Six Steps CLOs Should Take to Manage Antitrust Risk in the Era of ESG Initiatives and Stakeholder Capitalism
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Six Steps CLOs Should Take to Manage Antitrust Risk in the Era of ESG Initiatives and Stakeholder Capitalism

July 07, 2022 | Report

Against the backdrop of broader shifts in capitalist incentives around the world, there are two movements underway to reform US antitrust law. The first is a “technocratic” movement that focuses on strengthening existing antitrust laws and enforcement to improve consumer welfare, the central goal of US antitrust policy since the 1980s. The second is a “populist” movement aimed at more fundamental changes to US antitrust laws to achieve purposes beyond the scope of the consumer welfare standard. While academics and antitrust experts may debate the merits of each approach, the fact is that both are playing out now through legislative proposals, regulatory efforts, and enforcement actions—with real-world implications for corporate America. 

This essay summarizes the key trends at play and offers six practical steps chief legal officers can take to get ahead of them. It also suggests that corporate executives and boards who view the role of a corporation through a stakeholder lens, and who take environmental, social & governance (ESG) matters seriously are better situated to deal with this new era of antitrust.

The Trends Underway

There are two fundamental shifts underway in the incentives animating market capitalism around the globe. First, the corporate community—from investors to corporate boards to business regulators—are increasingly focused on ESG issues. Second, corporations are placing less emphasis on stockholder interests in favor of the long-term welfare of stakeholders—employees, customers, and communities—which is increasingly seen not just as a means to an end, but as a legitimate corporate goal in itself. In a recent survey, 90 percent of C-suite executives surveyed worldwide agreed that a shift to stakeholder capitalism was evident, and 80 percent said it was occurring at their company. While there are many factors driving these trends, both trends are grounded in a view—right or wrong—that the traditional, exclusive corporate focus on financial returns for shareholders is not in society’s long-term interest and is ultimately unsustainable.

Many critics of US antitrust policy argue that traditional approaches have not served the best interests of the average American. They point to increasing concentration in many US industries, cozy oligopolies, expanding corporate power, and widening wealth disparities as indicators that US antitrust enforcement has been inadequate—some would even say misguided. Many have taken aim at the consumer welfare standard, the legal yardstick that regulators and courts have used for the last four decades to determine whether business practices and mergers are anticompetitive. Rather than examining broader social impacts, the consumer welfare standard focuses on the much narrower question of whether the practice or transaction results in higher prices, lower output, lower quality, or slower innovation, all of which makes US consumers worse off.

Now, policymakers from both parties in the United States, and around the world, are looking at ways to reform the system. In the US Congress, Senator Amy Klobuchar’s (D-MN) proposed Competition and Antitrust Law Enforcement Reform Act largely reflects the “technocratic” school of reform. It would preserve the consumer welfare standard, but strengthen the tests applied to mergers, incorporate presumptions that certain conduct is unlawful, and shift the burden of proof to defendants under certain circumstances. Other proposed federal legislation would embrace a more populist approach, rejecting the singular focus of antitrust law on the economic welfare of consumers in favor of policies designed to promote greater social equality, distribution of wealth, and deconcentration of economic and political power. Many of these legislative proposals would require big tech platforms to aid their competitors by participating in data portability and other interoperability schemes; some would ban most corporate acquisitions by the largest firms.[1]

Importantly, a closely divided Congress does not guarantee inaction on Capitol Hill. In addition to Senator Klobuchar’s bill, Senators Mike Lee (R-UT) and Chuck Grassley (R-IA) have proposed legislation that would relax the standards for finding a merger unlawful under Section 7 of the Clayton Act. There is also bipartisan support for bills addressing specific potentially anticompetitive business practices in industries such as high tech and pharmaceuticals, which appeal to both technocratic and populist reformers.

A parallel shift of antitrust policy is underway at both the Federal Trade Commission (FTC) and the US Department of Justice Antitrust Division (DOJ). Earlier this year, these agencies announced plans to revise the federal government’s merger guidelines (and invited comments) in order to make it easier for the two agencies to challenge potentially anticompetitive mergers. In the interim, the FTC has suspended its merger guidelines applicable to “vertical” transactions as part of its efforts to subject such transactions to increased scrutiny, despite the fact that vertical transactions typically increase efficiency and are unlikely to decrease consumer welfare. This policy shift comes at a particularly challenging time for companies facing supply chain disruptions that may, therefore, want to vertically integrate with upstream suppliers.

Both agencies are also shifting enforcement into high gear. They are now issuing more expansive data and document requests in their merger reviews, including requests for information on the impact a merger may have on ESG issues, such as labor markets, the environment, and social welfare generally. The agencies are also pursuing civil conduct cases against Google and Facebook using novel legal theories, investigating Amazon, and bringing criminal antitrust cases in untested waters, particularly regarding certain mundane employment practices.

On the international front, there are technocratic efforts to strengthen competition law, such as reforms enacted last year in Germany. Other efforts have a strong populist element and go well beyond US reform efforts. One of these, for example, would target data ”gatekeepers,” (the EU Digital Markets Act); another would proactively evaluate the digital economy (the UK Competition and Markets Authority’s online platforms and digital advertising market study). Some of these, like some of the proposed legislation now pending in Congress, would go beyond the consumer welfare standard to assess the broader societal impacts of proposed mergers (UK’s Reforming Competition and Consumer Policy).

What Chief Legal Officers Can Do

Here are six suggestions to help chief legal officers stay ahead of the curve in navigating the antitrust environment and prepare their firms for broader shifts in the legal and corporate landscape.

  • First, it is critical to educate the board, CEO, and senior management on antitrust policy trends. When it comes to mergers, boards want to know three main things: if the deal can get through, with what conditions, and on what timetable. Be sure they understand that, with the shift away from the consumer welfare standard, there is greater uncertainty and risk of politicization now. Make sure they know that, even if the firm is not engaging in large transactions, it is not immune from changes in antitrust enforcement policy. Pay particular attention to educating the CHRO and other HR professionals on the heightened antitrust risks in their areas. Most HR executives know that employee no-poach agreements with other companies are unlawful outside of a legitimate collaboration. But they may be less familiar with the risks associated with noncompete agreements and sharing compensation information.
  • Second, do not be shy about weighing in on US legislative and rulemaking processes. While neither chamber of Congress is planning the kind of in-depth, open hearings held when the Hart-Scott-Rodino Act was under consideration decades ago, the door is open, especially in the Senate. Be sure to monitor industry-specific legislation closely. And remember that proposals aimed at high tech firms, such as those addressing data portability and interoperability, can easily affect companies in all industries—if not now, then later.
  • Third, take increased antitrust risk into account in M&A strategy. Consider forgoing a small deal if you have a bigger, transformative deal in view. When it comes to deal terms, focus on the allocation of risk of postclosure government antitrust investigations, assess the potential impact of the transaction on labor markets (not just from a consumer welfare perspective), recognize that any noncompete terms will be subject to close scrutiny, and prepare for a broader and more extended period of agency transaction review. Economic models will probably not save you if you have bad emails. Start early on addressing the need to avoid creating documents that could be misinterpreted by an enforcement agency by educating your CEO, C-suite colleagues, and all other employees engaged in the strategic and deal planning processes.
  • Fourth, begin litigation preparations early and persist until the deal is approved. While persuading the government to approve the deal, or negotiating conditions of approval, should be the first priority, you must prepare for litigation on a parallel track. Given the antitrust agencies’ increased skepticism regarding behavior remedies, and even targeted structural remedies, the government may ultimately decide there is no adequate remedy other than blocking the deal, no matter how well the negotiations seemed to be going. Prosecutors who seek remedies beyond the dictates of the consumer welfare standard are likely to face a skeptical judiciary. But they are no less likely to pursue them given the government’s recent policy statements.
  • Fifth, keep a close eye on international developments. Historically, overseas regulators elsewhere have looked to the United States or the European Union for leadership both in terms of doctrine and in the assessment of proposed transactions. Now other major jurisdictions, such as China, have begun charting their own course. Moreover, while US government agencies will likely be constrained by a judiciary committed to the consumer welfare standard, international regulators generally have more latitude in terms of both process and substance to block transactions. The European Union, in particular, is moving beyond its traditional focus on price fixing cartels to embrace more sweeping investigations with a populist tint. For example, earlier this year the European Commission expanded the scope of its jurisdiction over acquisitions of technology startups by reinterpreting its merger review regulations.
  • Finally, and perhaps most fundamentally, CLOs can play a leading role in helping their boards and management teams incorporate consideration of ESG factors and stakeholder perspectives into their business strategy. This can help companies compete more effectively for talent, address customers’ interests in sustainability, and raise their profile locally and globally. It can also anticipate ways to address questions from antitrust regulators, especially those pursuing a more populist agenda. In the context of a deal, for example, it can help ensure that the company has already thought through the impact of a transaction on employees, business partners, and other stakeholders—and that your company is ready to explain the positive impacts the deal will have on society and the natural environment.

An abbreviated version of this article was first published in The National Law Journal.

[1] See, e.g., Ending Platform Monopolies Act, American Choice and Innovation Online Act; Platform Competition and Opportunity Act of 2021, and Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act of 2021.


Philip A.Giordano

Hughes, Hubbard & Reed LLP


President and CEO
Society for Corporate Governance
The Conference Board ESG Center




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