Interlocking directorate
Encyclopedia
Interlocking directorate refers to the practice of members of a corporate board of directors
serving on the boards of multiple corporations. A person that sits on multiple boards is known as a multiple director. A direct interlock occurs when two firms share a director or when an executive of one firm sits on the board of a second firm. An indirect interlock occurs when two corporations have directors who each also serve on the board of a third firm.
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 a "transcorporate network overarching all sectors of business". Interlocks have benefits over trusts, cartels, and other monopolistic/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, 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."
of financial capital
following World War II
, multinational interlocks have become progressively more common. However, 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 Clayton Act prohibits interlocking directorates by U.S. companies competing in the same industry, if those corporations would violate antitrust laws 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.
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
serving on the boards of multiple corporations. A person that sits on multiple boards is known as a multiple director. A direct interlock occurs when two firms share a director or when an executive of one firm sits on the board of a second firm. An indirect interlock occurs when two corporations have directors who each also serve on the board of a third firm.
Socio-political importance
Interlocks allow for upper class cohesion, coordinated action, and unified political-economic power. They allow corporations to increase their influence by exerting power as a group, and to work together towards common goals. They help the upper class maintain a class 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."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 a "transcorporate network overarching all sectors of business". Interlocks have benefits over trusts, cartels, and other monopolistic/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
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
/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, 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
Social Register
Specific to the United States, the Social Register is a directory of names and addresses of prominent American families who form the social elite, . The "Directory" automatically includes the President of the United States and the First Family, and in the past always included the U.S. Senators and...
, 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. It has also been shown that in-bound interlocks (i.e. a network link from external frims into a focal firm) are far more impactful that out-bound 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 globalizationEconomic globalization
Economic globalization refers to increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital...
of financial capital
Financial capital
Financial capital can refer to money used by entrepreneurs and businesses to buy what they need to make their products or provide their services or to that sector of the economy based on its operation, i.e. retail, corporate, investment banking, etc....
following World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
, multinational interlocks have become progressively more common. However, 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
Council on Foreign Relations
The Council on Foreign Relations is an American nonprofit nonpartisan membership organization, publisher, and think tank specializing in U.S. foreign policy and international affairs...
).
Legality
In the United StatesUnited States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the Clayton Act prohibits interlocking directorates by U.S. companies competing in the same industry, if those corporations would violate antitrust laws 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.
See also
- CartelCartelA cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...
- Insider tradingInsider tradingInsider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
- List of people on multiple governing boards
- OligarchyOligarchyOligarchy is a form of power structure in which power effectively rests with an elite class distinguished by royalty, wealth, family ties, commercial, and/or military legitimacy...
- Price fixingPrice fixingPrice fixing is an 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 given level by controlling supply and demand...
- Revolving door (politics)Revolving door (politics)The revolving door is the movement of personnel between roles as legislators and regulators and the industries affected by the legislation and regulation and on within lobbying companies. In some cases the roles are performed in sequence but in certain circumstances may be performed at the same time...
- Social classSocial classSocial classes are economic or cultural arrangements of groups in society. Class is an essential object of analysis for sociologists, political scientists, economists, anthropologists and social historians. In the social sciences, social class is often discussed in terms of 'social stratification'...
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) "Big Media Interlocks with Corporate America".
External links
- TheyRule.net -- tool for mapping out board interlocks between large corporations, foundations, nonprofits, and universities, using data from SEC filings