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decline1.qxp 01-02-2007 09:46 Pagina 1 Decline of the Corporate Community decline1.qxp 01-02-2007 09:46 Pagina 2 decline1.qxp 01-02-2007 09:46 Pagina 3 Decline of the Corporate Community Network Dynamics of the Dutch Business Elite Eelke M. Heemskerk AMSTERDAM UNIVERSITY PRESS decline1.qxp 01-02-2007 11:03 Pagina 4 Cover photo: © Laif / Hollandse Hoogte Cover design: Maedium, Utrecht Lay-out: prografici, Goes isbn 978 90 5356 973 3 nur 741 / 801 © Amsterdam University Press, Amsterdam 2007 All rights reserved. Without limiting the rights under copyright reserved above, no part of this book may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the written per- mission of both the copyright owner and the author of the book. decline1.qxp 01-02-2007 09:46 Pagina 5 Table of Contens Tables and Figures 9 Preface 11 I Corporate Communities, Governance and Control 15 Introduction 15 Corporate Power and the Corporate Elite 20 Research Questions 23 Corporate Governance and Corporate Control 26 Coordination and Competition 28 Networks as Institutions 31 The Social Organisation of Corporate Governance Networks 33 The Transformation of the Business System 38 Informal Institutions and Change 39 Outline 41 2 Decline of the Corporate Network 45 Introduction 45 Corporate Networks and Corporate Regimes 48 The Dutch Corporate Regime 50 Governance in the Financial Sector 53 Ownership and Control in the Netherlands 55 Network Analysis of Interlocking Directorates 59 Disintegration of the Corporate Network 61 Centrality of Firms 65 Corporate Boards 66 Multiple Board Interlocks 69 Executive and Supervisory Interlocks 73 The Loss of Bank Centrality 75 Conclusion 78 5 decline1.qxp 01-02-2007 09:46 Pagina 6 3 The End of the Old Boys Network 79 Introduction 79 The Old Boys Network 80 The Inner Circle 83 The Small World of the Corporate Elite 86 Closure and Brokerage 89 Multiple Meetings 93 Big Linkers 95 Conclusion 98 4 The Corporate Elite’s Informal Networks 101 Introduction 101 Interviewing the Corporate Elite 103 Corporate Elite and the Business Community 105 Business Associations and Non-Corporate Boards 108 The Formative Years 110 Patterns of Recruitment 112 Putting the Network to Use 114 Tournaments, Conferences and Funerals 117 The Fragility of Social Capital 119 Dinner and Debating Clubs 121 Yachts and the Skybox 124 Is There Still a Corporate Community? 126 Conclusion 127 5 Formalisation of Governance 131 Introduction 131 Formalisation and Competition 133 Internationalisation of Boards 136 The Jostle for Board Seats 138 Accountability and Risks 140 Corporate Social Responsibility 143 Remuneration as Status Attainment 149 Conclusion 153 6 Conclusions 155 Decline of the Corporate Community 155 The Dutch Corporate Regime 158 Good Corporate Governance and the Corporate Elite 160 Why Did the Network Fall Apart? 162 Exhaustion and Displacement 164 Migrating Corporate Networks 165 Suggestions for Future Research 166 6 TABLE OF CONTENTS decline1.qxp 01-02-2007 09:46 Pagina 7 Appendix I Mergers and Acquisitions in Banking 171 Appendix II Glossary 175 Appendix III List of Top 250 Firms in the Netherlands 179 Appendix IV Big Linkers 207 Appendix V Meetings of the Interviewees 211 Notes 213 Literature 231 Index 249 TABLE OF CONTENTS 7 decline1.qxp 01-02-2007 09:46 Pagina 8 decline1.qxp 01-02-2007 09:46 Pagina 9 Tables and Figures Table 1.1: Characteristics of Forms of Capitalism 17 Table 2.1: Characteristics of Interlocking Directorate Networks 63 Table 2.2: Centrality and Cohesiveness 65 Table 2.3: Sample and Board Composition 68 Table 2.4: Edge Multiplicity 70 Table 2.5: Executive and Outside Interlocks 73 Table 2.6: Sending and Receiving Interlocks with Financials 75 Table 2.7: Executive Interlocks with Financials 76 Table 3.1: Corporate Elite and Inner Circle During the Twentieth Century 85 Table 3.2: Properties of Meeting Networks 88 Table 3.3: Distribution of Betweenness Centrality in the Dominant Component of the Inner Circle 92 Table 3.4: Big Linkers 96 Table 4.1: Stratified Sample of Corporate Directors 104 Table 5.1: Network Centrality and CSR 148 Table 5.2: Management Orientation and CSR Preference 148 Table 5.3: Promoters of CSR: Network Position and Stakeholder Orientation 149 Table IV.1: Big Linkers 207 Figure 1.1: The Social Organisation of Corporate Governance Networks 35 Figure 2.1: Main Component in 1976, 180 Firms 61 Figure 2.2: Main Component in 1996, 194 Firms 62 Figure 2.3: Main Component in 2001, 137 Firms 62 Figure 2.4: Multiple Interlocks in 1976 71 Figure 2.5: Multiple Interlocks in 1996 72 Figure 2.6: Multiple Interlocks in 2001 72 Figure 3.1: From Caveman Graph to Interlocked Caveman Graph 86 Figure 3.2: Multiple Meetings in the Inner Circle, Main Component in 1976 93 Figure 3.3: Multiple Meetings in the Inner Circle, Main Components in 1996 94 9 decline1.qxp 01-02-2007 09:46 Pagina 10 Figure 3.4: Multiple Meetings in the Inner Circle, Main Components in 2001 94 Figure 3.5: Meetings of Big Linkers, 1976 97 Figure 3.6: Meetings of Big Linkers, 1996 98 Figure 3.7: Meetings of Big Linkers, 2001 98 Figure 5.1: Styles of Board Governance 134 Figure V.1 Corporate Network of the Interviewees 211 Figure V.2 Corporate Meeting Network Interviewees 212 Figure V.3 Indirect Connections between Interviewees 212 10 TABLES AND FIGURES decline1.qxp 01-02-2007 09:46 Pagina 11 Preface With the turn of the century came an end to a period of perceived econom- ic prosperity. Many believed that the rapid innovation in information and communication technology (ICT) meant that a ‘new economy’ had emerged. The belief in this new economy was the foundation of the ICT or ‘dotcom’ bubble of the late 1990s. However, by the turn of the century, it became crys- tal clear that stocks in ‘new economy’ companies were no different from the highly praised investment objects in earlier economic bubbles, such as the stocks of the South Sea Company in the early eighteenth-century Britain, or tulips during the seventeenth-century Tulip Mania in Holland. As always, the bubble did eventually burst. But this time, it was not only investors who suffered great losses. As it turned out, the corporate leadership of some of the most appreciated and highly valued corporations across the western industrialised world was found to be guilty of fraud and severe mismanage- ment. In their quest for ever-growing market value, these corporate direc- tors used every means at their disposal to achieve high stock appreciation, including fraudulous accounting schemes. At the same time, the directors filled their pockets with corporate revenues through extremely large remu- neration packages. During the glorious days of the investment bubble, direc- tors of corporations such as Enron, Worldcom, Parmalat and Ahold were still considered by friends and foes as no less than beneficiaries of society. But when the economic tide turned, and their dark side became clear, they were outcast, fired, penalised, and in some cases sent to jail. The scandals and incidences of corporate fraud underlined that good cor- porate governance is not merely a nice and noble goal, but a necessity. And it is up to those who occupy the control centres of the corporate economy to live up to the highest standards of corporate governance. As a group, it is up to the corporate elite to assure good corporate governance. But is the con- temporary corporate elite able to do so? On the one hand, the ‘old boys net- work’ forms a social environment which can uphold those badly needed norms of good governance and proper behaviour. On the other hand, the concentration of corporate control in the hands of a relatively small, homo- geneous and closed corporate elite has long been recognised as a democrat- ic difficulty of capitalism. 11 decline1.qxp 01-02-2007 09:46 Pagina 12 My personal interest for social networks of the corporate elite was raised on a summer afternoon in 2001, when Meindert Fennema invited me to par- ticipate in a research group on globalisation and corporate power, taking place that year at the Netherlands Institute for Advanced Study in the Humanities and Social Sciences. I took up the task of investigating the net- work of corporate board interlocks in the Netherlands, and found myself privileged to be working with William Carroll, Malcolm Alexander, Meindert Fennema and, most closely, Robert Mokken. By the summer of 2002, we had found that long-standing practices of intense intertwined net- works of corporations at the level of the boards were slowly but steadily removed. For us, these findings raised more questions than they answered. Most importantly, we were particularly interested in the interplay between the network of corporations on the one hand, and the network of corporate directors on the other. The inter-firm network of corporate board interlocks we investigated forms one side of the coin. The social interaction network of the corporate elite forms the other side. Looking at just one of these two ‘projections’ of the network of board interlocks renders an incomplete view. Rather, both the interpersonal and the inter-corporate network must be analysed in conjunction, if we want to understand fully the dynamics of net- work of interlocking directorates. This book aims to do so. This book contains an analysis of the network of interlocking directorates of the largest 250 firms in the Netherlands at three points in time: 1976, 1996 and 2001. However, if we really want to understand the role these net- works play for the corporate elite and corporate governance, we need to acquire more detailed, qualitative insights as well.

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