The power of corporate networks: A comparative and historical perspective

Co-ordinated by Gerarda Westerhuis (Utrecht University) and Thomas David (University of Lausanne)

This hub puts together datasets from European and non-European countries in the 20th and early 21st centuries covering one important aspect of a country’s economic organization: interlocking directorates, or the networks between companies and their leaders. These networks were at the heart of the functioning of national economies during the 20th century, but became increasingly questioned during the last thirty years, under the pressure of globalization and financialisation. The purpose of the datasets is to provide a unique long-term analysis of the rise, consolidation and decline of these networks. 

The (in)formal organization of the political economy has a direct outcome on the economic performance of countries. Corporate networks form an economic and social institution which play an important role in the political economy’s organization of each country: they reveal the ways in which firms coordinate their endeavors and their complementarity with other economic spheres (financial system; corporate governance; industrial relations; education and training systems; inter-company competition) can explain the different national strategies and performance of firms (Hall and Soskice 2001). Moreover, corporate networks are clearly related to inequalities within and between countries. The density of the national corporate network can be considered as a measure of the mass of social capital that the economic elite in each country has created. Differences in density between countries indicate differences in the advantages and the control capacity that the network provides for its members.


The importance of corporate networks

The structure of corporate networks – i.e. ties between companies created by directors sitting on more than one board (board interlocks) – in a particular country is a useful indicator of its economic organization and its corporate governance system. Different scholars have emphasized several functions of corporate networks. These functions incorporate very essential aspects of corporate governance: financing, control and competition.

The first group of functions deals with the corporation as the unit of analysis:

1) The “bank-control model” looks at the relation between financial and industrial sectors. Interlocks are a means of control that allows banks to build up interest groups of firms, which are to serve the bank’s interests. This power stems from banks being lenders and /or large shareholders. The model is criticized by scholars who put forward that the relation between banks and firms in the corporate networks can be reciprocal as well.

2) The “resource dependence model” emphasizes the dependence of companies on resources such as capital, trading advantages and corporate information. Interlock ties are established in order to lower information and transaction costs and gaining privileged access to markets. The reason for interlocks thus lies not in domination but in a “community of interests”.

3) The creation of interlocks can also be a mean to restrict competition. For example in the extreme case networks can eliminate competition completely by reinforcing cartels.

The second group of functions deals with the individual as the unit of analysis: 

1) The “managerial model” of interlocks states that firms are ruled by managers who are autonomous from other stakeholders and especially from outside directors and shareholders. In this view interlocks serve to increase the company’s prestige. Therefore, board membership provides directors with career opportunities, remuneration and prestige.

2) The “class-cohesion model” presents interlocks as an expression of cohesion within the economic elite and as a means to contribute to this group’s social cohesion. Frequent meetings and acquaintance favor the conclusion of business deals and strengthen the cohesion of the elite’s values and ethics. Interlocks replace ownership as a mechanism of control and help to reduce opportunistic behavior by imposing a certain code of ethics on the members of the business elite. 



 In order to make comparisons possible we decided on a standardization of data selection, of approach, of methods, and of network indicators across country cases. These choices were discussed and agreed upon among the participants in various conferences since 2009. For small countries we selected the top 125 and for large countries the top 250 firms on the basis of total assets. For each country we gathered network data for eight benchmark years.  For each year we calculated a common set of network indicators such as density of the network and number of big linkers, which are the directors who have three of more positions in the network.


Goals of the project

Several scholars from over the world have collected national data on interlocking directorates. The hub on interlocking directorates seeks to promote cooperation among researchers active in this field and to archive the relevant information at one place. The aim is to extend the number of countries during the coming years in order to create a comprehensive dataset on corporate networks with a global coverage. Another aim is to extend the data in the following years with data on the economic elites. 

One of the first outcomes of the datasets is an edited volume published with Routledge entitled The power of corporate networks: A comparative and historical perspective. This volume covers the development of corporate networks during the 20th century and early 21st century in 14 different countries (forthcoming in 2013). Click here for the most up to date information on this volume.