2. Interlocking Directorates
A common business practice where a member of a company's
board of directors also serves on another company's board or
within another company's management.
Under antitrust legislation, interlocking directorates are not
illegal as long as the corporations involved do not compete with
each other.
Interlocking directorates were outlawed in specific instances
where it gave a few board members control over an entire
industry and allowed them to synchronize pricing changes, labor
negotiations and so on.
4. Reasons for interlock
Mizruchi’s (1996) in LOIZOS HERACLEOUS, JOHN MURRAY, 2001, Networks, Interlocking Directors and
Strategy: Toward a Theoretical Framework, Asia Pacific Journal of Management, 18, 137–160, 2001
5. The origins
• The development of monopolistic structures in industry at the close
of the 19th century led - at first in Germany and the United States -
to financial and organizational ties between large corporations which
also became interlocked with financial institutions.
• The first extensive and systematic study on corporate interlocks’ in
Germany was a dissertation by Otto Jeidels in 1905. Starting from the
six biggest Berlin banks, Jeidels discovered 1350 interlocking
directorates with German industry. Interlocking directorates as an
expression of the sphere of influence of these banks.
• Monopolization of industries requires funds for investments, thus
financial capital “capital at the disposition of the banks and used by
industrialists” (Hilferding (1909) 1968: 309).
• Following studies in Netherlands, US, UK, Sweden
Fennema Meindert, Schijf Huibert, 1978/1979, Analysing Interlocking Directorates. Theory
and Methods, Social Networks, 1, 297-332
6. US
• in 1913, the Pujo Committee conducted an official investigation
and found that the three largest New York banks, J. P. Morgan &
Co, First National and National City Bank were represented through
341 directorships on the boards of 1 12 corporations. 180 persons
held 746 directorships in 134 corporations. The same 180
individuals held 385 directorships in 4 banks and trust companies.
Most interlocks were between railway companies and banks
• The results of the Pujo Committee were used in the adoption of
the Clayton Act in 1914, prohibiting interlocking directorates
between competing firms (antitrust). The Clayton Act specified
prohibited interlocks in three classes:
(1) interlocking bank directorates;
(2) interlocking directorates between directly competing firms;
(3) interlocking directorates between railroads and their potential
suppliers.
7. The good of interlock?
• Theory of management control (Berle and Means
1932). American economists against the existence of
interlocking directorates. According to this theory the
Board of Directors is appointed by management. It
serves at best as an advising institution, but often
directors are chosen for prestige reasons only. The
network of interlocking directorates has very little to
do with control.
• Channels of communication, increase in experience
and knowledge and even “insuring business on
profitable terms and with a minimum of selling costs
8. Financial groups
• the theory of management control locates the problem of control at
the level of the individual firm, neglecting the inter-firm relations.
• When taking the relations between firms into consideration, the
search for a “locus of power” leads to the problem of financial
groups.
• Focus on the role of the merchant banks in relating industry to the
capital market. In 1966 Barrat Brown finds 124 merchant bankers on
400 Top Boards. For 1968 he found 120 merchant bankers on 247
Boards. (Barrat Brown 1968)
• Merit of focussing on networks, but lose definition of financial
group. Thus various studies find various numbers of financial groups
• No clear definition of interlock (BusinessToBusiness,
BusinessToFinance, family relations)
• Not clear how interlock are detected
9. The sociological approach
• Elite cohesion
Study of the social background of corporate
directors, and family ties (old boys network, national and
transnational elites)
• Organizational sociology
What type of directors carry the interlocks?
Which type of company is most interlocked?
What is the direction of the interlock between two firms?
Is there a geographical basis in interlocking
10. Lloyd Warner and Darab Unwalla
(1967)
• They took a random sample of 500 firms from the Fortune lists of
1961 (US).
• Of the 5776 directors, 1981 are director in but one firm.
• Of the citizen directors (those who have no executive function in
any firm), more than 50 per cent do not carry an interlocking
directorates.
• Of the officer-directors (those with an executive function in one of
the firms) just over 25 per cent do not carry an interlocking
directorate.
• Of the 6280 officer-interlocks 3696 are carried by officer-directors.
Most of these are local, while New York is “the hub of this system”
• Banks appear to have most interlocks (1329) and interlock with
other sectors, closely followed by metal manufacturing (1273)
which only interlock internally.
11. Dooley 1969
Five factors are significant in “explaining”
interlocking directorates:
(1) the size of the firm;
(2) the extent of management control;
(3) the financial connections of the corporation;
(4) the relationship with competitors;
(5) the existence of local economic interests
12. Allen 1974
Theory of inter-organizational elite
• interlocking directorates represent “an attempt by
corporations to anticipate environmental contingencies and
to control their relationship with other companies”
• Allen compares the interlocking directorates he finds in
1970 with those of the National Resources Committee in
1935. He also tries to establish (expected) relationships
with different variables. Thus the presumed relationship
between size of the firm and number of interlocks is
confirmed. It is also confirmed that financial corporations
maintain more interlocks than non-financial
corporations, but the difference is largely due to the larger
size of financial corporations in terms of their assets
13. Longitudinal analysis
• In 1971 Bunting and Barbour analysed the
interlocking directorates between 207
companies in 1896, 1899, 1901, 1905, 1935
and 1964. They conclude that the number of
interlocking directorates in the United States
declines after 1905 - especially interlocks
between firms from the same sector; but also
inter-sector interlocks decline, although not as
dramatically. (Possibly for the Clayton Act)
14. Longitudinal comparison across countries
• For Britain a longitudinal study has been conducted by Stanworth
and Giddens (1975). They conclude that the number of interlocking
directorates increases from 1906. Measured as the density of the
network there is a steady increase, from 1% in 1906 to 5% in 1970.
The number of interlocks is 41 in 1906, 132 in 1930 and 215 in
1970 for a sample of around 90 firms.
• For Spain the data of Muaoz also indicate an increase of
interlocking directorates, at least between 1957 and 1967
• For the Netherlands no decline of interlocking directorates has
been noticed, neither for the period 1886 - 1902, nor for the
period 1960 – 1969
• Hughes and his co-workers (Hughes et al. 1977; Scott and Hughes
1977) find that in Scotland there has been a decline of the number
of interlocking directorates after 1939.
15. SNA
• Traces of Power, Helmers et al. 1975
Investigates the Dutch business structure of 1969 is
investigated. Extensive analysis of the inter-lockings of the
86 most prominent corporations in that year.
Then the study is extended to the intra-lockings among a
group of 60 financial companies, the stability of lines in the
years 1960, 1964 and 1969, the relations between
interlocking directorates and other connections as joint
ventures and financial participations and a systematic study
of relations between the corporations and different parts
of the state.
Inter and intra locking
16. Topics in SNA
• Component analysis
• Density of subgroups, and interconnections
• Valued networks: strong and weak interlocks
• Degree and betweeness centrality
• Longitudinal analysis
17. Heemskerk Eelke, Fennema Meindert, Network
dynamics of the dutch business elite, 2009
• Netherlands
• 1 mode network
• Nodes: Directors
• Tie: if they sit together in firms' boards.
• ≥4= big linkers (Valued)
• Variables: clustering coefficient/betweeness/%of
people in the main component
• 3 waves: 1996/2001/2006
• Sample: 250 top firms
• Finding: decline of interlock
18. Heemskerk Eelke, The social field of the European Corporate elite. A network
analysis of interlocking directorates among Europe's largest corporate boards, 2010
• Europe
• 1 mode network
• Nodes: Firms, countries and people
• Ties: if they have at least one director in common (valued)
• Variables: geographical location, degree
• Database: FTSEurofirsts
• 1 Wave: 2005
• Sample: 298 firms, 3484 executive and non executive directors. Advisors, members without voting
power and executives below the level of board are not included.
• Results: Uneven geographical distribution of firms. Uk more capital (finance), Germany more labour
(industry) oriented.
– Country by country network: most interlock are from industry (old boys), nationally based, but
some european interlocks. UK and France, Germany and Netherland interlock EU, but
overrepresentation of firms.
– Firm by firm: 162 firms interlock EU, one dominant component of 156, average distance is 2.7.
More industry than banks, banks directors are non executive.
– 16 big linkers (>4)
• Further research: does the cohesive core of elite (16 big linkers) also share similar attitudes and
develop an elite identity? Is the core stable or does it change over time? Are there informal meetings
where the elite meets? (eg: private associations).
19. Heemskerk Eelke, Struijs Ferdi, How Network Effects Determine the
Evolution of Interlocking Directorates, 2012
• Netherlands
• 1 mode network
• Nodes: firms
• Ties: if they have at least one director in common (Binary)
• Variables: decline (degree); reputation; preferential attachment; homophily of degree;
brokerage; closure; national; stock; size
• 4 waves: 1996/2001/2006/2011
• Database: Amadeus and Orbis of Bureau van Dijk
• Sampling: 462 firms which were in the top 250 in at least one of the 4 waves
• Results:
– No preferential attachment
– Significance of homophily of degree
– No brokerage
– Significance of closure
– National interlock
– Homophily of stock
• Further research: comparison across national contexts/ transnational level/ bipartite
analysis
20. Koskinen Johan, Edling Christofer, Modelling the evolution of bipartite network.
Peer referral in interlocking directorates, 2012
• Sweden
• 2 mode network
• Nodes: firms and directors
• Ties: peer referral (valued)
• Variables:
– Network effects. Homogeneous 4 cycle: men-men; heterogeneous 4 cycle men-women. Bipartite
two stars, three path, 4 cycles.
– Covariates. CEO experience, chairman experience, age, gender
• 10 years, analysed pair wise
• Database: Stockholm stock exchange
• Sample: 429 boards, 3177 directors
• Results:
– multiple interlock (big linkers >4) reduce through years, while 1, 2, 3 interlocks increase.
– Negative effects of two stars and three path.
– Strong evidence of peer referral with creating 4 cycles.
– Importance of CEO experience declines through years.
– Gender effect from 2001, possibly tokens following legislation, as there is no homogeneous
female peer referral
• Further research: investigate co-dependence of board networks from other networks, eg:
ownership networks. Either one evolving from the other, or co-evolution
21. Huse Morten, Solberg Ann Grethe, Gender related board
dynamics, 2004
• Sweden and Norway
• Qualitative study
• Interviews of 8 directors
• Open the black box of the board
• Study the relational dynamics and task
performances in the boards
22. Conclusions
• Lots of work needs to be done!
– National and international networks:
US, UK, Europe, Australasia
– Longitudinal networks
– Co-evolution of networks: old boys network, non-financial
networks
– Qualitative analysis of the meaning of ties and networks
• Problems:
– Missing data
– Very large data
– Hidden data
