Social Capital, Networks and Interlocking Directorates: A Mexican Case Abstract Purpose – This paper investigates whether a pattern of interlocking directorates is emerging following reforms in Mexican corporations, and who, if any, are the powerful actors in this network. Drawing on the Bourdieusian notion of social capital, the paper also analyses theoretically the interlocking directorates, networks and powerful actors, and their influences on and potential implications for corporate governance mechanisms. Design/methodology/approach – The data used in the study consisted of 1,442 internal and external board members of the population of 126 Mexican corporations trading on the Mexican Stock Market as of January 2011. Use of social network analysis (SNA) demonstrates individuals’ links with corporations and allows the production of spatial maps to visualise the network structure of interlocking boards. Findings – Using the measures of SNA developed by Freeman (1979) and Bonacich (1972), we identify the most powerful and influential directors in the network structure of board members in Mexico. Board members with the greatest number of connections occupy central positions in the network. We also find a catalogue of corporate governance scandals. The inclusion of independent directors seems to have had no influence in ensuring better corporate governance. Research limitations/implications – Mapping out the directors’ links might offer excellent opportunities for policy makers to see how many companies a single director represents, how they share boards, and the implications for minority shareholders of sharing boards, and to understand the workloads of directors in carrying out the monitoring tasks expected of them. Originality/value – This paper makes an important contribution by employing SNA to illustrate interlocking directorates and the positions of powerful and influential actors. Examining networks of directors from a ‘social capital’ point of view also provides an understanding of why the role of independent directors remains toothless in familydominated corporations. Keywords: Corporate Governance, Social Capital, Independent Directors, Emerging Economies, Mexico. 1. Introduction This research concerns interlocking directorates1 and their potential implications for corporate governance practices in Mexico. Recent banking failures have brought into question both corporate governance frameworks generally and the protection of shareholders more specifically (Heemskerk & Schnyder, 2008; Kirkpatrick, 2009; Shankar & Bhattacharya, 2011; Ionescu, 2011). Although widely researched and debated in the literature, the role of interlocking directorates and independent directors in corporate governance mechanisms has focused on developed economies (Stiles & Taylor, 2001; Zattoni & Cuomo, 2010; Conyon & Muldoon, 2006). Generally, research in this area is scarce with regard to emerging economies (Salas-Porras, 2006). Studying interlocking directorates and independent directors in a context in which families dominate companies is likely to raise interesting issues, especially with respect to protecting minority shareholders (Santiago & Brown, 2009; Santiago, Brown & Baez-Diaz, 2009; Watkins, Van Dijk & Spronk, 2006). The corporate governance literature suggests that well-connected and powerful directors are more experienced and able to bring benefits to companies (Berglof & Claessens, 2006). This has been reflected mainly in corporate governance studies in developed economies (Berglof & Claessens, 2006). It is reasonable to assume that strong capital markets and the presence of institutional investors in developed economies insulate them against any negative influence of interlocking directorates. Nevertheless, without strong capital markets and institutional investors, interlocking directorates with just a few powerful actors may prevent independent directors from acting independently (Uddin & Choudhury, 2008). Examining this issue in a context in which a high concentration of ownership and the absence of institutional investors are norms rather than exceptions will shed further light on interlocking directorates and their effectiveness in ensuring better corporate governance practices (La Porta et al., 1999, 2000). Theoretical explanations of the implications of interlocking directorates for corporate governance are also important, given their serious consequences for corporate governance mechanisms. Surprisingly, previous studies of interlocking directorates have been driven mainly by neoclassical, economics-based theories (Fama & Jensen, 1983; Huse, 2005; Johnson, Daily & Ellstrand, 1996). Sociological concepts have rarely been appropriated but are vital for a broader understanding of networks of interlocking directorates and their implications for corporate governance mechanisms (Uddin & Choudhury, 2008; Subramaniam et al., 2013). This study fills this gap by drawing on the Bourdieusian notion of social capital. For two key reasons, in order to study interlocking directorates and their influence on corporate governance mechanisms, it is critical to map networks of independent directors and identify influential actors. First, identifying important actors in a network reveals their connections, power and associations with multiple boards. This, in particular, enables researchers to question not only the independence of independent directors, but also the effectiveness of their roles as a result of the sheer workloads associated with them (Borgatti et al, 2013). Second, corporate governance reforms in emerging economies, including mandatory inclusion of independent directors on boards, have not been well researched. Researching patterns of interlocking directorates and powerful actors in the context of recent reforms will allow researchers to scrutinise the intended corporate governance reforms and their implications for practice. Mexico, an emerging economy, has been chosen as the site for this research. For several reasons, the Mexican situation is particularly useful for developing our understanding of networks of independent directors (interlocking directorates). Mexico has recently undergone huge corporate governance reforms and has assimilated the corporate governance model proposed by the OECD. One of the main obligations imposed by the Code and the New Securities Law (Ley del Mercado de Valores, LMV) on publicly listed corporations is the inclusion of independent board members on boards of directors. The background to the OECD’s prescriptions is that the previous governance model was inadequate for monitoring and controlling company affairs in the best interests of shareholders, especially minority shareholders. Strengthening corporate boards by using independent directors was seen as a panacea for corporate governance problems. The reforms present an opportune moment to investigate their implications for board structures in Mexican corporations. Furthermore, certain preconditions are necessary for the OECD reforms to be even moderately successful. Previous studies of corporate governance have identified a number of elements essential to governing corporations, including well-developed capital markets, professional bodies, democratic institutions and a justice system free from political influence (Hopper et al., 2009; Tsamenyi & Uddin, 2008; Uddin & Choudhury, 2008). Studies of UK and US settings have indicated that these institutions are independent but inextricably interlinked (Chua & Poullaos, 1993), while studies of emerging economies have often argued that they are politically charged and family oriented (Uddin & Choudhury, 2008). Studies in Mexico and other Latin American countries have revealed similar traits (Chong & Lopez de Silanes, 2007; Santiago et al., 2009). Given the lack of well-developed institutions in Mexico, interlocking directorates may not generate the positive influence on corporate governance mechanisms expected by proponents of the reforms. Nevertheless, this warrants investigation. Thus, this study investigates firstly whether a pattern of interlocking directorates is emerging in Mexican corporations following the reforms, and aims to identify any powerful actors in this network structure. Social network analysis (SNA) is adopted to determine the relationships linking board members and corporations, 2 and spatial maps will assist in visualising the network structure of interlocking directorates (Freeman, 2004). This will not only help generate some understanding of networks, but will also be of practical use to policy makers, as will be elaborated later. Second, drawing on the Bourdieusian notion of social capital (Bourdieu, 1986; Bourdieu & Wacquant, 1992), this paper also aims to conduct a theoretical analysis of interlocking directorates, networks and powerful actors, and their influences on and potential implications for corporate governance mechanisms. This will be further explained and iterated with the empirical findings presented in Section 5. The paper begins with a brief literature review of interlocking directorates and an overview of the independence of directors in both Anglo-American and less developed countries. Detailed accounts of SNA are then provided, followed by an empirical section focusing on interlocking directorates, relationships, networks and powerful actors. The discussion section, drawing on the notion of ‘social capital’, provides an explanation for continued board impotency, even following OECD reforms such as the inclusion of independent directors. The concluding section highlights the contributions of the paper and considers avenues for future research and the practical implications. 2. Previous studies Studies of interlocking directorates go back a century or more (Jeidels, 1905; Hilferding, 1910; Brandeis, 1914; National Resources Committee, 1939). According to Mizruchi and Bunting (1981), the causes and consequences of interlocking directorates have been a source of debate since the Pujo Committee identified this issue as a problem of corporate concentration in the early twentieth century. However, critics of research into interlocking directorates have argued that they are largely irrelevant, and that research on interlocking networks represents a dominance of method over substance (Stinchcombe, 1990, cited in Davis, 1996:154). Nevertheless, most research has found that interlocking directorates are extremely relevant because, through them, it is possible to trace the social embeddedness of corporate governance (Davis, 1986). Through their experiences on other boards, interlocking directors act as a conduit for social influences that create an informational and normative context – an ‘embeddedness’ – for board decisions (Granovetter, 1985, cited in Davis, 1986:154). Despite the large number of studies of interlocking boards, surprisingly few have attempted to identify a pattern to them (Boyd, 1990). Drawing on SNA, studies have analysed networks of directors and have focused on centrality as a measure to determine the number of interlocks between board members and/or companies (Robins & Alexander, 2004; Yeo et al., 2003). For example, MacCanna et al. (1999) used centrality to analyse a network of interlocking directorships formed by the boards of the top 50 financial and top 200 nonfinancial companies in Ireland. In the same vein, Conyon and Muldon (2006) used the measure of centrality to examine the number of boards of which a typical director was a member, drawing on corporate boards from the USA, UK and Germany. A more recent study by Cai et al. (2014) has analysed data from boards of directors of S&P1500 firms to establish the existence of board interlocks. Two recent studies located in an Italian context have applied SNA to analyse interlocking directorates. Bellenzier and Grassi’s (2014) work identified board interlocks by applying the degree of centrality according to the percentage of board members serving in another firm. Croci and Grassi’s (2014) study examined whether a firm’s position in the network affected its firm value in Italy, focusing mainly on companies rather than board members. One issue that remains relatively under-researched is to understand the influence of key actors in the network. This is important for this study, since we seek to understand the social capital of board members and its implications for corporate governance mechanisms. The strategic locations of directors in a network often reveal their linkages, power and positions in wider networks. We apply SNA at the deeper level to show not only how many boardrooms a single board member shares, but also the strategic positions of the directors. This enables us, in particular, to understand the social capital held by board members. Drawing on Bourdieu’s theory of social capital, we argue that being a member of a board of directors is not the most important factor; being seated in key positions is what matters. This becomes an individual strategic investment through which board members devote all their effort and resources (economic, social and symbolic) toward their own benefit, with serious implications for corporate governance mechanisms. Mainstream research on the implications of board interlocks has mainly adopted agency theory perspectives to focus on how board interlocks interact with various elements of corporate governance mechanisms. Many studies within this tradition have found that interlocking directorates have a positive influence in ensuring better governance, even in family-dominated companies (Brenes, et al. (2011). For instance, Chen et al. (2014) have shown that board networks may help independent directors to restrain tunnelling behaviour by large shareholders, playing a positive role in corporate governance. Research adopting a critical perspective has been sceptical of the role of independent directors in the interlocking context. Researchers have argued that board members serve as a means of preserving the political and ideological interests of the capitalist class (Mariolis & Jones, 1982; Ornstein, 1984). The likelihood that interlocking companies will be audited by the same public accountancy firm is partially explained by ties between client companies created by interlocking directorates (Davison et al., 1984). This is possible because directors who sit on many boards do so in the company of other directors who also sit on many boards (Conyon & Muldoon, 2006). Galaskiewicz et al. (1985) found that, where the CEO was also a member of the social elite, members of this elite were most likely to be represented on local boards and tended to choose each other to sit on their own boards. This has significant implications because companies obtain information on their respective markets through their other directors (Galaskiewicz et al., 1985). In Latin American corporations, a few shareholders (mostly family and friends) have significant control rights, and business groups are typically run by the controlling shareholders, rather than by professional managers with little equity ownership (Santiago & Brown, 2009; Santiago et al., 2009; Watkins et al., 2006; Salas-Porras, 1992, 2006). Thus, the degree of directors’ independence potentially affects minority shareholders’ rights because independent directors may not play an important monitoring role, increasing the opportunity for expropriation by majority shareholders (Santiago & Brown, 2009). Hence, it is important to understand and take account of interlocking directorates, especially in emerging economies. In Mexico there is a legal basis for minority shareholders’ rights, but a lack of specific regulations makes it possible for majority shareholders to take advantage of the situation to benefit from minority shareholders (Babatz-Torres, 1997). Given that markets and democratic institutions are under-developed in Mexico (Chong & Lopez de Silanes, 2007; Gomes, 2000), majority shareholders tend to have free rein to occupy top management positions, sit on boards of directors, limit trading in shares, and create business conglomerates (Santiago & Brown, 2009). Predictably, these issues have led to serious debate about the severe consequences of interlocking directorates for minority shareholders, especially in concentrated shareholding companies. Interlocking directorates give rise to powerful and influential actors in the field, which may prevent independent directors from playing a role in protecting the interests of shareholders, especially minority shareholders, in the context of emerging economies (Salas-Porras, 1992, 1997, 2006). Most existing research has been devoted to identifying positive links between interlocking directorates and the book values of corporations. This paper departs from this argument and attempts to investigate whether independent directors in a network are at all useful to governance mechanisms. 3. Research method: Social network analysis The empirical aim of this paper is to use SNA to identify independent directors in a network. The main components of any social network are the actors and their connections. Social networks can be measured and understood in several ways (Tichy et al., 1979; Borgatti & Foster, 2003; Wang et al., 2009). In this study, we use a two-mode network analysis, also known as an affiliation network, representing the association between two or more sets of nodes, where each set is a different social entity (Wang et al., 2009:12). In our case, one set of nodes represents board members while the other represents corporations, with ties representing directors sitting on company boards. Graphical representations are used in the paper to capture visual images of the network.3 Knove and Yang (2008:62) observe that the primary use of graph theory in SNA is to identify important or prominent actors at both individual and group levels. One of the main purposes of SNA of interlocking directorates is to identify the most influential, important and powerful members and their networks. Centrality is an important conceptual tool for analysing power in social networks. Different positional measures reflect the location of actors in a network. The focus is on the centrality of the board member or the location of the board member in the network. The concept of centrality may be operationalised and measured in a variety of ways. In this study we use Freeman’s (1979) and Bonacich´s (1972) approaches, with two measures of centrality: degree centrality and eigenvalues. These measures of centrality for two-mode networks are calculated using UCINET.4 In a two-mode network, the degree centrality of a board member is the number of corporations in which he or she sits on a board. The maximum degree for a board member is the total number of corporations (Everett & Borgatti, 2005). For Freeman (1979), the degree centrality of a network is calculated by counting the number of adjacent links to or from a board member. This is based solely on direct connections and is an appropriate measure to capture power-enhancing behaviours that occur through direct interaction, such as ingratiation and reciprocation (Brass & Burkhardt, 1993). Another measure of centrality is eigenvalue centrality, an indicator of popularity, revealing the node or board member with the most connections to other nodes or board members who at the same time are connected to other highly-connected board members. In other words, eigenvalue indicates board members with the highest social capital in terms of a durable network. The eigenvalue also identifies the centre of cohesive groups, and helps to identify those board members with the smallest distance from others in terms of the overall structure of the social network. The highest scores indicate that board members are more central to the main pattern of distances between all board members, while lower values indicate that board members are more peripheral (Bonacich, 1972). The data used in this study consisted of 1,442 internal and external board members of the population of 126 Mexican corporations trading on the Mexican Stock Market as of January 2011. The population included 19 natural resources companies, 27 industrials, 18 services and manufacturers of goods for non-basic consumption, 24 frequent consumption products, five health, 21 financial services and 12 telecommunications. The sources of data were corporate annual reports published on the web page of the Mexican Stock Exchange Directory in January 2011. These corporate reports provide information on the names of board members, which are classified as main, substitute, patrimonial, related and independent. In some cases, the annual report also includes biographical information on board members. In the next section, the centrality, power and prestige of interlocking directorates in Mexico will be demonstrated. 4. Power, centrality and prestige of board members Power is a fundamental property of social structures, and the location of a board member within the network directly represents his or her access to information. This is relevant if board members are seen as conduits of information between corporations (Everard & Henry, 2002). In the social network approach, power is inherently relational, and analysis of a network reveals whether an actor is embedded in a relational network. An actor’s location in a social network determines his or her prominence and importance in the network. Hence, the measures of centrality (degree centrality and eigenvalue) were calculated using UCINET 6 for the entire population of board members and corporations in the Mexican Stock Market as of January 2011. In order to visualise the network structure of companies sharing two or more board members, a technique called spring embedding was applied. The rationale is that board members connected by lines are drawn closely together, whereas unconnected board members are pushed apart. The spring embedding technique treats the lines of networks as springs with a particular elasticity and strength. This procedure searches for a situation in which the system of springs is stable (De Nooy, 2003). The result is a graphical representation of linkages between board members and corporations. The network is visualised using Netdraw software included in UCINET 6, as shown in Figure 1. [Insert Figure 1] In Figure 1, red bullets represent board members and blue squares represent companies, while lines represent ties between board members and corporations. Figure 1 demonstrates the connectedness of these corporations via board members, suggesting that the corporations employ the same people on their boards. This may reveal little in isolation; nevertheless, it does suggest that independent directors have little time to focus on protecting shareholders (in the Mexican case, minority shareholders’ interests). It also indicates that independent directors may belong to a large social network. This figure shows the interconnections between two or more board members and corporations. Another way in which to visualise the implications of interlocking directorates in Mexico is to analyse how corporations are directly linked. We transform the two-mode network (board members and corporations) into a one-mode network for corporations only. This one-mode network draws a direct line between any two companies. If they share two or more board members, this line has a value (multiplicity) of two or more (De Nooy, 2003). We calculate a one-mode network for the companies to establish the relational structure between corporations. Figure 2 shows the interconnections between corporations in the Mexican Stock Market. [Insert Figure 2] In Figure 2, we can see strong links between corporations through board membership. On the left-hand side are companies with no connection with other companies in the network. These are isolated companies with no relationship through interlocking directorates. Of the 126 corporations in the Mexican Stock Market, only 17 do not share a board member. This shows a strong structural relationship between companies created by board member linkages in publicly-traded corporations in Mexico. In the next section, we examine the location of actors in the network structure of interlocking directorates in Mexico. The actors’ level of centrality is calculated using Freeman’s measures of centrality: degree centrality and eigenvalues. 4.1 Actors in networks The board of directors is a determinant of corporate governance as it represents the primary decision-making body. Boards of directors are interlinked through a shared director. This is an important characteristic, because the network represents connections between directors and companies and opportunities for face-to-face interaction. A matrix table was constructed of the 1,442 board members and 126 companies traded on the Mexican Stock Exchange. The two-mode data were transformed into one-mode data to carry out analysis using Freeman’s measure of centrality. Freeman’s output ranks actors from high to low levels of centrality. The results for the top 15 board members are shown in Table 1. [Insert Table 1] Table 1 shows the (interpersonal) network of boardroom contacts among the top 15 board members in the Mexican Stock Market. The actor sitting on the highest number of boards is Mr Fernando Ruiz Sahagun, who sits on nine boards of directors.5 He is a public accountant who has sat on the board of GCC as an independent board member since 2006 and works as a consultant in Chavez, Ruiz, Zamarripa and Cia, S.C., a consulting firm. He is a member of the College of Public Accountants of Mexico and has studied fiscal studies at the Universidad Anahuac and the Universidad Panamericana. Mr Alberto Bailleres Gonzalez sits on eight boards of directors.6 He holds a bachelor’s degree in economics and chairs the governing body of the Mexican Autonomous Institute of Technology (ITAM). Mr Fernando Senderos Mestre sits on seven boards7 and is in third place in the table. He is 61 years old and holds a bachelor’s degree in business administration. He is chairman of Grupo Kuo and Dine, S.A. Mr Valentin Diez Morodo sits on seven boards.8 He is 72 years old and holds a bachelor’s degree in business administration. This analysis highlights actors with the highest level of centrality; that is, actors sitting on many boards. [Insert Table 2] In Table 2, eigenvalues provide a different picture of the position of board members in the network structure of interlocking directorates in Mexico. Here, we examine the most influential board members in this network structure, ranked from high to low according to this measure. This shows the 15 most central actors in terms of the overall structure of the network. Board members with the highest scores are those most central to the pattern of distances between all board members in the global structure of the network. The board member with the highest eigenvalue (0.252), and hence the most central board member in the overall structure of interlocking directorates in Mexico, is Mr Alberto Bailleres Gonzalez, who is in a structural position from which he can reach those with the smallest distance from others in the global structure of the network. He is better connected to many board members who are also well-connected to other board members, and is in a very good position within the network to transmit information and to influence other board members in the network structure. The second highest eigenvalue (0.224) is for Mr Arturo Fernandez Perez, who is chancellor of the Mexican Autonomous Institute of Technology (ITAM). The third highest eigenvalue (0.219) is for Mr Tomas Lozano Molina, who holds a law degree and is public notary and lecturer at the Escuela Libre de Derecho. These interlocking directorates and powerful actors need to be understood in the context of the under-developed capital and democratic institutions and family-dominated companies in emerging economies. According to Santiago and Brown (2009), in a typical large Latin American firm, the CEO is usually part of the controlling family; therefore, his or her influence over the board of directors is unlimited. Often, independent directors occupy multiple directorships in the same business group and enjoy the material and symbolic benefits that come with them (Santiago & Brown, 2009). This undoubtedly has consequences for the maintenance of independence, transparency and accountability of corporate governance affairs in relation to minority shareholders. The question arises as to what extent independent directors are in a position to curb the power of a dominant owner (often the CEO) of a large business group. Alternatively, one could question whether it is in an independent director’s interests to go against the CEO. Is it more important for independent directors to be in the network and exploit the power they apparently enjoy? These questions are better addressed if seen from the perspective of ‘social capital’, which is discussed in the next section.9 5. Social capital, powerful actors and interlocking directorates This paper mobilises the notion of social capital advanced by Bourdieu and draws on previous studies in order to understand the potential implications of interlocking directorates for corporate governance. This enables us to develop arguments against the established mantra that interlocking directorates of independent directors are positively linked with ‘desirable’ corporate governance practice (Luan and Ming-Je, 2007, Peng, Buck, Chen and Jaggi, 2000). Bourdieu defines social capital as: the aggregate of the actual or potential resources which are linked to the possession of a durable network of more or less institutionalised relationships of mutual acquaintance and recognition – or in other words, to membership in a group – which provides each of its members with the backing of the collectivelyowned capital, a ‘credential’ which entitles them to credit, in the various senses of the word. These relationships may exist only in the practical state, in material and/or symbolic exchanges which help to maintain them (Bourdieu, 1986:248-9). In order to determine the social capital of board members, we calculated the network of connections which each board member was effectively able to mobilise. This was inspired by Bourdieu’s statement that: The volume of the social capital possessed by a given agent thus depends on the size of the network of connections he can effectively mobilise and on the volume of the capital (economic, cultural or symbolic) possessed in his own right by each of those to whom he is connected (Bourdieu, 1986:249). In other words, the ensemble of connections, contacts, relationships, friendships and obligations gives them the power to act in relation to the quality and quantity of their relationships, and of relationships with other board members and businesspeople. Table 1 shows the name of each board member and the size of the network of connections that he/she is able to mobilise, together with a brief description of the volume of capital (economic, cultural and symbolic) possessed in their own right by the first two board members in the table. For example, in Table 1 we show the interpersonal network of boardroom contacts among the top 15 board members in the Mexican Stock Market, revealing that the actor with the highest centrality ranking sits on 10 boards of directors. Board members are arranged from high to low levels of ‘connections’ in Table 1. Figures 1 and 2 reveal board members who have the necessary foundations through interlocking directorates to enable actors to accumulate social capital. Networks of relationships offer independent directors excellent opportunities for accumulation. For Bourdieu, actors are strategic improvisers who respond to the opportunities and constraints offered by various situations. In other words, board members share directorships and develop a sense of practice that will equip them to act over time according to their interests and expected outcomes. Thus, being in a network is ‘the product of investment strategies’ that the independent board member is motivated to obtain, individually or collectively, with the objective of establishing or reproducing social relationships ‘that are directly usable in the short or long term’ (Bourdieu, 1986: 249).10 Board members also demonstrate cultural capital in their credentials (e.g. degree from Stanford) and in symbolic capital (e.g. chairman of the chamber of commerce). These capitals (social, cultural and symbolic) further strengthen board members’ investment strategies. They will accumulate as much capital (social, cultural and symbolic) as benefits them. As Portes (1998) has argued, social networks are not a natural given; on the contrary, they must be constructed by investing in strategies oriented to the institutionalisation of relationships between groups as a function of other benefits. Networks of configurations demonstrate that board members share a board and are related with their peers in the boardroom. Bourdieu observed that individuals’ interactions reinforce mutual recognition and acknowledgment as members of a network or group (Lin, 1999). These strategies of investment in social connections are created to perpetuate the governing elite in Mexican corporations. Our empirical results demonstrate that a few independent directors dominate the majority of corporations in Mexico. The main motivation for securing social capital is rooted in material or symbolic profit. As evidenced in earlier figures, being in a network provides enormous benefit to individual independent directors. According to Bourdieu, the existence of a network of connections ‘... is the product of an endless effort at institution, of which institution rites – often wrongly described as rites of passage – mark the essential moments and which is necessary in order to produce and reproduce lasting, useful relationships that can secure material or symbolic profits’ (Bourdieu, 1986:249). Figure 1 above reveals the configuration of networks of connections between board members in the entire population of Mexican corporations traded on the Mexican Stock Market as of January 2011. These are materially useful for individual members: the more they are connected, the more capital they can exploit to their advantage. Table 1 illustrates the top 15 board members who sit on several boards, and Table 2 reveals the top 15 board members’ strategic positions in the network of directors in Mexican corporations who can secure material and symbolic profits through interaction with other board members in the network. The process of articulation and the concentration and distribution of links between board members show the positions of the main interlocking actors and the mechanisms that influence the structure of the network in Mexico. Hence, the network structure of interlocking directorates in Mexico is the product of a continuous series of exchanges between board members through which recognition is endlessly affirmed and reaffirmed. Seen through a ‘social capital’ lens, what are the implications of interlocking directorates for corporate governance practices? Board members in Mexican corporations serve as a means of communication and control for both individual corporations and the majority shareholders of Mexican corporations through the network of connections they have created and the social capital (economic, cultural or symbolic) held by each board member. This raises the questions of whether the traditional monitoring role of external directors is present and suitable for the purpose, and whether the mere inclusion of an external director on a small board improves minority shareholders’ situations. Researchers have argued that the material incentives that induce external directors to work on behalf of minority shareholders, such as the market for corporate control or compensation, are lacking in Mexico and emerging economies (Uddin & Choudhury, 2008). Santiago and Brown (2009) have observed that in Mexico, as in most Latin American countries, a misalignment of interests between majority and minority shareholders, rather than divergence between the goals and objectives of management and owner, is at the root of agency problems. Furthermore, corporate governance mechanisms designed to alleviate agency problems are inefficient or non-existent, while the weak legal environment increases the potential for agency problems, especially the expropriation of minority shareholders’ rights (Santiago & Brown, 2009). It can plausibly be surmised that, as found in previous studies, closely-connected independent directors in the context of poorly-regulated and under-developed market and political institutions have the potential to lead to a lack of transparency and control (Santiago & Brown, 2009). These problems have been illustrated in a number of governance scandals in Mexico in recent years. Between 2005 and 2012, several cases relating to corporate governance practices in publicly-listed Mexican corporations revealed the arbitrariness of majority shareholders and how independent board members and internal governance systems appear to have been non-existent or to have failed in these Mexican listed corporations. The most spectacular failures were the TV Azteca scandal in 2005, Comercial Mexicana in 2008 and the Wal-Mart case in 2012. A number of other cases in Mexico are revealed on the US Securities and Exchange Commission’s (SEC) webpage. As Jordan and Ahmad (2011) point out, the Comercial Mexicana case shows the perils of trying to make money on financial instruments rather than focussing on core business. This is a case that shows exposure to risk, lack of control, and the ineffectiveness of the audit committee and independent board members. As the chairman of the Mexican Banking and Securities Commission observed: “we have detected at least eight where we could infer there were problems with disclosure” (Randewich & Rojas Mena, 2008). Some of the best-connected independent board members also sat on boards of affected or failing companies.11 We do not claim that these scandals are entirely the result of interlocking boards of directors, but they do appear to have played a part in failing to protect minority, and in some cases majority, shareholders. These cases also show that in Mexican corporations independent board members are performing a merely symbolic role. As Bourdieu observes: the legitimate representative is an object of guaranteed belief, certified as correct. He lives up in reality to his appearance, he really is what everyone believes him to be because his reality – whether priest, teacher or minister – is based not on his personal conviction or pretension … but rather on the collective belief, guaranteed by the institution and made concrete through qualifications like stripes, uniforms and other attributes (1991:126). Mexican independent directors seem to be playing the same game as Bourdieu’s minister or priest. Similarly to previous studies (Useem, 1984; Granovetter, 1985; Davis, 1996; Mizruchi, 1996), we claim that, by participating in board meetings and sitting on different boards, independent board members perform ritual practices that do not contribute to the effective monitoring of the companies’ affairs. Independent directors do not seem to have sufficient material and symbolic benefits to ‘break’ the rituals of corporate boards. It is much more strategic to be associated within a network of relationships, participate on different boards and pursue one’s own interests. For Bourdieu (1977: 214), ‘The most profitable strategies are usually those produced, on the hither side of all calculations and in the illusion of the most “authentic” sincerity, by a habitus objectively fitted to the objective structure’. Nevertheless, we do not claim that similar implications for interlocking directorates would emerge in developed economies, in which independent directors’ calculations of social capital and habitus may be different, given welldeveloped institutions and markets, institutional investors and the absence of family owners. 6. Concluding remarks We begin this section by considering the empirical questions set out earlier: namely, whether there is a pattern of interlocking directorates, and what positions actors occupy in this network structure in Mexico. The SNA of interlocking directorates described in this paper has great potential to contribute to accounting and corporate governance research, particularly in identifying the power and interests of key actors in the network. Firstly, this paper has demonstrated that SNA may be a useful tool for providing visual representations of networks of relationships. It links individuals with corporations and allows the production of spatial maps to visualise the network structure of interlocking directorates (Freeman, 2004). Figures 1 and 2, which present the network structure of companies sharing two or more board members, clearly show the links between actors and Mexican corporations. Secondly, we have detected the most powerful actors in the network. Drawing on two measures of centrality, we have gone beyond the simplest measure of centrality used by most studies – degree centrality – which is simply the number of ties that a given board member has in the network, as reflected in Table 1. Using eigenvalue (Table 2) as a measure of the popularity of each board member, we have substantiated our claims for the existence of well-connected individuals, and hence their sources of power to diffuse and influence other board members in the network. Table 2 presents the eigenvalues of SNA calculated using UCINET, in which board members are arranged from high to low levels of ‘connections’. Board members with the greatest number of connections occupy a central position in the network and are able to transmit information and to influence other boards. We now turn to the implications of interlocking directorates for corporate governance practices. Even after the reforms in Mexico, including the presence of independent directors on the board, we have found a number of recent governance scandals. We have scrutinised the network of independent directors by exploiting Bourdieu’s concept of social capital.12 We have sought to understand why interlocking directorates appear to have no significant positive influence over corporate governance practices, especially in protecting minority shareholders of Mexican corporations. Three distinctive contributions can be articulated. First, Bourdieu’s notion of social capital is a very powerful narrative for understanding the motivation, tendencies and trajectories of networks of relationships. Networks of independent directors and the durability of these networks are clearly understood from the motivations of powerful actors derived from material, cultural and symbolic exchanges. We find that, by sharing boards in different companies, board members put themselves in a better position to maintain and enhance their status in the field of corporate governance. Sharing boards offers them a channel to interact with other board members who are well-connected and popular (eigenvalues show how board members compete to accumulate and monopolise social capital). This is also consistent with the social relations of power prevailing in traditional societies (see Uddin & Choudhury, 2008), in which the family patrimony depends not only on animals and instruments of production, but on kinship relations and the networks of alliances they represent. Second, the interlocking directorate can be seen as a social space in which members pursue material and symbolic exchanges. While monitoring the interests of minority shareholders may not yield fruitful material and symbolic exchanges, the interests of family or majority shareholders are important to independent directors. In other words, the creation of a network of interlocking directorates in Mexican listed corporations aims to institutionalise a particular corporate governance practice of independent board members who are incentivised to represent dominant owners rather than minority shareholders, and to perpetuate the same practice to further their social capital. Independent directors find it much more beneficial to perform a social ritual that consecrates or legitimates an arbitrary boundary to produce and reproduce lasting, useful relationships that can secure material or symbolic profits (Bourdieu, 1986, 1991). This inevitably questions the role of independent directors in monitoring and protecting minority shareholders, both in Mexico and elsewhere. Examining the network of directors from a ‘social capital’ point of view enables us to understand why the role of independent directors is apparently ineffective. The view of social capital as resources embedded in networks is helpful for understanding why minority shareholders’ interests are infringed more in some areas than in others (Uddin & Choudhury, 2008). Third, this paper seeks to challenge mainstream research on independent directors and advance a counter-argument that advocates the positive links of interlocking directorates and the book values of corporations. Bourdieu’s idea of social capital clearly demonstrates that the relational practice of boards is in the interests of board members and their investment strategies in preserving their benefits; and that this has the consent of majority shareholders/family, because the latter will invite those board members who have substantial social, cultural and symbolic capital, and who are also loyal to them. Therefore, there is a type of complicity: they are like ‘clubs of acquaintances’, in which those who exercise power are the dominant shareholders because they hold the most valuable (economic) capital. We should also like to consider some implications for future research and policy makers. The paper has opened space for further research, especially using SNA to understand the power and interests of networks and the actors within them. First, it would be useful to examine cross-cultural differences in networks of directors. Mexico may share many similarities with other emerging and poorer economies, such as a lack of well-developed democratic institutions, the dominance of families, and poverty and corruption. Nevertheless, differences between emerging and poorer countries are equally notable, such as levels of corruption and poverty, stages of development, historical and colonial legacies and cultural orientations. Previous studies have suggested that corporate governance reforms and implementation vary very greatly between countries (La Porta et al., 1999, 2000). More importantly, the approach used here could be replicated in other countries to generate new insights into networks and actors in the corporate governance field, given the differences and similarities noted above. Secondly, interlocking directorates and networks are not static, and a longitudinal analysis would provide evidence of the network dynamics that affect board activities and the role of independent directors in company affairs. As Gilbert et al. (2011:83) have observed, social networks exhibit temporal dynamics in a number of ways. Instances in the data may appear and disappear over time, whereby different time windows may exhibit different characteristics. For example, a person may change his affiliation with a business organisation by joining a different business enterprise and developing new social ties in this new environment. This approach could also be combined with a close focus on key players to track their paths within the network. As we have revealed, several high-profile individuals have important positions in some large corporations. It would be interesting to establish how they reached their key positions in the network. This would, perhaps, unravel the workings of wider corporate governance issues, such as reforms. This study provides a foundation for a deeper understanding of the cosy relationship between directors and family networks, and their influence on corporate governance practices in Mexico and elsewhere. Thirdly, the network mapped in this paper is based on directors’ links. While these are important, other types of network linkages are also important, and the relative effects of different kinds of links on outcomes should be explored, for example the political networks of large corporations, regulatory networks, family networks, and various other informal networks. All these influence the protection of shareholders’ interests and the overall transparency and accountability of company affairs. As previous studies have indicated, we need to gain a better understanding of the role played in corporate governance failures by family networks with political affiliations, especially in emerging economies (Uddin & Choudhury, 2008). These areas, though important, remain under-investigated and undertheorised. Finally, SNA would be an effective tool for policy makers to see their reforms in action. 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An empirical investigation of good governance codes, British Journal of Management, 21(1): 63-79. 1 “Interlocking network ties among firms through shared directors” (Davis, 1996, p.156). The shared directorship occurs mainly as a result of the appointment of the same independent/non‐executive director on multiple boards. In the Mexican case, independent directors share boards, and hence create interlocking directorates. 2 Previous accounting studies have adopted this type of analysis to identify networks of accountants, standard setters and managers (Chapman, 1998; Richardson, 2009; Tichy et al., 1979). 3 A graph is composed of nodes connected by lines. In this study, corporations and board members are nodes, and connections between them are edges. Another important concept of graph theory is degree, which is the number of edges connected to a node. 4 UCINET is a social network analysis program developed by Steve Borgatti, Martin Everett and Lin Freeman. As Knove and Yang (2008:2) observe, ‘UCINET with its continually updated versions is probably the most popular and extensively used software package, providing comprehensive solutions and implementation of many network methods’. 5 Fernando Ruiz Sahagun is a member of the board of directors of the following companies: Kimberly Clark, Modelo Group, Mexichem, San Luis Corporation, Grupo Mexico, Empresas ICA, Grupo Financiero Santander, Grupo Pochteca, Fresnillo, the Mexican Stock Market, ArcelorMittal Lazaro Cardenas, and Indeval. He is chairman of the Fiscal Committee of the Mexican Coordinated Council, and he represents the Mexican Council of Businessmen on the Secretariat of Fiscal and Public Credit of Mexico. 6 Alberto Bailleres Gonzalez is a member of the board of directors of the following companies: Grupo KUO, Industrias Penoles, Grupo Nacional Provincial, GNP Pensiones, Profuturo, Valores Mexicanos, Casa de Bolsa, Grupo Palacio de Hierro, FEMSA, Grupo Televisa and Grupo BBVA. 7 Fernando Senderos Mestre is board member of Industrias Peñoles, Grupo Carso, S.A., Kimberly Clark, Grupo Televisa, Grupo Desc, GNP and Grupo Carso, and of the Mexican Council of Businessmen. 8 Valentin Diez Morodo is an independent board member in Kimberly‐Clark de Mexico, Grupo Financier Banamex, Grupo KUO, Alfa, Grupo Dine, Grupo Mexico, Bodegas Vega Sicilia, Acciones y Valores de Mexico, Zara Mexico, Grupo Aeromexico, Citigroup, Inc, OHL Mexico, Telefonica Mexico and Instituto de Empresa, Madrid. 9 We do not argue that this is only way to analyse the positions and networks of independent directors, but limited space precludes us from discussing other theoretical alternatives. 10 Bourdieu employs the concept of ‘strategy’ to distance himself from strict structuralist forms of determination (Levi‐Strauss’ structuralist anthropology). He stresses the importance of agency within a structuralist framework, and employs the concept of investment strategies to conceptualise action that must include time as an essential component. That is, actors participate in social interactions, not as conscious conformists, but through strategies that respond over time; thus, it is the actor’s strategy rather than conforming to a norm that influences his/her participation in social interactions. 11 This is also the case for the ALFA group, in which we detected Mr Claudio X Gonzalez Laporte, who sits on eight boards and is ranked fourth in degree centrality (see Table 1), Mr Valentin Diez Morado, who sits on seven boards and is ranked fifth in degree centrality, and Mr Enrique Castillo Sanchez Mejorada, who sits on seven boards and is ranked tenth in degree centrality. All of these were board members of ALFA group during the Mexican derivatives crisis in 2008. 12 We acknowledge that social capital is not an isolated concept and is better interpreted within the main concept of the field – in our case the corporate governance field. Limited space in this paper prevents us from discussing this in detail. Nevertheless, this is still relevant to the analysis of the Mexican case because, in the corporate governance field, the control of economic, political and social power is determined by access to sources of information, and this depends on social capital in the form of networks.