Interlocking Directorates
Categories: Board of Directors
Got global corporate skull and bones conspiracy theory on the brain? Well, you’ll need it when you think about this term.
An interlocking directorate happens when a number of companies share directors, so that each company is, uh…friendly with the other. The heyday of interlocking directorates was the Rockefeller Era, when the former wealthiest man in the world wanted to control more or less everything in and around Big Oil. The discovery, the drilling, the storage, the distribution, etc.
So there was the Rockefeller interlocking directorate, with about 9 white men on each board. And yes, in those days they were all white and all men. Three of them on his board, overseeing the Rockefeller holdings in drilling would also be on the board of his company holdings in oil storage. And these other three who sat on his oil storage board would also sit on his train, plane, and automobile distribution businesses.
The boards were interlocked to ensure that each of the vertically integrated monopolies played nice with each other. And the party raged on.
Interlocking directorates get a lot of grief in the U.S., or at least they did. And that's noteworthy, because in Japan, Korea, and other countries which make big products like cars and washing machines and cell phones that are competitive with the big U.S. companies, interlocking directorates are the norm.
"Norm!" (CUT TO: shot from Cheers)
If gravity still exists, over time, those interlocking directorates carry a structural advantage over the U.S. system, which is sorta every company for him-or-herself.
Interlocking directorates are not necessarily evil; they’re just a component of a globally competitive industry, where the structure of company ownership needs to reflect the basic concept that each share of common stock could and should carry one vote.
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Finance a la Shmoop! How does a board of directors function?
All right, well structurally, the Board of Directors has really one function, after
it is elected by a vote, of the common shareholders, of the company. The board of
recruits, then hires the CEO and that's not necessarily easy. Because, most
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]
from which they have to be bought away. Picking the right CEO, is the big
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
CEO can be all three. After being hired the CEO then hires everyone else, more or
less. In a public company, the board divides into committees, to advise and
oversee many of the little processes. There's audit committee people and
nomination and government committee people and Compensation Committee people.
In large companies there are also, often subcommittees, that focus on narrow
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
you work for a big polluter. Well another big element of board value-add, revolves
around, strategy. Are we the high cost, high value company, or are we the low cost,
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
Land? What other strategic issues are we fighting? How do we get into China and [world map]
Russia and get out of Somalia? So yeah, that's strategy. How does the
board cover its primary obligations, in providing a fiduciary duty, to the
shareholders, who elected them? Is the board governing fairly and equitably?
Yeah, how do they do that? Well they just basically pay attention, right? Are
company policies racist, or gender biased, or ageist?
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
right controls inspected, like audit, hiring, firing, policies and our
companies casual Fridays, have they gotten to just to casual? Is that a board item?
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]