LINFO

Interlocking Directorship Definition

The term interlocking directorship in its strictest sense refers to the situation in which a member of the board of directors of one corporation also serves as a member of the board of directors of another corporation.

A broader and more useful definition is the situation in which (1) a member of the board of directors of a company, (2) a top executive of that company or (3) a close relative (e..g., wife or father) of a member of the board of directors or of a top executive of that company serves as a member of the board of directors of another corporation.

Interlocking directorships have long been used by corporations to maintain and expand their power. For example, they can be used to form a cartel, which is a form of collusion between firms in the same industry aimed at restricting output and increasing prices. They can also be used to gain influence or control over major suppliers or customers.

Moreover, interlocking directorships can be an effective tool in influencing the political system. For example, a monopoly can use it to help persuade other companies, even those in very different industries, to assist in lobbying efforts to prevent antitrust laws from being enforced with regard to the monopoly or to allow it to extend its monopoly to new product lines.

A monopoly is a company that is the sole supplier or a product (i.e., a good or service) for which there are no close substitutes. Antitrust laws are laws which are designed to regulate or break up abusive monopolies. An abusive monopoly is a monopoly that engages in any of a variety of anti-competitive practices, including using its monopoly in one product line to establish a monopoly in another product line. It is generally illegal for monopolies to establish interlocking directorships that can be seen as directly serving to reduce competition and thereby increase profits¹.

Perhaps the most effective, and least risky, way in which a monopoly can use interlocking directorships to influence the political system is to establish an interlocking directorship with a major media organization. Of course, it can be even more effective for corporations in different fields to directly own major media organizations, a practice which has become increasingly common in the U.S. in recent years.

Probably the best known example of such an interlocking directorship in the computer field was the appointment of Melinda Gates, wife of Bill Gates, the head of Microsoft Corporation, to the board of directors of The Washington Post in September 2004². This was, of course, a highly strategic move for Microsoft because that newspaper has substantial influence with politicians in Washington D.C. and because of Microsoft's continuing battle against attempts to effectively enforce antitrust legislation.

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¹In the case of the U.S., for example, interlocking directorships that reduce competition are generally prohibited by the Clayton Antitrust Act of 1914.

²This appointment was widely reported in the U.S. media. See, for example, Melinda Gates Joins Washington Post Co. as Director, washingtonpost.com, September 2004. Curiously, however, this article failed to mention how this appointment could be of strategic value to Microsoft's battle against the enforcement of antitrust laws, but it was able to devote considerable space to discussing Mrs. Gates' other activities.