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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 orga ...
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 re ...
. 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 The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territo ...
,
antitrust law 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 ...
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 calls a "transcorporate network, overarching all sectors of business". Interlocks have benefits over
trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the " sett ...
, cartels, and other monopolistic/
oligopolistic An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result fro ...
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 A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, not-for-profit organization, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in co ...
/ 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 Upper class in modern societies is the social class composed of people who hold the highest social status, usually are the wealthiest members of class society, and wield the greatest political power. According to this view, the upper class is g ...
social network A social network is a social structure made up of a set of social actors (such as individuals or organizations), sets of dyadic ties, and other social interactions between actors. The social network perspective provides a set of methods for an ...
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 The ''Social Register'' is a semi-annual publication in the United States that indexes the members of American high society. First published in the 1880s by newspaper columnist Louis Keller, it was later acquired by Malcolm Forbes. Since 2014, it ...
, 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 Financial capital (also simply known as capital or equity in finance, accounting and economics) is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide ...
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 foreign intelligence service of the federal government of the United States, officially tasked with gathering, processing, ...
harnessed these interconnections to launder money through front foundations, as well as more substantial institutions such as the
Ford Foundation The Ford Foundation is an American private foundation with the stated goal of advancing human welfare. Created in 1936 by Edsel Ford and his father Henry Ford, it was originally funded by a US$25,000 gift from Edsel Ford. By 1947, after the death ...
. 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 specializing in U.S. foreign policy and international relations. Founded in 1921, it is a nonprofit organization that is independent and nonpartisan. CFR is based in New York City ...
).


Legality

In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territo ...
, Section 8 of the
Clayton Act The Clayton Antitrust Act of 1914 (, codified at , ), is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipie ...
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 ...
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 Bloomberg News (originally Bloomberg Business News) is an international news agency headquartered in New York City and a division of Bloomberg L.P. Content produced by Bloomberg News is disseminated through Bloomberg Terminals, Bloomberg Te ...
'', private equity firms including Blackstone Inc. 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, i ...
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 Academic Press (AP) is an academic book publisher founded in 1941. It was acquired by Harcourt, Brace & World in 1969. Reed Elsevier bought Harcourt in 2000, and Academic Press is now an imprint of Elsevier. Academic Press publishes refe ...
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 Graph may refer to: Mathematics *Graph (discrete mathematics), a structure made of vertices and edges **Graph theory, the study of such graphs and their properties * Graph (topology), a topological space resembling a graph in the sense of discr ...
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 points 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 a ...
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.


See also

*
Cartel A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mo ...
*
Insider trading Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information ...
*
Oligarchy Oligarchy (; ) is a conceptual form of power structure in which power rests with a small number of people. These people may or may not be distinguished by one or several characteristics, such as nobility, fame, wealth, education, or corporate, ...
*
Price fixing Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a give ...
*
Revolving door (politics) In politics, a revolving door is a situation in which personnel move between roles as legislators and regulators, on one hand, and members of the industries affected by the legislation and regulation, on the other, analogous to the movement of pe ...
*
Social class A social class is a grouping of people into a set of hierarchical social categories, the most common being the upper, middle and lower classes. Membership in a social class can for example be dependent on education, wealth, occupation, inc ...


References

* * * * *


Further reading

* Domhoff, G. William (August, 2005)
Interlocking Directorates in the Corporate Community
* Mizruchi, Mark S. (August, 1996)
"What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates"
''Annual Review of Sociology'', Vol. 22: 271-298. * Phillips, Peter S. (June 24, 2005

*


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