Legal Definitions - interlocking director

An interlocking director refers to an individual who serves on the board of directors for two or more separate companies. This situation becomes particularly relevant when the companies are competitors, have a significant business relationship (like a supplier and a customer), or are otherwise in a position where their interests could conflict. Laws often restrict interlocking directorships, especially among competitors, to prevent anti-competitive practices and ensure fair market competition.

Here are some examples illustrating the concept of an interlocking director:

• Example 1: Competing Companies

  Imagine Sarah is a director on the board of "Quantum Innovations Inc.," a company that develops advanced artificial intelligence software. She also accepts a position on the board of "Cognitive Solutions Corp.," another major player in the AI software market, known for its competing products. Sarah is an interlocking director because she holds board positions in two directly competing businesses. This situation could raise concerns about the sharing of confidential strategic information, potential collusion, or a conflict of interest where her decisions at one company might inadvertently benefit or harm the other.

• Example 2: Major Supplier and Customer

  Consider David, who is a director for "Steel Fabricators Ltd.," a company that produces specialized metal components for heavy machinery. He is also appointed to the board of "Industrial Robotics Corp.," one of Steel Fabricators Ltd.'s largest customers, which uses their components to build industrial robots. David is an interlocking director because he holds board positions in two companies that have a significant buyer-seller relationship. This could lead to concerns about preferential treatment, unfair pricing negotiations, or a conflict of interest where David's loyalty might be divided between ensuring the best deal for the supplier and the best price for the customer.

• Example 3: Investment Firm and Portfolio Companies

  Suppose Maria is a senior partner at "Growth Equity Partners," a private equity firm. She is appointed to the board of "Green Energy Solutions," a renewable energy company in which Growth Equity Partners has made a substantial investment. Maria also serves on the board of "Sustainable Infrastructure Co.," another company in Growth Equity Partners' portfolio, which focuses on eco-friendly construction projects. While not direct competitors, Maria is an interlocking director because she sits on the boards of two companies that are both portfolio companies of the same investment firm she works for. This is common in private equity, but it still means she has a dual role where her decisions might be influenced by the overarching interests of the investment firm, potentially affecting resource allocation or strategic direction between the two companies.