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The National Bureau of Economic Research (NBER) recently published a paper that studied whether common leadership, defined as two firms sharing executives or board directors, contributes to collusion. The verdict is a sure—albeit modest— “yes.”

The data points for their research come from the unsealed files of numerous anti-trust instances in Silicon Valley in the late aughts and 2010’s. The tl;dr of the evidence is that multiple Big Tech companies and other major firms brokered “Global Gentleman’s Agreements” to not recruit from each other’s firms. According to the Clayton Act Section 8, this is illegal, on account that it fiercely reduces innovation, suppresses competition in the labor market, and unfairly disempowers employees from getting the best possible jobs and salaries. (There is some nuance here regarding which companies are actually in direct competition with each other, but we can set that aside for now.) NBER’s study found that firms sharing common leadership were definitively more likely to collude. 

As an MBA student, the NBER paper reinforces something that I have discovered again and again; while capitalism will always be a very imperfect system, it’s best possible form is when it conforms closest to a game. Meaning, when it is allowed to be playful, highly competitive, and free from both arbitrary rules and bullies. I’ve said it before, but I will say it again: being pro-business requires that one also be anti-monopolist. 

To be sure, the collusion makes good business sense for executives who are already in the inner circle. Their bag has been secured and only gets larger if their subordinates do the most value-creating work they are able for the lowest possible pay. But absent an illegal gentleman’s agreement which prevents a competitor from making an offer that an employee can’t refuse (Marlon Brando voice), companies are forced to secure the loyalty of their employees the old fashioned way, i.e. with more money and more meaningful assignments. The best and most effective form of non-compete insurance has always been a check with lots of zeroes on it. 

The NBER paper is fair in the way they outline why leaders end up being shared across these companies—there simply aren’t that many executives who are experienced operators on the level that these companies compete and most of them are valuable precisely because of the relationships they are capable of leveraging. A little luck early in the career can breed success which leads to more experiences, which leads to more connections, which leads to more success, which leads to invites into exclusive director positions. The Catch-22, however, is apparent. 

By installing non-poaching policies and introducing barriers to operator rotation, these executives are not only imposing artificial constraints on the potential earnings of their subordinates, but also on the experiences and connections that their subordinates might find through socializing with, or transferring to, other companies. It blows a chill across their networking prospects, which effectively chokes the supply and development of future capable executives. It is a way for the already-successful to roll up the ladder behind them. It’s also a death spell for innovation and long-term health.

I’m currently working on a newsletter for Mercury’s Playbook that touches on the themes of star performance and winner-take-all markets. The content of that essay compliments this new study by NBER in a pretty simply way; due to the speed which network effects now enable, the scale which companies can now span, and a regulatory mechanism which is incapable of keeping up with innovation, companies—especially tech companies—are becoming increasingly more inequitable. The lion’s share of value is becoming increasingly sequestered to a small, select few, not in the least because of the attitude reflected in these examples of collusion. 

With the AI market becoming increasingly frothy and the incestuous investment scheme which is forming amongst the leaders in the space, it’s important we learn the lessons from the early aughts and double down on the necessity of competition. Let’s make sure these companies and executives are held accountable to being the best versions of themselves — bold, innovative, and unapologetically pugilistic.