Interconnected management is when two or more companies share one or more directors. Government regulations aim to prevent unfair market advantages and conflicts of interest. The Clayton Act of 1914 limits cross-pollination between companies and prohibits actions that reduce competition or create a monopoly. Supporters believe regulations prevent unfair trading advantages, while critics believe businesses should create their own statutes.
An interconnected management is a situation in which the boards of directors of at least two different corporate entities share one or more directors in common. While it is a common phenomenon, there are sometimes government bans that limit the type of this type of corporate interlocking that can take place. Often, such prohibitive regulations aim to minimize the potential for such connections to result in the creation of a market environment in which competition is prejudiced to the point of undermining the possibility of fair trade.
While federal laws do not prevent the creation of interconnected management, there are situations in which a member of the board of directors of one company cannot concurrently serve on the board of directors of another company. This is particularly true in situations where there is a potential for such a relationship to create an unfair market advantage for either company or allow the board director to influence board decisions in a way that gives him an unfair advantage in terms of personal financial rewards. In order to prevent this type of conflict of interest, many governments implement antitrust laws that address these types of issues, along with other business practices that could undermine free trade.
An example of this type of governance of the range and scope of an interconnected direction is found in the United States. The Clayton Act of 1914 serves as an amendment to the earlier Sherman Act. In the text of this legislation, limits are placed to prevent price discrimination that can result from this cross-pollination between different companies through their respective boards of directors. The legislation also prohibits actions such as creating mergers or contracts between such entities, when the action is likely to reduce competition in the market or create a monopoly that threatens to control an entire market sector.
There are two schools of thought on enforcing laws and regulations that place limits on the formation of interconnected management. Proponents believe measures like this are essential to preventing companies of all sizes from making unpublicized connections that lead to an unfair trading advantage. At the same time, the laws help prevent a small group of individuals from manipulating the decisions of several boards and profiting from those efforts at the expense of the companies involved. Critics of interconnected management generally believe that businesses should take a more active role in creating statutes that prevent board members from sitting on the boards of companies where a conflict of interest might exist and from leaving the application of these statutes to industry and not to government.
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