Interlocking Directorates

AAA

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.

RELATED TERMS
  1. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  2. Conflict Of Interest

    A situation where a professional, or a corporation, has a vested ...
  3. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  4. Collusion

    A non-competitive agreement between rivals that attempts to disrupt ...
  5. Antitrust

    The antitrust laws apply to virtually all industries and to every ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's ...
Related Articles
  1. Insurance

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  2. Investing Basics

    The Importance Of Corporate Transparency

    Clear and honest financial statements not only reflect value, they also help ensure it.
  3. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  4. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  5. Options & Futures

    Governance Pays

    Learn about how the way a company keeps its management in check can affect the bottom line.
  6. Options & Futures

    The Kingpin Of Wall Street: J.P. Morgan

    From robber baron to the hero of the Panic of 1907, this man helped shape Wall Street as we know it.
  7. Term

    What is a Preemptive Right?

    A preemptive right allows select shareholders to buy newly issued shares in their corporation before the general public.
  8. Economics

    Explaining the Balanced Scorecard

    A balanced scorecard is a metric that measures a business’ performance.
  9. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
  10. Term

    What's an Investment Advisor?

    An investment or financial advisor makes investment recommendations and analyzes securities.
RELATED FAQS
  1. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  2. How can I use a regression to see the correlation between prices and interest rates?

    In statistics, regression analysis is a widely used technique to uncover relationships among variables and determine whether ... Read Full Answer >>
  3. How do I calculate a modified duration using Matlab?

    The modified duration gauges the sensitivity of the fixed income securities to changes in interest rates. To calculate the ... Read Full Answer >>
  4. How do I calculate the rule of 72 using Matlab?

    In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >>
  5. How do I calculate the standard error using Matlab?

    In statistics, the standard error is the standard deviation of the sampling statistical measure, usually the sample mean. ... Read Full Answer >>
  6. How do I adjust the rule of 72 for higher accuracy?

    The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!