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Entrepreneurial Networks in Spain (1917-1970): An Analysis of Interlocking Directorates.
Entrepreneurial Networks in Spain (1917-1970): An Analysis of Interlocking Directorates.
Juan A. Rubio Mondéjar""The study of interlocking directorates has been used to analyze the corporate structure of many countries in different periods of history. At the same time, researchers have developed several theories about the nature and functionality of these types of relationships between companies. From the perspective of the firm, two hypotheses have been defended: one, interlocking directorates allow collusive agreements reached, and two, facilitates the cooptation and monitoring, especially relevant to the financial sector. On the other hand, the perspective of class has advocated that interlocks are a tool for maintaining social cohesion of the ruling elite and coordinate political action in defense of their economic interests. Linking with an extensive literature on interlock, this paper incorporates the methodology of social networks analysis to study the Spanish case between 1917 and 1970, with the purpose of evaluating the main assumptions of the theory.""
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The evolution trend of the Spanish network has not differed essentially from the path of other Western European corporate networks, but the configuration and factors that explain it have a specific pattern in accordance with their economic and social characteristics. The exchange of directors among the largest banks and utilities in Spain was one of the instruments used to consolidate its hegemonic position and to limit competition in other sectors. Network analysis confirms the existence of a crony capitalism, created in a context of institutional weakness and dominance of undemocratic political systems. The extractive elite used the network boards to restrict competition in key economic sectors, at the expense of the economic development of the country, until the liberalization of the domestic market and its integration into the global economy.
Although during the 19 th and 20 th Centuries the great modern companies grew and consolidated, the small and medium firms have played a significant role in the management and economic development of European countries, thanks to the articulation of cooperative networkworks firmly esablished in their territories. The networkwork is defined as a way or organizational form that agrees with the conditions of the environment and requires certain characteristics of internal consistency to allow its own efficiency (Jarillo, 1988; López et al. 2004: 70). The personal networks of the entrepreneurs have been specially important in the formation of the firms networkworks in those countries where the institutional environment and the rules have been less meritocratic, as was the case in Southern Europe. In general terms, social networks are defined by a group of actors (individuals and organizations) linked among them. According to Economic Sociology (Entrialgo, 2004), networkworks have evolutioned according to three key elements: the nature of the content –tangible and intangible resources its members have access to–, government mechanisms and the agent's behaviour; and, finally, the networkwork structure –the existence of direct and indirect links among the members of the network. In this model, no reference is made to the influence of the institutional environment on the level of integration of the network, and therefore, on the capacity of survival of their companies. The development of networkworks does not take place in a homogeneous/lineal way along the different stages of the creation and development of business. The treatment given in literature to the evolution of networkworks is related to the life cycle of the firm but not to the capacity of adaptation of the firm's networkworks in front of external shocks such as a revolution, a war, or a régime and institutional context change. The case of the textile companies in Alcoi (Valencia, Spain) in the previous and later years to the Spanish Civil War of 1936-1939, allows to analyze the networks of entrepreneurs in a dynamic way beyond the firms life cycle and to contribute to theoretical creation. The departure hypothesis is that the textile firms of Alcoi were adapting to the market and institutional changes through variations in the degree of integration of the networkwork coordination 1. Through this work, we want to contribute to the theoretical literature on business networks and to the dense debate on the relationship between structure and efficiency.
This paper analyses the evolution of the corporate networks in two Latin economies – Argentina and Italy – from 1913 to 1990 by using the interlocking directorates’ technique. The paper focuses on six benchmark years: 1914 (1913 for Italy); 1923 (1927), 1936 (1937), 1954 (1952), 1970 (1972), and 1990 (1983). For each benchmark year, the largest 25 banks and 100 industrial companies have been selected for each country. For each benchmark year, after showing a descriptive statistics of the companies and the directors included in the sample, the paper develops a network connectivity analysis of the system in the two countries. This is integrated by historical and structural analysis. For the first time in corporate networks’ historical analyses, this paper includes syndics – special auditors for firms – as well as directors in the sample. This paper shows that, despite both Argentina and Italy belong to the same legal family, their corporate networks show a different structure and evolution over time. Also the actors that shaped the overall structure of the two corporate networks are different: in Argentina a major role was played by foreign multinationals, while in Italy the crucial actors were banks and state-owned enterprises.
This chapter focuses on factors that fueled changes and shifts in Argentine interlocking directorates (IDs) throughout the twentieth century. Our research shows that the corporate networks built by Argentina's largest firms never achieved a very cohesive structure and, by the mid-twentieth century, they lost any cohesiveness they might have had. During 1923-2000, board ties evolved into highly fragmented, uncoordinated networks. Before World War II, Argentina's interlock directorships networks exhibited relatively stable cohesiveness cohesion. 1954 marks a transitional period in which IDs experienced a contrasting tale of two subnetworks; a stable core that became more cohesive and a smaller external periphery with weak connectivity. Structural changes in the late 1950s fostered deep changes in the corporate world, prompting a complete turnaround of the network core. By 2000, after another structural change, its main component disappeared and the corporate board network crum...
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Social relationships, articulated around elements like confidence, family or friendship, create networks that allow for rapid and low-cost transfer of information. From the economic point of view, social networks have historically served as an efficient instrument for exploiting business opportunities. In these pages, it is argued that the interpersonal relationships that materialize in the creation of corporations can be utilized to create indicators of the degree of economic integration of a territory, complementing the orthodox variables. For this purpose, were analyzed the business promotion network that was active in a southwestern region of Europe, Andalusia, between 1886 and 1959.
ENTREPRENEURIAL NETWORKS IN SPAIN (1917-1970): AN ANALYSIS OF
INTERLOCKING DIRECTORATES
Juan A. Rubio-Mondéjar & Josean Garrués-Irurzun*
Presented at the XVIth World Economic History Congress, 9-13 July 2012, Stellenbosch
University, South Africa
SUMMARY
The study of interlocking directorates has been used to analyze the corporate structure
of many countries in different periods of history. At the same time, researchers have
developed several theories about the nature and functionality of these types of
relationships between companies. From the perspective of the firm, two hypotheses
have been defended: one, interlocking directorates allow collusive agreements reached,
and two, facilitates the cooptation and monitoring, especially relevant to the
financial sector. On the other hand, the perspective of class has advocated that
interlocks are a tool for maintaining social cohesion of the ruling elite and coordinate
political action in defense of their economic interests. Linking with an extensive
literature on interlock, this paper incorporates the methodology of social networks
analysis to study the Spanish case between 1917 and 1970, with the purpose of
evaluating the main assumptions of the theory.
KEYWORDS: Business History; Financial System; Interlocking Directorates; Social
Networks.
JEL-codes: N24, P12, L14, C63
*Department of Economics, Faculty of Economics and Business, University of Granada, Campus
Cartuja s/n, 18071 Granada, Spain. jgarrues@ugr.es; jarubio@ugr.es. Tel.: +34 958 249913; fax:
+34 958 249995.
1
1. INTRODUCTION
The interlocking directorates technique entails the quantitative study of the
linkages established between two companies based on the coincidence of the same
individual (interlocking director or ID) in several boards of directors. It was firstly used
in the US as early as in the early 20th century in an effort to prevent large companies
from reaching agreements to restrict competition1. Economists and sociologists have
subsequently used this technique to try to understand the relationships between
corporate groups and the linkage between elites and the economic power.
In the 1960s and 1970s, the study of the business reality based on interlocking
directorates became popular in Spain. Based on this technique, research such as that
undertaken by Tamames (1961 and 1977), Muñoz (1970) or Roldán, García Delgado
and Muñoz (1973)2 showed that the 20th century’s Spanish economy had been under the
control of a highly concentrated financial sector.
Over the past few years, the development of the network theory and the related
new methodological tools have revitalized the research on interlocking directorates. For
the Spanish case, authors such as Aguilera (1998) or Rodríguez (2000 and 2003) have
analyzed so the current economic structure.
Despite the extensive literature on IDs, there is also a critical school of thought
based on two arguments. The first calls into question the actual impact of the corporate
boards in the decisions of companies – a function that is assigned to managers. From
this view, boards would just be the representative bodies of the company before the
shareholders and the market, while the concentration of seats from different companies
in the same person would merely respond to the search for prestige both for the
companies and the directors themselves (Mace, 1971; Koenig, Gogel and Sonquist,
1979; Hirsch, 1982; Hermalin and Weisbach, 2003). The discussion on the effective
power is a classic topic and there are no conclusions that can be generalized for
different temporal and spatial contexts.
The second argument against the study of interlocking directorates is based on
the fact that this technique does not allow us to predict the behavior and strategies of the
companies (Fligstein and Brantley, 1992), despite the ample evidence proving the
opposite (Goodstein and Boeker, 1991; Stearns and Mizruchi, 1993; Haunschild, 1993;
Palmer et al., 1995).
As it has been seen, both points of criticism can be questioned. We must
mention, however, that as it only explains the levels of interlocking the ID analysis
leave many unanswered questions related to the corporate behavior, therefore, this work
should be completed with qualitative studies. All in all, there is abundant literature on
this topic, especially in the fields of Sociology, Management and Economics.
In order to explain the presence of the same director in the boards of different
companies the theory has developed several interpretations, which have adopted three
1
Reports submitted to the Senate by the Pujo Commission recommended the adoption of the Clayton Act
(1914), which banned interlocks among companies within the same sector. A recent review of the
theoretical arguments of the Clayton Act regarding the interlocking directorates issue can be seen in
Fiorito (2011).
2
These are just the best known. The analyses on interlocking directorates for the Spanish case were
carried out earlier by Errandonea (1935) for the electricity sector, and by Muñoz Linares (1952 and 1955)
and De la Sierra (1953).
2
perspectives: for the company, director and social class. From the viewpoint of a
company or organization, it is advocated that interlocking directorates are a
consequence of the strategic needs of the companies. From the director’s point of view,
IDs are caused by the own individual ambitions of the individual, who wants to take
part in as many boards as possible for personal career reasons. The class perspective
considers interlocking directorates to be an instrument that guarantees the survival of
the dominant social group3.
Within the organizational perspective we find three hypotheses. The first
advocates that interlocking directorates are part of a corporate strategy to reach
collusive agreements to restrict competition in the market (Pennings, 1980; Burt,
1983). The lack of evidence to interpret the relationship between interlocking
directorates and the collusion strategy may explain why this assumption has been
abandoned in recent years.
The second hypothesis is known as resource dependence and suggests that
interlocking directorates help companies in an uncertain environment capture the funds,
information and markets required to guarantee their survival at the lowest cost possible
(Pffefer, 1972 and 1987; Aldrich and Pfeffer, 1976; Pfeffer and Salancik, 1978;
Galaskiewicz et al, 1985; Boyd, 1990; Mizruchi and Stearns, 1994; Carpenter and
Westphal, 2001). This interpretation assumes that the interlocking director monitors the
companies associated with him (Mizruchi, 1982; Caswell, 1984). But the cooptation and
monitoring argument, in practice, raises a problem: it is not always easy to identify the
direction of the interlocks and know the main company represented by the director. The
cooptation and monitoring function has received increasing scrutiny in the financial
sector, as it is thought that a company with a bank director has better access to capital,
transmits a more reliable image to the market and shows a more efficient economic
performance – although this performance usually comes along with a loss of
independence in the decision-making process of the company (Mariolis, 1975; Mintz
and Schwartz, 1985; Van Overfelt et al. 2009).
A third hypothesis, from a business approach, suggests that IDs emerge for
reputation reasons: a company with prestigious members – renowned by their actions
in other companies – in its board will enjoy the favor of its investors. For the same
reason, a company is interested in maintaining formal relations, by having interlocking
directors, with other companies that are highly valued in the market (Selznick, 1957;
Dimaggio and Powel, 1983). It is also frequent that companies appreciate the presence
of influential people in the political spheres.
The individual perspective, from the directors’ point of view, suggests that IDs
depend on their own will as they are aiming to earn merit in their professional careers
(Zajac, 1988; Stockman, Van der Knopp and Wasseur, 1988). Therefore, those
interested in obtaining several seats in corporate boards would be individuals rather than
organizations. However, this argument only shows the reasons why a director would
aspire to hold his position in several companies and does not take into account the
company arguments. It seems more appropriate, therefore, to consider it as a
complement to the organizational approach.
The class perspective emerges from Sociology. The practice of having
interlocking directors is seen as an instrument to promote social cohesion in the
3
A comprehensive review of the literature interlocking directorates can be seen in the classic article of
Mizruchi (1996).
3
dominant economic group (Mills, 1956; Levine, 1972; Zeitlin, 1974; Mintz and
Schwartz, 1981; Davis, Yoo and Bakeer, 2003; Burris, 2005). From a Marxist approach,
IDs enable the social and economic elite to exert pressure on the government action
(Miliband, 1969; Domhoff, 1970). Several comprehensive approaches have also been
considered, combining the organizational and class perspectives. Thus, linkages
between companies would emerge as a response to the needs of the companies but also
they could be used to coordinate political initiatives in defense of both the class interests
of individuals and the economic interests of companies (Useem, 1984; Mizruchi, 1992).
Over the past few years, the theory of the interlocking directorate as the
backbone of the ruling class has been revitalized supported by the theory of the
economic entrenchment, where IDs are considered one of the instruments used by the
business elite – associated with the political power – to defend their interests to the
detriment of the rest of the country’s economy, by restricting competition – in this
regards, it is reminiscent of the collusive theory – and favoring corrupt practices (Rajan
and Zingales, 2003; Morck, Wolfenzon and Yeung 2005; Haber and Perotti, 2008).
The two main approaches (organizational and class) have given rise to numerous
studies that, thanks to the development of the network theory in the 1970s, have
examined the corporate structure of a country based on interlocking directorates (Allen,
1974; Stockman, Ziegler and Scott, 1985; Yeo, Pochett and Alcouffe, 2003; Rommens,
Cuyvers and Deloof, 2007; Fennema and Heemskerk, 2009; Heemskerk, 2007). These
structures have also been frequently analyzed in cross-country comparative studies
(Stockman and Wasseur, 1985; Windolf and Beyer, 1996; Mac Canna, Brennan and
O’higgins, 1998; Windolf, 2002 and 2009; Rodríguez, Cárdenas and Oltra, 2004;
Maclean, Harvery and Press, 2006; Santaella et al., 2008; Heemskerk and Schnyder,
2008).
The use of IDs seems to have been less prolific in the field of Economic History.
Analyses have been focused on identifying either the relationships in the circle of power
(within which we would find the entrepreneurial elite) or the corporate structure of the
country and the role played by the banking industry in the industrialization process. As
for the time frame, most studies have been focused on the period prior to the World War
II (Karjala, 1979; Lundström and Ottoson, 1989; Ottoson, 1992; Vasta and Baccini,
1997; Ghita, Cuyvers and Deloof, 2009; Mussacchio and Read, 2007; Windolf, 2009)
and rarely on the later period (Rinaldi and Vasta, 2005 and 2008). Others, however,
have used longer periods with a long-term approach (Bunting and Barbour, 1971;
Mizruchi, 1982; Hopner and Krempel, 2003; David et al. 2009; Schnyder et al., 2005;
Ghita, Cuyvers and Deloof, 2010).
In this context, this paper aims at examining the adequacy of the most important
theories on interlocking directorates with respect to the relationships between the largest
Spanish corporations in the early 1970s by using the particular methodology of the
network analysis. This contribution, therefore, has a threefold objective: from the
methodological standpoint, revitalizing the classic studies of interlocking directorates
with the most recent techniques of Social Network Analysis, an interesting approach as
it brings forward a dynamic view of the issue that takes into account the long term; from
the theoretical point of view, evaluating the several hypotheses about the nature and
functions of IDs; lastly, from an empirical standpoint, developing the current
understanding of the Spanish entrepreneurial elite based on the analysis of their
business networks and groups.
4
Once the literature has been reviewed in this introduction, the text will be
developed in four more sections: the second section will describe the data and
methodology used; in the third, the structure of the corporate relationships will be
determined for each of the time periods selected; in the fourth section, the collusive and
the cooptation and monitoring hypotheses will be analyzed from the perspective of the
organizations, with a special focus on the financial and electric sectors. The fifth section
will investigate the validity of hypothesis on the circle of power and the economic
entrenchment. The text will end with a few short and general conclusions.
2. A METHODOLOGICAL REVISION
This paper has been elaborated on the basis of the corporate boards of the largest
companies operating in Spain in four selected dates: 1917, 1930, 1948 and 1970. The
lists including the largest companies are those drafted by Carreras and Tafunell (1993)
in their popular paper on Chandlerian model. These authors have contributed with the
lists of the years 1917, 1930 and 1948. We have decided to replace the 1974 period by
1970, which has been built following the same methodology based on the net assets4.
This approach, which has been chosen so as not to oversize the banking industry and to
give greater emphasis to manufacturing companies, excludes those companies from
industries with less assets than industrial companies, such as insurance companies. In
order to include the latter, which have been shown by other studies of interlocking
directorates as a sector of some significance in the structure of corporate power (Rinaldi
and Vasta, 2008), the ten largest insurers of each year were incorporated on the basis of
the paid-up capital. Therefore, the sample comprised 210 companies – the 200 largest
plus the top 10 insurers – for each of the four years selected.
It should be noted that the fact we resorted to the largest companies does not
imply that we accept that there is a strong correlation between large companies and
economic growth neither that we deny the relevance of the small or medium size
enterprises, least of all in an economy such as Spain’s where these enterprises are still
so important. However, if we want to conduct a study of the business elite – the peak of
the corporate structure – we must focus on the largest companies. And, despite the
shortcomings that may be detected in the criterion used by Carreras and Tafunell5, it is a
good starting point as, regardless of whether they are the actual 200 largest companies
in the country, it clearly reflects 200 of the largest for each time period.
The boards of directors in these companies have been obtained from the same
source used by Carreras and Tafunell, the Anuarios Financieros de Bilbao6 (Financial
Yearbooks of Bilbao). This is a very well-known type of publication in the Spanish
economic historiography that was used as a basis for the classic studies of interlocking
directorates mentioned above. The yearbooks contain, along with other information
4
A criticism for choosing net assets to determine the list of the largest companies can be found in
Aubanell (1994).
5
The assumption that the largest companies are corporations; the double accounting in the case of
companies associated with business groups, etc. (Aubanell, 1994).
6
When, because of several reasons, the board of any company was not found, other yearbooks were used,
such as the Anuario Financiero y de Sociedades Anónimas de España (Financial Yearbook of
Corporations in Spain), which was edited by the Revista Financiera, the Anuario de Sociedades
Anónimas (Yearbook of Corporations) by García Ceballos, and the Anuario Técnico e Industrial de
España (Spain Technical and Industrial Yearbook) by Gálvez-Cañero and Gorostizaga.
5
about corporations, data related to their financial situation, activity and registered
office7. A database has been built registering the names of the presidents, vicepresidents and directors, as well as those of the managing directors and CEOs, for each
company and year when they appear.
After obtaining the boards of directors, the ID-based connections between
companies and sectors of activity were represented by two series of matrices.
Furthermore, a third series of matrices links directors to each other on the basis of their
presence in the same company. Subsequently, the methodology and tools of social
network analysis were applied to these matrices8 with the help of the software
UCINET9, to obtain the structure of relationships and the appropriate statistical
measures to establish a hierarchy for the role played in this structure by the different
stakeholders10.
3. THE CORPORATE NETWORK OF THE LARGEST SPANISH COMPANIES
According to the approach set out above, the Spanish corporate network can be
studied on the basis of the relationships established between companies and the
members of the boards.
TABLE 1
BOARDS OF DIRECTORS IN SPAIN (1917-1970)
Years
1917
1930
1948
1970
Interlocking directors
273
353
405
451
% of the total number of directors
20.7
23.6
26.5
20.2
Average size of the Boards
9.4
12.0
12.4
14.5
Interlocking directors per company
(average)
5.0
7.2
7.2
6.5
81.8
88.6
92.9
90.0
8.9
21.3
13.9
7.21
Companies with interlocking directors
(%)
Density x100
Source: prepared by the authors, see text.
Between 1917 and 1970, as it is shown in Table 1, the number of interlocking
directors was increasing, although the trend was different for its representation in
relation to the total number of directors, with the middle years showing the highest
values.
7
For the source see Tafunell (2005).
For the network analysis in the study of organizations, see Borgatti and Foster (2003).
9
Borgatti, Everett and Freeman (2002): Ucinet for Windows: Software for Social Networks.
10
Up to now, the only studies carried out with the social network analysis in the field of Spanish
economic history were produced by Badía et al. (2010) (to analyze the role played by the networks of
social relationships in the development of the investment in Catalonia during the middle of the 19th
century), Garrués, Rubio and Hernández (2011) (aiming at identifying the investors in Andalusian
companies during the first half of the 20th century) and Garrués and Rubio (2011) (who analyzed the
Andalusia’s degree of economic integration based on business relationships).
8
6
The size of the boards grew from 9 to 14 seats on average, a very similar figure
to the current one11. Likewise, the number of interlocking directors per company was
represented by an inverted U-shaped pattern with the minimum values on the edges and
the maximum values in 1930 and 1948.
Most of the largest companies had interlocking directors, which shows that IDs
were a generalized phenomenon among the Spanish business elite.
The last row of the Table 1 contains a network measure, the density, which is
calculated by dividing the number of relationships established between the companies
by the total number of potential relationships. The higher density levels reveal the
strongest linkages between the groups of companies making up the network. The
highest density was reached in 1930. Afterwards, it dropped significantly following a
similar evolution to that confirmed by Rinaldi and Vasta (2005) for the Italian case and
that can be explained both by the liberalization of the economy and the entry of foreign
companies – especially from the motor and chemical industries – that did not engage
with the others, as well as the strong presence of estate-owned enterprises, which are
less closely connected with the privately owned ones.
3.1. SECTORAL DISTRIBUTION
The sectoral analysis of the relationships between companies identifies the most
relevant sectors in the structure of the Spanish corporate elite12. We cannot forget that
the results are affected by the list of companies itself, as the several economic activities
are not represented in an equitable way neither the size of the boards of directors are
homogenous, with the financial companies generally having the largest boards.
Table 2 shows the degree of centrality –number of relationships with other
sectors– of the most significant branches of activity in the corporate network 13.
Two sectors stood out for maintaining a high degree of centrality in each of the
years analyzed: the financial and the electricity companies, with a high representation
among the largest companies and a board size above the average, showed a very high
level of connectivity with the rest of the productive activities14. A deeper analysis of
these two sectors will be explained in later sections.
The “transport and communications” sector, which comprises railway and
shipping companies (air transport was incorporated in 1948, with the company Iberia,
and highway operators were incorporated in 1970), achieved first position in 1917, and
third in the next two time periods, before dropping significantly in 1970. The
importance of this sector in the first two periods is connected to both the importance of
the railway companies and the high cost of their initial establishment. The incorporation
of the national company RENFE (1941) and the demise or integration of the remaining
firms would explain the lower weight of this sector.
11
Between 2004 and 2008, the boards of the corporations listed in the IBEX-35 had an average size of
14,15 directors (Acero and Alcalde, 2010a). To learn more about the characteristics of the boards of
directors in the current Spain, see Acero and Alcalde (2010b).
12
The ranking used, for consistency reasons, is the same ranking provided by Carreras and Tafunell
(1993), but it has been incorporated to register the network measures more clearly.
13
The degree of centrality is set out as percentages. It should be noted that the sum of the indicator does
not equal 100 due to its own nature.
14
The results are very similar to those already known for the Italian case (Vasta and Baccini, 1997;
Rinaldi and Vasta, 2005 y 2008).
7
TABLE 2
DEGREE OF SECTORAL CENTRALITY (%).
Centrality (%)
1917
1930
1948
1970
BANKS
19.0
14.9
25.8
25.0
ELECTRICAL INDUSTRY
17.8
19.8
28.3
15.8
TRANSPORT AND COMMUNICATIONS
22.4
15.2
15.6
3.1
18.0
6.5
12.6
5.4
TRANSPORT MATERIAL
4.1
3.5
11.7
4.3
CHEMICAL INDUSTRY
2.1
2.0
13.3
5.7
INSURANCES
4.3
3.1
7.7
3.8
AGRIFOOD AND TOBACCO INDUSTRIES
5.3
2.1
7.9
3.1
OIL AND COAL
0.0
2.2
4.7
6.0
OTHERS*
5.0
9.1
15.5
11.6
st
MINING AND 1 METAL PROCESSING
Source: prepared by the authors, see text. *It includes 13 sectors.
“Mining and first metal processing” is the only activity that, along with the
former, was always among the top five positions in all the time periods (considering the
category “others” in a disaggregated manner). However, its weight was very different
during those periods – very important by 1917 and decreased thereafter. The mining
sector had less centrality in the networks than relevance in the Spanish economy and
business structure, especially until 1930, despite being well represented in the list of the
largest companies. One explanation for this is that, as many of these firms were foreign,
their boards of directors did not usually include individuals who were also directors in
other companies operating in Spain. It would be interesting in this respect to carry out a
historical study of international nature in the same way as it has been done for the
present days (Carroll and Sanpinski, 2002; Rodríguez, Cárdenas and Oltra, 2004), to
cross check if these important firms linked to the mining sector were connected to
European networks. The same applies to other sectors, but to a lesser extent15.
In addition to the banking, electricity, transport and mining sectors, which were
well positioned throughout the analyzed period, other sectors that occasionally had an
outstanding performance were the chemical industry, in 1948 (with companies of
significant centrality such as Sefanitro, Sociedad Española de Carburos Metálicos or
Nitratos de Castilla) and the oil, in 1970 (with Campsa, Petronor and Cepsa).
Regarding the degree of sectoral centrality, it can be added that 1948 was by far
the year with the most centrality for all the sectors, which, along with other measures,
may be a sign of a greater inter-sectoral connection. On the contrary, the two leading
sectors – banking and electricity – were far apart from the rest in 1970.
The linkages between the companies and, therefore, between the sectors, are the
IDs. These linkages connect a company to another of the same sector or activity. The
openness coefficient of any sector is obtained by dividing the inter-sectoral linkages –a
sector with the rest of sectors– by the total number of linkages in a sector –inter-sectoral
plus intra-sectoral. Table 3 shows the openness coefficient of the five sectors with the
highest centrality for each period. Values range from 0 (no linkage with other sectors) to
100 (all the linkages are connected to other sectors). Except the electrical industry, the
15
This would be the case of the railway and electricity companies, in the first periods, or the motor sector,
in the last period.
8
sectors displayed in the Table 3 showed figures between 81 and 96 percent, i.e. very
important connections with other sectors. Despite having a high degree of openness,
electricity companies showed, especially in 1917, a higher propensity to establish
relationships with other electricity companies via IDs.
TABLE 3
OPENNESS COEFFICIENT OF THE SECTORS WITH THE HIGHEST
CENTRALITY
1917
ELECTRICAL
INDUSTRY
BANKS
MINING
TRANSPORT
AGRIFOOD
(1)
355
241
321
391
102
(2)
396
371
375
457
111
(½x100)
89.6
65
ELECTRICAL
INDUSTRY
85.6
85.6
91.9
TRANSPORT
MATERIAL
1930
BANKS
MINING
TRANSPORT
(1)
1,005
1,132
463
1,011
262
(2)
1,136
1,514
497
1,159
265
(½x100)
88.5
74.8
ELECTRICAL
INDUSTRY
93.2
87.2
1948
BANKS
MINING
TRANSPORT
98.9
CHEMICAL
INDUSTRY
(1)
724
690
364
438
373
(2)
777
851
380
468
400
(½x100)
93.2
81.1
ELECTRICAL
INDUSTRY
95.8
93.6
1970
BANKS
MINING
93.3
CHEMICAL
INDUSTRY
OIL
(1)
533
324
132
138
138
(2)
656
413
141
156
149
(½x100)
81.3
78.5
93.6
88.5
92.6
Source: prepared by the authors, see text. (1) Inter-sectoral linkages. (2) Total linkages.
3.2. BUSINESS GROUPS
Companies are behind sectors. The study of interlocking directorates combined
with the network analysis provides a few valuable indicators (Table 4).
TABLE 4
MEASURES OF COMPANIES WITH INTERLOCKING DIRECTORATES
YEAR
A
B
C
D
1917
81.8
9
145
58.0
1930
88.6
1
178
71.9
1948
92.9
2
181
72.8
1970
90.7
3
182
54.3
Source: prepared by the authors
A: companies with IDs against the total listed (%)
B: Groups of companies related (components)
C: Number of companies in the most important group
D: Companies with banking IDs against the total number of companies with ID (%)
9
The largest companies in Spain –200 plus 10 insurance companies– were closely
connected to each other through interlocking directors (A). Between 1930 and 1970, the
percentage of interlocked companies was about 90 percent and only in 1917 the
percentage was lower (nearly 82 percent).
The rows B and C contain the groups of companies16 connected to each other by
directors (B) and the number of companies containing the largest component for each
period (C). In the last three years the pattern is very similar: few components –between
1 and 3– and a high concentration of companies in the largest one – about 180. Once
again the year 1917 stands out, with 9 components and 145 companies in the main
component.
What do the differences between the first and later periods show? They may
suggest that the Spanish capitalism was established in its modern form after the First
World War. In the main component of 1917 many foreign companies were included,
such as Sociedad Minera y Metalúrgica de Peñarroya (SMMP), Société Française des
Pyrites de Huelva, Mines de Cuivre de San Platon or Compagnie d’Aguilas, to name
but a few.
The smallest components consisted of two or three companies, usually from the
same sector. There were foreign components, such as the one formed by Huelva Copper
& Sulphur Mines and Rio Tinto Company, or Alquife Mines & Railway and Tharsis
Sulphur & Copper, but also Spanish, which were linked to family groups or specific
geographic areas, such as the one formed by Azucarera Larios and Industria
Malagueña.
There are no signs of a different behavior pattern among “Spanish” and
“foreign” companies, as both are found in the main group and in small components
without any distinction. But the difference between the British and the other European
companies does seem significant. The latter, especially the French and the Belgian, used
to be in the main component, whereas the British companies were more disconnected,
either forming small groups or being left out of the networks.
As mentioned above, in the years 1930, 1948 and 1970 both the number of
interlocking companies and the size of the largest component increased at the same
time, as the number of foreign companies and directors decreased, especially after the
Spanish Civil War (1936-1939). Aside from the main component, the smallest
components were just pairs of companies –one in 1948 and two in 1970. And attention
should be drawn to 1930, as during that year all the companies with interlocking
directors were linked.
In any case, during the four years under study there was a very dense network of
relationships among the largest companies.
Row D (Table 4) shows companies with linkages to financial firms based on
interlocking directors in relation to the total number of companies with IDs. This
question will be addressed later in this paper although it should already be noted the
presence of high ratios, always above 50 percent, and especially in 1930 and 1948.
From a structural point of view with respect to the network, the fact that two
companies share an interlocking director means that both are part of the same
16
In the language of networks the groups of stakeholders connected to each other are called components.
10
component, but this relationship does not imply that both companies belong to the same
business group17. The presence of at least five interlocking directors between two
companies has been considered as a criterion to identify business groups18. This is an
imperfect yet workable criterion despite it is not necessary that the resulting groups
have to be the same as those resulting from an analysis of the ownership structure of the
companies.
Table 5 shows the main groups of companies interlocked by at least five
interlocking directors between 1917 and 1970. Each group has been identified with the
name of the dominant company, and the number of interlocked companies as well as the
company that showed the highest centrality has also been included.
TABLE 5
BUSINESS GROUPS AND COMPANIES WITH THE HIGHEST CENTRALITY
IN EACH GROUP
YEAR
1917
1930
GROUP
COMPANIES
HIGHEST CENTRALITY
BANCO DE VIZCAYA
8 Eléctrica de Lima
BANCO HIPOTECARIO
3 Caminos de Hierro del Sur de España
BANCO VITALICIO
3 Banco Vitalicio
BANCO DE CREDITO INDUSTRIAL
CAMINOS DE HIERRO DEL NORTE DE
ESPAÑA
12 Unión Eléctrica Madrileña
BANCO DE VIZCAYA
10 Electra del Viesgo
11 Banco de Bilbao
ENERGIA ELECTRICA DE CATALUÑA
5 Unión Eléctrica de Cataluña
MENGEMOR
3 Mengemor
BANCO DE VIZCAYA
BANCO CENTRAL
1948 BANCO VITALICIO
17 Banco de Bilbao
5 Banco Central
3 General de Tabacos de Filipinas
BANCO URQUIJO
3 Industria y Navegación
CATALANA DE GAS Y ELECTRICIDAD
3 Catalana de Gas y Electricidad
BANCO DE VIZCAYA
9 Banco de Vizcaya
BANCO CENTRAL
3 Banco Central
1970 BANCO DE BILBAO
3 Banco de Bilbao
FINANZAUTO
3 Finanzauto
BANCO DE SANTANDER
3 Banco de Santander
Source: prepared by the authors, see text
17
The definition of business group is complex. For Puig and Torres (2011: 1), business groups are “stable
and flexible forms of organization constituted by a relatively high number of companies that are
autonomous by law but linked to each other by formal and informal ties and operate according to a
homogenous strategy in a wide range of sectors, which are not always related.” The business group
concept was recently reviewed by Colpan, Hikino and Lincoln (2010). For the Spanish case see Álvaro
(2011).
18
The average size of the corporate boards in the period varied between 9.4 (1917) and 14.5 (1970).
11
1917 was again the year with the lowest connection, both in terms of the number
of groups (three against five in the later years) and in terms of the number of companies
in the largest group (8).
As for 1930, we can highlight the size of the groups, with three of them being
formed by more than 10 companies. Each group had a different feature: in the Banco de
Vizcaya’s group, almost all the companies were linked to the rest. The group of the firm
Caminos de Hierro del Norte de España had a different grid structure, where this
company acted as a bridge between two subgroups, one formed by railway companies
and the other around the Banco de Bilbao, whose higher centrality was based on the
presence of its subsidiary, Banco de Comercio. In this respect, the Banco de Crédito
Industrial’s group features a more singular structure, as it was not strictly a group since
it hardly had linkages between more than two companies and where it was also
necessary to go down to the level of four interlocking directors to evaluate the different
groups comprising this structure.
The largest group was established in 1948, when the groups of the two big
Biscayan banks were linked via Iberduero, a company that shared six interlocking
directors with Banco de Vizcaya and seven with Banco de Bilbao.
In 1970 only a group stood out from the rest, following a more similar pattern to
1917 than to the previous years. As in 1917, that group was the one articulated by
Banco de Vizcaya. While in 1917 all the companies apart from the bank itself and the
shipping firm, Marítima del Nervión, were power suppliers,19, in 1970 the group was
characterized by its greater diversification while maintaining its traditional link to the
electricity sector.
In eight of the eighteen groups the company that had the highest degree of
centrality was a bank, and six an electricity company20. It is not surprising, as they are
the dominant sectors in the groups. Also significant, until 1948, was the railway sector.
The poor development of the Spanish stock market, at least until the 1960s, along with
the strong capital requirements by the largest industrial companies, explains why banks,
acting as financial intermediaries, were a key element in the economic growth of the
country. Their involvement in the development of the railway and electricity, sectors
with high sunk costs, was therefore essential, as in other European economies.
The banks normally occupied key positions in the articulation of the groups.
Also, the financial sector enjoyed a high centrality. If we look at row D of Table 4, the
number of companies linked to banks through interlocking directors, out of the total of
the companies that had IDs, always remained over 50 percent. In 1917 it almost reached
60 percent but it is in the years 1930 and 1948 that we find the greatest linkage, when
72 percent of the companies that had interlocking directors related through them to
banks. The later reduction can be explained by the application of the Law on
incompatibilities of senior staff in private banking (Law 31/68), which limited the
number of positions on boards of directors. Or, more probably, by the development of
the company structure and the mechanisms of coordination and control on which the
companies relied.
A discussion of the role of banks refers us back to the debate generated by
Gerschenkron (1962) on the different models for achieving industrialization. In contrast
19
The Banco de Vizcaya was known as the “electricity bank”.
If we consider the two companies with the highest centrality in each group, over 40 percent of them are
financial companies as nearly 30 percent are electricity companies.
20
12
to the classical English model, characterized by self-financing, big family companies
and a lesser participation of the banks, the Spanish case resembles more the continental
or German model, with a significant role for the financial sector, which provides the
capital necessary to the development of industry. Close relations between the boards of
directors of the banks and the Spanish industrial companies have been demonstrated by
numerous authors at different times of the 20th century (Velarde, 1967; Tamames, 1961
and 1977; Muñoz, 1970; Roldán, García Delgado and Muñoz, 1973; or Tortella and
Palafox, 198421). Applying network analysis methodology, Aguilera (1998) and
Rodríguez (2000 and 2003) have demonstrated that this situation continued in the 1990s
and in the first years of the 21st century.
4. ORGANIZATIONAL APPROACH: COLLUSION AND COOPTATION
In the introduction we mentioned the theories which explain the nature and
functions of IDs. From the viewpoint of organizations, there are three main arguments,
considering interlocking directors as a means of reaching collusive agreements to limit
competition in a sector; acquisition and control of the resources necessary for the
survival of the companies; and reasons of prestige and legitimacy in relation to the
market and to investors. The last question is difficult to approach and, in any case, it can
complement the previous ones. Therefore, the hypotheses that will be dealt with in this
appendix are the first two: collusion, on the one hand, and acquisition of resources and
control, on the other, in the two most outstanding sectors of the Spanish corporate
structure, banking and electricity.
4.1. COLLUSION
The theory of collusion (Pennings, 1980; Burt, 1983), which maintains that
interlocking directors are an instrument that makes it possible for companies to reach
agreements to restrict competition in their markets, has lost vigor in recent years,
because although collusive agreements have occurred it would not be easy to explain
them by the presence of interlocking directors. Nevertheless, in countries like the
United States legislation was developed with the aim of prohibiting the existence of
interlocking directors between companies that were active in the same sector22. In the
Spanish case, there have been many authors who have defended the theory of collusion
in the main sectors and especially in banking (Tamames, 1961 and 1977, Roldán and
García Delgado, 1973). More recent investigations on the banking sector have indicated
that under Francoism the limitation of competition was neither perfect nor permanent,
with collusive agreements frequently being unfulfilled (Pons, 1999 and 2001; García
Ruiz, 2002; Pueyo, 2003).
Pueyo (2006a and 2006b) has studied the boards of directors of the financial
companies over eight periods, between 1915 and 1985, finding that, if there were
certainly times when the big banks maintained close links with each other through IDs –
21
The works of the 1960s and 1970s tend towards the line of Hilferding (1985) [1910], identifying the
Spanish situation with the phase that this author characterizes as “financial capitalism”.
22
Clayton Law (1914). See note 1.
13
as in 1921-1925 and 1965-1967– they did not constitute permanent and lasting networks
that would allow us to speak of a prolonged collusive strategy throughout the period.
Without wishing to repeat the work of Pueyo, the financial companies of the
four periods studied have been isolated and analyzed independently, apart from the
other big companies. In the years 1917 and 1970 a single network that related to all the
banks was not formed. However, in 1930 and 1948 this did happen. The network was
especially complex in 1930: there were 26 banks connected through ID, and 18 of them
were united in a single component by at least two interlocking directors. This
component only dissolves when at least three interlocking directors are sought, the
financial system being broken down into six groups. The network of 1950 is simpler: a
component of 17 financial companies united by at least one interlocking director, which
can be reduced to a group of 9 banks if we seek a link of more than two interlocking
directors. It is, therefore, difficult to prove a collusive strategy in the banking sector by
considering IDs alone. Together with the directors who owed their seats to being
representatives of a financial body, it is probable that there is a coincidence of persons
representing their own economic interests or those of their acquaintances, given their
condition as capitalists.
But the fact that interlocking directorates do not demonstrate the existence of
agreements to restrict competition in the financial sector does not mean that such
agreements did not occur, since other more efficient mechanisms of control and
coordination could have been employed. If this were true, the loss of complexity of the
network of interlocking directors in 1948, with respect to 1930, could be explained by
the creation of the Consejo Superior Bancario (Spanish Banking Board) in 1946
(Tamames, 1961: 28-33) which would exercise the functions attributed to the IDs.
And in the electrical sector? Was there collusion?
For the Spanish electrical sector, where some excellent monographs exist, there
are not yet enough studies which approach its development from the organizational
point of view. A first approximation to this question, employing network analysis
methodology, does shed some light on it.
In 1917 there was only one electrical group which was strongly cohesive
through interlocking directorates, that of Hidroeléctrica Ibérica which, with Basque
origins, tried to occupy other markets promoting the creation of large electrical
companies and developing a strategy of cross-share holdings, as did other international
holdings (Hausman, Hertner and Wilkins, 2008), to establish barriers to entry and obtain
local or regional monopolies.
After the First World War, difficulties in the supply of coal and the increase in
its price implied significant changes in the sector, which were reflected in hydroelectric
development and the extension of high voltage. In 1930 the number of power plants
among the major companies of the country doubled, while the connections between
them through interlocking directors grew. A total of 36 companies were linked by at
least one interlocking director. And, contrary to what happened in the financial sector,
the links were very significant. In order to find differentiated components it is necessary
to look for a minimum of three interlocking directors, and in this way two components
can be appreciated. On the one hand, in the Catalan market, with a high degree of
connections, a group was established around Barcelona Traction. In the rest of the
country, it appears that a balance of forces was established between the two main
14
companies of Grupo Ibérica, Ibérica and Hidrola which, as indicated by Aubanell
(2000), became a company independent of Ibérica in 1925.
In 1948, the electrical network was formed by around thirty companies, among
which, if we descend to a level of more than two interlocking directors, three groups
stand out, of unequal size and significance, headed by Iberduero-Hidrola, Catalana de
Gas y Electricidad and Barcelona Traction. The connections between the rest of the
companies were weak, except in the case of the public companies Endesa and Enher.
In 1970 the number of interconnections was reduced still more, as a consequence
of the process of concentration of the sector. Fourteen electrical companies disappeared
from the list of the major companies, in some cases by mergers or absorptions. The
legislation on compatibilities, as well as the greater stability of the sectoral status quo,
meant that the number of shared seats on the boards of directors were clearly lower in
the big companies.
In the absence of a study with another type of source, it appears that in the
electrical sector the hypothesis of collusion through IDs is more plausible than in the
case of banking. The close relations established through cross-share holdings and
interlocking directorates leads to strategies to allocate markets and areas of influence.
The said strategies, like the functions of the directorates, would change over time, and
would rely on other instruments to coordinate collective actions, like the creation in
1944 of the electrical cartel, Unidad Eléctrica (UNESA), by the eighteen biggest
electrical firms of the country.
4.2. COOPTATION AND MONITORING
The hypothesis of resource dependence – the interlocking directorates guarantee
to the company the resources, information and financing necessary for its good
performance – cannot be tested easily studying a sector in isolated form. The structure
of the company groups obtained in through network analysis (see section III. II) shows
that, in the majority of cases, one or several financial bodies enjoyed greater centrality
and would in turn articulate the other companies around them. Interlocking directorates
would allow the banks to monitor the performance of the companies in which they had
holdings, with which they usually had commercial relations, as well as obtaining
trustworthy information on the markets in which they were active. At the same time, the
companies linked to the banks would ensure privileged access to capital and obtain a
stable partner of reference (Mariolis, 1975; Windolf, 2009). Although there is also a
counterpart to this, since it increases the level of risk for the banks, and the companies
can be forced to accept certain strategies imposed by the banks (Pons, 2001; Valdaliso,
2004).
In order to examine more closely the relationship between interlocking
directorates and acquisition of financial resources-control, the IDs of the electrical
sector have been studied, distinguishing between financial, electrical, and other
directorates.
From an examination of Table 6, on the connectivity of the electrical sector, we
can extract several observations. First, the number of companies that would form the
network of interconnections of the electricity business (inter and intra-sectoral)
practically doubled in the first third of the 20th century, becoming stabilized after that.
Second, the number of interconnections per director, according to the evolution of the
sector (strong expansion-gradual concentration), reaching its highest value in 1930
15
(3.2), clearly surpassing the level of 1917 (2.5), and undergoing a strong reduction from
the dawn of Francoism (1.9 and 1.7). Third, the weight of the so-called financial
directors, with respect to the electrical companies, was clear at all stages, in accordance
with the strong banking dependency of a sector whose development demanded high
sunk costs23.
TABLE 6.
INTERLOCKS (ID) OF THE ELECTRICAL SECTOR, ACCORDING TO
THE TYPOLOGY OF DIRECTORATES.
Interconnections/Company
1917
1930
1948
1970
1917
1930
1948
1970
A1
A2
A3
A4
B1:A1
B2:A2
B3:A3
B4:A4
Number of companies
(electrical and non
electrical)
54
93
98
92
2.7
4.9
3.1
2.6
Interlocks/Director
Interlocks
ID
D.
ID
D.
ID
D.
ID
D.
1917
1930
1948
1970
B1
C1
B2
C2
B3
C3
B4
C4
B1:C1
B2:C2
B3:C3
B4:C4
147
60 460
142 300
158 242
141
2.5
3.2
1.9
1.7
Financial D.
73
23 279
58 177
87 138
73
3.2
4.8
2.0
1.9
Electrical D.
44
16 137
50
60
29
50
28
2.8
2.7
2.1
1.8
Others D.
30
21
34
63
42
54
40
1.4
1.3
1.5
1.4
44
Source: prepared by the authors, see text.
Note: D.: Directors. Financial Directors: directors who are seated on the Board of a financial body.
Electrical Directors: directors who are seated on two electrical companies but not on any financial
company. Others Directors: directors who are seated only on the Board of an electrical company, on no
financial company and on one or more other branch of activity.
The situational analysis, however, is richer in shades. In 1917, new directors of
the Banco de Vizcaya occupied 35 common seats in the six electrical companies of the
Ibérica group. Less known is the linkage to the sector of the Banco Hipotecario which,
nevertheless, was the second biggest bank involved in the electrical business. Other
banks, like Banesto, Bilbao or Hispanoamericano were involved – between 4 and 6
seats– in the directorates of eight electrical companies. Although the relations of
interconnection of interlocking directorates could merely reflect the sum of individual
or corporate strategies, there exist clear suspicions –that other work would have to
corroborate – that a good part of the financial bodies involved in the electricity business
would act in a syndicated manner. This suspicion, in addition to what has already been
indicated, stems also from the evidence that Hipotecario, Banesto and
Hispanoamericano collaborated with the majority partner, Vizcaya, in three significant
electrical companies (Hidrola, Lima and CEM) with the same number of directors. A
schema repeated by the two biggest financial entities with the Basque bank in Viesgo. It
also does not seem accidental that three banks, Comercial, Español and Hipotecario,
would have a presence in the directorates of Santillana and Mengemor or that the
holding of Vizcaya and Bilbao, its future rival, was very similar in Ibérica and Hidrola.
23
The strong penetration of the financial sector in electricity has been demonstrated by numerous authors,
such as Errándoena (1935), Muñoz Linares (1955), Tamames (1961), Roldán, García Delgado and Muñoz
(1973), Maluquer (1985) and Antolín (1999).
16
The ad hoc coalition of Vizcaya with Hipotecario in the firms cited, and Unión
Eléctrica Vizcaína, would serve to strengthen its control over Ibérica.
In 1930 the electrical sector reached a high degree of financial integration, above
its productive integration. The greater demand for capital meant that the financial bodies
found this industry to be a good client. The need to control the risk inherent to loans, the
management of capital increases and the design of dividends policy obliged the
financial bodies to be present on the boards of directors of the electricity companies.
Network analysis allows us to make three observations for this year: first the expansion
of the electrical sector after the First World War increased still more the participation of
the financial bodies; second, if in 1917 the banks Vizcaya and Hipotecario stand out, in
1930 two organizations characterized by a strong industrial vocation were added to
them, Banco Urquijo and Crédito Industrial24; third, the latter, being a consortium in
which nearly every Spanish bank was represented, acted as interconnector of the main
electrical banks, Urquijo and Vizcaya. The linkage between electrical companies and
banks, already made in 1917, was consolidated thirteen years later. The major
difference between the two periods lay in the emergence of Saltos del Duero, linked to
Banco de Bilbao, and CHADE, which united a group of banking bodies that
collaborated with the international holding SOFINA in the Spanishification of the
Argentine company CATE, so as to safeguard the German assets from the compensation
paid to the Allies after the First World War.
In 1948 changes were noticeable with respect to the previous period. The
emergence of Iberduero (1944) as a result of the merger of Ibérica and Saltos del Duero
meant that the two main Vizcayan banks, Bilbao and Vizcaya, shared interests. Banesto
entered into some of the traditional electricity businesses of Vizcaya and reduced
significantly the links of banks like Urquijo or Hipotecario, while increasing those of
others, like Santander or Central. But in general there was a loss of vigor in relations
through interlocking directorates between banks and electrical companies, which can be
explained by a major diversification of the sources of financing of the latter, who gained
in authority with respect to the banks.
In 1970 the connectivity between electrical companies and banks continued to
fall. The explanation is found in the already mentioned law of incompatibilities of 1968
and, above all, in the development of corporate relations, parallel to the sophistication
and improvement of company systems of control and management that surpassed the
advantages of personal interconnections (North, 2005). In spite of being very numerous
the financial bodies with holdings in the electrical sector, Vizcaya, Hispanoamericano,
Urquijo and Banesto stand out as reference banks of distinct groups.
The hypothesis of resource dependence and financial control through
interlocking directorates seems verified. Table 6 highlights the fact that, throughout the
period studied, the electricity sector received a significant number of directors
originating from the banking sector, who fulfilled the functions that these theories
assign to them. However, knowledge of the strategies of acquisition and control should
be completed with the use of other sources and the individual study of banks or groups
of companies.
24
On the Banco de Crédito Industrial, Tortella and Jiménez (1986).
17
5. CLASS PERSPECTIVE: INNER CIRCLE AND ENTRENCHMENT
The ID technique does not serve simply for the detection of relations between
companies and sectors; it also allows us to study the links between directors.
Personal relations have been a significant element in Spanish company activity,
at least until well into the 20th century. Company groups with a family character have
not been rare, as with the Urquijo group (Puig and Torres, 2008 and 2011), the Aznar
group (Torres, 1993; Valdaliso, 2002 and 2006) or the Fierro group (San Román, 2009).
Recourse to family financing has been frequent among entrepreneurs (Díaz Morlán,
2011). And marriage has been employed habitually as an instrument of renewal of the
directorial capacities of company dynasties (Díaz Morlán, 2009).
On the other hand, personal relations do not only include the family, but also
friends and acquaintances. And we should add those of a political nature25, which can
be materialized in distinct benefits for companies. Álvaro (2007) has shown how
company networks, with financial and political linkages, were employed by ITT to
obtain and maintain its telephone monopoly. And Torres (2003) has shown how
companies employed distinct strategies to survive in the harsh conditions of the
Francoist turn to autarchy (1936-1959), among them recourse to relations with
influential persons within the regime.
In the introduction we saw that, from the class perspective, ID have been
interpreted as instruments which favor cohesion between the social and economic elites
(Mills, 1956; Burris, 2005); even serving, according to the Marxist approach, to exert
pressure on the actions of the state (Miliband, 1969; Domhoff, 1970). And also more
explanations have maintained that ID originate from the strategies of companies, and
that once created, they allow the coordination of policies to benefit the dominant
companies and groups (Useem, 1984; Mizruchi, 1992).
There would hardly be any differences between this approach and the theory of
economic entrenchment: this latter supposes that a group of individuals, pertaining to
the business élite, connected to the political regime and under its influence, exerting an
oligarchic control over some concrete sectors or over the national economy as a whole
(Morck, Wolfenzon and Yeung, 2005). The limitation of competition is obtained
through the maintenance of high levels of corruption (Sheleyfer and Vishny, 1994) and,
above all, through legislation which guarantees the defense of financial interests (Rajan
and Zingales, 2003; Haber and Perotti, 2008). IDs, therefore, would be another of the
instruments promoting unity between companies, banks and politics (Ghita, Cuyvers
and Deloof, 2009).
With this class perspective, very close to the theory of entrenchment and
financial hegemony, a literature on interlocking directorates applied to the Spanish case
developed from the mid 1950s to the late 1970s. It has already been mentioned that it
identified a collusion strategy in the most important economic sectors, and that it came
to the conclusion that the Spanish economy was controlled by the financial sector (De la
Sierra, 1953; Tamames, 1961 and 1977; Muñoz, 1970; Roldán, García Delgado and
Muñoz, 1973). Tamames (1977) placed more emphasis on the existence of a business
25
The period studied breaks down fundamentally into two historic periods marked by personalized
political practices, such as the Restoration –caciquismo or “boss politics”– and Francoism. The latter has
been defined by Sánchez Recio (2003) as “a network of interests”, to describe the relations between the
dictatorship and the groups which supported it, in exchange for economic and political power.
18
elite with the ability to affect economic policy, through the constitution of
institutionalized pressure groups. But in spite of being based on quantitative research
and reflecting advanced ideas for the time in which they were produced, these works
could not achieve the complexity which network analysis allowed in subsequent
decades.
Rodríguez (2000) has applied the new methodology and with an integrated
approach, in the tradition of Mizruchi and Tamames, has identified the Spanish business
circle for the year 1991, showing the links between the economic groups and the
political ambit and indicating the key role of the banking groups, as well as the
persistence in the central positions of the business system of the early 1990s of the old
financial oligarchy of the 1970s. And subsequently (Rodríguez, 2008) has repeated the
exercise for the year 2000, noting how the process of tertiarization of the Spanish
economy and the opening of markets have produced significant changes, and the old
financial elite has been replaced by a new class of more professionalized directors26. But
until now social network analysis has not been applied in order to identify the business
elite in the past.
Does an inner circle exist within Spanish corporate power? Table 7 shows some
measurements of interlocking directorate networks. The first column shows the total of
directors (interlocking or not) of the major companies in each of the years studied. The
second column shows the number of directors who, besides occupying at least two seats
on the boards of directors of these companies, were related to other persons who also
shared the same condition, giving rise to a network27. This network was made up of a
reduced number of individuals, between 260 and 449 –between 20 and 26.5 percent of
the directors of the biggest companies– that according to the analysis realized, would
correspond to the Spanish corporate elite28.
TABLE 7.
MEASUREMENTS OF ID NETWORK.
Years Directors
1917
1930
1948
1970
1,321
1,493
1,526
2,231
Interlocking %
Degree of Degree of
Index of
directors * Interlocking centrality intermediation centralization
directors * (%)
(%)
260
353
405
449
19.68
23.64
26.54
20.22
0.4
0.3
0.2
0.2
0.61
0.39
0.35
0.40
9.5
8.0
4.5
4.6
Source: prepared by the authors, see text. * Only those that make up the network, see note 27.
The Table 7 also contains measurements of networks: on this occasion the
degree of centrality measures, in percentage terms, the coincidence of an interlocking
26
A similar approach, in search of the Spanish power circle, appears in Santos Castroviejo (2008). A
different analysis appears in Baena del Alcázar (1998 and 2002): with the intention of testing Pareto’s
theory of the circulation of the elite, relating parliamentarians, political appointments by decree and the
directors of the biggest companies for the years 1972, 1980 and 1989, confirming that the Spanish elite
only began to open up during the democratic period.
27
In the first year only, the interlocking directors that formed part of the network (main component) were
not equivalent to 100 percent of total interlocking directors, but 98 percent, since six interlocking
directors were not related to each other.
28
A more complete study of Spanish interlocking directorates can be found in Rubio and Garrués (2012).
19
director with another one in the same company. The degree of intermediation reflects
the number of pairs of directors which can connect with a third, following an indicator
of the capacity to control information that an actor has. And the index of centralization
shows the level of dependence of the network with respect to its main actors.
The data indicates 1917 as the year in which the group of interlocking directors
was most reduced, but also that it was at this time that the directors enjoyed a greater
average number of relations, and a greater capacity to connect with other individuals.
Also in this period we find the maximum dependency of the network with respect to the
main interlocking directors.
It can be said that, according to the indicators commented on, the group of
interlocking directors that has been called the business elite broadened in absolute terms
between 1917 and 1970 and was in percentage terms more significant in 1930 and 1948.
But the importance of the ID, in terms of ability to control information and possibilities
to act as a coordinator of business strategies, was higher in the two first periods, before
the Civil War. In 1970 the power circle appears, in terms of the proportion of
interlocking directors out of total directors, like that of 1917, but there is considerable
loss of relative weight of the network actors. This reduction in the importance of
interlocking directors can be attributed to the 1968 law of incompatibilities, but it
appears more probable that the explanation lies in the recourse to other, more complex,
types of instruments of coordination on the part of companies.
Qualitative analysis of interlocking directors, taking into account some concrete
characteristics like linkage with political activity, the possession of a noble title or the
continuity of the exercise over time is reflected in Table 8.
TABLE 8.
CHARACTERISTICS OF INTERLOCKING DIRECTORS.
Years
1. POLITICIANS (TOTAL)
1.A. Active Politician
1.B. Politician before ID
1.C. Politician since ID
1.D. Before and after
2. NOBLE TITLE
3. ID BANK
4. REPEAT ID (% year 1)
5. REPEAT ID (% year 2)
1917
34.8
23.2
8.3
2.9
0.4
18.1
59.4
25.6
.
1930
29.7
6.7
18.2
3.6
1.1
18.2
47.1
21.0
19.9
1948
23.5
8.1
12.5
2.7
0.3
15.0
49.0
31.1
18.4
1970
20.6
10.0
10.2
0.4
0
10.9
83.4
.
28.2
Source: prepared by the authors, see text.
The participation of directors in national politics allows an approach to statecompany relations and the possibility for companies of obtaining a legislative
framework favorable to their interests29. To identify directors as politicians the status of
Congress deputy has been taken into account30, and it has been indicated whether they
29
It should be borne in mind that the major part of the period studied took place under two dictatorships:
that of Primo de Rivera (1923-1930) and that of Franco (1939-1975).
30
The Spanish Cortes is bicameral and is made up of the Congress (upper chamber) and the Senate (lower
chamber). During the period studied the Senate alone functioned until 1923, and only some of the
20
combined political tasks and roles on boards of directors simultaneously (1.A.),
previously (1.B.), or subsequently (1.C.). In 1917 nearly a quarter of interlocking
directors were active politicians, a very high figure which could be explained by the
characteristics of the parliamentary period of the monarchy of Alfonso XIII, which
allowed space for well known business figures to participate in the political system
while generating incentives – distribution of economic power– for themselves, but also
by a lower level of professionalization of business activity. In subsequent periods the
proportion of those politically active fell, only to increase again in 1970, because of the
significant presence of public companies in the sample.
According to Table 8, there were more cases of individuals who had a political
career before becoming interlocking directors, than of interlocking directors who
following business activity dedicated themselves to politics. This implies that it was
important to have relations in the ambit of politics if one was member of the board of
directors of a big Spanish company and explains the interest of these companies in
guaranteeing direct relations to better defend their interests31. It should be indicated, in
accordance with this interpretation, that in 1970 more than 10 percent of interlocking
directors had occupied posts in the Francoist parliament.
The relationship between the traditional upper class and the boards of directors
of the main companies is an element present both in power circle theories and in those
of entrenchment. However, it is difficult to approach empirically, as it requires
knowledge of the specific circumstances of each interlocking director. An imperfect
criterion used in other works (Ghita, Cuivers and Deloof, 2009) defines members of the
upper class as those who have a noble title. In Table 7 we see the proportion of
interlocking directors (2) in this situation: around 18 percent in 1917 and 1930 and a
decline in the following periods, to reach the lowest figure in 1970.
Is there a continuity of the corporate power circle? The evolution of the
indicators shows that, independently of the time chosen, there was a group of
interlocking directors which maintained themselves from one period to another32. The
permanence of these individuals in the different years observed would be conditioned
by the economic structure of the big company, not very flexible to change; by the
specific nature of the task of director, which favors the long term; and by the reduced
supply of individuals capable of exercising it, given the difficulties in acceding to the a
necessary education. Considering this, it should be said that between 1917 and 1970, the
Spanish corporate elite was made up of a fairly permanent group of individuals33, as
argued by Tamames (1961 and 1977) and Rodríguez (2000)34. The presence over time
of this elite supposes for Tamames a continual pressure over the decision making
centers to advance its own interests, resulting in the economic and social domination of
single class and the restriction of competition in the main sectors, limiting the
senators were elected. Only six directors were elected senators and they were not parliamentarians,
although they are included in the analysis as “politicians”.
31
It is not incompatible to have recourse to professional politicians who act as a lobby, as happens today
and as happened in the period studied, for example with Lerroux and ITT (Álvaro, 2007).
32
The last two rows of the table show the percentage of individuals who repeated as an interlock in the
following period, considering the first (4) and the second year of reference (5). The interpretation would
be, for example, that 26 percent of interlocking directorates in 1917 repeated in 1930, representing 20
percent of the interlocking directorates of the latter year.
33
This permanence is increased if, instead of considering individuals, we take into account family
histories, very much a factor among the directors, as indicate by Muñoz (1970).
34
Baena (1998 and 2002) indicates that the nucleus of the power elite is maintained over time, although
opening up during the transition and the period of democratic governments.
21
modernization of the productive system and determining Spanish economic growth
(Tamames, 1970: 145).
Independently of whether this last interpretation is true, the interlocking
directorates technique combined with social network analysis yields results that fit in
with the sociological theory which considers ID as an element of cohesion of the ruling
class (Useem, 1984; Mizruchi, 1992). In the absence of an investigation of a qualitative
character, it seems to identify an inner circle made up of a group of individuals
connected with the traditional upper class and with the political regime. This business,
social and political elite could use ID to control the economy of a country in its own
benefit, as the theory of entrenchment maintains. But the evidence that supports this
type of analysis can only be the first step in a deeper investigation which would allow it
to be verified.
6. CONCLUSIONS
In these pages we have tried to show the necessity of realizing a business history
supported by theory. The hypotheses developed by economic sociology and the
organization of companies to explain the functionality of interlocking directorates have
been examined in the Spanish case, applying network analysis. In the course of the
investigation the following conclusions have emerged:
1. The corporate structure of the major Spanish companies has been dominated, at
least until 1970, by the financial sectors, as previous works have pointed out.
2. Together with the financial sector, electricity, transport and mining have been
the dominant sectors in inter-company relations, owing to the significant presence on
their boards of directors originating from banks.
3. The above affirmations, together with the high centrality of the banks in the
configuration of Spanish business groups, allow us to corroborate the validity of the
hypothesis of resource dependence and financial control. The analysis of interlocking
directorates in the electricity sector reinforces this hypothesis still more, once the
individuals are identified and it has been shown that bank directors participate in a
decisive fashion in the electricity business.
4. The theory of collusion, which led to the first studies of interlocking
directorates, cannot be proven for the financial sector. Only in 1930 can a high
connectivity be identified, and this is not the case in the other periods studied. This does
not mean that collusion does not exist, since this could be exercised through other
mechanisms.
5. In the electrical sector, the distribution of interlocking directorates indicates a
strategy of a collusive type, that would affect the distribution of regional markets before
the integration of the national market.
6. The analysis of the directors allows us to identify a business elite, linked to the
political regime and the dominant social classes, which has maintained itself over time
and can be interpreted as a power circle.
22
7. This relation between economic power and political power does not however
allow us to subscribe wholeheartedly to the theory of entrenchment, although the
validity of some of its elements appears confirmed.
8. Ultimately, the study of interlocking directorates emerges as an appropriate
technique to question, refute or clarify some of the old and new theories referring to the
business world as a whole (collusion, resource dependence, reputation, social
cohesion/entrenchment) incorporating measurable parameters that allow comparison
between business groups, sectors of activity and various geographical –regional,
national and international– and temporal samples. This type of analysis, however, can
do no more than provide a valuable framework for other fields of study, especially of
the qualitative or microeconomic type, which could yield fruitful results.
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