Interlocking directorate refers to the practice of members of a corporate

board of directors A board of directors (commonly referred simply as the board) is an executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, nonprofit organiz ...

serving on the boards of multiple

corporations A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...

. A person that sits on multiple boards is known as a ''multiple director''.Scott, 1997
p. 7
/ref> Two firms have a ''direct interlock'' if a director or executive of one firm is also a director of the other, and an ''indirect interlock'' if a director of each sits on the board of a third firm.Salinger, 2005
p. 438
/ref> This practice, although widespread and lawful, raises questions about the quality and independence of board decisions. In the United States, antitrust law prohibits interlocking directorates within the same industry over collusion concerns, though legal observers have noted that this has long been unenforced. In 2022, the Department of Justice signaled it would enforce laws on anti-competitive interlocking directorates, leading to the resignation of seven directors at five companies in October 2022.

Socio-political importance

According to some observers, interlocks allow for cohesion, coordinated action, and unified political-economic power of corporate executives. They allow corporations to increase their influence by exerting power as a group, and to work together towards common goals.Salinger, 2005
p. 437
/ref> They help corporate executives maintain an advantage, and gain more power over workers and consumers, by reducing intra-class competition and increasing cooperation. In the words of Scott R. Bowman, interlocks "facilitate a community of interest among the elite of the corporate world that supplants the competitive and socially divisive ethos of an earlier stage of capitalism with an ethic of cooperation and a sense of shared values and goals."Bowman, 1996
p. 21
/ref> Interlocks act as communication channels, enabling information to be shared between boards via multiple directors who have access to inside information for multiple companies. The system of interlocks forms what

Michael Useem Michael Useem is an American academic. He is the William and Jacalyn Egan Professor of Management at Wharton School of the University of Pennsylvania The Wharton School of the University of Pennsylvania ( ; also known as Wharton Business School ...

calls a "transcorporate network, overarching all sectors of business". Interlocks have benefits over trusts, cartels, and other

monopolistic A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a spec ...

/ oligopolistic forms of organization, due to their greater fluidity, and lower visibility (making them less open to public scrutiny). They also benefit the involved companies, due to reduced competition, increased information availability for directors, and increased prestige. Some theorists believe that because multiple directors often have interests in firms in different industries, they are more likely to think in terms of general corporate class interests, rather than simply the narrow interests of individual corporations. Also, these individuals tend to come from wealthy backgrounds, socialize with the upper classes, and tend to have worked their way up the corporate hierarchy, making it more likely that they have internalized values that will cause them to personally support policies that are beneficial to business in general. Furthermore, multiple directors tend to be more frequently appointed to government positions, and sit on more non-profit/ foundation boards than other directors. Thus, these individuals (known as the "inner circle" of the corporate class) tend to contribute disproportionately to the policy-planning and government groups that represent the interests of the corporate class,Domhoff, 2006: pp. 30-31 and are the ones that are most likely to deal with general policy issues and handle political problems for the business class as a whole. These individuals and the people around them are often considered to be the "ruling class" in modern politics. However, they do not wield absolute power, and they are not monolithic, often differing on which policies will best serve the interests of the upper classes. Interlocks not only occur between corporations, but also between corporations and non-profit institutions such as foundations, think tanks, policy-planning groups, and universities. They can also be seen as a subset of connections in a larger upper class social network which includes all of the aforementioned types of institutions as well as elite social clubs, schools, resorts, and gatherings. Multiple directors are "roughly twice as likely as single directors to be in the Social Register, to have attended a prestigious private school, or to belong to an elite social club."

Modern interlock networks

Analyses of corporate interlocks have found a high degree of interconnectedness amongst large corporations.Domhoff, 2006: p. 26 It has also been shown that inbound interlocks (i.e. a network link from external firms into a focal firm) have a much greater impact and importance than outbound interlocks, a finding that laid the foundation for further research on inter-organizational networks based on overlapping memberships and other linkages such as joint ventures and patent backward and forward citations. Virtually all large U.S. corporations are linked together in a network of interlocks. Most corporations are within 3 or 4 "steps" from each other within this network. Approximately 15–20% of all directors sit on two or more boards. The largest corporations tend to have the most interlocks, and also tend to have interlocks with each other, placing them at the center of the network. Major banks, in particular, tend to be at the center of the network and have large numbers of interlocks. With the globalization of financial capital following World War II, multinational interlocks have become progressively more common. As the Cold War escalated, well-connected members of the

CIA The Central Intelligence Agency (CIA ), known informally as the Agency and historically as the Company, is a civilian intelligence agency, foreign intelligence service of the federal government of the United States, officially tasked with gat ...

harnessed these interconnections to launder money through front foundations, as well as more substantial institutions such as the Ford Foundation. A relatively small number of individuals—a few dozen—bind this multinational network together by participating in transnational interlocks and sitting on the boards of multiple global policy groups (such as the

Council on Foreign Relations The Council on Foreign Relations (CFR) is an American think tank A think tank, or policy institute, is a research institute that performs research and advocacy concerning topics such as social policy, political strategy, economics, mi ...

Legality

In the United States, Section 8 of the Clayton Act prohibits interlocking directorates by U.S. companies competing in the same industry, if those corporations would violate

antitrust laws Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust l ...

if combined into a single corporation. However, at least 1 in 8 of the interlocks in the United States are between corporations that are supposedly competitors.

Recent reinvigoration of enforcement

In 2022, the Department of Justice (DOJ) Antitrust Division signaled it would reinvigorate enforcement against anti-competitive interlocking directorates after decades of dormant enforcement. In October 2022, it was reported that antitrust scrutiny brought on by Assistant Attorney General Jonathan Kanter led to the resignation of seven directors from the boards of five companies. According to '' Bloomberg News'', private equity firms including

Blackstone Inc. Blackstone Inc. is an American alternative investment management company based in New York City. Blackstone's private equity business has been one of the largest investors in leveraged buyouts in the last three decades, while its real estate bu ...

and

Apollo Global Management Apollo Global Management, Inc. is an American global private-equity firm. It provides investment management and invests in credit, private equity, and real assets. As of March 31, 2022, the company had $512 billion of assets under management, ...

are currently under federal interlocking directorate scrutiny.

1970 graphs

In 1979 Levin and Roy reportedJoel H. Levin & William H. Roy (1979) "A study of interlocking directorates", pp 349–78 in ''Perspectives on Social Network Research'', editors: Paul W. Holland & Samuel Leinhardt, Academic Press on interlocking directors at 797 corporations in 1970 where the board of directors ranged from 3 to 47 members, with a mean size of 13. Only 18% of the 8623 directors were on more than one board, though the mean number of interlockers for a corporation was 8. The

component Circuit Component may refer to: •Are devices that perform functions when they are connected in a circuit. In engineering, science, and technology Generic systems *System components, an entity with discrete structure, such as an assemb ...

s of the graph were 62 isolated boards, four pairs of corporations interlocked by one or more directors, a triad of interlocked corporations, and the greater component of 724 corporations. For an arbitrary pair of corporations in this component the median path length was 3. Levin and Roy tested the graph for

cut point In topology, a cut-point is a point of a connected space such that its removal causes the resulting space to be disconnected. If removal of a point doesn't result in disconnected spaces, this point is called a non-cut point. For example, every po ...

s and failed to find any with their search starting with corporations with large boards. In a study of clustering in the graph, Levin and Roy demonstrated the use of a

bipartite graph In the mathematical field of graph theory, a bipartite graph (or bigraph) is a graph whose vertices can be divided into two disjoint and independent sets U and V, that is every edge connects a vertex in U to one in V. Vertex sets U and V are ...

with corporations listed on one side and directors with multiple seats on the other. The clusters become evident in a physical model using elastic bands and paper clips. The directors and corporations are listed arbitrarily to begin and the elastic bands placed as edges of the bipartite graph. Then a perusal of the elastics may suggest a re-ordering on one side or the other with the elastics slightly less tense. After some iteration this procedure reveals a cluster structure in the bipartite graph.

References

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External links

TheyRule.net
��tool for mapping out board interlocks between large corporations, foundations, nonprofits, and universities, using data from SEC filings {{Aspects of corporations Business terms Board of directors