Encyclopedia of Social Network Analysis and Mining

Living Edition
| Editors: Reda Alhajj, Jon Rokne

Interlocking Directorate Networks

  • Kees van VeenEmail author
  • Eelke M. Heemskerk
Living reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7163-9_274-1

Keywords

Social Network Analysis Directorate Network Individual Director Corporate Board Corporate Governance Practice 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Synonyms

Board interlocks; Corporate elite; Interlocking directorate network; Old boys network; Power elite

Glossary

Interlocking directorate:

A link between two organizations that emerges when at least one person is a member of both organizations’ board of directors simultaneously

Interlocking directorate network:

The cumulative set of interlocking directorates that together form a network of linkages between a set of boards of directors

SNA:

Social network analysis

Definition

An interlocking directorate is a link between two organizations that emerges when at least one person is a member of both organizations’ board of directors simultaneously. The cumulative set of interlocking directorates together forms an interlocking directorate network. These networks are analyzed from a variety of perspectives with a variety of tools. They are often seen as an expression of concentration of corporate power and are studied on a national and a global level.

Introduction

Since the emergence of the modern corporation in the nineteenth century, managerial power has been in the hands of a relatively small group of people, often referred to as the business elite. Within this group, a substantial number of individuals sit on the board of directors of multiple companies. By combining multiple board positions, these individuals create “interlocking directorates” between companies. As a result, this rather small group of individuals can, potentially, coordinate management decisions, share information and practices, and enforce norms in different company contexts.

This publicly visible concentration of economic power in the hands of a few and its manifestation in extensive networks of interlocking directorates led to a rising interest in this phenomenon. A significant set of studies on business elites emerged, beginning in the early twentieth century. Questions include the nature and delineation of the business elite and the causes and consequences of this phenomenon for the company and its stakeholders over time (e.g., Mizruchi 1996). The development of social network analyses further pushed this line of work considering that it is a beautiful and compelling example of a social network, and data are relatively easy to gather from public sources.

Once the data are collected, the set of companies, directors, and their linkages form an “affiliation,” or “two-mode” network, from which a “one-mode” company-by-company network and a director-by-director network can be induced. These networks can be seen as a reflection of economic power structures and raise a variety of different questions which have been approached with different perspectives and by applying different network analyses.

Historical Background: Network Analyses from Local to Global

Since the early days of interlocking directorate research, most of the empirical research was concerned with national networks of interlocking directorates. The analyses were highly descriptive at first, and the networks were seen as a social structure that fosters communication, coordination, and cohesion among the corporate elite within their specific institutional setting (e.g., Scott 1985a). Occasional comparative approaches initially focused on general statistical network properties such as density and centrality and showed large differences (e.g., Stokman et al. 1985). More recently, cross-country comparative studies benefit from the insight that network properties are typically nonlinear and that both local (such as clustering) and global network (such as average distance) properties need to be taken into account (e.g., Kogut 2012).

National networks of interlocking directorates have lost part of their theoretical and empirical significance in the wake of increasing international board interlocks, which first emerged in the 1970s (Fennema 1982). The global dimension of the interlocking directorate networks draws more and more attention over time. The network spanned the north-Atlantic and remained fairly stable even during times of globalization. Even in 1996, the international network remained a superstructure based on resilient national business communities (Carroll and Fennema 2002). This has changed considerably since the turn of the century. Corporate boards are increasingly nationally diverse, and international board membership is becoming common practice among the corporate elite. This builds a transnational elite network of interlocking directorates (Van Veen and Kratzer 2011; Heemskerk 2011; Carroll et al. 2010).

For some, this emerging international network is a tell-tale sign of the long-awaited transnational capitalist class. Others see is as the emergence of a global network of pipes and prisms – to use the wordings of Podolny – that might serve as the cornerstone of a global business community reminiscent of the national business communities throughout the twentieth century. However, in the first decade of the twenty-first century, the transnational network continues to be dominated by western-industrialized world, and the lion’s share of the growth over the past decade is realized within Europe (Carroll 2010) (see Fig. 1 for the European network of border-crossing interlocks in 2010).
Fig. 1

The European network of border-crossing interlocks in 2010

Interlocking Directorate Networks; Different Perspectives and Different Questions

Overall, interlocking directorates’ research can be divided along two axes which generates four different fields of study. First, the level of analysis can be either the “actor” or the “network.” Second, the unit of analysis can be either the individual director or the company. When combining these two axes, four research perspectives can be derived (see Table 1) (Scott 1985b; Heemskerk 2008, pp. 33–38). Scholars, therefore, typically concentrate on either the interorganizational or the interpersonal projection (although, recently, advances have been made to study the full bipartite network) (e.g., Robins and Alexander 2004; Kogut 2012).
Table 1

Classification of different interlocking directorates approaches

 

Units of analysis

Level of analysis

 

Corporation

Individual

Actor

Resource dependence

Social capital

Network

Coordination of markets

Financial hegemony

Class hegemony

Inner circle

Transnational capitalist class

When studying individual directors on an actor level, attention will be drawn to individual attributes of the members in the network. It draws special attention to the “social capital” of individual directors. On the one hand, questions about elite family and educational background and career trajectories are relevant here, as well as studies on how “new” groups, such as women and foreign directors, enter the corporate elite. On the other hand, it raises questions regarding board composition such as how board members use their social capital for private (such as job search and information gathering) and company-related purposes (such as profit and corporate legitimacy).

When studying individual directors on a network level, a network analysis investigates networks where directors are the nodes connected through their mutual board memberships. Questions include how the “inner circle” of individual directors operates as a group, whether there are traces of power or influence, and how the network of board interlocks reflects class cohesion. More recently, in the wake of globalization, the internationalization of these hitherto national elite networks has become more and more relevant (which we discuss below in more detail).

When we shift to the other mode of the affiliation network, the company perspective becomes dominant. Now, individual directors are instruments to reach company goals. With this idea in mind, scholars study single companies on an actor level to determine how they are embedded in the wider network. Questions focus on why certain individual directors might be useful for companies in order to manage “resource dependencies.” Board members are seen as a personal linkage to important, but external, resources. Finally, one can study companies on a network level where firms are the network nodes, connected through mutual board members. This perspective has dominated the literature over the past decades and includes investigations into the dispersion of corporate governance practices through the network and on the influence of network position on company performance. Throughout the twentieth century, a key issue has been whether a restricted set of companies – such as banks – dominates groups of other companies by being more central in the network.

Research on interlocking directorates flourished during the 1970s and 1980s when it was proven to be a rich empirical foundation to institutionalism and structuralism. The explosion of research on interorganizational relations has increased the importance, and research has become even more prominent in the 1990s. However, despite its virtues, research on interlocks has always attracted critique as well. It has been criticized for being an overstructured approach and not leaving enough room for agency. The theoretical multiplicity in the field made it attractive to many but also hampered a cumulating knowledge base. Furthermore, a call for caution is in order regarding a too simple notion of the utility of interlocks: some matter more than others. Corporate board interlocks can best be understood as an opportunity structure.

Future Directions

After more than a century of interlocking directorates’ research, the field remains vibrant and innovative. As the (global) society and economy rapidly transforms, so do the networks of corporate boards. Some observers stress the decline or fragmentation of national business elites and call into question their relevance in tomorrow’s economies (Mizruchi 2013; Chu and Davis 2016). Others see the stability of the global board interlock network in the wake of the financial crisis (Heemskerk et al. 2016) as an indication of its continuing relevance.

These developing questions about the role, nature, implication, and naissance of interlocking directorates will, therefore, prove a veritable ground for academic attention. Three developments will be especially important in the near future. First, there will be a growing availability of large datasets: big data. This opens up multilayered analysis of truly global elite networks with hundreds of thousands of nodes. Although data quality continues to be an issue, it assists in answering key empirical questions on the composition and connection of corporations and its elites across the globe. It also allows for a much needed comparative approach that moves beyond the well-studied cases of a few western industrialized countries (e.g., Naudet and Dubost 2016). This is particularly important since novel work in the realm of business history has revealed how the role and function of board interlock networks differ across time and different institutional settings (David and Westerhuis 2014).

Second, recent methodological advances introduced longitudinal actor based modeling in SNA. Methods such as stochastic actor-based modeling and temporal exponential random graph modeling allow us to study the generative mechanisms that drive interlock formation and the wider network dynamics. Third, the context in which interlocks emerge will receive increasing attention. Although there has been attention paid to rough classifications such as bank-based versus market-based financial systems, more fine-grained attention to governance regimes and elite formation will drive new research (e.g., Van Veen and Elbertsen 2008). This will become even more important when emerging economies such as China, Brazil, and India integrate in the corporate elite networks. For instance, the role of politics in (international) networks of interlocking directorates will rise in relevance, not in the least due to a growing number of corporations and investors in the world being state controlled. As a result, pressing questions will begin to emerge about the precise relationship between political and business elites. This opens important avenues for further research on how economic power is organized in an era characterized by an evolving global economy.

Cross References

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Copyright information

© Springer Science+Business Media LLC 2017

Authors and Affiliations

  1. 1.Faculty of Economics and BusinessUniversity of GroningenGroningenThe Netherlands
  2. 2.Department of Political ScienceUniversity of AmsterdamAmsterdamThe Netherlands

Section editors and affiliations

  • Jacob Dijkstra
    • 1
  1. 1.Department of Sociology, Interuniversity Center for Social Science Theory and MethodologyUniversity of GroningenGroningenThe Netherlands