In the late 2000s, eight prominent tech firms – including Google, Apple, Intuit, and LucasFilms – were accused of enforcing anti-poaching agreements that stifled worker mobility. The seven publicly listed firms in the group shared a number of directors, and all eight settled the ensuing lawsuit for $415 million and additional fines. On August 1 of this year, two directors of NextDoor resigned under pressure from the Department of Justice (DOJ), which took issue with the fact that the directors were also serving on the board of Pinterest, a potential competitor. Both actions highlight DOJ’s efforts to enforce Section 8 of the Clayton Act, which bars competing firms from sharing directors. In fact, the DOJ has forced over 15 directors to resign for this reason since October 2022.
At the same time, the DOJ has taken an interest in competition for valued employees. Last year, the DOJ and the U.S. Department of Labor signed a memorandum of understanding to protect workers from collusive behavior and ensure competitive labor markets that afford sufficient labor mobility.
In a recent paper, we examine whether sharing directors affects labor mobility between two firms. Our main results show that it does, with the link between overlapping board members and anticompetitive labor practices a surprisingly widespread phenomenon.
Using resume data for over 45 million U.S. workers, we find that the number of employees transitioning jobs between a pair of publicly traded firms drops by around 20 percent after the firms begin sharing a director. The effect is sudden and persistent, with no indication that the flow of employees between firms, or changes in the firms’ product market strategies, precede this drop.
Our detailed data allow us to isolate the effect of board overlap while controlling for changes in personnel decisions at both the employees’ origin and destination firms and for the typical, baseline movement of employees between firms during the sample. In other words, our econometric specification includes origin firm-year fixed effects (e.g. capturing Apple employees’ proclivity to leave in 2006), destination firm-year fixed effects (e.g. capturing Adobe’s overall hiring strategy in 2006), and firm-pair fixed effects (e.g., capturing the average employee flows from Apple to Adobe).
We also find the drop in the movement of employees between firms is strongest where firm pairs are most likely to benefit from lower competition for each other’s employees: firms that have similar workforces, are located near each other, operate in the same product market, and have a history of losing substantial numbers of employees to one another. The effect is also strongest for higher-skilled employees who are more costly to replace and are most important to the success of the firm. Overall, the results suggest that shared directors facilitate collusive behavior in the labor market.
In other tests, we find that our results cannot be explained by coincidental changes such as shifts in product market strategy, as we do not find evidence of such shifts when the boards of companies begin to overlap.
How might sharing a director lead to greater labor market coordination? As we saw from the tech-firm collusion scandal, directors may use anti-poaching agreements explicitly. Even though such explicit behavior is illegal in most circumstances, there are other methods through which firms can coordinate that can be facilitated through a shared director. For instance, unilateral agreements are a legal way to reduce the likelihood of competition for labor. As pointed out in Lindsay and Santon (2011), an employer can legally maintain its own “do not call” list in order to avoid bidding wars within its own industry or the broader labor market.
We find that shortly after firms begin to share at least one director, there is a sharp decline in the flow of employees among the firms. Supporting evidence shows that the decline is greatest for firms with the most to gain from collusion. This analysis provides evidence that the recent enforcement of Section 8 of the Clayton Act is likely to help facilitate greater labor mobility. It also justifies the role of antitrust enforcement in the labor realm.
This post comes to us from professors Taylor A. Begley at the University of Kentucky, Peter H. Haslag at Vanderbilt University, and Daniel Weagley at the Georgia Institute of Technology’s Scheller College of Business. It is based on their recent article, “Directing the Labor Market: The Impact of Shared Board Members on Employee Flows,” available here.