Interlocking Directorates


DEFINITION of 'Interlocking Directorates'

A common business practice where a member of a company's board of directors also serves on another company's board or within another company's management. Under antitrust legislation, interlocking directorates are not illegal as long as the corporations involved do not compete with each other.

BREAKING DOWN 'Interlocking Directorates'

Interlocking directorates were outlawed in specific instances where it gave a few board members control over an entire industry and allowed them to synchronize pricing changes, labor negotiations and so on. This does not prevent a board director from Company A from serving on the board of a Company B, which is a client of Company A.

Although there are still many opportunities for collusion through interlocking directorates, recent trends in corporate governance have shifted much more power to the CEO. Due to this shift, many CEOs have been able to appoint and dismiss board members as they please, as opposed to being influenced by them.

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