Interlocking Directorates Essay ⋆ Essays on Controversial Topics ⋆ EssayEmpire

Applied to a pair or small group of organizations, interlocking directorates are instances of persons serving on the board of directors of multiple organizations, constituting an overlap in membership among the boards of those organizations. Applied to a population of organizations, the term interlocking directorates refers to a condition in which there are sufficient board member overlaps among the organizations that a path can be traced between any two organizations in the set, either directly or via a series of board overlaps between intermediary organizations. This condition typifies many interorganizational environments. Often the organizations of interest are large corporations, in which instances of interlocking directorates are also known as corporate interlocks.

Organizational theories suggest interlocking directorates may serve organizations in a variety of ways. They provide a channel of communication between organizations, which can then facilitate interorganizational coordination, be a vector for the diffusion of innovations, and enable values and practices to become normative across organizations. Director interlocks may also provide a competitive advantage in surviving in an uncertain environment, by providing information about that environment and acting as agents of the organization. Resource dependence theory specifically sees interlocking directorates as a device for gaining access to needed resources, expertise, price advantages, or lower transaction costs, a view supported by the tendency of firms to have representatives of suppliers, large customers, and experts in law and finance on their boards.

Critics of capitalism see interlocking directorates variously as means by which individual capitalists centralize power and exercise control of corporations in which they have an ownership stake, as a device for capitalist class cohesion and collective control over organizational resources and thus the economy and politics, or as a mechanism of bank control whereby commercial lending institutions ensure the safety of and return on their capital loans to industry while exercising control over the economy.

Interlocking directorates have been viewed as a social problem since the anti-trust movement, circa 1900, because their existence calls into question the independence of corporate governance, they aid in suppressing competition, and they contribute to monopoly or oligopoly control of sectors of the economy, thus upsetting market pricing and possibly retarding product development. As a means by which a power elite may have control of economic and political resources, interlocking directorates are also relevant to the study of social inequalities, the distribution of resources in society, and the understanding of the impact of formal organizations on a variety of social problems.

Conversely, interlocking directorates can aid in addressing social problems by providing channels of resource mobilization, as shown by the tendency of philanthropic donations to follow interlocks between corporate and charity organizations, or providing a mechanism for coordinating service organizations. Interlocking directorates as a strategy for negotiating a competitive and uncertain environment and coordinating with other organizations could also be viewed as a solution to social problems from the perspective of an organization.

As a type of social network, interlocking directorates are often studied using the methodological tools of social network analysis.

Bibliography:

Mizruchi, Mark S. 1996. “What Do Interlocks Do? An Analysis, Critique, and Assessment of Research on Interlocking Directorates.” Annual Review of Sociology 22:271-98.

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