Corporations across the world are highly interconnected in a large global network of corporate control. This paper investigates the global board interlock network, covering 400,000 firms linked through 1,700,000 edges representing shared directors between these firms. The main focus is on the concept of centrality, which is used to investigate the embeddedness of firms from a particular country within the global network. The study results in three contributions. First, to the best of our knowledge for the first time we can investigate the topology as well as the concept of centrality in corporate networks at a global scale, allowing for the largest cross-country comparison ever done in interlocking directorates literature. We demonstrate, among other things, extremely similar network topologies, yet large differences between countries when it comes to the relation between economic prominence indicators and firm centrality. Second, we introduce two new metrics that are specifically suitable for comparing the centrality ranking of a partition to that of the full network. Using the notion of centrality persistence we propose to measure the persistence of a partition’s centrality ranking in the full network. In the board interlock network, it allows us to assess the extent to which the footprint of a national network is still present within the global network. Next, the measure of centrality ranking dominance tells us whether a partition (country) is more dominant at the top or the bottom of the centrality ranking of the full (global) network. Finally, comparing these two new measures of persistence and dominance between different countries allows us to classify these countries based the their embeddedness, measured using the relation between the centrality of a country’s firms on the national and the global scale of the board interlock network.
Centrality has long been a basic concept in the study networks of interlocking directorates, in the beginning focusing mainly on degree centrality. As social network analysis gained more popularity, new centrality measures were proposed and applied to understand networks of interlocking directorates @cite_18 , for example to see differences between banks and nonbanks @cite_39 . In @cite_11 it is argued that the function of monitoring and the provisioning of resources of well-connected board has an effect on firm performance. However, when it comes to the precise relationship of firm performance and topological board interlock network measurements, the results are diverse. Correlations between centrality and economic performance are frequently demonstrated, but differ in strength across studies. For example, in @cite_26 it was shown that higher node centrality in the United States results in better boardroom performance, measured using a number of economic performance indicators. In @cite_30 , it was found that in the United Kingdom, the connectedness of directors and thus their boards is positively associated with firm performance, and a similar conclusion is drawn in @cite_2 for director networks.
@cite_30 @cite_18 @cite_26 @cite_39 @cite_2 @cite_11
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Using a sample of 4,278 listed UK firms, we construct a social network of directorship-interlocks that comprises 31,495 directors. We use social capital theory and techniques developed in social network analysis to measure a director's connectedness and investigate whether this connectedness is associated with their compensation level and their firms overall performance. We find connectedness is positively associated with compensation and with the firm's future performance. The results do not support the view that executive and outside directors use their connections to extract economic rents. Rather the company compensates these individuals for the resources these better connections provide to the firm. 0 Introduction.- I Themes and Problems.- 1.0 Introduction.- 1.1 The theory of finance capital.- 1.2 Interlocking directorates and economic power.- 1.3 Financial groups.- 1.4 Corporate elite and capitalist class.- 1.5 Summary.- II Between Market and Hierarchy.- 2.0 Introduction.- 2.1 The organization of firms and markets: a neo-classical explanation.- 2.2 Some definitions of firms.- 2.3 Power and control.- 2.4 Ownership and control.- 2.5 Competition, cooperation and control.- 2.5.1 Concentration and centralization.- 2.5.2 The level-of-analysis problem.- 2.6 Summary.- III Imperialism in the Seventies: two models.- 3.0 Introduction.- 3.1 Theories of imperialism.- 3.1.1 Their origins.- 3.1.2 After World War II.- 3.2 Two models.- 3.3 Research design.- 3.4 Summary.- IV The International Corporate Elite.- 4.0 Introduction.- 4.1 The organization of the supervising and executive function in different countries.- 4.2 Selection of the international corporate elite.- 4.3 Network characteristics of the international corporate elite.- 4.3.0 Introduction.- 4.3.1 The finance capitalists.- 4.3.2 The big linkers.- 4.4 Types of interlocking directorates.- 4.4.0 Introduction.- 4.4.1 Multiple interlocks.- 4.5 Summary.- V National Versus International Integration.- 5.0 Introduction to some graph-theoretical concepts.- 5.1 General patterns in the international network.- 5.1.1 Compactness of the international network.- 5.1.2 International integration of national networks.- 5.2 The international network of Western firms.- 5.2.0 Introduction.- 5.2.1 Local centrality.- 5.2.2 Global centrality.- 5.2.3 Overall centrality.- 5.3 Industrial concentration versus economic centralization.- 5.4 Summary.- VI Domination and Control.- 6.0 Introduction.- 6.1 Clusters of heavily interlocked firms.- 6.1.1 The network at multiplicity-level two.- 6.1.2 The network at multiplicity-level three.- 6.1.3 Conclusions.- 6.2 The network of officer-interlocks.- 6.2.0 Introduction.- 6.2.1 Domination and control.- 6.2.1.1 The network of all officer-interlocks.- 6.2.1.2 The network of control.- 6.2.2 Financial groups.- 6.2.3 Constellations of interests.- 6.3 Summary.- VII Competition and Cooperation: the role of banks.- 7.0 Introduction.- 7.1 Interlocks among banks.- 7.2 Overlapping spheres of interests.- 7.3 International bank consortia.- 7.4 The American banks.- 7.5 Summary.- VIII The Impact of World Crisis: changes in the network.- 8.0 Introduction.- 8.1 A new economic world order?.- 8.2 Selection of the 1976 sample.- 8.3 The international corporate elite.- 8.3.1 Finance capitalists.- 8.3.2 Big linkers.- 8.4 International versus national integration.- 8.5 Centrality in the nested networks (1976).- 8.6 Domination and control in the 1976 network.- 8.7 Summary.- IX Summary and Conclusions.- 9.1 Introduction.- 9.2 The structure of the international corporate elite.- 9.3 Conflict or cooperation.- 9.4 The meaning of interlocking directorates.- 9.5 The international corporate elite.- References.- Authors Index.- Firms Index.- Appendix A. Firms with central boards of directors earn superior risk-adjusted stock returns. A long (short) position in the most (least) central firms earns average annual returns of 4.68 . Firms with central boards also experience higher future return-on-assets growth and more positive analyst forecast errors. Return prediction, return-on-assets growth, and analyst errors are concentrated among high growth opportunity firms or firms confronting adverse circumstances, consistent with boardroom connections mattering most for firms standing to benefit most from information and resources exchanged through boardroom networks. Overall, our results suggest that director networks provide economic benefits that are not immediately reflected in stock prices. I There is a terminological difficulty to be noted here. "Centrality" has both a generic and a particular meaning in this paper. Generically, "centrality" refers to any of three intuitive conceptions: degree (connectedness), closeness, and betweenness (Freeman, 1979). In its particular sense, "centrality" refers to any variation of a measurement technique introduced by Phillip Bonacich (1972a, 1972b) and further elaborated in (1975), Mariolis (1975), and Mariolis, Schwartz, and Mintz (1979). When using it in this latter sense, we generally refer to "centrality scores," or to "directional" and "nondirectional" centrality. In other cases, the context should make clear which of the two meanings we intend. This paper addresses a series of empirical, methodological, and theoretical questions raised by examining the reliability and stability of centrality in corporate interlock networks. Data on the interlocking directorates of 1094 large U.S. corporations in 1962, 1964, and 1966 are analyzed with a test-retest simultaneous equation model. The results confirm the common, but little tested, assumptions that centrality measures are highly reliable and stable. Further, we find that, of three measures examined (number of interlocks, nondirectional centrality, and directional centrality), number of interlocks is slightly more reliable or stable than the other two. Finally, the results show that the centrality of banks is more stable than the centrality of nonbanks. We conclude with a discussion of the implications of these findings.* The implications of the intricate pattern of relationships formed by company directors holding positions on multiple corporate boards, or 'interlocking', have long been the subject of speculation and investigation. While this web of inter-firm relationships is no longer regarded as prime facia evidence of collusive activity, a growing body of research on US firms has identified a range of performance effects on firms associated with information flows in these networks. Yet research on the role of director networks and firm performance is far from comprehensive and has largely been limited to the largest US corporates. This paper extends the existing research in this field by drawing together the principal findings to date and testing these in a different national context and with a much larger dataset than used previously. The relationship between director interlocks and corporate performance is examined among 6428 UK firms, those with annual turnover of £100 million or more. Social network and regression analysis is used to detect significant relationships between the pattern of director interlinking and corporate performance. A number of significant relationships are identified, broadly consistent with the US research but some phenomena distinctive to the UK is found, reflecting differences in the structure and sociology of capital markets in the two countries. In particular the role of executive directors is much less significant to the general financial performance of UK firms than to US firms and is more focused on reputational concerns in capital markets. Boards of directors serve two important functions for organizations: monitoring management on behalf of shareholders and providing resources. Agency theorists assert that effective monitoring is a function of a board's incentives, whereas resource dependence theorists contend that the provision of resources is a function of board capital. We combine the two perspectives and argue that board capital affects both board monitoring and the provision of resources and that board incentives moderate these relationships.