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Les Analyses de l’OpesC n°12 Le « patronat européen » Juin 2009
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Observatoire politico-économique
des structures du Capitalisme
CORE BUSINESS NETWORK IN THE EUROZONE
François-Xavier Dudouet, Eric Grémont, Antoine Vion
Abstract
Surprisingly, available elite studies on the EMU have mainly focused on the strategy of
political elites in favor of uniting (Fligstein & Mara-Drita 1996 ; Jabko 2006), and
Fligstein (2008) recently claimed there is still no real transnational business cohesive
circle in Europe. This echoes a long-standing debate on the existence of a
transnational capitalist class or transnational business community (Robinson & Harris
2000; Sklair 2001; Morgan 2001; Carroll & Fennema 2002; Carroll & Carson 2003;
Kentor & Jang 2004; Carrol & Fennema 2004; Nollert 2005; Kentor & Jang 2006;
Carroll & Fennema 2006). In this paper, we seek to clarify the debate for Europe on
the basis of an interlocking directorates study. We present a new theoretical
framework for the study of transnational interlocking, a new context of reference
(stock exchange indices rather than magazine rankings or international business
organizations), and an original data-setting method (board composition at the end of
the year for 2006 and 2007). From this perspective, three main observations emerge.
First, unsurprisingly, national scores of centrality remain much higher than
transnational ones—proof of the persistence of the national anchorage of core
business elites. Second, the emerging transnational power based on transnational
interlocks is based on the strength of weak ties, particularly around financial
companies. Third, though the absolute density of transnational interlocks remains the
higher on the Franco-German axis, our partial Chi2 test indicates that it is less
important than what could be expected, contrarily to Franco-Dutch interlocks, which
call for deeper investigations about economic restructuring in the Netherlands.
Key words
Board interlocks, corporate networks, elite networks, Eurozone, stock exchange
indices, transnational interlocking, transnational business.
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INTRODUCTION
While comparative studies of European elites have been a matter of interest for years
(Stockman & al. 1985; Suleiman & Mendras 1995; Bauer & Bertin-Mourot 1996;
Windolf 2002; Georgakakis 2002; Genyieis 2008), it seems that there is still a lack of
transnational studies of the Eurozone business elites. This topic is not entirely new; a
few years after the creation of the EEC, Meynaud & Sidjanski (1967) suggested that
business groups based on transnational arrangements were beginning to act in the new
European community. Though a few investigations were conducted afterwards
(Nollert 2005; Guieu & Meschi 2008), one would have expected a dramatic increase of
such studies in the context of the achievement of the EMU. Surprisingly, available
studies have kept focusing on the strategy of political elites in favor of the EMU
(Fligstein & Mara-Drita 1996; Jabko 2006). The dominant perception of the EU
introduces a kind of clash between proactive European elites and national public
opinions concerned with welfare and social stakes (Hooghe 2003; Fligstein 2008). In
this context, transnational initiatives in Europe remain a better insight for scholars
who study sources of social contest (Tarrow 2000; Imig & Tarrow 2001). In the
business context, Fligstein (2008) even argued for the absence of a strong
transnational milieu in Europe.
In this paper, we seek to face this question through a more specific methodology
based on the study of interlocking directorate in European firms. This is the only field
in which the existence of a transnational community of business elites has been
questioned, sometimes harshly. We are aware of the fact that such studies should be
complemented by more qualitative studies about business galaxies (Dudouet & al.
2009), European manager interest groups, clubs and think-tanks (Cowles 1995; Coen
1998; Van Appledoorn 2000; Greenwood 2002; Chartier 2003; Mac Gann & Johnson
2005; Rabier 2007), or the daily firms’ activism in lobbying European institutions
(Mazey & Richardson 1993; Grossman& Saurugger 2003; Michel 2005). But we think
that this interlocking directorate method is still underexploited in this field, and should
not be ignored. This method has inspired a growing number of studies in social and
organizational science (Mizruchi 1996), but transnational studies still represent a
minority of them, which we discuss in this paper as a priority.
Interlocking directorate studies : a definition
Interlocking directorate studies search for individuals belonging to multiple
governance structures. According to Kentor & Jang (2004), there are two main types
of interlocks : ‘concomitant interlocks’ and ‘serial interlocks’. The first occur when a
single individual is a member of two or more boards at the same time. This method
has been widely used by US institutions to control the right implementation of anti-
trust legislations. It has recently been renewed and supported by the increasing
sophistication of network study methodologies. The second is a way to learn more
from individual trajectories through public and private structures of governance, such
as company boards, cabinets, agencies, and so on, which reveal much on the discrete
ties between small worlds of business and politics.
Most edited published studies have been based on concomitant interlocks. In this
field, Windolf (2002) distinguishes between the study of corporate networks and elite
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networks. Any kind of work with a focus on firm strategies is related to the first type,
while the second corresponds to a group of studies that are more concerned with the
social structure of elites. Yet, the two kinds of networks can be obtained from the
same data set, offering interesting perspectives when switching from one to another.
In both cases, national case studies and international comparisons dominate the field.
In the perspective of corporate networks, scholars have stressed the dependence of
companies on key resources (Pfeffer & Salancik 1978; Eisenhard & Schoonhoven
1996 ; Uzzi 1996; Hallen, 2008), the control and coordination assumed by banks
(Mizruchi 1982; 1992; 2004; Windolf 2005; Schnyder & al. 2005) or families (Coles &
Hesterly 2000; Anderson & Reeb 2003; 2004), cartel strategies (Loderer & Peyer 2002)
or the financial hegemony of some big companies (Davis & Mizruchi 1999). In the
perspective of elite networks, the first concern has been a quest for a capitalist class,
whether it was enthusiastically inferred from marks of hegemonic positions in national
affairs (Scott 1995; 1997; Windolf 2002), or more cautiously deducted from the
density of an ‘inner circle’ characterized by strong social and ideological cohesion, as
well as a high degree of common interests (Useem 1984).
This approach has been progressively taken over by a more managerial
conceptualization of elites, according to which autonomous elites mobilize resources
or social capitals to increase their environmental scan and prestige (Davis & Greve
1997; Watts 1999; Chung & al. 2000; Kogut & Walker, 2001; Broschak 2004; Dudouet
& Grémont, 2007). In this paper, we will switch between corporate and elite networks
in order to overcome the tough question of managers’ nationalities. First, we were not
able to collect them systematically. Second, the nationality of a manager is precious
when one studies the circulation of elites, but it is less relevant when one measures
business relations. For example, British Lindsay Owen Jones was, for a long time,
Chairman and CEO of French L’Oréal but he did not holdt mandates in UK firms
except in L’Oréal’s parent companies. So the nationality of a manager is not a
sufficient criterium to measure transnational interlocks. Measuring transnational
interlocks requests to study firms first1, and then go back to the individuals who link
them together. If we focus on the main European stock exchange indices, it is also
because being part of them constitutes the highest consecration for managers. As a
result, this leads us to pay greater attention to manager portfolios of social links than,
for instance, the ways of protecting family patrimony. Moreover, this procedure is less
contradictory with the interlocking directorate method, which gives no access to firm
capital (Kentor & Jang, 2004). We are much more interested in managerial capacities,
that is, the ability to influence strategic choices and interfirm arrangements. From this
perspective, one of the contributions of our study is the exploiting of original, self-
made, and recent data (see the methodological section) and to test the hypothesis of
the transnationalization of such managerial capacities in Europe. We are thus taking
part in ongoing debates on transnational interlocking.
Studying elite networks trough transnational interlocking: an emerging field
Comparative studies which deal with interlocking directorate in Europe and the
United States insist on the higher density of national interlocks in continental Europe,
1 The nationality of firms is another kind of problem we deal with in the following section.
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especially in France and Germany, than in the US and UK (Stokman & al.1985;
Windolf 2002). The study of transnational interlocking was first inspired by the
hypothesis of exit strategies US managers would follow in order to consolidate their
hegemony from bank and insurance core business networks (Fennema 1982; Carroll
& Fennema 2002).
Next, Carroll & Carson (2003) as well as Kentor & Jang (2004), tried to replace such
interlocking directorate studies within the scope of the constitution of a transnational
capitalist class or Atlantic ruling class. Indeed, Hymer (1979), followed by a few
Gramscian scholars (Cox 1987; Overbeek & Van der Pijl 1993; Van der Pijl 1998), had
for years claimed the emergence of such a class in the context of the restructuration
and stabilization of transnational capitals controlled by banks, industries and trade
companies promoting neo-liberal hegemony all over the world. Robinson & Harris
(2000) then insisted on their capacity to emancipate from States, while Sklair (2001)
insisted on the variety of ideological vectors by adding consumerism to neo-liberalism.
Kentor & Jang (2004) undoubtedly strengthened the methodological tools of this
research stream. This led them to criticize the tight panel exploited by Carroll &
Fennema (2002) and to promote their study of the 500 biggest companies compiled
by Fortune. From 2004 to 2006, International Sociology edited this controversy. Though
we suscribe to the methodological critiques against Fortune as a relevant source for
sharp data-setting of interlocks (Carroll & Fennema 2004; 2006), we think the final
word (Carroll & Fennema, 2006) might have been written a bit too quickly, as all
available studies still suffer from heavy methodological problems. We expected much
from Nollert (2005) to explore the European transnational interlocks, but his
restrictive choice of firms connected to members of the European Round Table, thus
excluding some of the financial ones, as well as other methodological limits, offers
limited advances in the field. In this paper, we propose a new framework for data
setting and interpreting transnational interlocks. But let’s first precise what we really
mean by transnational in our study.
What does transnational mean in our study?
Before pointing out all the methodological problems we identify in this emerging field,
we must note that this debate on a transnational capitalist class or a transnational
business community is not very clear on what the authors mean by ‘transnational’.
Keohane & Nye’s seminal definition of transnational relations (Keohane & Nye 1972)
as relations between actors among which one at least would not be a State or related
to a State is sometimes not even discussed in most of the papers. This definition has
become problematic as far as it is directly linked to formal State control. As Tilly
(1992) pointed out, contemporary sociologists and political scientists are somehow
‘prisonniers de l’Etat’, which means they have many difficulties to build analyses and
comparisons without referring directly to States. Indeed, the debate about the
transnational capitalist class is much based on the hypothesis of an emancipation of
business elites from States (for example Robinson & Harris 2000). Leaving the State
behind incites to focus much more, according to a Weberian approach, on the
probability that collective action is still or no more oriented by motives of national
belonging and anchorage.
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From this perspective, assumptions about transnational links presuppose a relation
with national circles or boundaries directorate would path through or articulate with.
Selecting stock exchange indices partially solves the problem, because it underlines big
companies are much more embedded in business relations within stock exchanges
than in the countries they are supposed to be located in2. The high mobility of
capitals, registered offices or even governance directorship, as well as the quick
relocation of turnover, assets and results makes it harder to postulate self-relevant
nationalities. Stock exchange indices give better indications of the contexts of affairs
in which firms more willingly operate and constitute the main part of their financial
and social links. Of course, some of them still opt for their quoting in numerous stock
exchange indices, but the greatest part of them are most of the time registered in one
only. Otherwise, it is still possible to solve the multi-quotation dilemma by crossing
indices with the structure of the capital and the dominant nationality of executive
managers, in order to select the more relevant index of reference.
Here we have to discuss the relation between location and transnational flows. Some
scholars insisted on the multiplication of transnational flows in the contemporary
world, and the fact that some of them escape from States’ control (Badie & Smouts,
1995). No doubt that the financial globalization accelerated financial transnational
flows. What is interesting here is to search for the relevant circles and contexts from
which these flows are harnessed, and to wonder if they are still organized on a
national basis or not. Somehow, we try to know whether hubs are still embedded in
small national business worlds linked to particular stock exchange places, or they are
conglomerated through transnational networks from which a kind of core European
corporate circle would emerge.
The main survey on transnational network actors edited by Risse (2002) goes beyond
the definition originally proposed by Keohane & Nye (1972). Risse points out that
such transnational network actors may be more or less directly linked to structures of
intergovernmental cooperation, as EADS would be in our case study for example.
Moreover, he generally distinguishes between networks which are embedded in formal
device and those characterized by a higher degree of informal relations. Our study
investigates formal device, because boards are publicly registered, framed by the law,
and controlled by financial authorities. We do not deal here with all the informal links
through which individuals access foreign boards or maintain their social capital; as far
as such investigations require qualitative methodologies we do not apply here. On
another side, Risse (2002) introduces the distinction between advocacy logics and
more instrumental ones. This distinction is quite important because we think that
interlocking directorate methodologies give a broader access to the second kind of
logics than to the first one.
2 For example, Fortune 500 (2007) registers EADS as a Dutch firm, what is rather far from the reality of
its Franco German control and main activity in stock exchange.
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TRANSNATIONAL INTERLOCKING IN THE EUROZONE:
CHALLENGES AND NEW HYPOTHESES
Investigating transnational interlocking in the Eurozone is methodologically and
theoretically demanding. Available studies bring out trends but new data and new
hypotheses are needed, especially as far as we select stock exchange indices.
Methodological problems of available studies on transnational interlocking
directorate
Transnational interlocking directorate studies suffer from heavy methodological
problems. First, the composition of the data set is very heterogeneous, because of
conceptual options but also of opportunities to access and collect them. Carroll &
Fennema (2002) selected 176 companies Fennema (1982) initially studied, but the
methodological and conceptual reasons for such a choice are not very clear. Kentor &
Jang (2004) claimed that their data were less representative than the 500 biggest
companies they carried out from the Fortune’s ranking. Yet, we agree with Carroll et
Fennema (2004) when they point out that exploiting such rankings requires to take a
lot of precautions. Indeed, financial companies with more restricted sale volumes but
sometimes more crucial influence (Scott 1995) are never taken into account in them.
But the main objection is that focusing on volumes leads to ignore the essential
dimension interlocks give access to, which is the structuration of social links between
firms. Carroll & Carson (2003) partially treated the Fortune’s data set and added other
companies they identified as peripheral, and above all five global policy groups like the
World Economic Forum or the International Chamber of Commerce. On the same
way, Nollert (2005) selected the ERT. What is interesting here is the search for
institutions, which mark circles. This is what we try to do methodologically. We agree
with the idea that business and managers’ institutions give access to the self-
consciousness of what is managing a big company for a group of reference, and to the
social circles in which it is consensually shared. As far as one only exploits the
Fortune’s data set, they find among French big companies Auchan, the SNCF and La
Poste. All indeed are big or even giant companies, but they are social dwarfs: Auchan
is a family group, which is not quoted and withdrawed into itself, the two other ones
are public companies that private groups constantly despise. Moreover, as far as one
looks for a transnationalization of interlocks, constructing a panel on the basis of
Fortune’s data means over representing firms whose patrimony was highly valued in
the past twelve months. This is somehow dangerous because this leads to take for
granted a kind of virtual social hierarchy rather than a true ability to influence
strategies, structure cliques and harness financial flows to distribute them: the hub
capacity.
The hypothesis that hubs could now be organized on a transnational basis may require
to investigate systematically national and international institutions and clubs (Morgan
2001, Langley 2004, Nollert 2005). But stock exchange indices might be a very useful
gateway to the social structure of national core business elites. Such indices provide
distinctive competing images, and shape so directly social identities and hierarchies
that all the leading organizations pay the highest attention to their strategy of
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affiliation (Rao & al. 2000). Moreover, belonging to such an index means being part of
the managers’ circle that counts in terms of economic and mediatic influence, revenue,
and so on. There might of course be exceptions. Some financial companies (for
example Lazard) did not belong to stock exchange indices. But social arrangements
and financial opportunities which arise in stock exchanges seem to us much more
important that the simple volume of sales that Fortune’s rankings take into account.
Furthermore, let’s remember that European companies, which were privatized during
the 1980s-90s, have massively moved on stock exchange markets. Access to interlocks
through the main European indices somehow corresponds to a sharp focus on what
Useem (1984) defined as an Inner Circle or Carroll & Fennema (2004) called core
business. Methodologically, this seems to us more adjusted to the contemporary
realities of financial globalization.
From this perspective, the specificity of the Eurozone is a matter of interest. Has the
achievement of the EMU impacted the social structure of the European core business
elites? Do we know whether their national anchorage is still vivid (structural effect of
national stock exchange indices) or their europeanization is in progress (structural
effect of easier accounts and cash availability, open competition and disintermediation
in financial services)? This is all the more interesting since a few reports on the
European financial regulation insisted on the limited capacity of cooperation between
national financial agencies at the third level of the Lamfalussy process. Transnational
interlocks in this context of weak horizontal control could be a resource for self-
regulated business arrangements. Such a transnational power would be very formal
and very instrumental, according to Risse’s typology (2002), and could be the basis of
various strategies, from harsh preemption, peaceful merging, self-interested
intercorporate portfolio management, or intersectorial agreements, to more
sophisticated bank-industry transnational arrangements or emerging multinational
conglomerates. Contrarily to some political scientists, we do not think interlocking
directorate studies should be used in a predictive way.
Have interlocks recently europeanized ?
Let’s now have a look on the main results of available studies on transnational
interlocking in Europe. As we said, two main studies (Nollert 2005; Guieu & Meschi
2008) give us a few indications of what has happened in Europe in the last two
decades.
Guieu & Meschi (2008) insist on the fact that national and transnational networks are
on various forms, and articulated through different ways. Therefore, the main result is
the predominance of national network compared to transnational ones.
Nollert (2005) repairs an inner circle around firms whose managers belong to the
ERT. His results are interesting when one compares them to Guieu & Meschi’s study
(2008), as they bring out a few firms which remain central from 1994 to 2003 in
transnational intercorporate networks. Among them, we find Deutsche Bank, Bayer,
Suez and Siemens. The lack of financial elites in Nollert’s panel is a true handicap
here, because it brings out parts of the inner circle. Both studies recognize European
ties beyond big firms but in small scale.
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Which kind is the core network of European core business elites ?
Our method consists of a study of companies quoted in the main index of four
Eurozone countries: France, Germany, Italy and Netherlands. Our hypotheses are the
following ones:
Hypothesis 1. National scores of centrality may remain much higher than transnational
ones, which would mean the persistence of the national anchorage of core business
elites, then resilience of national capitalism (Hall & Soskice 2001).
Hypothesis 2. We suppose that the stronger transnational interlocks are Franco
German ones. This means that the centrality of this axis remains strong in Europe,
which is a very common hypothesis, shared by common sense and more sophisticated
neo-institutionalist studies. Guieu & Meschi’s results indeed confirm a framework
Risse-Kappen (1995) elaborated when he insisted on the fact that intergovernmental
structures of cooperation favour the stabilization of transnational relations. From this
perspective, the Franco German axis is well known as a dense network.
Hypothesis 3. Transnational interlocks might constitute a structure of weak ties, which
could vary from one year to another, which would indicate a kind of plasticity of such
a structure. If this hypothesis is verified, Fligstein’s assumption about the absence of a
well-structured European business world is right.
Hypothesis 4. Most of the studies in national and internal levels concluded these last
years about weakness of finance’s firms in interlocking schemes. On another side,
financial management scholars insisted on changes in the move towards and the
implementation of the single currency, with the consolidation of the bank sector,
characterized by a substantial decrease of firms, higher concentration (Staikouras & al.
2006), as well as the growing competition and internationalization in the merger and
acquisition market (Ekkayokkayo & al. 2009). But does the institutionalization of the
Eurozone as well as progresses in financial liberalization favor the renewal of financial
institution in Euro zone business networks?
METHODOLOGY
Selecting relevant interlocks is a classical problem (Mizruchi 1996; Carroll & Fenema
2004). Some scholars are only interested in boards’ members (Guieu & Meschi 2008),
while others take into account executive managers who are non-members of boards in
order to compile supervisory boards and managing boards when needed (particularly
in the case of North European companies). However, the main problem lays in the
heterogeneity of sources scholars exploit to establish the composition of corporate
directorship.
Data collection
We agree with Carroll & Fennema (2004) when they claim that annual reports provide
the most reliable information. Unfortunately, many studies make sharp measurement
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of whales on the shore without knowing how magazines or institutions equipped their
fishing. As we directly collect our data from annual reports, we get the control of their
quality and their comparability throughout years.
Moreover, as far as boards are cautiously reconstituted, another problem is to take
time into account on a right manner. In many cases, the sharp dating of the data is
neglected. If this is not done, interlocks are measured for the whole year, despite the
fact that some managers who began or ended a mandate in the course of the year may
have never met each other at board meetings. This may lead to establish wrong links
or redundancy. The sharpness of our original data based on the composition every
31st of December allows us to avoid this kind of redundancy, and to build future
longitudinal network analysis. This is of particular importance for the study of
transnational ties, whose weakness may induce big variations in the measurement.
From our corpus, we made a comparative test of the two ways to do, by counting on
one side all managers registered throughout the full year of 2007 and all managers
registered on December the 31st 2007 (Table 1).
Table 1. Comparison of (binary) links for a full year 2007 and December 31st 2007
Full year 2007
31.12.2007
Variation
Total 1094
902
21%
Internal links 872
756
15%
External links
222
146
52%
Total links in a full year exceed of 21% the whole set calculated on December 31.
Whenever scholars could chose to take upon their selves to measure domestic links
with a constant 15 % margin of error, would they go up to 52% when measuring
transnational links? Implementing such a measurement need specific databases
schema, that we have with own.
This is the second point about the temporalization of data. Interlocking directorate
studies, particularly transnational ones still suffer from a lack of cross-time
comparisons. When this is done, like in Carroll & Fennema (2002), the gap is so
important that it generates an illusion of linearity, while nothing indicates the two
selected points are not an aberration in a longer series. Even if we do not dismiss the
idea of an increase of transnational links through the last decades, we plead for
equipped longitudinal analyses, which would allow bringing out reliable results on the
main historical trends. This is what we have done for the CAC 40 since 2002, and
what we have begun to do with other European stock exchange indices since 2006. Of
course, by now, we are still short with a comparison based on two following years,
and we readily address our critics back to ourselves as well. But we think it is useful to
establish first partial results and to invite comments at the beginning of the process, in
order to improve future investigation.
Data set
Our data is based on the set of companies, which composed four stock exchange
indices of the Eurozone on 2006 and 2007, December 31st (see table 2). These four
indices are the AEX 25 (Netherlands), the CAC 40 (France), the DAX 30 (Germany)
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and the S&P/MIB 40 (Italy). All belong to the Eurozone and have been part of the
founders of the EC. We are aware of the fact that the BEL 20 should be added to our
corpus: work is in progress. Globally, 138 companies have been analyzed after we
have taken into account merging initiatives (which were particularly numerous in the
Italian bank in 2007) and common ‘natural’ entrance and exit activity within these
indices3. The AEX index does not represent the whole list on December 31st, either in
2006 (24 companies) or 2007 (23 companies). In order to prevent redundancy, we
have also been obliged to select an index of reference for companies, which are
registered in two indices. We thus affiliated Unibail-Rodamco to the CAC 40 and
STMicroelectronics to the S&P/MIB 40, according to the nationality of the CEO and
to the localization of the index. We also subtracted one company – ArcelorMittal –
because of the quasi-impossibility to affiliate it4.
Table 2. Number of companies by index in the data set
31.12.2006
31.12.2007
AEX 25 24
21
CAC 40 38
38
DAX 30
30
30
MIB 40 40
40
Total 132
129
The managers we retained are all members of the boards, including censors,
representatives of employees and States, and observers, but not honorary presidents
and secretaries. We added to them some executive managers who are not members of
the board of directors or supervisory board such as members of Board of
Management, Chief executive officer (CEO) and deputy CEO. Globally, 1788
individuals were retained for 2006 and 1792 for 2007 (each time on Dec. 31st). The
global numbers of individuals who interlock boards are respectively 273 and 267.
Annual reports and press releases were compiled to check all the data.
Measurement
The measurements presented here are essentially descriptive, in order to furnish a first
cartography of the whole set of main stock exchange indices of the Euro zone.
Contrary to most of the dominant literature about interorganizational networks based
on Uzzi (1996), we don’t analyze dyads, like Guieu & Meschi (2008) did for Europe,
because this method seemed to us too restrictive to make appear the whole set of
trans-indices’ ties. It is not so rare that single individuals link boards without
redundancy. In this case, measuring dyads would mean erasing the strength of weak
ties (Granovetter 1971) transnational relations are characterized by.
3 By ‘natural’, we mean initiatives, which are not linked to merging or purchase.
4 ArcelorMittal is a company ruled by the Luxembourgian law, quoted in Amsterdam, Brussels,
Luxembourg, Madrid, New-York and Paris while most of the capital is Indian, such as the President
and Chief Executive Manager. It was present on the CAC 40 in 2006 (as Mittal Steel) and 2007, and
on the AEX in 2007. We could have added it to the CAC, due to the purchase of Arcelor, but we will
not be comfortable with that until we have treated the whole BEL 20 to which we could have
affiliated it as well. Somehow, Arcelor Mittal can be consider as a transnational board.
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We thus essentially examine links between firms and their density. However, we also
made a big effort to bring out actors who embody these weak ties in the Euro zone by
interlocking foreign boards. We here agree with Windolf (2002) when he claims that
elite networks only partially match up corporate networks. In order to restore the link
between the two, we applied the following geometric series:
We denote by n the number of mandates held by one director, and Rn, the number or
relations created between firms. Rn is calculated as follow:
If we have k indices and ni the number of mandates of one director in each index
we can bring out the total number of mandates for one director from
and Nr the global number of relations created from:
So Ni the number of relations created in each index is calculated as follow:
and
When one applies this measurement to strict transnational relations, they must
calculate the total of the intercorporate links the actors constitutes by holding their
mandates and to subtract all those, which are properly, related to inner indices subsets.
So
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To conclude, we present a framework of the Euro zone’s Core Corporate Network,
calculated from relations managed by firms holding at least three relations on at least
two indices.
RESULTS
A first measurement of all the links (table 3) structured among the whole set of
company shows a clear domination of domestic interlocks. External links exist but are
considerably less numerous than the inner stock exchange indices ones. Moreover
these external links decrease on a higher degree from 2006 to 2007.
Comparison of inner and extra stock exchange links
Table 3. Corporate links (absolute value)
31.12.2006 31.12.2007
n=132 n=129 Evolution on one year
Val
Bin
Val
Bin
Val
Bin
Total 1226
958
1138
902
-7,2%
-5,85%
Inner Index links
1016
762
982
756
-3,3%
-0,79%
Extra Index links
210
196
156
146
-25,7%
-25,51%
Val = valuated links i.e. taking into account redundancy
Bin = binary links i.e. counted once.
In order to have a better idea of this evolution, the variation of the number of
companies must be neutralized by the measurement of the average in the two periods
considered. Here it appears that the trend is far less noticeable for the totality of the
links and becomes even positive for binary domestic links. These links therefore
benefit from the general decrease, and particularly of the external links. Yet, valued
links, which express power relations, continue to release more quickly from one year
to another, and there again for extra stock exchange links.
Table 4. Corporate links (average)
31.12.2006 31.12.2007
n=136 n=131 Evolution on one year
Val
Bin
Val
Bin
Val
Bin
Total 9,29
7,26
8,82
6,99
-5,0%
-3,66%
Inner Index links
7,70
5,77
7,61
5,86
-1,1%
1,52%
Extra Index links
1,59
1,48
1,21
1,13
-24,0%
-23,78%
Density measurement (table 5) shows highly density into indices than in the whole
network. DAX and CAC lead also AEX and MIB present weakness density. One have
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to careful about MIB considering high numerous of homonymous. This indicates
probable strong family networks.
Table 5. Density (binary)
31.12.2006
31.12.2007
AEX 25 0,26
0,29
CAC 40 0,36
0,39
DAX 30
0,6
0,56
MIB 40 0,2
0,2
All 0,11
0,11
Structure of intercorporate relations between stock exchange indices
Table 6. Distribution of links by index (valued average)
31.12.2006
CAC
DAX
MIB
AEX
CAC (n=38) 8,53
1,11
0,58
0,45
DAX (n=30) 1,40
12,53
0,47
0,13
MIB (n=40) 0,55
0,35
5,70
0,15
AEX (n=24)
0,71
0,17
0,25
3,67
31.12.2007
CAC
DAX
MIB
AEX
CAC (n=38)
9,05
0,66 0,50
0,39
DAX (n=30)
0,83
11,20 0,40
0,17
MIB (n=40)
0,48
0,30 5,70
0,05
AEX (n=21)
0,71
0,24 0,10
3,52
This result reinforces the first observations. Transnational relations exist, and for the
four indices, but are very clearly underrepresented. The DAX and the CAC show out
a valued average between 8 and 12 for inner stock exchange links, and only averages
of 0.13 and 1.40 for extra stock exchange links. The AEX and the MIB get a lower
average for inner stock exchange links, but neatly superior to the extra ones.
Generally, extra stock exchange links are not numerous, less than one by company
excepted for the Franco-German relation, with 1,40 for DAX-CAC and 1,11 for
CAC-DAX in 2006.
Pearson’s Chi2 Test applied to absolute value of links (p<0.001; ddl=9; chi2=2120.83
for 2006 and chi2=2170,58 for 2007) confirms that the distribution is not independent
from indices (See the Appendix).
In order to get a sharper idea of the nature of the distribution, we did a partial Chi2
test, (Chi2 partial/Chi2 total). Each Value is determined by the cell (in percent) in the
total Chi2. Signs mean positive or negative gap from independence. In blue the most
important variation from independence, in orange the smallest one.
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Table 7. Partial Chi2 Test
31.12.2006
CAC
DAX
MIB
AEX
SUM
CAC +12,75
-3,41 -2,39 -
0,55
404,92
DAX -3,41
+14,85 -3,30 -
1,57
490,47
MIB -2,39
-3,30 +22,52 -
0,70
613,13
AEX
-0,55
-1,57 -0,70
+26,06
612,31
SUM 404,92
490,47 613,13
612,31
2120,83
31.12.2007
CAC
DAX
MIB
AEX
SUM
CAC +13,08
-4,08 -2,69 -
0,49
441,37
DAX -4,08
+16,25 -2,96 -
1,04
528,27
MIB -2,69
-2,96 +21,76 -
0,84
613,17
A
EX -0,49
-1,04 -0,84
+24,71
587,77
SUM 441,37
528,27 613,17
587,77
2170,58
Let’s first notice that all inter-indices interlocks are underrepresented, while all intra-
indices links are overrepresented, which confirms the previous Chi2 test. From this
test, AEX and the MIB show out as the most positive results. This means that, despite
a huge quantity of interlocks in both the CAC and the DAX, firms quoted in the AEX
and the MIB, as far as they establish relations, prefer to do it with firms from their
own index. From this perspective, we can already consider that Dutch and Italian
firms lead a kind of “defensive” strategy against transnational interlocks. Yet, the
AEX extra-indices links are the closest to independence (expected values), especially
with firms quoted in the CAC and the MIB. This means that Dutch firms have a
higher degree of transnational interlocks than other firms between other indices. So
we may consider, at least as an hypothesis, a strong correlation between this kind of
“defensive” strategy and transnational openness. Let us underline an apparent trend of
strengthening relations between the CAC and the AEX, which are the closest to
independence for both years. This means an amazing Franco-Dutch connection,
which unexpectedly appears as relatively stronger than the Franco-German one. As we
can see in the Table 6 and the Appendix, the CAC and the DAX have the most
numerous transnational interlocks, but the related partial Chi2 score presents the most
negative gaps from independence. So the apparent strength of Franco-German
relations is actually inferior to their expected value. Furthermore, the DAX is
characterized by the most negative gaps for extra-indices interlocks. So the German
index is proportionally more isolated than other indices.
So it gets clear that a transnational network of interlocks exists, but is far weaker than
inner index interlocks, which leads us to be very cautious towards every theory that
would defend the idea of a dilution of national links in a transnational field (see for
example Robinson & Harris 2000). On the contrary, partial Chi2 test shows that the
most open index (AEX) is also this, where the preference for internal links is the most
developed.
As far as we take a look at the four indices, we see how they are interconnected
(Graphs 1 and 2). Weak ties between stock exchange boards represent 17% of the
whole set of links in 2006 and 14% in 2007.
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Graph 1: Corporate Network at 31.12.2006 (valued)
Weight : degree centrality
Box : Financial firms (bank-assurance) Circle : any other kind of firms
Blue: CAC 40; Gray: DAX 30; Green: MIB 40; Orange: AEX 25.
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Graph 2: Corporate Network at 31.12.2007 (valued)
Weight : degree centrality
Box : Financial firms (bank-assurance) Circle : any other kind of firms
Blue: CAC 40; Gray: DAX 30; Green: MIB 40; Orange: AEX 25.
Eurozone’s business elites5
Only a few actors structure weak ties between inner index networks of interlocks: they
are 45 out of 273 in 2006 and 44 out of 267 in 2007 (see table 5). Due to their
strategic position, they constitute the core network of the core business elites in
Europe. A first measurement indicates that the density of the elites transnational
5 Following measurements are valuated.
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network is up to 0.30 for 2006 and up to 0.24 for 2007, which means a higher score
than the global elites network (0.06 et 0.05). If we only retain actors who hold more
than three mandates in two stock exchanges at least, they are now 24 for 2006 et 21
for 2007, but the density score for this close elite network reaches 0.50 and 0.43.
The low number of key actors and the concentration of mandates explain great
variations from one year to another. As the table 8 indicates, a single exit may have a
huge impact. This is the case for Gerhard Cromme, who left four of his eight
mandates in 2007, which deleted 22 interlocks among which 12 were transnational.
Let’s notice that seven actors do the essentials of the moves from 2006 to 2007, which
means 51% of the decrease and 56% of the increase.
Table 8. Transnational interlockers in the Euro zone from 2006 to 2007
# mandatory Extra-index links
Actor 2006
2007
Variation
2006
2007
Variation
% of variation (+/-)
Cromme 8
4
-4
15
3
-12
-29%
Spinetta 4
3
-1
5
_
-5
-12%
Diekmann 5
4
-1
4
_
-4
-10%
Bischoff M. 4
3
-1
6
3
-3
-7%
Scaroni 4
3
-1
5
2
-3
-7%
Profumo 3
1
-2
2
_
-2
-5%
Bolloré 2
_
-2
1
_
-1
-2%
Bourdais de Charbonnière
3
2
-1
2
1
-1
-2%
Breipohl 2
1
-1
1
_
-1
-2%
Faber J. 2
1
-1
1
_
-1
-2%
Jeancourt-Galignani 4
3
-1
3
2
-1
-2%
Landau I. 3
2
-1
2
1
-1
-2%
Lippens 2
1
-1
1
_
-1
-2%
Lombard D. 3
2
-1
2
1
-1
-2%
Passera 2
1
-1
1
_
-1
-2%
Ruys 2
1
-1
1
_
-1
-2%
Studer 2
1
-1
1
_
-1
-2%
Thierry 3
2
-1
2
1
-1
-2%
Mangold 1
2
+1
_
1
+1
7%
Mussari 1
2
+1
_
1
+1
7%
Polet 1
2
+1
_
1
+1
7%
Uebber 1
2
+1
_
1
+1
7%
Vuursteen 3
4
+1
2
3
+1
7%
Westerburgen 2
2
_
_
1
+1
7%
Carron 3
3
_
_
2
+2
14%
Cucchiani 1
3
+2
_
2
+2
14%
Streiff 2
3
+1
_
2
+2
14%
van Wijk L. 1
3
+2
_
2
+2
14%
Apotheker 2
2
_
1
1
_
_
Azéma J. 3
3
_
2
2
_
_
Balbinot 2
2
_
1
1
_
_
Bernheim 5
5
_
4
4
_
_
Bomhard 2
2
_
1
1
_
_
Cordero di Montezemolo
2
2
_
1
1
_
_
Della Valle 2
2
_
1
1
_
_
Dunn 2
2
_
1
1
_
_
Galateri di Genola 4
4
_
3
3
_
_
Grube R. 2
2
_
1
1
_
_
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Highbury 2
2
_
1
1
_
_
Innocenzi 2
2
_
1
1
_
_
Job 2
2
_
1
1
_
_
Kley M. D. 3
3
_
2
2
_
_
Krebs 2
2
_
1
1
_
_
Lagardère A. 5
5
_
4
4
_
_
Lamberti 3
3
_
2
2
_
_
Markl 3
3
_
2
2
_
_
Müller K.-P. 3
3
_
2
2
_
_
Pohle 2
2
_
1
1
_
_
Schinzler 3
3
_
2
2
_
_
Schweitzer L. 6
6
_
5
5
_
_
Strutz 2
2
_
1
1
_
_
van Lede 5
4
-1
4
4
_
_
van Miert 3
3
_
2
2
_
_
Wyand 2
2
_
1
1
_
_
Total 148
134
-14
105
78
-27
_
Euro zone’s Intercoporate Core
Now we can take a look at the Euro zone core corporate network. We take into
account here firms that have at least three transnational links and we measure the
whole set of relations they maintain, including inner stock exchange ones. We then
have 31 companies and 254 links for 2006, 21 companies and 116 links for 2007, with
density of 0.53 both.
Graph 3. Euro zone Core Corporate Network 31.12.2006
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Colors: Blue = CAC; Gray = DAX; Green = MIB; Orange = AEX. Symbols: square
= financial firm; triangle = ERT; circle = industries out of the ERT. The size of nodes
is related to the number of relations.
Graph 4. Euro zone Core Corporate Network 31.12.2007
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Colors: Blue = CAC; Gray = DAX; Green = MIB; Orange = AEX. Symbols: square
= financial firm; triangle = ERT; circle = industries out of the ERT. The size of nodes
is related to the number of relations.
The dramatic decrease of networks from 2006 to 2007 reveals the low stability of the
Euro zone core corporate network. According to our criteria, we here move from 31
interlinked companies in 2006 to only 21 in 2007. But we see very well here that the
main result of this measurement is the central position of financial companies’ boards.
This means that the bank insurance sector must be taken into account as far as one
looks for a leading small world of transnational business in the Euro zone.
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DISCUSSION AND CONCLUSION
Our tests confirm our first hypothesis: stock exchange internal networks are made of
much stronger ties than the global transnational network, which was also pointed out
by Guieu & Meschi (2008) for the period from 2000 to 2003. As Granovetter (1971)
showed, the density of a network is correlated to its withdrawal into itself, which
indicates that the national anchorage of core business elites is still vivid. White (1992)
added that strong density within subsets would also signify a self-perception of their
social identity by their members. Even if we did not implement such measurements,
Rao & al. (2000) have demonstrated this in their case studies of the NASDAQ and the
NYSE. Due to this self-perception, all stock exchange internal relationships may at
least be considered as latent. Yet, we have in our corpus five companies in 2006 and
seven in 2007, all in the MIB and the AEX, that were not interlocked. In our stock
exchange indices, we also find companies which seem less integrated in national core
business cliques: Alitalia, ST Microelectronics for the MIB, Rodamco for the AEX,
Vallourec for the CAC 40, Fresenius Medical care for the DAX—the two latter highly
dependant on PSA and Bayer, respectively. Our tests show that business relations
remain mainly incorporated in national interlocks and that the stock exchange may
play a structural role among other institutions. If there are still varieties of capitalism
in Europe, as Hall & Soskice (2001) or Fligstein (2008) claim, we invite neo-
institutionalism scholars to place more attention on the structuring capacities of
European stock exchange main indices. The strong density of the CAC and DAX
internal links show that the so-called capitalism of the Rhine is not dead. Some
cliques, such as the one which structures the intercorporate links between Deutsche
Postbank, Deutsche Post and Deutsche Telekom, are so incorporated that they
constitute real national fortresses. Yet, beyond such vestiges of State monopolies, this
model of capitalism is above all reconstructed around powerful financial companies
whose managers are very active in blue chip boards.
Thus, we did not find a highly integrated and structured transnational European
business network. Our study rather suggests that weak ties interlink strong national
poles. Let us notice, however, the particularity of the AEX, where neat preference for
domestic interlocks contrasts with the weaker integration of the Dutch business
network. This paradox may indicate, as we will see, a kind of dilution of Dutch
capitalism in the globalization of business.
Regarding our second hypothesis on bilateral relations, cautious comments should be
given. Unsurprisingly, the majority of transnational interlocks are structured between
the CAC and he DAX companies. However, the high variation of interpersonal and
intercorporate networks shows that there is no real process of transnational
incorporation, but entrepreneurs’ strategies that invest structural holes. Most of the
existing relations are led by single actors who manage a good insertion in the different
worlds, embody collaborations and impose themselves temporarily as real go-
betweens in project management initiatives they are able to exit with. Yet, Franco-
German relations are proportionally less developed than other bilateral relations
(Partial Chi2 test). So, relations between big firms in France and Germany are not as
strong as expected. Our results for 2006 and 2007 must still be related to the shading-
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off process in Franco-German affairs of the last few years. An example of this is the
failure of the connection between Euronext and Deutsche Börse in 2006, which led to
the NYSE-Euronext alliance, industrial disputes and mainly the governance crisis of
EADS. Another example of this is the end of the strategic partnership between Areva
and Siemens in nuclear production. All these tensions are the backdrop of our
observations of the decline of Franco-German interlocks between 2006 and 2007. We
would not be that surprised if the 2007-2008 continued to release these Franco-
German relations. In that case, a deeper trend of restructuration should not be
excluded, but it is still too soon to make this claim.
Our results on the transnational links between French and Dutch boards are more
striking. We find here another axis, which has of course a lower intensity, but may
challenge the Franco-German axis if the increasing trend persists. One explanation is
what we could call, inside the European core business, a process of absorption of the
periphery by its centre. Indeed, for years now, the Dutch blue chips have been
engaged in big reorganization, with increasing purchase from foreign companies (see
table 9).
Table 9. AEX quoted companies purchased by foreign groups since 2000
Year Dutch Firms on AEX Foreign Firms Country
2000 Baan Invensys UK
2002 CMG Logica UK
2004 KLM Air-France France
2005 P&O Nedlloyd Möller-Maersk Denmark
Versatel Tele2 Sweden
2007 Rodamco Unibail France
ABN Amro Barclays- RBS -Santander UK-Espagne
Numico Danone France
2008 Hagemeyer Rexel France
Corporate Express Staples USA
With four of the ten main purchase initiatives, French companies have gained good
positions in what looks like the carving of Dutch capitalism. For KLM and Rodamco,
the rapprochement was made by a kind of merging with quasi-equal boards. In 2007,
Air-France KLM is linked with ten companies of the CAC 40 and four of the AEX,
while Unibail-Rodamco, is linked with the Crédit Agricole (CAC 40) and the ASML
Holding (AEX). There is without doubt a tight relation between these new
connections and the increasing number of interlocks between the companies of the
two stock exchanges. The merging of these stock exchanges in the Euronext in the
early 2000s might also have favoured these dynamics.
However, the fact that strong internal relations within stock exchanges are
concomitant with weak transnational ties, more or less personified and opportunistic,
signifies the absence of highly incorporated transnational networks that would
constitute a Eurozone integrated capitalist class or even business community. If the
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networks we drew indicate a transnational business area, the latter remains deeply
anchored in national core business networks. Moreover, the negative evolution of the
whole set of ties invites us to be all the more cautious of comparisons within short
periods. The decrease we observe between 2006 and 2007 may be an accident in a
global series of increasing interlocking, but could also be an indicator of a recent turn.
The relations between the four stock exchange blue chips are based on weak ties
whose evolution may always substantially modify the whole structure. Transnational
connections within the global network are the work of key actors of significantly
different composition and portfolios, though their whole number remains rather
stable. This means, and even we intend to prove this, on the basis on longitudinal
analysis, that the transnational network is always very connective, but we first have to
notice that it is very unstable. For Fligstein (2008), the European economic integration
has not yet been accompanied by a comparable integration of European elites.
Moreover, a similar study which would take into account interlocks with the American
companies might indicate a stronger competition between the Euro zone transnational
ties and the transatlantic ties than the one observed in the 1980s and 1990s.
However, our first quick look at the transnational embeddedness of the Euro zone
stock exchange through board interlocks shows a rather different physiognomy of the
core intercorporate network. Here, the financial companies are the most significant
bridges in the Euro zone, which would tend to confirm the hypothesis of integrating
effects of the EMU, with financial reorganization that 2008 and 2009 could
dramatically accelerate in the context of the financial crisis.
It is very clear now that bank and insurance companies have the most central position
in national networks, though it is hard to say if this is new due to the heterogeneity of
previous datasets. But let’s see that all national areas are highly structured around a
couple or a tryptic of bank-insurance companies: AXA-BNP Paribas for the CAC,
Allianz-Deutsche Bank-Munich Re for the DAX, Generali-Mediobanca-Unicredito
for the MIB, and, in a lower proportion, Aegon-ING for the AEX. More interesting is
the high presence of the financial companies in what we called the Eurozone
Corporate Core Networks. This observation is very different from what Nollert found
when he claimed the absence of such firms in the European Inner Circle. It must be
said in his defence that his data did not go beyond 1994, missing the main
restructuring of bank and insurance in Europe. Allianz, AXA, Generali emerged as
European giant between 1996 and 1998. As for banks, processes of merging and
purchase are even more recent and have not yet concentrated the sector to the same
extent, now at stake in the context of uneasy salvaging by States. We do not exclude
that the EMU process of financial integration had strong effects on the distribution of
board portfolios and favoured the birth of giants in the field of bank and insurance. In
this domain, studying the Eurozone for itself, as we do, would be meaningful.
Longitudinal and enriched data will give us more reliable information in the future,
and will provide better insight on the strength of this trend.
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Appendix
Chi-2 Test (Pearson)
H(o): Are interlocks between Euro zone’s firms independent from indexes?
Observed Value
31.12.2006
CAC
DAX
MIB
AEX
SUM
CAC 324
42 22
17
405
DAX 42
376 14
4
436
MIB 22
14 228
6
270
AEX
17
4 6
88
115
SUM 405
436 270
115
1126
31.12.2007
CAC
DAX
MIB
AEX
SUM
CAC 344
25 19
15
403
DAX 25
336 12
5
378
MIB 19
12 228
2
261
AEX
15
5 2
74
96
SUM 403
378 261
96
1138
Expected Value
31.12.2006
CAC
DAX
MIB
AEX
SUM
CAC 133,79
144,03 89,19
37,99
405
DAX 144,03
155,05 96,02
40,90
436
MIB 89,19
96,02 59,46
25,33
270
AEX
37,99
40,90 25,33
10,79
115
SUM 405
436 270
115
1226
31.12.2007
CAC
DAX
MIB
AEX
SUM
CAC 142,71
133,86 92,43
34,00
403
DAX 133,86
125,56 86,69
31,89
378
MIB 92,43
86,69 59,86
22,02
261
AEX
34,00
31,89 22,02
8,10
96
SUM 403
378 261
96
1138
Chi-2
31.12.2006
CAC
DAX
MIB
AEX
CAC 270,43
72,28 50,62 1
1,60
DAX 72,28
314,84 70,06
33,29
MIB 50,62
70,06 477,71
14,75
AEX
11,60
33,29 14,75
552,68
p<0.001; Chi-2=2120.83; ddl=9
31.12.2007
CAC
DAX
MIB
AEX
CAC 283,89
88,53 58,33
10,61
DAX 88,53
352,72 64,36
22,67
MIB 58,33
64,36 472,28
18,20
AEX
10,61
22,67 18,20
536,28
p<0.001; Chi-2=2170.58; ddl=9
Both Chi-2 shows a high significance, so we reject H(o).
