enforcement against a family office, but Gordon suggested that that could be just around the corner.
The federal antitrust and competition regulator announced that three board members of Sevita Health had resigned their positions following an enforcement decision. Enforcement of Section 8 has historically been rare but became commonplace during the Biden administration. That this practice has continued under the Trump administration came as something of a surprise to the legal industry.
Although enforcement was expected to drop at most financial regulators, and to an extent it has, there has not been a significant fall off at the FTC or the Department of Justice.
Gordon suggested that because this most recent enforcement came during the Trump administration, it is likely that an even broader application of Section 8 is ahead. Families should anticipate the agency looking to investigate further interlocks going forward, he added.
