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Interlocking directorates in canada: evidence from replacement patterns
Social
Networks
4 (1982)
North-Holland
3-25
Publishing
Company
INTERLOCKING DIRECTORATES FROM REPLACEMENT PATTERNS Michael D. ORNSTEIN Yor,+UWoersirl
IN CANADA: *
**
Cross-sectional studies of interlocking directorates whether the network is primarily an accumulation firms
or whether
the outcomes usually
it reflects
when
replaced.
are examined
a more
diffuse
ties are broken,
as would
occur
for interlocks
EVIDENCE
cannot adequately of planned haisons
collective
interest
it is possible
if planned
among
all firms
of the capitalist
to discover
liaisons
the network.
the one hundred
the question specific pairs
class.
if ties between
dominated
ever among
address between
By examinmg
specific
firms
Replacement largest
of of are
patterns
Canadian
firms
between 1946 and 1977. About 30 percent of the broken ties are replaced by ties between the same pair of firms. Ties involving an executive of one of the firms (“insider ties”) are more likely to be replaced
as are ties between
firms with two or more interlocks.
serve both as vehicles of intercorporate of the group from which the directors
control of large
The findings
suggest
and liaison and as reflections firms are recruited.
that interlocks
of the class character
Studies in a number of advanced capitalist nations show that large corporations are connected by dense networks of common directors [ 11. Strong evidence also supports the proposition that firms are not scattered randomly through these networks: their size, industrial sector, head office location, nation of ownership, form of control, financial structure, competitiveness of markets, and regulatory environments have all been shown, in at least some circumstances, to influence the
* This
research
is based
period,
directed
by William
Sciences paper. meeting
and Humanities An earlier
** Institute Ontario
[I]
draft lP3,
For Canada,
John Council
of this paper
in August
for the project Fox,
and
the
of Canada.
on Canadian author,
I thank reviewers
by the
Gilmour
Sociological made
in the post-war
supported
Charlene
was read at the American
1981. Two anonymous
capital
and
Association
numerous
Social
for typing useful
this
annual comments
of this paper.
for Behavioural
M3J
collected
Carroll,
Research
version
in Toronto
on an earlier
on data
Research
and Department
(1975.
p. 175ff) and Carroll
of Sociology,
York University,
Downsview.
Canada.
see Clement
(1975).
Mizruchi
and
Bunting
(1967);
Fennema
and Schijf
(1979).
(1978/79)
037%8733/82/0000-0000/$02.75
Sonquist summarize
and
ef al. (1982); Koenig
the European
for the U.S.A.,
(1975)
and
studies.
0 1982 North-Holland
Warner
see Mariolis and
Unwalla
4
M.D. Ornstein / Interlocking directorates in Canada
degree of interlocking [2]. What is more, in at least some historical and national circumstances, intercorporate networks may be shown to include cliques of firms in which the concentration of interlocks reflects something more than the characteristics of their member firms, such as those listed above [3]. Convergences and divergences in these research findings suggest the existence both of persistent temporal, inter-regional, and international patterns and of patterns that appear only in particular circumstances. One important question about the network of intercorporate directorships remains unresolved: What is the balance between interlocks that reflect specific interests of firms as opposed to their general interests? These specific interests include, at least, control of one firm by another holding a block of shares, preferred access to money capital by non-financial and to banking customers by financial corporations, provision of legal or securities dealers’ services, and arrangements to buy and sell commodities [4]. By general interests I mean simply corporations’ common objective of protecting the overall process of capital accumulation from attack by the working class, international competition, and state “interference”. The question is posed in terms of the balance between the two types of interlocks because of the evidence, reviewed below, which suggests it is impossible to sustain either the argument that the network may be completely “reduced” to purposive ties between specific pairs of firms or the argument that only a general interest is manifest. Despite the need, therefore, to make some judgement on the basis of quantitative evidence as to the preponderant pattern, the problem is an important one. The two types of interlocks play different but complementary roles and from the viewpoint of the to confining the network corporations there are marked disadvantages to one type. of tie. The firms in a network whose sole purpose is to expedite the relations between pairs of firms may serve poorly in times of political crisis and constitute a potential target for charges of
see Ornstein (1976), Waverman and Baldwin (1975) and Carroll et al. (1982); for the U.S.A., see Allen (1974), Dooley (1969), Mariolis (1977). Mizruchi (1981) and Pfeffer (1972). [3] For the U.S.A., see Sonquist and Koenig (1975) and Allen (1978); Fennema and Schijf (1978/79: section 4) review the European studies. [4] Burt (1980) terms all such ties, including those due to intercorporate ownership. “cooptive”. This term implies an interdependency between the interlocked firms when, frequently, the interlock reflects the power of the firms over the other. I thank Donald Palmer for bringing this point to my attention.
[2] For Canada,
M.D. Ornstein / Interlocking directorates in Canada
5
collusive practices’[5]. A network with no such specific ties cannot serve as a vehicle for the exchange of information, corporate control, etc. Posing the problem in this way creates an unusual division in the existing theoretical literature. On the side of a specific interpretation of interlocks are the proponents of generalized models of cooptation (such as Burt, 1978/79, 1980; Pfeffer, 1972; and Allen, 1974), models based on cliques (in the work of Park and Park, 1962; Sonquist and Koenig, 1975; and Allen, 1978), finance control theorists (including Fitch and Oppenheimer, 1970; and Perucci and Pilisuk, 1970), and investigators who attempt to link directly the extent or character of interlocking with profits (such as Carrington, 198 1; Bunting and Liu, 1977; and Waverman and Baldwin, 1975). I will refer to these theories, in aggregate, as the “specific” interpretation of the network and to individual links connecting pairs of firms as “specific” ties. On the other side is what Sonquist and Koenig (1976) label the “class hegemony” interpretation. Pointing to the work of Domhoff and Mills, among others, Sonquist and Koenig characterize this approach as follows, “This model predicts that interlocking directorates should be found to be based in social ties and on class and ethnic backgrounds. Thus, cliques should follow ties in elite social clubs and upper-class consensus groups such as the Council on Foreign Relations.. . ” (p. 59). Such an emphasis on the social, ethnic, and political basis of interlocks, however attractive a target for radical attacks on the clannishness, unfairness in recruitment, and conspiratorial character of the capitalist class, is excess theoretical baggage (which is not to say there is no basis for these attacks). A variety of mechanisms, including friendship circles, geographical proximity, membership in interest groups, and reputational networks might all play some role in developing interlocks that are not based on specific interest of pairs of firms; but what is distinctive about them is their lack of a basis in the convergent interests of particular pairs of firms. I will refer to this more limited version of Sonquist and Koenig’s “class hegemony” theory simply as the “class” theory of interlocks. The resolution of this issue has implications for the understanding of It is interesting in this respect to consider the now rather widespread prohibitions against certain types of interlocks. For example, in Canada banks are not permitted to interlock. Ornstein (1976), for Canada, and Burt et al. (1979) for the U.S.A. both find that competitors avoid interlocking. The passage of legislation to restrict interlocks between some competitors, suggests not only populist pressures against collusive practices, but also corporate fears of monopolistic practices by firms which buy and sell commodities and services from other firms.
[5]
6
134. D. Omsrein / Interlocking drrectorates in Canada
advanced capitalism. There is agreement, supported by overwhelming empirical evidence, that the control of capital in advanced capitalist nations is highly concentrated in small numbers of large firms [6]. There is less agreement, however, on the character of relations among firms in what is variously termed the “core”, “monopoly”, “primary”, “planned”, or “dominant” sector. Within the leeway permitted by their overarching interest in the preservation of the process of capital accumulation, the question is whether or not large firms form a series of alliances based on their interests in controlling markets, assuring supplies or distribution of commodities, providing capital, and securing regional interests. Those alliances, if they existed, could form the basis for economic and political conflict within the capitalist class. To the extent that the network of firms is based on ties that do not reflect specific economic interests of the paired firms, the network provides a means to mitigate conflict within the capitalist class. The main purpose of this paper is to present evidence on the balance between “specific” and “class” based ties in the network of interlocks among the largest Canadian corporations in the post-war period. Almost all the existing analysis of interlocks involves correlating the presence of ties at some single point in time, or at two or more points at long intervals, with characteristics of the firms involved, including sometimes measures of their relation to each other. Instead, this paper will examine how many and which ties are replaced when an interlock is broken by a director leaving one or both boards of a pair of firms. I will next review the existing evidence of the balance of “specific” and “class” interlocks, then describe the methodology in more detail, then present the empirical results. Typical of the earlier research on cooptation is Pfeffer’s (1972) study of a random sample of large American corporations. He treats the corporate board “as a vehicle for dealing with problems of external interdependence and uncertainty, resulting from its exchange of resources with important external organizations” (p. 219); interlocks provide a means to “ensure favourable exchanges with external organizations” (p. 220). Pfeffer finds that most of his predictions about the relation between board size and composition and economic characteristics of the firms are confirmed. For example, board size is positively [6] See two of the studies produced for Canada’s Berkowitz el al. (1976) and Marfels (1976).
Royal Commission
on Corporate
Concentration:
M.D.
Onwtein
/ Interlocking
directorates
in Canada
7
associated with sales. the debt-to-equity ratio, and the presence of local or national regulation of the industry. Still, in a multiple regression only sales and the debt-to-equity ratio have significant effects on board size, and the latter is only barely significant at 0.05; the R2 value is 0.23 (see p. 255). About the same explained variance is found in the regression of the proportion of insiders on the board on the same four variables. Thus there are moderately strong relationships in the predicted directions which, however, do not come near to fully explaining board characteristics. Furthermore, the use of the firm size variables, such as sales or assets, as measures of the firm’s cooptive needs (as claimed by Burt (1980), for example) is somewhat questionable. Size effects may as easily be interpreted as evidence of a prestige or influence ordering of firms as opposed to a measure of their need to coopt external threats. Dooley (1969: 318) explains about 25 percent of the variance in the board’s number of financial interlocks with a similar model. He takes his results as confirmation of the predictions of a theory of intercorporate cooptation. It is equally important to recognize that the analysis comes nowhere near accounting for all of the variation in board and interlock characteristics. A second generation of research in the intercorporate cooptation genre is exemplified by the work of Burt (1978/79, 1980) and Galasciewicz, et al. ( 198 1). Burt ( 1980 : 17, 19) finds relations between board characteristics and interlocking with simple correlation coefficients in the range between about 0.2 and 0.4 (unfortunately he provides no multiple regression analysis) employing the variable size as a measure of need for links with other firms. Instead of treating entire corporations as the only units of analysis, Burt’s theory is based on establishments (i.e. subunits of the firm whose operations may be described in terms of their industries). The input-output matrix for all industries in the economy then provides measures of the extent of dependency of the establishments within each corporation on firms with establishments in other industries. This theory and the empirical results are impressive, but again much of the variation in board structure goes unexplained and some variance that is explained (and attributed to firm assets) cannot be unambiguously taken as a measure of the need for links with other firms. Galasciewicz et al. (198 1 : 20) undertake a similar analysis of publicly owned manufacturing firms in the Minneapolis-St. Paul metropolitan area and report no support for the hypothesis that firms would appoint to their boards officers from firms that “highly constrained” their behavior.
8
hf. D. Ornsrein
/ Interlocking
directorates
in Conuda
Dooley (1969) provides an example of studies that attempt to cluster firms directly on the basis of their interlocks. Of the 250 largest U.S. firms in 1965, he is able to allocate 122 to one of the seven “tight-knit” and eight “loose-knit” groups, all of which are identified by common geographic locations. Allen ( 1978 : 6 13) concludes a similar analysis with the observation that “many large corporations are members of geographical interest groups comprised of corporations based in the same geographical area.” Sonquist and Koenig (1976 : 67) place 166 of 401 large American firms (from the 1969 Fortune “top 500” listing including all firms with at least one double interlock to another firm in the list) in one of 32 cliques. So, somewhat less than half the subset of double interlocked firms are found to be in cliques “composed solely or predominantly of firms headquartered in a single city or economic region.. . evidence also suggests strongly that though cliques have regional bases, the level of integration of the total system is high” (p. 72). The research on cliques again suggests that patterns of regional concentration coexist with numerous interlocks that cannot be accounted for in this way (and of firms that are members of no clique). Finally, we should note that regional concentrations of interlocks could as easily reflect diffuse relations within a community or convenience as attempts to coopt the local environment. Taken together these studies suggest the presence of both “specific” and “class” motivated ties in the network, though in what proportion it is difficult to say. The magnitudes of the explained variances and the ability of the various clustering procedures to assign firms to cliques clearly leave many of the interlocks “unexplained”. A common response to the observation that models do not perfectly explain behaviour is to resort to the concept of unreliability: “noise” in the measurement deceptively lowers the magnitude of the observed relationships. This is potentially a serious problem for the studies examined above, not because of actual errors (which might result from faulty transcription of records, but surely cannot be very numerous), but because of the possibility of individuals belonging to three or more boards. If most interlocks serve specific purposes and, in addition, some of the directors occupy positions on three or more boards, then the network of specific ties would be supplemented by a second, not necessarily distinguishable, set of ties resulting from pairs of unrelated firms being linked through their specific ties to some third firm, when the ties are constituted by a single individual. Sometimes measures are
M.D. Ornstein / Interlocking directorates in Cuncldcl
9
taken to avoid this difficulty, for example Sonquist and Koenig (1976) discard all ties between firms that are constituted by the common membership of only one person and Galsaciwicz ef al. (198 1) consider only the ties made by individuals holding executive positions in one of the firms linked. Unfortunately, such a procedure discards evidence of links between firms on the basis of unproved assumptions about the relative importance of different types of interlock. It is therefore necessary to provide a method for distinguishing ties “accidentally” formed by individuals who hold memberships on three or more boards. As suggested in recent studies by Koenig et al. (1979) Ornstein (1980), and Palmer (1980), the retirement of directors provides a means to establish the enduring features of the network. Ties embodying specific interests of pairs of firms would be reconstituted by the appointment of a new common director; if no such interest exists, a firm seeking to maintain its place in the network might easily substitute a tie with some new firm. In particular, when a retiring individual holds three or more positions, an inspection of which ties are replaced suggests which are specific ties. Since it is often difficult to find a replacement with the complex combination of directorships held by the retiree, the tendency will be to reconstitute only the specific ties. For such an analysis, data on board membership for a set of firms at two or more time points are required. Better still would be board membership data for a time continuum greater than the length of service of every director in the network. In this circumstance, the generally applicable arguments about the superiority of longitudinal over cross-sectional studies are reinforced by a compelling methodological argument. Koenig et al. (1979) used obituary notices to locate 45 directors who sat on the boards of two or more of the largest U.S. corporations (as listed in Fortune magazine) and whose deaths broke a total of 102 ties among those firms. In 77 percent of those cases no other common board member linked the two firms and only six of those 78 ties were re-established by a new board appointment within one year of their loss. Utilizing a similar methodology, Palmer (1980) finds that 36 out of 234 broken ties are repaired. These figures suggest that a large proportion of the ties among the largest firms cannot reflect their “specific” interest. Both studies purposely eliminate losses that might be due to deliberate changes in corporate strategy: Sonquist et al. consider only deaths while Palmer includes only retirements and executives changing their firms of employment. These two studies of replacement patterns,
IO
M.D. Ornstetn / Interlocking drrectorates in Canada
though somewhat limited in their scope, certainly lend support to the class interpretation of the network of interlocks, suggesting that this aspect predominates over the “specific” functions. This paper reports on the outcomes of the more than five thousand instances when ties between the largest Canadian firms are broken during the period between 1946 and 1977. Since the raw data are continuous records of board memberships, not a series of repeated cross-sections, it is possible to follow individual “careers” over the entire interval. In addition to large firms in the industrial, commercial, financial, and property development sectors, the leading law firms and securities dealers are included in the study, because of their important roles in distributing capital, in coordinating and regulating conflict among large firms, and in maintaining relations between capital and the state. These data cover a much longer period than previous research on the replacement of interlocks (although Ornstein’s (1980) exploratory study of six firms covers 1959 to 1975). In this analysis no attempt is made to insure that interlocks are such as by unforeseen death. So among the broken by “accident”, unrepaired links are some which reflect a change in corporate policy and the proportion of unrepaired links underestimates the proportion of specific ties.
Hypotheses There is convincing evidence to support our making two initial distinctions among the directorate interlocks. First, ties in which the director holds an executive position in one of the two linked firms should be distinguished from ties involving a director with no position in either firm. Logically, the executives of a firm should have a clear allegiance to and much more information about that firm, so they are more likely actively to influence the relation between the two linked firms. Second, ties between firms with two or more common directors should be distinguished from ties formed by a single common director. It is very unlikely that a pair of firms would have two common directors as the unforseen consequence of their being tied to a third firm. Therefore we hypothesize that ties involving an executive of one of the firms (termed here “executive” as opposed to “director” ties ) [7] and ties that are one of two or more ties between a particular pair of firms are more likely to
M.D.
Ornstein / Interlocking
directorates
rn Canada
11
be reconstituted when broken. We should also expect that broken “executive” ties will be replaced by “executive” ties when reconstituted and that broken “director” ties will be replaced by new “director” ties. Previous research (for example by Carroll et al., 1982; Levine, 1972; Mariolis, 1975) shows firms in the financial sector occupy central positions in directorate networks, so we predict that ties involving financial firms are more likely to be reconstituted than those involving no such firm. No previous large scale study involves the partners of law firms and securities dealers. These firms provide specialized services for large firms; it therefore seems likely that they should have enduring ties with large corporations. This leaves the central question about the general character of the network of interlocks. Two sorts of empirical evidence lend support to the proposition that broken ties go largely unrepaired in a network based more on a broad community of interest than on specific, instrumental ties: the lack of detectable cliques among the largest one hundred Canadian firms (in Carroll et al., 1982); and the low level of et al. ‘s ( 1979) and Palmer’s ( 1980) replacement observed in Koenig American studies. The theoretical argument hinges on the meaning given to the adjective “monopoly” in the phrase “monopoly capitalism”. No doubt large firms possess enormously greater resources than small firms, resources manifest in their privileged access to credit and government subsidies, and in control over prices. But that is not sufficient evidence to support the conclusion that the firms are genuine monopolies in the sense that they escape the equalization of the rate of profit and obtain monopoly rents. To the extent large firms are, in this sense, monopolistic the likelihood is that interlocking directorates would serve the specific purpose of facilitating these arrangements; to the extent large firms are engaged in genuine competition, the class perspective would account for a relatively diffuse network in which most broken ties would go unrepaired. In the absence of a good long-term study of rates of profit we can only speculate as to whether the firms and some industries obtain above
[7] Interlocks
involving an individual with an executive position in one of the two interlocked firms are termed “primary” ties by Sweezy (1953) and Palmer (1980) and “strong” ties by Bearden et al. (1975). Interlocks involving no executive position are termed “secondary” ties by Sweezy and Palmer, “weak” ties by Bearden et al.
12
M.D. Ornstein / Interlocking drrectorates in Canodu
average rates of profit consistently over long periods - Mandel (1975:530ff) [8] claims they do not, but without good empirical evidence. More striking, perhaps, is the recent evidence that firms in oligopolistic sectors, in what Galbraith (1973) terms the “planned” economy, are quite capable of going broke, witness the precarious plight of Massey-Ferguson and Chrysler. There is a tendency, particularly in political economy of the late 1960s and early 1970s to exaggerate the stability of the entire capitalist economy and the power of firms in the monopoly sector to assure their own prosperity by their technological expertise, access to capital, and support from the state (for examples from three different political perspectives, all of which exhibit this problem, see Averitt (1968), Galbraith (1973) and O’Connor (1973)). Finally, consider the issue of whether secular changes in the probability of replacement should be found. Past research and theory provide little basis for making a prediction. The post-war period in Canada, to a far greater extent than in the United States and Europe (where these changes appear earlier), witnessed the expansion of large-scale capitalist enterprises in many new industries (trust companies and property development, particularly) and into the Canadian West, that were previously less penetrated by big capital (see Richards and Pratt, 1979). These new areas of accumulation emerge in the context of and requiring ties with existing centres of capital; for example, the newly monopolized property development industry which developed in the late 1960s and the emerging Canadian-controlled oil and gas firms both required access to large pools of capital controlled by the banks. As big capital comes more completely to dominate the economy, the tendency should be for ties to reflect the general (as opposed to firm-specific) interest of the newly consolidated capitalist class; but the particular character of the emerging capitals requires purposive ties with pre-existing firms. It is also likely that heightened public concern with corporate concentration in recent years would discourage the formation of “specific” ties, because of the potential for collusion. There is no good basis for predicting which of these conflicting tendencies should be stronger. Carroll et d’s (198 1) finding, on the basis of the same data employed here, that the density of interlocks among the largest Canadian
[8] Omstein
(1978 : 8ff) discusses this issue in more detail.
M.D. Ornstein / Interlocking directorutes rn Canada
firms does not change change in the proportion
appreciably, suggests we should of broken interlocks replaced.
13
predict
no
The data A necessarily arbitrary element enters the decisions on which firms are to be included in studies of corporate directors. No single, logical point provides a natural division of the fairly smooth, continuous distribution of firm size. Also it is difficult to compare financial statistics of the industrial, commercial, financial and property development sectors. Generally researchers proceed to take some largest number in each sector, separately. These difficulties are exacerbated in longitudinal studies, for the composition of the listing of firms by size changes over time: not only does the ranking of firms change, but mergers, bankruptcies, takeovers, and the founding of new firms alter its composition. In this study, the inclusion of law firms, securities dealers, and the property developers required that separate “cut-off” points be designated for each of six, instead of the usual three, industrial categories. The changing industrial structure makes it impossible, in some years, to find the required number of firms. From the mid 1950s onwards, for example, there is no difficulty in identifying the ten largest commercial firms. But, in 1946 only three commercial firms are large enough to be reasonably included in the network. Although the increased number of sectors adds to the complexity of the selection, the more serious problem is posed by temporal changes in the ranking of firms. We proceeded by ranking firms by assets in the three major industrial sectors at five year intervals over the 1946-77 period. Any firm meeting the criterion for inclusion at any one time was included in the study in all years. So, any firm among the top seventy industrials in 1946 or 195 1 or 1956 or 196 1 or 1966 or 197 1 or 1976 is included in the entire study: its directors and executives in each year from 1946-77 (providing the firm existed in that year) were recorded. Similar criteria of assets were employed in the financial, commercial, and property development sectors [9]. More qualitative
[9] In total 123 industrial firms were among the top 70 industrials in Canada at one or more of the five year intervals; 38 financials were among the top 20; 18 merchandisers were among the top IO: and 15 property development firms had assets equal to the smallest ranked industrial firm. In 1946 only 3 commercial firms of significant size existed; in 1951 there were 5 such firms.
14
M.D.
Omstein
/ Inrerlockq
directorates
,n Cmoda
criteria were used to decide which law firms and securities dealers should be included [lo]. The risk inherent in any procedure for designating some number of top firms for study over an extended historical period is that the procedure chosen might influence the outcome of the study. Two alternatives to selecting a constant number of top firms are, first, selecting the firms responsible for some constant proportion of total economic activity as measured by GDP (actually, not necessarily equal proportions would also have to be designated for financial firm assets and retail trade and perhaps for other sectors), and, second, selecting some fixed proportion of the total number of firms. The second alternative runs up against the serious objection that if we are concerned with interlocks among the large Canadian firms (for substantive reasons and because of limitations on research resources), it doesn’t make sense for the number of firms studied to be a function of the total number of incorporated firms - when many of the new incorporations are of businesses so small they are of no conceivable interest to an exploration of interlocking directorates. The first alternative of choosing firms responsible for some proportion of total production would lead to the selection of a sample very similar to our selection of fixed numbers of firms, provided that industrial concentration in the Canadian economy does not change appreciably. While the data before 1960 are not very good, the Report of the Royal Commission on Corporate Concentration concludes “industrial concentration ratios remained roughly constant from the mid 60s to the early 70s. This also tends to support the broader conclusion that aggregate concentration also was stable over a somewhat larger period from the early 1950s to the early 1970s” (1978 : 37). Superior to the theoretical argument advanced here for the appropriateness of the procedure for selecting firms would be an emprical test of the consequences of altering the selection criteria. I do not, however, attempt such an analysis here. The “cases” for this analysis are lost ties, one of which is created every time a director loses his or her memberships on the board of one or both of a pair of interlocked firms. The year of loss is defined as the [IO] Twenty-six law firms are in the study - on the basis of two or more of their partners being included in the “economic elite” as defined by Porter (1965 : 277ff) or Clement (1975 : 178ff). Nine securities dealers are included - on the basis of the analyses of the most important such firms by Neufeld (1964) or Park and Park (I 962).
M.D.
Ornstein
/ Inrerlocking
directorates
in Canada
15
first year in which the tie no longer exists. Broken ties may be repaired, according to.our definition, in any one of five years, a new tie may be created the same year it is broken, one year later, two years later, one year before the loss, or two years before the loss of the tie. If more than one new tie is created between a pair of firms with a lost tie, the tie that occurs first in the above listing of possible years is assigned as the replacement. The definition allows ties to be repaired before they are broken as would happen if a replacement were being trained for his or her role by a retiring predecesser.
Results
Table 1, which gives the total number of ties, of ties gained, and of ties lost at five year intervals, is intended to provide a background for the subsequent results. Since firms both enter and leave the network over the period of the study, due to mergers, differential growth, and the occasional bankruptcy, the total in each interval bears no exact relation to the number of ties previously and the number of gains and losses. The network clearly becomes somewhat more dense over time, so the unreplaced losses are more than compensated for by the addition of new ties between firms not previously linked. Many more new ties are created than are perpetuated after a loss by the replacement of a previous tie by a new incumbent. Over the entire post-war period, 29.5 percent of the ties broken are replaced by new ties between the same pair of firms. As predicted, and previously observed for the U.S., executive ties are more likely to be reconstituted than director ties, the proportions are 39.6 percent and 26.7 percent respectively. A fairly strong relationship exists between the type of tie lost and its replacement: 77.7 percent of director ties replaced are also replaced by director ties; 64.4 percent of executive ties replaced are replaced by executive ties and about one-third of the executive ties are downgraded to director ties. About half of the time, ties are replaced the same year they are lost, about a quarter are replaced one year later, a further eighth are replaced two years later, and an eighth are replaced one year before the loss. About 5 percent of broken ties are replaced two years before they are broken. These results (see Table2) strongly confirm the usual supposition that executive ties
16
M.D.
Ornsrein
/ Interlocking
directorates
in Canada
Table 1 Number of ties, and number of ties lost, gained, and replaced, by five year intervals. a Year Interval
Total Number of Ties at mid-point
Numer of ties lost
Numer of ties gained
Numer of Lost ties replaced
Number of firms at mid-point
1946-50 1951-55 1956-60 1961-65 1966-70 1971-75 1976-77 b
1053 1170 1561 1754 1784 1686 2184
305 627 584 1030 1471 965 372
562 694 1020 1112 1385 1466 754
96 198 205 302 389 315 77
178 189 203 200 202 201 196
a Because of changes in the number of firms over time and since gains and losses due to the appearance and disappearance of firms are exluded from losses and gains, there is no exact relationship among the totals and numbers of lost and gained ties. b Mid-point taken as 1977.
Table 2 Percentage Outcome
distribution
of outcomes
of broken tie
of broken ties by type of tie lost.
Type of tie Directors
Not replaced
73.3
Replaced by director tie Same year as lost One year later Two years later One year before loss Two years before loss
20.7
Replaced by executive tie Same year as lost One year later Two years after loss One year before loss Two years before loss Total Numer of cases
only
14.1
6.0
19.3 6.1 3.3 1.9 1.8 0.9
25.5 3.2 1.1 0.8 0.5 0.4
100.0
70.5
60.4 9.3 5.1 2.7 2.3 1.3
4182
All ties
One or both executives
8.6 4.7 2.5 2.2 1.3 10.2
14.1 6.9 1.7 2.0 0.8 100.0 1172
5.6 2.3 1.0 0.8 0.5 100.0 5354
M.D.
Ornsrein / Interlocking
directorates
m Canada
17
are more likely than director ties to provide evidence of purposive ties between firms. Previous work along these lines is so sparse that it provides little guidance as to whether this observed level of replacement should be considered high or low. In the only other reasonably large scale study, for the 1962- 1966 period in the U.S., Palmer (1980) finds 19.6 percent of executive interlocks, but only 5.3 percent of director interlocks are repaired. His percentages are much smaller than the values obtained here, perhaps in part due to the very large number of firms, 1131, in the American study. With three in ten ties being repaired, it appears that the network of interlocks contains significant proportions of both specific and class ties. The results strongly suggests that neither the “specific” nor the “class” interpretation of interlocks is adequate alone. Table3 shows the relation between the number of interlocks linking a pair of firms and the probability that a broken tie is repaired. As the number of ties increases, so does the probability of repair. If only one tie links two firms, director ties are replaced only 17.1 percent of the time, compared to 28.1 percent when there are two ties, 36.7 percent for three ties, 43.2 percent for four ties, 52.0 percent for five ties, and 58.6
Table 3 Outcome
of broken ties by number of ties at time of loss by type of tie lost.
Number of ties at time of loss
Type of tie lost
One Two
Percentage
distribution
Number of cases
of outcomes
Not replaced
Replaced by director tie
Replaced by executive tie
Total
Director Executive
82.9 78.6
14.0 11.2
3.1 10.2
100.0 100.0
2326 491
Director Executive
11.9 57.6
21.1 17.8
7.0 24.6
100.0
758 236
Director Executive
63.3 52.1
25.0 16.8
11.7 31.1
100.0
376 119
Four
Director Executive
56.8 56.4
34.6 11.7
8.6 31.9
100.0 100.0
257 94
Five
Director Executive
48.0 36.1
36.3 15.5
15.7 48.4
100.0 100.0
204 97
Six or more
Director Executive
41.4 26.7
47.9 16.3
10.7 57.0
100.0
261 135
Three
100.0 100.0
100.0
4
of
linked
100 100 100 100 100
6 20 18 I3 0 0
0 21 I5 13 7 24 0
71 45 73 65
Executive
Director
Executive
developer
Financial
76 100
Director
Law firm
Executive
69 80
Director
Executive
Securities
dealer
23
100 100
5 55
100
100
2 22
100
Director
100 100
Property
23
22
12
55
Commercial
Industrial
76
tie
Total
Executive
6 32
executive
by
Director
tie
Replaced
56
17
director
replaced
by
of Outcomes
Replaced
Distribution
Not
Percentage
by type of tie lost.
71
tie lost b
Type
of firms
Executive
and
a
ties by sector
Director
Industrial
of
linked
sectors
of broken
firms
Outcome
Table
I7
I19
40
61
1618 390
22
52
56
129
1444 385
of cases
Numer
m
56
Total 72
80
28
7
32 16
0
19 18
25 IO
18 17
a Including all pairs of sectors with 10 or more ties lost. b Director and executive ties are summed when fewer than 10 of either type exist
Total
63 52
88
Total
Director Executive
64
74
50 70
74 81
54 27
31 20
33
3
7L
22
Director Executive
Law firm
and
Securities dealer
Financial and Fiancial
Law firm
Property developer Financial
Total Total
Director Executive
Financial
Securities dealer Law firm
Director Executive
Property developer
L~11.2Ct<,r Executive IOU
100 100
0
100
13
100
5
100
100
100
100
100
100 100
100 100
IUO
32
12
18
25 20
8 2
15 53
22
41
8 IO
89 42
13 15
9
I2
%
hf. D. Ornstein
20
/ Interlockrng
directorates
in Cmada
percent for six or more ties. For executive ties, there is a similar pattern. As the number of ties in existence previous to the loss increases from one to six or more, the probability of replacement of lost ties rises from 21.4 percent to 73.3 percent. Firms connected by two or more ties contribute disproportionately to the sum of replaced ties. These results are strong confirmation of previous findings of the difference between single and multiple ties. Usually (see Carroll et al., 1982; Sonquist and Koenig, 1975) only single ties are distinguished from ties made by two or more members of both boards. These replacement patterns suggest that the strength of the link continues to increase monotonically with the number of ties, at least until six or more ties exist. Still, note that single ties (particularly executive ties) may also indicate specific links the frequency with which they are replaced is far larger than can be accounted for by purely “accidental” ties. So studies based only multiple ties exclude some specific single ties in the course of purifying the network for analysis. The outcomes of broken ties are classified according to the industries of the interlocked firms in Table4. The differences among industries are unremarkable and appear to follow no coherent pattern. The largest
Table 5 Outcome Time of loss
1946-50 1951-55 1956-60 1961-65 1966-70 1971-75 1976-71
of broken ties by time of loss by type of tie lost. Type of tie lost
Director Executive Director Executive Director Executive Director Executive Director Executive Director Executive Director Executive
Percentage
distribution
Number of cases
of outcomes
Not replaced
Replaced by director tie
Replaced by executive tie
Total
68.9 61.2 70.2 69.6 13.4 63.3 76.4 73.8 76.9 73.4 14.5 68.5 79.5 80.2
25.3 9.4 26.0 12.2 21.6 15.2 20.2 14.1 19.3 10.0 22.9 13.1 15.3 6.6
5.8 29.4 3.8 18.2 5.0 21.5 3.4 12.1 3.8 16.6 2.6 11.8 5.2 13.2
100.0 100.0 100.0 100.0
100.0 100.0
100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0
211 85 443 148 522 191 848 205 1304 289 1184 292 443 91
hf. D. Ornstein / Interlocking directorates uz Canada
21
variations occur in the categories with the fewest cases - involving the property developers, law firms, and securities dealers. The two largest types of tie link pairs of industrial firms and industrial and financial firms, each accounts for about one third of all the director and executive ties. Since only financial firms ever among the largest twenty in Canada and industrials ever among the largest seventy firms are included in this study, the approximately equal numbers of losses in these two groups show that financial firms average 70/20 or 3.5 ties as many losses (hence original ties) as industrials, reflecting the tendency for financial firms to have far more interlocks than industrial firms. Director ties between pairs of industrials are replaced 22.7 percent of the time, compared to 28.1 percent for industrial-financial links; for executive ties, the corresponding percentages are 43.6 and 35.4. On the whole, financial firms are no more likely to reconstitute broken ties than industrials, in spite of their centrality in interlock networks, disconfirming our original hypothesis. Finally, Table 5 shows the outcomes of lost ties in six five year periods. A small decline in the proportion of ties reconstituted is evident between 195 l-55 and 1961-65. In 195 l-55, 70.2 percent of director ties and 69.6 percent of executive ties are not replaced, compared to corresponding figures of 76.4 percent and 73.8 percent in 1961-65. There is little variation in the 1946-55 period, or between 1961 and 1975.
Conclusions
Far too small a proportion of the interlocks are replaced to sustain the theory that they serve entirely the role of providing ties between pairs of specific firms, even allowing for changes in corporate strategies and multiple directorships of some individuals. On the other hand, if the network served entirely a diffuse class interest, it is difficult to see why three in ten broken ties should be replaced by a tie between the same are, of course, pair of firms. The “specific” and “class ” interpretations not incompatible and reflect, respectively, the needs for coordination between specific pairs of firms and for the maintenance of the solidarity of the capitalist class beyond its interests of individual firms. Accounting for changes in corporate strategy and multiple position holding, it is
22
M.D. Ornstern / Interlocking directorates in Cunudo
likely that somewhere between 40 and 50 percent of the ties reflect specific interests. These results suggest that the pursuit of “explanations” of interlocking on the basis of intercorporate ownership, industrial interdependency, and other forms of bilateral interest must strike an upper bound which is the concrete representation of the class interest of big capital. Correlational analysis of the relation between the objective interests of pairs of firms and their ties (and specifically analysis based on the repeated examination of simple correlations) leaves the impact of class interest as unexamined error terms, the presumption being that more refined analysis will eventually reduce them to substantive if not statistical insignificance. However impressive the recent research on the measurement of corporate interdependence, it concentrates on establishing that these relations exist in the directions predicted by cooptation theories and carries with it the assumption that the net extent of prediction is not very important. It is clear that the cooptation theorists on the one side, and the monopoly capital theorists on the other, overemphasize the function of directorships in providing for, respectively, cooptation and collusion. Class hegemony theory emphasizes a kind of social conspiracy to block mobility and maintain social circles. These results show that neither type of theory can alone account for the patterns of replacement of interlocks. The replacement patterns are strong evidence that the distinctions between single and multiple interlocks and between director and executive interlocks are quantitative not qualitative, as regards their use by firms to maintain relations. Although the probability of replacing an interlock accompanied by one or more other ties is about twice as great as for a single interlock and the probability is about one third greater for executive than for single ties, these differences are clearly not sufficiently great to justify the arbitrary elimination of single and/or director ties from analysis. But, of course, comparison of the patterns apparent from different types of interlocks is worthwhile. Our lack of success in finding differences in the probabilities of replacement as a function of industrial sector is strong confirmation of the importance of the recent trend away from theory based on gross industrial categories in the direction of more refined examination of the activities of firms, disaggregated when necessary into their component establishments.
M.D. Ornsfein / Interlocking directorates in Canada
23
References Allen, M.P. 1974 The structure of interorganizational elite cooptation: interlocking corporate directorates, American Sociologmd Review 39: 393-406. 1978 Economic interest groups and the corporate elite structure, Social Science QucIrIerIy 58: 597-615. Averitt, R. 1968 The Dual Economy. New York: W.W. Norton. Bearden, J., W. Atwood, P. Freitag, C. Hendricks, B. Mintz, and M. Schwartz 1975 The nature and extent of bank centrality in corporate networks. Paper read at the annual meeting of the American Sociological Association. Berkowitz, S.D., Y. Kotowitz and L. Waverman 1976 Enrerprise Srrucrure and Corporare Concentrabon. Study No. 17 of the Royal Commission on Corporate Concentration. Ottawa: Supply and Services Canada. Bunting, D. and T.H. Liu 1977 Economic and social dimension of interlocking. Paper read at the meeting of the American Sociological Association, Chicago. Burt, R. 1978,’ A structural theory of interlocking corporate directorates, Socxzl Networks 1: 415-35. 1979. 1980 Cooptive corporate actor networks: a reconsideration of interlocking directorates involving American manufacturing, Administrarioe Science Quarferly 25: 557-82. Burt, R.S., K.P. Christman and W.M. Bittner 1979 Testing a structural theory of corporate cooptation. Berkeley: University of California, Survey Research Centre, Working Paper No. 25. Carrington, P. 1981 Anticompetitive effects of directorship interlocks. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. Carroll, W., J. Fox, and M. Ornstein 1981 Longitudinal analysis of directorate interlocks in Canada. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. 1982 The network of directorate interlocks among the largest Canadian firms, Canadian Review of Sociology and Anthropology, 19: 44-69. Clement, W. 1975 The Canadian Corporate Elite: An Analysis of Economic Power. Toronto: McClelland and Stewart. Dooley, P.C. 1969 The interlocking directorate, Amencan Economic Reuiew 59: 314-23. Fennema, M. and H. Schijf 1978,’ Analyzing interlocking directorates: theory and methods, Social Networks 1: 297-332. 1979 Fitch, R. and M. Oppenheimer 1970 Who rules the corporations?, Socialist Revolution I: No. 4: 73-108; No. 5 61-14; No. 6 33-94. Glaskiewicz, J., S. Wasserman, B. Rauschenback, W. Bielefeld and P. Mullaney 1981 Corporate control through board interlocks. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. Galbraith, J.K. 1973 Economics and Ihe Public Purpose. Boston: Houghton-Mifflin.
24
M.D. Ornsrem / Interlocking directorates in Canada
Koenig, T., R. Gogel, and J. Sonquist 1979 Models of the significance of interlocking corporate directorates, American Journal of Economics and Sociologv 38: 173-86 Levine, J.H. 1972 The sphere of influence, American Sociological Reoww 37: 14-27. Mandel, E. 1975 Lore Capitalism. London: New Left Books. Marfels, C. 1976 Concentratron Levels and Trends in the Canadian Economy, 1965-1973. Study No. 31 of the Royal Commision on Corporate Concentration. Ottawa: Supply and Services Canada. Mariolis, P. the theory of bank control, Social 1975 Interlocking directorates and control of corporations: Science Quarterly 56: 425-39. 1977 Interlocking directorates and finance control: a peak analysis. Paper read at the meeting of the American Sociological Association, Chicago. Mizruchi. M.S. of intercorporate relations: a note on the U.S. corporate network, 1981 The institutionalization 1904-1974. Paper read at the meeting of the American Sociological Association, Toronto. Mizruchi, M.S. and D. Bunting 1979 The structure of the American corporate network: 1904-1919. Paper read at the meeting of the American Sociological Association, Boston. Neufeld, E.P., ed. 1964 Money and Banking in Canada: Historical Documents and Commentary. Toronto: McClelland and Stewart. O’Connor, J. 1973 The Fiscal Crisis of the State. New York: St. Martin’s, Omstein, M.D. size, composition, and 1976 The boards and executives of the largest Canadian corporations: interlocks, Canadian Journal of Sociology I (4): 41 l-31. 1979 Political cleavages in the Canadian capitalist class. Paper read at the meetings of the Canadian Sociology and Anthropology Association, Saskatoon. 1980 Assessing the meaning of corporate interlocks: Canadian evidence, Social Science Research 9: 287-306. Palmer, D. determinants of interlocking directo1980 Broken ties: some political and interorganizational rates among large American corporations. Paper presented to the annual meeting of the American Sociological Association, New York City. Park, L. and F. Park 1962 Anatomy of Big Business. Toronto: Progress. Perucci, R. and M. Pilisuk bases of community power, American 1970 Leaders and ruling elites: the interorganizational Sociological Review 35: 1040-57. Pfeffer, J. 1972 Size and composition of corporate boards of directors: the organization and its environment, Adminsfrative Science Quarterly 17: 218-28. Porter, J. 1965 The Vertical Mosaic. Toronto: University of Toronto Press. Richards, J. and L. Pratt 1919 Prairie Capitalism: Power and Injluence in the New West. Toronto: McClelland and Stewart.
M.D. Ornstein / Interlocking directorates in Canada
25
Royal Commission on Corporate Concentration 1978 Report of the Royal Commission on Corporate Concentration. Ottawa: Supply and Services Canada. Sonquist, J. and T. Koenig 1975 Interlocking directorates in the top U.S. corporations: a graph theory approach, Insurgent Sociologist V (III): 196-229. Sweezy, P.M. 1953 Interest groups in the American economy. In P. Sweezy, ed., The Present as Hutmy; Essays and Reviews on Capitalism and Socialism. New York: Monthly Review. Warner, W.L. and D.B. Unwalla 1967 The system of interlocking directorates. In W.L. Warner, D.B. Unwalla and J.H. Trimm, eds., The Emergent American Society: Large Scale Organizations. New Haven: Yale University Press, 121-57. Waverman, L. and R. Baldwin 1975 Determinants of interlocking directorates in Canada. Toronto: Institute for the Quantitative Analysis of Social and Economic Policy, University of Toronto (Working paper series, No. 7501).
Networks
4 (1982)
North-Holland
3-25
Publishing
Company
INTERLOCKING DIRECTORATES FROM REPLACEMENT PATTERNS Michael D. ORNSTEIN Yor,+UWoersirl
IN CANADA: *
**
Cross-sectional studies of interlocking directorates whether the network is primarily an accumulation firms
or whether
the outcomes usually
it reflects
when
replaced.
are examined
a more
diffuse
ties are broken,
as would
occur
for interlocks
EVIDENCE
cannot adequately of planned haisons
collective
interest
it is possible
if planned
among
all firms
of the capitalist
to discover
liaisons
the network.
the one hundred
the question specific pairs
class.
if ties between
dominated
ever among
address between
By examinmg
specific
firms
Replacement largest
of of are
patterns
Canadian
firms
between 1946 and 1977. About 30 percent of the broken ties are replaced by ties between the same pair of firms. Ties involving an executive of one of the firms (“insider ties”) are more likely to be replaced
as are ties between
firms with two or more interlocks.
serve both as vehicles of intercorporate of the group from which the directors
control of large
The findings
suggest
and liaison and as reflections firms are recruited.
that interlocks
of the class character
Studies in a number of advanced capitalist nations show that large corporations are connected by dense networks of common directors [ 11. Strong evidence also supports the proposition that firms are not scattered randomly through these networks: their size, industrial sector, head office location, nation of ownership, form of control, financial structure, competitiveness of markets, and regulatory environments have all been shown, in at least some circumstances, to influence the
* This
research
is based
period,
directed
by William
Sciences paper. meeting
and Humanities An earlier
** Institute Ontario
[I]
draft lP3,
For Canada,
John Council
of this paper
in August
for the project Fox,
and
the
of Canada.
on Canadian author,
I thank reviewers
by the
Gilmour
Sociological made
in the post-war
supported
Charlene
was read at the American
1981. Two anonymous
capital
and
Association
numerous
Social
for typing useful
this
annual comments
of this paper.
for Behavioural
M3J
collected
Carroll,
Research
version
in Toronto
on an earlier
on data
Research
and Department
(1975.
p. 175ff) and Carroll
of Sociology,
York University,
Downsview.
Canada.
see Clement
(1975).
Mizruchi
and
Bunting
(1967);
Fennema
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(1978/79)
037%8733/82/0000-0000/$02.75
Sonquist summarize
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studies.
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Warner
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Unwalla
4
M.D. Ornstein / Interlocking directorates in Canada
degree of interlocking [2]. What is more, in at least some historical and national circumstances, intercorporate networks may be shown to include cliques of firms in which the concentration of interlocks reflects something more than the characteristics of their member firms, such as those listed above [3]. Convergences and divergences in these research findings suggest the existence both of persistent temporal, inter-regional, and international patterns and of patterns that appear only in particular circumstances. One important question about the network of intercorporate directorships remains unresolved: What is the balance between interlocks that reflect specific interests of firms as opposed to their general interests? These specific interests include, at least, control of one firm by another holding a block of shares, preferred access to money capital by non-financial and to banking customers by financial corporations, provision of legal or securities dealers’ services, and arrangements to buy and sell commodities [4]. By general interests I mean simply corporations’ common objective of protecting the overall process of capital accumulation from attack by the working class, international competition, and state “interference”. The question is posed in terms of the balance between the two types of interlocks because of the evidence, reviewed below, which suggests it is impossible to sustain either the argument that the network may be completely “reduced” to purposive ties between specific pairs of firms or the argument that only a general interest is manifest. Despite the need, therefore, to make some judgement on the basis of quantitative evidence as to the preponderant pattern, the problem is an important one. The two types of interlocks play different but complementary roles and from the viewpoint of the to confining the network corporations there are marked disadvantages to one type. of tie. The firms in a network whose sole purpose is to expedite the relations between pairs of firms may serve poorly in times of political crisis and constitute a potential target for charges of
see Ornstein (1976), Waverman and Baldwin (1975) and Carroll et al. (1982); for the U.S.A., see Allen (1974), Dooley (1969), Mariolis (1977). Mizruchi (1981) and Pfeffer (1972). [3] For the U.S.A., see Sonquist and Koenig (1975) and Allen (1978); Fennema and Schijf (1978/79: section 4) review the European studies. [4] Burt (1980) terms all such ties, including those due to intercorporate ownership. “cooptive”. This term implies an interdependency between the interlocked firms when, frequently, the interlock reflects the power of the firms over the other. I thank Donald Palmer for bringing this point to my attention.
[2] For Canada,
M.D. Ornstein / Interlocking directorates in Canada
5
collusive practices’[5]. A network with no such specific ties cannot serve as a vehicle for the exchange of information, corporate control, etc. Posing the problem in this way creates an unusual division in the existing theoretical literature. On the side of a specific interpretation of interlocks are the proponents of generalized models of cooptation (such as Burt, 1978/79, 1980; Pfeffer, 1972; and Allen, 1974), models based on cliques (in the work of Park and Park, 1962; Sonquist and Koenig, 1975; and Allen, 1978), finance control theorists (including Fitch and Oppenheimer, 1970; and Perucci and Pilisuk, 1970), and investigators who attempt to link directly the extent or character of interlocking with profits (such as Carrington, 198 1; Bunting and Liu, 1977; and Waverman and Baldwin, 1975). I will refer to these theories, in aggregate, as the “specific” interpretation of the network and to individual links connecting pairs of firms as “specific” ties. On the other side is what Sonquist and Koenig (1976) label the “class hegemony” interpretation. Pointing to the work of Domhoff and Mills, among others, Sonquist and Koenig characterize this approach as follows, “This model predicts that interlocking directorates should be found to be based in social ties and on class and ethnic backgrounds. Thus, cliques should follow ties in elite social clubs and upper-class consensus groups such as the Council on Foreign Relations.. . ” (p. 59). Such an emphasis on the social, ethnic, and political basis of interlocks, however attractive a target for radical attacks on the clannishness, unfairness in recruitment, and conspiratorial character of the capitalist class, is excess theoretical baggage (which is not to say there is no basis for these attacks). A variety of mechanisms, including friendship circles, geographical proximity, membership in interest groups, and reputational networks might all play some role in developing interlocks that are not based on specific interest of pairs of firms; but what is distinctive about them is their lack of a basis in the convergent interests of particular pairs of firms. I will refer to this more limited version of Sonquist and Koenig’s “class hegemony” theory simply as the “class” theory of interlocks. The resolution of this issue has implications for the understanding of It is interesting in this respect to consider the now rather widespread prohibitions against certain types of interlocks. For example, in Canada banks are not permitted to interlock. Ornstein (1976), for Canada, and Burt et al. (1979) for the U.S.A. both find that competitors avoid interlocking. The passage of legislation to restrict interlocks between some competitors, suggests not only populist pressures against collusive practices, but also corporate fears of monopolistic practices by firms which buy and sell commodities and services from other firms.
[5]
6
134. D. Omsrein / Interlocking drrectorates in Canada
advanced capitalism. There is agreement, supported by overwhelming empirical evidence, that the control of capital in advanced capitalist nations is highly concentrated in small numbers of large firms [6]. There is less agreement, however, on the character of relations among firms in what is variously termed the “core”, “monopoly”, “primary”, “planned”, or “dominant” sector. Within the leeway permitted by their overarching interest in the preservation of the process of capital accumulation, the question is whether or not large firms form a series of alliances based on their interests in controlling markets, assuring supplies or distribution of commodities, providing capital, and securing regional interests. Those alliances, if they existed, could form the basis for economic and political conflict within the capitalist class. To the extent that the network of firms is based on ties that do not reflect specific economic interests of the paired firms, the network provides a means to mitigate conflict within the capitalist class. The main purpose of this paper is to present evidence on the balance between “specific” and “class” based ties in the network of interlocks among the largest Canadian corporations in the post-war period. Almost all the existing analysis of interlocks involves correlating the presence of ties at some single point in time, or at two or more points at long intervals, with characteristics of the firms involved, including sometimes measures of their relation to each other. Instead, this paper will examine how many and which ties are replaced when an interlock is broken by a director leaving one or both boards of a pair of firms. I will next review the existing evidence of the balance of “specific” and “class” interlocks, then describe the methodology in more detail, then present the empirical results. Typical of the earlier research on cooptation is Pfeffer’s (1972) study of a random sample of large American corporations. He treats the corporate board “as a vehicle for dealing with problems of external interdependence and uncertainty, resulting from its exchange of resources with important external organizations” (p. 219); interlocks provide a means to “ensure favourable exchanges with external organizations” (p. 220). Pfeffer finds that most of his predictions about the relation between board size and composition and economic characteristics of the firms are confirmed. For example, board size is positively [6] See two of the studies produced for Canada’s Berkowitz el al. (1976) and Marfels (1976).
Royal Commission
on Corporate
Concentration:
M.D.
Onwtein
/ Interlocking
directorates
in Canada
7
associated with sales. the debt-to-equity ratio, and the presence of local or national regulation of the industry. Still, in a multiple regression only sales and the debt-to-equity ratio have significant effects on board size, and the latter is only barely significant at 0.05; the R2 value is 0.23 (see p. 255). About the same explained variance is found in the regression of the proportion of insiders on the board on the same four variables. Thus there are moderately strong relationships in the predicted directions which, however, do not come near to fully explaining board characteristics. Furthermore, the use of the firm size variables, such as sales or assets, as measures of the firm’s cooptive needs (as claimed by Burt (1980), for example) is somewhat questionable. Size effects may as easily be interpreted as evidence of a prestige or influence ordering of firms as opposed to a measure of their need to coopt external threats. Dooley (1969: 318) explains about 25 percent of the variance in the board’s number of financial interlocks with a similar model. He takes his results as confirmation of the predictions of a theory of intercorporate cooptation. It is equally important to recognize that the analysis comes nowhere near accounting for all of the variation in board and interlock characteristics. A second generation of research in the intercorporate cooptation genre is exemplified by the work of Burt (1978/79, 1980) and Galasciewicz, et al. ( 198 1). Burt ( 1980 : 17, 19) finds relations between board characteristics and interlocking with simple correlation coefficients in the range between about 0.2 and 0.4 (unfortunately he provides no multiple regression analysis) employing the variable size as a measure of need for links with other firms. Instead of treating entire corporations as the only units of analysis, Burt’s theory is based on establishments (i.e. subunits of the firm whose operations may be described in terms of their industries). The input-output matrix for all industries in the economy then provides measures of the extent of dependency of the establishments within each corporation on firms with establishments in other industries. This theory and the empirical results are impressive, but again much of the variation in board structure goes unexplained and some variance that is explained (and attributed to firm assets) cannot be unambiguously taken as a measure of the need for links with other firms. Galasciewicz et al. (198 1 : 20) undertake a similar analysis of publicly owned manufacturing firms in the Minneapolis-St. Paul metropolitan area and report no support for the hypothesis that firms would appoint to their boards officers from firms that “highly constrained” their behavior.
8
hf. D. Ornsrein
/ Interlocking
directorates
in Conuda
Dooley (1969) provides an example of studies that attempt to cluster firms directly on the basis of their interlocks. Of the 250 largest U.S. firms in 1965, he is able to allocate 122 to one of the seven “tight-knit” and eight “loose-knit” groups, all of which are identified by common geographic locations. Allen ( 1978 : 6 13) concludes a similar analysis with the observation that “many large corporations are members of geographical interest groups comprised of corporations based in the same geographical area.” Sonquist and Koenig (1976 : 67) place 166 of 401 large American firms (from the 1969 Fortune “top 500” listing including all firms with at least one double interlock to another firm in the list) in one of 32 cliques. So, somewhat less than half the subset of double interlocked firms are found to be in cliques “composed solely or predominantly of firms headquartered in a single city or economic region.. . evidence also suggests strongly that though cliques have regional bases, the level of integration of the total system is high” (p. 72). The research on cliques again suggests that patterns of regional concentration coexist with numerous interlocks that cannot be accounted for in this way (and of firms that are members of no clique). Finally, we should note that regional concentrations of interlocks could as easily reflect diffuse relations within a community or convenience as attempts to coopt the local environment. Taken together these studies suggest the presence of both “specific” and “class” motivated ties in the network, though in what proportion it is difficult to say. The magnitudes of the explained variances and the ability of the various clustering procedures to assign firms to cliques clearly leave many of the interlocks “unexplained”. A common response to the observation that models do not perfectly explain behaviour is to resort to the concept of unreliability: “noise” in the measurement deceptively lowers the magnitude of the observed relationships. This is potentially a serious problem for the studies examined above, not because of actual errors (which might result from faulty transcription of records, but surely cannot be very numerous), but because of the possibility of individuals belonging to three or more boards. If most interlocks serve specific purposes and, in addition, some of the directors occupy positions on three or more boards, then the network of specific ties would be supplemented by a second, not necessarily distinguishable, set of ties resulting from pairs of unrelated firms being linked through their specific ties to some third firm, when the ties are constituted by a single individual. Sometimes measures are
M.D. Ornstein / Interlocking directorates in Cuncldcl
9
taken to avoid this difficulty, for example Sonquist and Koenig (1976) discard all ties between firms that are constituted by the common membership of only one person and Galsaciwicz ef al. (198 1) consider only the ties made by individuals holding executive positions in one of the firms linked. Unfortunately, such a procedure discards evidence of links between firms on the basis of unproved assumptions about the relative importance of different types of interlock. It is therefore necessary to provide a method for distinguishing ties “accidentally” formed by individuals who hold memberships on three or more boards. As suggested in recent studies by Koenig et al. (1979) Ornstein (1980), and Palmer (1980), the retirement of directors provides a means to establish the enduring features of the network. Ties embodying specific interests of pairs of firms would be reconstituted by the appointment of a new common director; if no such interest exists, a firm seeking to maintain its place in the network might easily substitute a tie with some new firm. In particular, when a retiring individual holds three or more positions, an inspection of which ties are replaced suggests which are specific ties. Since it is often difficult to find a replacement with the complex combination of directorships held by the retiree, the tendency will be to reconstitute only the specific ties. For such an analysis, data on board membership for a set of firms at two or more time points are required. Better still would be board membership data for a time continuum greater than the length of service of every director in the network. In this circumstance, the generally applicable arguments about the superiority of longitudinal over cross-sectional studies are reinforced by a compelling methodological argument. Koenig et al. (1979) used obituary notices to locate 45 directors who sat on the boards of two or more of the largest U.S. corporations (as listed in Fortune magazine) and whose deaths broke a total of 102 ties among those firms. In 77 percent of those cases no other common board member linked the two firms and only six of those 78 ties were re-established by a new board appointment within one year of their loss. Utilizing a similar methodology, Palmer (1980) finds that 36 out of 234 broken ties are repaired. These figures suggest that a large proportion of the ties among the largest firms cannot reflect their “specific” interest. Both studies purposely eliminate losses that might be due to deliberate changes in corporate strategy: Sonquist et al. consider only deaths while Palmer includes only retirements and executives changing their firms of employment. These two studies of replacement patterns,
IO
M.D. Ornstetn / Interlocking drrectorates in Canada
though somewhat limited in their scope, certainly lend support to the class interpretation of the network of interlocks, suggesting that this aspect predominates over the “specific” functions. This paper reports on the outcomes of the more than five thousand instances when ties between the largest Canadian firms are broken during the period between 1946 and 1977. Since the raw data are continuous records of board memberships, not a series of repeated cross-sections, it is possible to follow individual “careers” over the entire interval. In addition to large firms in the industrial, commercial, financial, and property development sectors, the leading law firms and securities dealers are included in the study, because of their important roles in distributing capital, in coordinating and regulating conflict among large firms, and in maintaining relations between capital and the state. These data cover a much longer period than previous research on the replacement of interlocks (although Ornstein’s (1980) exploratory study of six firms covers 1959 to 1975). In this analysis no attempt is made to insure that interlocks are such as by unforeseen death. So among the broken by “accident”, unrepaired links are some which reflect a change in corporate policy and the proportion of unrepaired links underestimates the proportion of specific ties.
Hypotheses There is convincing evidence to support our making two initial distinctions among the directorate interlocks. First, ties in which the director holds an executive position in one of the two linked firms should be distinguished from ties involving a director with no position in either firm. Logically, the executives of a firm should have a clear allegiance to and much more information about that firm, so they are more likely actively to influence the relation between the two linked firms. Second, ties between firms with two or more common directors should be distinguished from ties formed by a single common director. It is very unlikely that a pair of firms would have two common directors as the unforseen consequence of their being tied to a third firm. Therefore we hypothesize that ties involving an executive of one of the firms (termed here “executive” as opposed to “director” ties ) [7] and ties that are one of two or more ties between a particular pair of firms are more likely to
M.D.
Ornstein / Interlocking
directorates
rn Canada
11
be reconstituted when broken. We should also expect that broken “executive” ties will be replaced by “executive” ties when reconstituted and that broken “director” ties will be replaced by new “director” ties. Previous research (for example by Carroll et al., 1982; Levine, 1972; Mariolis, 1975) shows firms in the financial sector occupy central positions in directorate networks, so we predict that ties involving financial firms are more likely to be reconstituted than those involving no such firm. No previous large scale study involves the partners of law firms and securities dealers. These firms provide specialized services for large firms; it therefore seems likely that they should have enduring ties with large corporations. This leaves the central question about the general character of the network of interlocks. Two sorts of empirical evidence lend support to the proposition that broken ties go largely unrepaired in a network based more on a broad community of interest than on specific, instrumental ties: the lack of detectable cliques among the largest one hundred Canadian firms (in Carroll et al., 1982); and the low level of et al. ‘s ( 1979) and Palmer’s ( 1980) replacement observed in Koenig American studies. The theoretical argument hinges on the meaning given to the adjective “monopoly” in the phrase “monopoly capitalism”. No doubt large firms possess enormously greater resources than small firms, resources manifest in their privileged access to credit and government subsidies, and in control over prices. But that is not sufficient evidence to support the conclusion that the firms are genuine monopolies in the sense that they escape the equalization of the rate of profit and obtain monopoly rents. To the extent large firms are, in this sense, monopolistic the likelihood is that interlocking directorates would serve the specific purpose of facilitating these arrangements; to the extent large firms are engaged in genuine competition, the class perspective would account for a relatively diffuse network in which most broken ties would go unrepaired. In the absence of a good long-term study of rates of profit we can only speculate as to whether the firms and some industries obtain above
[7] Interlocks
involving an individual with an executive position in one of the two interlocked firms are termed “primary” ties by Sweezy (1953) and Palmer (1980) and “strong” ties by Bearden et al. (1975). Interlocks involving no executive position are termed “secondary” ties by Sweezy and Palmer, “weak” ties by Bearden et al.
12
M.D. Ornstein / Interlocking drrectorates in Canodu
average rates of profit consistently over long periods - Mandel (1975:530ff) [8] claims they do not, but without good empirical evidence. More striking, perhaps, is the recent evidence that firms in oligopolistic sectors, in what Galbraith (1973) terms the “planned” economy, are quite capable of going broke, witness the precarious plight of Massey-Ferguson and Chrysler. There is a tendency, particularly in political economy of the late 1960s and early 1970s to exaggerate the stability of the entire capitalist economy and the power of firms in the monopoly sector to assure their own prosperity by their technological expertise, access to capital, and support from the state (for examples from three different political perspectives, all of which exhibit this problem, see Averitt (1968), Galbraith (1973) and O’Connor (1973)). Finally, consider the issue of whether secular changes in the probability of replacement should be found. Past research and theory provide little basis for making a prediction. The post-war period in Canada, to a far greater extent than in the United States and Europe (where these changes appear earlier), witnessed the expansion of large-scale capitalist enterprises in many new industries (trust companies and property development, particularly) and into the Canadian West, that were previously less penetrated by big capital (see Richards and Pratt, 1979). These new areas of accumulation emerge in the context of and requiring ties with existing centres of capital; for example, the newly monopolized property development industry which developed in the late 1960s and the emerging Canadian-controlled oil and gas firms both required access to large pools of capital controlled by the banks. As big capital comes more completely to dominate the economy, the tendency should be for ties to reflect the general (as opposed to firm-specific) interest of the newly consolidated capitalist class; but the particular character of the emerging capitals requires purposive ties with pre-existing firms. It is also likely that heightened public concern with corporate concentration in recent years would discourage the formation of “specific” ties, because of the potential for collusion. There is no good basis for predicting which of these conflicting tendencies should be stronger. Carroll et d’s (198 1) finding, on the basis of the same data employed here, that the density of interlocks among the largest Canadian
[8] Omstein
(1978 : 8ff) discusses this issue in more detail.
M.D. Ornstein / Interlocking directorutes rn Canada
firms does not change change in the proportion
appreciably, suggests we should of broken interlocks replaced.
13
predict
no
The data A necessarily arbitrary element enters the decisions on which firms are to be included in studies of corporate directors. No single, logical point provides a natural division of the fairly smooth, continuous distribution of firm size. Also it is difficult to compare financial statistics of the industrial, commercial, financial and property development sectors. Generally researchers proceed to take some largest number in each sector, separately. These difficulties are exacerbated in longitudinal studies, for the composition of the listing of firms by size changes over time: not only does the ranking of firms change, but mergers, bankruptcies, takeovers, and the founding of new firms alter its composition. In this study, the inclusion of law firms, securities dealers, and the property developers required that separate “cut-off” points be designated for each of six, instead of the usual three, industrial categories. The changing industrial structure makes it impossible, in some years, to find the required number of firms. From the mid 1950s onwards, for example, there is no difficulty in identifying the ten largest commercial firms. But, in 1946 only three commercial firms are large enough to be reasonably included in the network. Although the increased number of sectors adds to the complexity of the selection, the more serious problem is posed by temporal changes in the ranking of firms. We proceeded by ranking firms by assets in the three major industrial sectors at five year intervals over the 1946-77 period. Any firm meeting the criterion for inclusion at any one time was included in the study in all years. So, any firm among the top seventy industrials in 1946 or 195 1 or 1956 or 196 1 or 1966 or 197 1 or 1976 is included in the entire study: its directors and executives in each year from 1946-77 (providing the firm existed in that year) were recorded. Similar criteria of assets were employed in the financial, commercial, and property development sectors [9]. More qualitative
[9] In total 123 industrial firms were among the top 70 industrials in Canada at one or more of the five year intervals; 38 financials were among the top 20; 18 merchandisers were among the top IO: and 15 property development firms had assets equal to the smallest ranked industrial firm. In 1946 only 3 commercial firms of significant size existed; in 1951 there were 5 such firms.
14
M.D.
Omstein
/ Inrerlockq
directorates
,n Cmoda
criteria were used to decide which law firms and securities dealers should be included [lo]. The risk inherent in any procedure for designating some number of top firms for study over an extended historical period is that the procedure chosen might influence the outcome of the study. Two alternatives to selecting a constant number of top firms are, first, selecting the firms responsible for some constant proportion of total economic activity as measured by GDP (actually, not necessarily equal proportions would also have to be designated for financial firm assets and retail trade and perhaps for other sectors), and, second, selecting some fixed proportion of the total number of firms. The second alternative runs up against the serious objection that if we are concerned with interlocks among the large Canadian firms (for substantive reasons and because of limitations on research resources), it doesn’t make sense for the number of firms studied to be a function of the total number of incorporated firms - when many of the new incorporations are of businesses so small they are of no conceivable interest to an exploration of interlocking directorates. The first alternative of choosing firms responsible for some proportion of total production would lead to the selection of a sample very similar to our selection of fixed numbers of firms, provided that industrial concentration in the Canadian economy does not change appreciably. While the data before 1960 are not very good, the Report of the Royal Commission on Corporate Concentration concludes “industrial concentration ratios remained roughly constant from the mid 60s to the early 70s. This also tends to support the broader conclusion that aggregate concentration also was stable over a somewhat larger period from the early 1950s to the early 1970s” (1978 : 37). Superior to the theoretical argument advanced here for the appropriateness of the procedure for selecting firms would be an emprical test of the consequences of altering the selection criteria. I do not, however, attempt such an analysis here. The “cases” for this analysis are lost ties, one of which is created every time a director loses his or her memberships on the board of one or both of a pair of interlocked firms. The year of loss is defined as the [IO] Twenty-six law firms are in the study - on the basis of two or more of their partners being included in the “economic elite” as defined by Porter (1965 : 277ff) or Clement (1975 : 178ff). Nine securities dealers are included - on the basis of the analyses of the most important such firms by Neufeld (1964) or Park and Park (I 962).
M.D.
Ornstein
/ Inrerlocking
directorates
in Canada
15
first year in which the tie no longer exists. Broken ties may be repaired, according to.our definition, in any one of five years, a new tie may be created the same year it is broken, one year later, two years later, one year before the loss, or two years before the loss of the tie. If more than one new tie is created between a pair of firms with a lost tie, the tie that occurs first in the above listing of possible years is assigned as the replacement. The definition allows ties to be repaired before they are broken as would happen if a replacement were being trained for his or her role by a retiring predecesser.
Results
Table 1, which gives the total number of ties, of ties gained, and of ties lost at five year intervals, is intended to provide a background for the subsequent results. Since firms both enter and leave the network over the period of the study, due to mergers, differential growth, and the occasional bankruptcy, the total in each interval bears no exact relation to the number of ties previously and the number of gains and losses. The network clearly becomes somewhat more dense over time, so the unreplaced losses are more than compensated for by the addition of new ties between firms not previously linked. Many more new ties are created than are perpetuated after a loss by the replacement of a previous tie by a new incumbent. Over the entire post-war period, 29.5 percent of the ties broken are replaced by new ties between the same pair of firms. As predicted, and previously observed for the U.S., executive ties are more likely to be reconstituted than director ties, the proportions are 39.6 percent and 26.7 percent respectively. A fairly strong relationship exists between the type of tie lost and its replacement: 77.7 percent of director ties replaced are also replaced by director ties; 64.4 percent of executive ties replaced are replaced by executive ties and about one-third of the executive ties are downgraded to director ties. About half of the time, ties are replaced the same year they are lost, about a quarter are replaced one year later, a further eighth are replaced two years later, and an eighth are replaced one year before the loss. About 5 percent of broken ties are replaced two years before they are broken. These results (see Table2) strongly confirm the usual supposition that executive ties
16
M.D.
Ornsrein
/ Interlocking
directorates
in Canada
Table 1 Number of ties, and number of ties lost, gained, and replaced, by five year intervals. a Year Interval
Total Number of Ties at mid-point
Numer of ties lost
Numer of ties gained
Numer of Lost ties replaced
Number of firms at mid-point
1946-50 1951-55 1956-60 1961-65 1966-70 1971-75 1976-77 b
1053 1170 1561 1754 1784 1686 2184
305 627 584 1030 1471 965 372
562 694 1020 1112 1385 1466 754
96 198 205 302 389 315 77
178 189 203 200 202 201 196
a Because of changes in the number of firms over time and since gains and losses due to the appearance and disappearance of firms are exluded from losses and gains, there is no exact relationship among the totals and numbers of lost and gained ties. b Mid-point taken as 1977.
Table 2 Percentage Outcome
distribution
of outcomes
of broken tie
of broken ties by type of tie lost.
Type of tie Directors
Not replaced
73.3
Replaced by director tie Same year as lost One year later Two years later One year before loss Two years before loss
20.7
Replaced by executive tie Same year as lost One year later Two years after loss One year before loss Two years before loss Total Numer of cases
only
14.1
6.0
19.3 6.1 3.3 1.9 1.8 0.9
25.5 3.2 1.1 0.8 0.5 0.4
100.0
70.5
60.4 9.3 5.1 2.7 2.3 1.3
4182
All ties
One or both executives
8.6 4.7 2.5 2.2 1.3 10.2
14.1 6.9 1.7 2.0 0.8 100.0 1172
5.6 2.3 1.0 0.8 0.5 100.0 5354
M.D.
Ornsrein / Interlocking
directorates
m Canada
17
are more likely than director ties to provide evidence of purposive ties between firms. Previous work along these lines is so sparse that it provides little guidance as to whether this observed level of replacement should be considered high or low. In the only other reasonably large scale study, for the 1962- 1966 period in the U.S., Palmer (1980) finds 19.6 percent of executive interlocks, but only 5.3 percent of director interlocks are repaired. His percentages are much smaller than the values obtained here, perhaps in part due to the very large number of firms, 1131, in the American study. With three in ten ties being repaired, it appears that the network of interlocks contains significant proportions of both specific and class ties. The results strongly suggests that neither the “specific” nor the “class” interpretation of interlocks is adequate alone. Table3 shows the relation between the number of interlocks linking a pair of firms and the probability that a broken tie is repaired. As the number of ties increases, so does the probability of repair. If only one tie links two firms, director ties are replaced only 17.1 percent of the time, compared to 28.1 percent when there are two ties, 36.7 percent for three ties, 43.2 percent for four ties, 52.0 percent for five ties, and 58.6
Table 3 Outcome
of broken ties by number of ties at time of loss by type of tie lost.
Number of ties at time of loss
Type of tie lost
One Two
Percentage
distribution
Number of cases
of outcomes
Not replaced
Replaced by director tie
Replaced by executive tie
Total
Director Executive
82.9 78.6
14.0 11.2
3.1 10.2
100.0 100.0
2326 491
Director Executive
11.9 57.6
21.1 17.8
7.0 24.6
100.0
758 236
Director Executive
63.3 52.1
25.0 16.8
11.7 31.1
100.0
376 119
Four
Director Executive
56.8 56.4
34.6 11.7
8.6 31.9
100.0 100.0
257 94
Five
Director Executive
48.0 36.1
36.3 15.5
15.7 48.4
100.0 100.0
204 97
Six or more
Director Executive
41.4 26.7
47.9 16.3
10.7 57.0
100.0
261 135
Three
100.0 100.0
100.0
4
of
linked
100 100 100 100 100
6 20 18 I3 0 0
0 21 I5 13 7 24 0
71 45 73 65
Executive
Director
Executive
developer
Financial
76 100
Director
Law firm
Executive
69 80
Director
Executive
Securities
dealer
23
100 100
5 55
100
100
2 22
100
Director
100 100
Property
23
22
12
55
Commercial
Industrial
76
tie
Total
Executive
6 32
executive
by
Director
tie
Replaced
56
17
director
replaced
by
of Outcomes
Replaced
Distribution
Not
Percentage
by type of tie lost.
71
tie lost b
Type
of firms
Executive
and
a
ties by sector
Director
Industrial
of
linked
sectors
of broken
firms
Outcome
Table
I7
I19
40
61
1618 390
22
52
56
129
1444 385
of cases
Numer
m
56
Total 72
80
28
7
32 16
0
19 18
25 IO
18 17
a Including all pairs of sectors with 10 or more ties lost. b Director and executive ties are summed when fewer than 10 of either type exist
Total
63 52
88
Total
Director Executive
64
74
50 70
74 81
54 27
31 20
33
3
7L
22
Director Executive
Law firm
and
Securities dealer
Financial and Fiancial
Law firm
Property developer Financial
Total Total
Director Executive
Financial
Securities dealer Law firm
Director Executive
Property developer
L~11.2Ct<,r Executive IOU
100 100
0
100
13
100
5
100
100
100
100
100
100 100
100 100
IUO
32
12
18
25 20
8 2
15 53
22
41
8 IO
89 42
13 15
9
I2
%
hf. D. Ornstein
20
/ Interlockrng
directorates
in Cmada
percent for six or more ties. For executive ties, there is a similar pattern. As the number of ties in existence previous to the loss increases from one to six or more, the probability of replacement of lost ties rises from 21.4 percent to 73.3 percent. Firms connected by two or more ties contribute disproportionately to the sum of replaced ties. These results are strong confirmation of previous findings of the difference between single and multiple ties. Usually (see Carroll et al., 1982; Sonquist and Koenig, 1975) only single ties are distinguished from ties made by two or more members of both boards. These replacement patterns suggest that the strength of the link continues to increase monotonically with the number of ties, at least until six or more ties exist. Still, note that single ties (particularly executive ties) may also indicate specific links the frequency with which they are replaced is far larger than can be accounted for by purely “accidental” ties. So studies based only multiple ties exclude some specific single ties in the course of purifying the network for analysis. The outcomes of broken ties are classified according to the industries of the interlocked firms in Table4. The differences among industries are unremarkable and appear to follow no coherent pattern. The largest
Table 5 Outcome Time of loss
1946-50 1951-55 1956-60 1961-65 1966-70 1971-75 1976-71
of broken ties by time of loss by type of tie lost. Type of tie lost
Director Executive Director Executive Director Executive Director Executive Director Executive Director Executive Director Executive
Percentage
distribution
Number of cases
of outcomes
Not replaced
Replaced by director tie
Replaced by executive tie
Total
68.9 61.2 70.2 69.6 13.4 63.3 76.4 73.8 76.9 73.4 14.5 68.5 79.5 80.2
25.3 9.4 26.0 12.2 21.6 15.2 20.2 14.1 19.3 10.0 22.9 13.1 15.3 6.6
5.8 29.4 3.8 18.2 5.0 21.5 3.4 12.1 3.8 16.6 2.6 11.8 5.2 13.2
100.0 100.0 100.0 100.0
100.0 100.0
100.0 100.0 100.0 100.0 100.0 100.0 100.0
100.0
211 85 443 148 522 191 848 205 1304 289 1184 292 443 91
hf. D. Ornstein / Interlocking directorates uz Canada
21
variations occur in the categories with the fewest cases - involving the property developers, law firms, and securities dealers. The two largest types of tie link pairs of industrial firms and industrial and financial firms, each accounts for about one third of all the director and executive ties. Since only financial firms ever among the largest twenty in Canada and industrials ever among the largest seventy firms are included in this study, the approximately equal numbers of losses in these two groups show that financial firms average 70/20 or 3.5 ties as many losses (hence original ties) as industrials, reflecting the tendency for financial firms to have far more interlocks than industrial firms. Director ties between pairs of industrials are replaced 22.7 percent of the time, compared to 28.1 percent for industrial-financial links; for executive ties, the corresponding percentages are 43.6 and 35.4. On the whole, financial firms are no more likely to reconstitute broken ties than industrials, in spite of their centrality in interlock networks, disconfirming our original hypothesis. Finally, Table 5 shows the outcomes of lost ties in six five year periods. A small decline in the proportion of ties reconstituted is evident between 195 l-55 and 1961-65. In 195 l-55, 70.2 percent of director ties and 69.6 percent of executive ties are not replaced, compared to corresponding figures of 76.4 percent and 73.8 percent in 1961-65. There is little variation in the 1946-55 period, or between 1961 and 1975.
Conclusions
Far too small a proportion of the interlocks are replaced to sustain the theory that they serve entirely the role of providing ties between pairs of specific firms, even allowing for changes in corporate strategies and multiple directorships of some individuals. On the other hand, if the network served entirely a diffuse class interest, it is difficult to see why three in ten broken ties should be replaced by a tie between the same are, of course, pair of firms. The “specific” and “class ” interpretations not incompatible and reflect, respectively, the needs for coordination between specific pairs of firms and for the maintenance of the solidarity of the capitalist class beyond its interests of individual firms. Accounting for changes in corporate strategy and multiple position holding, it is
22
M.D. Ornstern / Interlocking directorates in Cunudo
likely that somewhere between 40 and 50 percent of the ties reflect specific interests. These results suggest that the pursuit of “explanations” of interlocking on the basis of intercorporate ownership, industrial interdependency, and other forms of bilateral interest must strike an upper bound which is the concrete representation of the class interest of big capital. Correlational analysis of the relation between the objective interests of pairs of firms and their ties (and specifically analysis based on the repeated examination of simple correlations) leaves the impact of class interest as unexamined error terms, the presumption being that more refined analysis will eventually reduce them to substantive if not statistical insignificance. However impressive the recent research on the measurement of corporate interdependence, it concentrates on establishing that these relations exist in the directions predicted by cooptation theories and carries with it the assumption that the net extent of prediction is not very important. It is clear that the cooptation theorists on the one side, and the monopoly capital theorists on the other, overemphasize the function of directorships in providing for, respectively, cooptation and collusion. Class hegemony theory emphasizes a kind of social conspiracy to block mobility and maintain social circles. These results show that neither type of theory can alone account for the patterns of replacement of interlocks. The replacement patterns are strong evidence that the distinctions between single and multiple interlocks and between director and executive interlocks are quantitative not qualitative, as regards their use by firms to maintain relations. Although the probability of replacing an interlock accompanied by one or more other ties is about twice as great as for a single interlock and the probability is about one third greater for executive than for single ties, these differences are clearly not sufficiently great to justify the arbitrary elimination of single and/or director ties from analysis. But, of course, comparison of the patterns apparent from different types of interlocks is worthwhile. Our lack of success in finding differences in the probabilities of replacement as a function of industrial sector is strong confirmation of the importance of the recent trend away from theory based on gross industrial categories in the direction of more refined examination of the activities of firms, disaggregated when necessary into their component establishments.
M.D. Ornsfein / Interlocking directorates in Canada
23
References Allen, M.P. 1974 The structure of interorganizational elite cooptation: interlocking corporate directorates, American Sociologmd Review 39: 393-406. 1978 Economic interest groups and the corporate elite structure, Social Science QucIrIerIy 58: 597-615. Averitt, R. 1968 The Dual Economy. New York: W.W. Norton. Bearden, J., W. Atwood, P. Freitag, C. Hendricks, B. Mintz, and M. Schwartz 1975 The nature and extent of bank centrality in corporate networks. Paper read at the annual meeting of the American Sociological Association. Berkowitz, S.D., Y. Kotowitz and L. Waverman 1976 Enrerprise Srrucrure and Corporare Concentrabon. Study No. 17 of the Royal Commission on Corporate Concentration. Ottawa: Supply and Services Canada. Bunting, D. and T.H. Liu 1977 Economic and social dimension of interlocking. Paper read at the meeting of the American Sociological Association, Chicago. Burt, R. 1978,’ A structural theory of interlocking corporate directorates, Socxzl Networks 1: 415-35. 1979. 1980 Cooptive corporate actor networks: a reconsideration of interlocking directorates involving American manufacturing, Administrarioe Science Quarferly 25: 557-82. Burt, R.S., K.P. Christman and W.M. Bittner 1979 Testing a structural theory of corporate cooptation. Berkeley: University of California, Survey Research Centre, Working Paper No. 25. Carrington, P. 1981 Anticompetitive effects of directorship interlocks. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. Carroll, W., J. Fox, and M. Ornstein 1981 Longitudinal analysis of directorate interlocks in Canada. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. 1982 The network of directorate interlocks among the largest Canadian firms, Canadian Review of Sociology and Anthropology, 19: 44-69. Clement, W. 1975 The Canadian Corporate Elite: An Analysis of Economic Power. Toronto: McClelland and Stewart. Dooley, P.C. 1969 The interlocking directorate, Amencan Economic Reuiew 59: 314-23. Fennema, M. and H. Schijf 1978,’ Analyzing interlocking directorates: theory and methods, Social Networks 1: 297-332. 1979 Fitch, R. and M. Oppenheimer 1970 Who rules the corporations?, Socialist Revolution I: No. 4: 73-108; No. 5 61-14; No. 6 33-94. Glaskiewicz, J., S. Wasserman, B. Rauschenback, W. Bielefeld and P. Mullaney 1981 Corporate control through board interlocks. Paper read at the annual meeting of the Canadian Sociology and Anthropology Association, Halifax. Galbraith, J.K. 1973 Economics and Ihe Public Purpose. Boston: Houghton-Mifflin.
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M.D. Ornsrem / Interlocking directorates in Canada
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