Interlocking Directorates

Large companies are not run solely by their executive management. Above the executive management sits a controlling body — in Germany the supervisory board (Aufsichtsrat), in the US the board of directors. This body appoints top executives, approves major investments, and gets to see confidential figures. Now, some individuals sit simultaneously on the controlling bodies of two or three different companies. This overlap of personnel is called Interlocking Directorates, roughly translated as an interlocking of controlling bodies. The companies remain legally entirely separate, but are connected through a shared individual.

Why antitrust authorities look at dual mandates

The problem arises where two connected companies compete in the same market. Whoever sits on both bodies knows the pricing plans, cost structure, and product ideas of both sides. Even without ill intent, this knowledge can dampen competition. A price war becomes less likely when the controllers of both camps are the same person. In the US, Section 8 of the Clayton Act of 1914 explicitly prohibits such dual mandates between direct competitors.

In the tech and AI industry, a second factor comes into play: equity stakes. Large corporations invest billions in smaller AI firms and in doing so often secure a seat on the controlling body, or at least observer status without voting rights. This became a point of contention in 2023 and 2024, when Microsoft claimed an observer seat on OpenAI’s board. Following inquiries from authorities in the US, the UK, and the EU, Microsoft gave up the seat again in July 2024.

This is relevant for investors because such interlocks touch on a company’s independence. A company whose controlling body is partly staffed by a major investor may make different decisions than a fully independent company.

How such an interlock arises

The most common route is through money. Whoever invests a lot of capital in a company wants to control its use and demands a seat on the supervisory board or board of directors in return. A second route is experience: former CEOs are sought after as controllers and accumulate several mandates over the years. A third route is banks and funds, which have traditionally been represented on many boards.

Experts distinguish two forms. In a direct interlock, one person sits on both bodies themselves. In an indirect interlock, two different people from Company A each sit on the boards of Company B and Company C respectively, so that B and C are connected through A. If you map out all these connections as a network, visible clusters emerge: a few dozen people often hold the majority of the connections between a country’s largest corporations.

A common misconception is that Interlocking Directorates are automatically illegal. That is not true. They are only prohibited between genuine competitors and above certain revenue thresholds. Holding a mandate at a carmaker and one at an insurance company is entirely permissible. The line becomes blurred, however, as corporations increasingly expand into more and more business fields simultaneously.

Interlocks in news and annual reports

Every publicly listed company must disclose its supervisory board members along with their other mandates. These lists appear in the annual report and are freely accessible. Anyone wanting to know how closely two companies are connected can find the answer there within minutes.

In business news, the term usually comes up in two situations. First, in mergers and major equity stakes, when authorities examine whether the new structure creates excessive closeness. Second, in debates about the power of large asset managers such as BlackRock or Vanguard, which hold stakes in many competing corporations simultaneously. This case is called Common Ownership and is a related but separate discussion.

The debate is currently especially lively around AI companies. Because data centers, chips, and models come from just a few providers there, investments and board seats connect almost all the players involved with one another. Antitrust watchdogs are therefore closely monitoring who sits at the table with whom.