The federal government does not prevent the creation of an interconnected board by two different business entities.
A linked board is a situation where the boards of directors of at least two different business entities share one or more directors in common. While this is a common phenomenon, there are sometimes government bans that limit the type of corporate interconnection that can take place. Often these prohibitive regulations aim to minimize the potential for these connections to result in the creation of a market environment in which competition is negatively affected to the point of compromising the possibility of fair trade taking place.
While federal law does not prevent the creation of an interlocking board of directors, there are situations where a board member from one company cannot simultaneously serve on the board of another company. This is especially true in situations where the potential exists that the relationship creates an unfair market advantage for either company, or allows the board director to influence board decisions in a way that gives him or her a unfair advantage in terms of personal financial rewards. To avoid this type of conflict of interest, many governments implement antitrust laws that address these types of issues, along with other business practices that can undermine free trade.
An example of this type of governance of the scope and scope of an interconnected directory can be found in the United States. The Clayton Act of 1914 serves as an amendment to the earlier Sherman Act. The text of this regulation establishes limits to avoid price discrimination that may result from this crossing between different companies through their respective boards of directors. The legislation also prohibits actions such as the creation of mergers or contracts between these entities, when the action is likely to result in a reduction of competition in the market or in the creation of a monopoly that threatens to control an entire sector of the market.
There are two schools of thought on the application of laws and regulations that place limits on the formation of an interconnected board. Advocates see such measures as essential to prevent companies of all sizes from creating undisclosed connections that lead to an unfair market advantage. At the same time, the laws help prevent a small group of people from manipulating the decisions of various boards and benefiting from these efforts at the expense of the companies involved. Critics of the linked board often feel that companies should take a more active role in creating bylaws that prevent board members from sitting on company boards where a conflict of interest may exist, leaving enforcement of those bylaws to the industry and not the government. .