Interlocking directorship

Interlocking directorate

Interlocking directorate refers to the practice of members of corporate board of directors serving on the boards of multiple corporations. This practice, although widespread and lawful, raises questions about the quality and independence of board decisions.

The average board of directors has nine members, and the total population of board members of public companies traded on the NYSE, NASDAQ and AMEX stock exchanges is about 53,000. A USA Today analysis of corporate reports found a high degree of inter-relation:

  • of the 15 largest companies in the United States, 11 of them have two board members that sit together on another company's board
  • four of those 15 share at least two board members with another of the 15
  • more than 1000 board members sit on four boards or more; 235 board members sit on more than six boards
  • major banks are at the center of many of the overlapping ties

Watchdogs point out that interlocking directorates may cause conflicts of interest, poor governance and poor compensation decisions, a lack of fresh perspective, and the concentration of corporate power into a single extended social network. CEO interlocks are seen as a particular concern for potential conflicts of interest. Proving direct harm to stockholders is difficult, though, because there is no clear definition of how much overlap is acceptable, and in any case board members are selected by stockholders' votes.

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