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.

Investopedia explains '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.



comments powered by Disqus
Hot Definitions
  1. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  3. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  4. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  5. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  6. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
Trading Center