Board Games: Antecedents of Australia’s Interlocking Directorates, 1910–2018

Abstract

Interlocking directorates can encourage innovation, cooperation, and adherence to best practices or can contribute to collusion, corruption, and the stagnation of ideas. Research has identified the contingent nature of director networks, with outcomes dependent on the nature of the tie; the firms and individuals involved; and the institutional, sociopolitical, and cultural context. Distinguishing between helpful and harmful interlocks thus requires understanding the foundations on which they were built. This article is the first systematic, longitudinal analysis of the antecedents of interlocking directorates in Australia, complementing substantial international efforts to understand and compare director networks across the twentieth century. The network has been characterized by a relatively consistent long-run level of connection but substantial variation in the causes of interlocks. The director network in Australia has responded to the pragmatics of the board member occupation, with corporate governance regulations, the progress of the professions, banking and prudential practices, and the form of large organizations encouraging ties that were built on professional expertise and geographic proximity. These findings are important for policy makers, regulatory bodies, and scholars, highlighting the importance of understanding the contextual foundations of interlocks when assessing their potential for harm.

Above board? Interlocking directorates and corporate contagion in 1980s Australia

“…Across the twentieth century, the ‘typical’ network included around 200 board seats, 80–100 interlockers, with each firm sharing four to five directors (Table 1). The cause of interlocks was also consistent, driven primary by practical considerations such as geographic proximity and directors' expertise, rather than tactics of control such as financial hegemony or family connections (Wright, 2022). In 1986 there was a substantial increase in the size of the network, with 154 directors, 381 interlocked board positions and seven times per firm (Table 1).…”

“…In 1986 there was a substantial increase in the size of the network, with 154 directors, 381 interlocked board positions and seven times per firm (Table 1). There was also a major change in the foundation or cause of interlocks, with cross‐ownership increasing from 6% of ties in 1964, to 40% of ties in 1986, and back to 11% of ties in 1997 (Wright, 2022). The five major diversified business groups were part of the economy‐wide director network, each with one or more top 100 firms amongst their members.…”

“…As many as 30% of all top board seats have been occupied by an interlocked director in Australia, and yet high-profile conflicts of interest are relatively rare. Most interlocks are fairly benign, with members developing trust, sharing expertise, and forming professional communities of practice (Wright, 2022). The key question is, what separates helpful interlocks from harmful ones?…”

Interrogating diversity: Feminism and the destructuration of Australian board appointment practices

“…The relative proportions of executive and non‐executive directors, outside directors, and directors with multiple interlocking board roles indicate conflicts of interest and the degree of distinctiveness of directors' social contacts and knowledge resources (Ahamed, 2014; Buch‐Hansen, 2014; Handschumacher et al, 2019; Hudson & Morgan, 2022; Miglani et al, 2020; Mizruchi, 1996; Westphal & Khanna, 2003). Australian research has examined the role of board networks for trust, coordination, financial control, and resource dependence (Etheridge, 2012; Rolfe, 1967; Wright, 2023), with Wright (2022) demonstrating the impact of interlocks for corporate governance. The board diversity literature is thus bifurcated, with existing studies examining either the presence and structure of interlocking directorships or the presence of boardroom gender diversity.…”

“…The board of directors is responsible for the most significant decisions within any corporation. As such, board diversity—whether demographic or social—can influence a company's access to knowledge, skills, and contacts ( resource dependency theory ) and can also be important for aligning the interests of managers and shareholders ( agency theory ) (Bendickson et al, 2016; Hillman & Dalziel, 2003; Kaczmarek et al, 2014; Liu et al, 2014; Wright, 2023). Independent directors—those with social diversity—reduce the potential for conflicts of interest (Buch‐Hansen, 2014; Wright, 2022).…”