interlocking directorate An interlocking directorate (or directorship) is created when an individual who sits on the board of directors of one business organization takes a board seat with another. One study of 456 of the most important manufacturing firms in the United States in 1981 suggested that more than 70 per cent had at least one director who also sat on the board of a financial institution.

An extensive literature on the causes and consequences of corporate interlocks has developed since early studies in the 1960s. Some investigators suggest that within-industry interlocks are established in order to restrict competition in the market. Others propose that interlocks between financial institutions and business corporations perform a monitoring function by which the former control the profitability of their investments. Critics argue that the quantitative indicators used by most researchers fail to capture the complexity and dynamics of boardroom and inter-firm relations. For this reason it has proved difficult to establish convincing causal links between the structure of interlocking directorates and corporate behaviour in the market (see Mark Mizruchi , ‘What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates’, Annual Review of Sociology, 1996
). See also DECOMPOSITION OF CAPITAL.

INTERLOCKING DIRECTORATE

The relationship that exists between the board of directors of one corporation with that of another due to the fact that a number of members sit on both boards and, therefore, there is a substantial likelihood that neither corporation acts independently of the other.

Because the same persons occupy seats on the boards of companies that are supposed to compete in the marketplace, there is a potential for violations of federal antitrust acts, particularly the clayton act (15 U.S.C.A. §§ 12-27 [1914]) which prohibits the existence of inter-locking directorates that substantially reduce commercial competition.