Are Corporate Networks Growing or Shrinking in Power?

A corporate network (of people, not computers) is in form similar to any other type of network. It’s a series of connections, linking various corporate interests together. As such, history, composition, and influence, vary significantly from network to network. But treated as a whole, there is a popular assumption that of course corporate networks are increasing in power. This view is challenged by: ‘The Power of Corporate Networks: A Comparative and Historical Perspective’ edited by Thomas David and Gerarda Westerhuis.

David and Westerhuis describe how certain global trends can be identified:

  • Late nineteenth century – End of 1920s

The second industrial revolution (railroads, factories, steel and oil industries, electricity etc) triggered the rise of large businesses, and directors of these firms in many instances sat on the board of several different firms. Despite the fact that “during this period the emergence and rise of corporate networks can be observed for almost all countries” (p13), David and Westerhuis explain that the nature and extent of those networks were hugely influenced by politics, and also the strength of facilitative intermediaries such as banks, third party business groups, and colonial firms. In other words they were nationally based, not globalised. Therefore the form of these networks varied from one place to another.

Germany legalised cartel organisations (formal organizations of sellers or buyers, who agree to fix selling prices/purchase prices, or reduce production). Yet the United States (in the Sherman Act of 1890 and the Clayton Act of 1914) passed competition laws that prohibited cartels and monopolies, and outlawed direct interlocks with competitors (the most prominent example of interlock is where directors serve on the board of each firm). As a result of these laws, the “density and centralisation of the network increased [in Germany] in parallel with the growing degree of cartelisation, whereas in the US, mergers were preferred to cartels, and the density of the network declined” (p14).

Banks also played an important role in the rise of corporate networks; providing loans, becoming shareholders, underwriting securities issues, and giving advice. “The density of the Italian network peaked in 1927, when the influence of the larger banks […] reached its apex.” However it wasn’t always banks that played the crucial role. Business groups and colonial firms often acted to facilitate various economic activities. But it was noted that in each example a facilitative organisation was present to support growth.

    • 1930s – WW2

During this period some countries (the UK, Switzerland, France, Finland, Bulgaria and Argentina) continued to experience a densification of corporate networks, whereas others (the US, Italy, the Netherlands, Germany and Portugal) experienced the reverse. For the latter countries, the authors note that this was to a great degree the result of the Great Depression, and the falling number of interlocks between banks and firms resulting from banks’ weaknesses. Legal and political context also played a role. For example Portugal (1935), Italy (1936) and the US (the now famed ‘Glass-Steagall’ Act of 1933) passed legislation designed to weaken the interlocks between banks and firms. And in addition to Germany’s legislation, its expulsion of Jews from the country also expelled many directors with pivotal positions in the corporate network.

    • 1945-1980

The authors speak of an implied consolidation of corporate networks during this period. For Germany and Japan, occupation brought with it a series of US style laws, which resulted in decartelisation and de-concentration. For single party countries such as the USSR, satellite states, and China; firms were interlocked through the party, and the economic plans. Banks also experienced a great deal of growth during this period, particularly in Japan and the UK. Banks therefore contributed to the consolidation of the corporate network, financed a great deal of the post-war recovery, and in various countries contributed to the strengthening of the corporate network.

  • 1980 – Today

The authors speak today of a declining corporate network in many respects. Globalisation has led to less integration within national business networks. Neoliberalism, privatisation and increased focus on shareholder value has led to the shrinking of boards e.g. in Argentina the corporate network collapsed in the last decade of the twentieth century due to privatisation. The fall of the USSR destroyed the party through which many corporate networks were facilitated in the eastern bloc. Moreover, since the financial crisis of 2007/08 there has been a shift in values. David and Westerhuis explain:

“Legal concerns due to new regulations regarding directors’ liability seem to have undermined the social status and prestige conferred to big linkers, which explains the decreasing number of interlocking directorates during this decade.” (p21)

During the Great Recession the roles, power, and prestige, of banks has changed significantly. New regulations such as the Basel accords (and their national equivalents) require banks to hold more tier 1 capital, and bigger capital buffers. This means banks can leverage their assets less, have less available liquidity, are lending less, and can function less ably as global network intermediaries. But beyond this, after the scandals surrounding banks in the crisis, many elites are less than keen to be so closely associated with them. There are other explanations offered by the authors too, such as the use of alternative social networks, or the possibility that corporate elites are acting to hide their networks. But the conclusion is essentially that national corporate networks are now in decline.


The book’s proposition, that national corporate networks are, particularly in countries such as the US, becoming more disperse and less interlocked, is well evidenced. However there is much less attention given to multinational networks. Indeed “global network” comes up nowhere in the whole book, and “multinational” comes up only 7 times. Yet examples of multi-national corporate networks abound:

  • Alumni networks come from every university (and many schools and colleges) around the world. A quick google search for business networks brings up Oxford Business Alumni Network, which has ten thousand members, and of whom a significant number are likely to hold powerful jobs. The Texas Alumni Network (the Aggie Network) has hundreds of thousands of alumni. The University of Pennsylvania’s network currently includes Donald Trump, Warren Buffett, Noam Chomsky, and nine Nobel Prize winners, along with more than 130 clubs around the world. Regional clubs within this network can often boast their own successes. The co-founder of Venmo, CEO of Givology, Executive Director of Apex for Youth, and a Professor Emeritus at the university, are all cited on Pennsylvania’s Asian Alumni website.
  • News based networks are strong within the upper echelons of management. As big media companies deliver news to many of the world’s most successful people, it’s not a big step to use those contact details in order to build a business network. The Economist’s Network is one such large example with a global reach, and a heavily elitist weighting. 88% of its members are senior management level or higher.
  • Industry specific networks are also a significant piece of the pie, and many are quite new. G-Med for example, only founded in 2014, for doctors worldwide. It has over 15,000 members already, and a strong business slant. Type “GMED” into google and the first thing you’ll see is how well the company’s stock is performing. Moreover, many of these industry specific networks are often formed within multi-nationals as opposed to between them. I work in a multinational bank, and even they have recently built an internal social networking site (banks aren’t often high on Forbes’ list of innovative companies).
  • Online networks might not immediately spring to mind as networking tools for the elite. The news stories focus on facebook, twitter, Qzone, Google+, Instagram, Tumblr, Sina Weibo, Vkontakte and Snapchat. But with more than 300 million members, Linked In also high up this list, and it is there not because of the ability to share silly videos, but rather as a professional network. It facilitates introductions, headhunting, and the maintaining of business relationships over time and distance. There are other less well known business networking sites too. But the one thing that all of these sites has in common is that a decade ago, no one even imagined they would be so prominent today.
  • There are also many generic business networks. Business Network International is the biggest among these, with over 170,000 members worldwide. It claims to be able to generate billions in revenue for its customers.
  • Moreover, although not exclusively business related, it would be remiss of me not to mention sites such as Angel’s Club,, Netropolitan and ‘A Small World’. All of these sites ask huge membership fees, and are based upon exclusivity for the rich and famous. Indeed, ‘A Small World’ recently cut its membership from 850,000 to 250,000, in order to maintain the perception of exclusivity.

Therefore the book does not conclusively answer the question as to whether corporate networks are growing or shrinking in power. What the book is successful in doing is showing that national corporate to corporate networks have not, according to this analysis, proved to be the source of that influence since the 1980s. Indeed Cadernas (2012 p315-16) grouped countries based on cohesiveness. In countries such as Italy, France, Germany and Spain, the combination of a bank-based financial structure, interventionist state, firms with blockholders (owners of a large proportion of the firm’s equity and/or bonds), and low economic internationalisation, all lead to a power structure based on unity, concentration and control. Whereas in countries like Canada, Australia, Switzerland, the US and the UK,  a non-interventionist state, market based financial structure and widely held corporations result in a dispersed power structure, in which the corporate network is fragmented. Between 2010-2014 the average GDP growth rate of the former group with a dense corporate network has been (-1.9+0.3+0.1+-1.2)/4) = –0.675%, whereas in those countries with the dispersed power structure the average rate has been (2+2.5+1.9+2.2+1.7)/5) = 2.06%. Given the other factors in play, causality cannot be attributed in this case. However the comparison is indicative of a common consensus among academics: a sparser intra-corporate network does not seem to impede growth. Therefore the shift from dense national networks, to sparse international ones, may not signify the decline of corporate networks, but rather a simple transition from the age of national corporate aristocracy, to the age of global corporate empires.

What’s your opinion? If you have a personal story to share about the strengthening or decline of corporate networks, it would be great to hear from you.

One comment

  • Did David and Westerhuis mention the relationships/network between Boards of Directors and Money Managers (Large block shareholders)?

    To me this relationship is crucial as so often CEO’s and corporations excuse their actions with the adage that they must act in the best interest of the shareholders, and the supposed assumption is that the shareholders are a classless group of anonymous investors, ergo there is no cronyism or bias in the company’s decisions.

    However as mutual funds and money managers hold large investment stakes in publicly listed companies, their influence as “leaders/representatives” of the underlying shareholders creates a close network relationship between themselves and the Board of Directors/Executives of the companies.

    I believe that this relationship would qualify as a “corporate network” and as such it would be a huge oversight for David and Westerhuis to overlook this and it’s momentous impact on the global economy, and decisions that are made within it.

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