Shared Leadership Fuels Collusion Between Firms

When two companies share a board member or an executive they become far more likely to strike illegal agreements – including deals not to recruit one another’s employees.

That is the finding of fresh research by HEC Paris finance professor Jessica Jeffers, alongside coauthors Alejandro Herrera-Caicedo and Elena Prager. These “no-poaching” deals suppress bidding wars for talent, pushing wages down, making them illegal under antitrust law.

Jeffers’ research shows the probability of such collusion jumps by 11 percentage points once companies are linked in this way – roughly nine times the baseline rate, which is just over 1%.

About 32% of companies linked by shared leaders end up colluding, compared with 5% of those without such links.

Leaders link firms

Our study centres on a large case of labour market collusion in Silicon Valley in the mid-2000s, when dozens of companies agreed not to recruit one another’s staff. 

Drawing on unsealed court documents, our study builds a dataset of who colluded with whom, and when. It then matches this to data on corporate leadership to test whether shared leaders increase the likelihood of collusion. And they do. 

One explanation is that shared leaders bind companies at the top, giving them a discreet channel for communication. That can make it easier to coordinate behaviour and blunt competition for talent. 

For antitrust regulators, the implication is that shared leadership warrants closer scrutiny. We suggest it could be a useful signal for identifying collusion.

Because it is illegal, collusion is typically shrouded in secrecy and difficult to detect. Shared leadership, by contrast, sits in plain sight. Board seats and executive roles are disclosed, mapped and easy to follow.  

That makes the pattern visible. We show that collusion tends to follow the arrival of shared leaders, not precede it. Agreements surface after companies become bound in this way, and the effect intensifies, peaking around two years later. 

That sequence strengthens the case that shared board members and executives do more than correlate with collusion: they help to enable it.

Benefits – and risks

The picture is not one-sided. We also point to benefits for companies making such appointments, with shared leaders spreading knowledge across firms, sharing practices and contacts. But those same links can also open channels for collusion. 

For policymakers, that creates a trade-off. Shared leadership can bring benefits, but it may also impose costs by enabling illegal cooperation. Whether it should be curtailed depends on how large those costs are, the paper says. 

We show that shared leadership predicts collusion more strongly than other explanations. Firms backed by the same investors or hiring from the same pool of workers are more likely to collude, but the effect is an order of magnitude smaller. Selling similar products, by contrast, does little to explain it.

Even after accounting for all of these factors, shared leaders still predict collusion. That suggests the link runs through the executive or board member, not just the similarity between firms. 

That raises an awkward implication for antitrust regulators. Current rules, including Section 8 of the US Clayton Act – which curbs shared leaders among competitors – focus on companies that compete in the same product market, and do not apply to firms that compete only in labour markets. 

We point out that collusion happens in labor markets, and that existing antitrust tools that are focused on product market competition are ill-equipped to address these concerns. We also show that product overlap makes little difference. That raises the risk that enforcement is aimed too narrowly and may be missing where collusion actually occurs.

I caution that the effect is measured in a specific setting – a group of Silicon Valley firms already implicated in collusion, in a period of weak enforcement in the mid-2000s – and may be smaller across the wider economy.

But the pattern is hard to ignore. Where companies share leaders, collusion becomes more likely and easier to sustain. The risk is not just that firms break the rules. It is that the rules are aimed at the wrong place.