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Title The 'Old Boys' network and Irish company boards

Authors(s) Mac Canna, Leo; Brennan, Niamh; O'Higgins, Eleanor

Publication date 1998-06

Publication information Accountancy Ireland, 30 (3): 6-8

Publisher Chartered Accountants Ireland

Item record/more information http://hdl.handle.net/10197/5447

Downloaded 2021-09-25T16:57:49Z

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MacCanna, Leo, Brennan, Niamh and O’Higgins, Eleanor [1998] The ‘Old Boys’ Network and Irish Company Boards, Accountancy Ireland, 30(3)(June): 6-8.

There is anecdotal evidence of an ‘old boys’ network in appointments to Irish company boards. One major concern is the concentration of corporate power in too few hands. This article examines this issue by mapping the network of interlocking directorships formed by the boards of the top 50 financial and 200 non-financial companies in Ireland.

The methods and theory of Social Network Analysis (SNA), as applied in Stokman, Ziegler and Scott (1985), are used. Fundamental to the research is the idea that the network of interlocking directorates is in some way structured, and not the result of random processes.

SNA differs from standard statistical tools in that it concentrates on the strength and characteristics of the ties between the nodes (individuals or organisations) in a network. This allows influence, information and resource flows to be monitored, second order (friend of a friend) effects to be observed, cliques and other groupings to be found and measures of centrality to be compared. It also provides a number of numerical features which can be used to describe and compare networks.

The ‘old-boys’ network The importance of boards of directors to companies is well documented. Boards can have profound effects on the fortunes of companies. Board structure reflects the many different sizes, ownership structures and styles of companies. The composition and functions of boards varies between family-owned, private, and public companies. Though owner managed firms often have all executive boards, sometimes non- executive directors are included to add expertise and to provide balance to boardroom deliberations.

1 The selection of non-executive directors has received much attention since publication of the Cadbury Report on corporate governance. Research has found that up to 90% of directors are appointed from inside companies. Where outside non-executive directors are appointed, they are more likely to be found in larger established public companies. The main source of outside directors for companies is the personal networks of current board members. This has led to two common laments: • An ‘old-boys’ network of top public company directors are sitting on each others boards and remuneration committees; and • The cookie-cutter syndrome, whereby nearly all directors are male, white and come from similar backgrounds.

These phenomena directly contradict the stated desire of most boards for balance and variety in their membership.

Sample The sample consists of the top 200 non-financial, and the top 50 financial, companies in Ireland included in Business & Finance’s 1994 Top 1,000 Companies (Business & Finance, 1994). Using Top 1,000 Companies allowed private as well as public and semi-state companies to be included. Sample details are summarised in Table 1. Due to lack of data, one company was dropped from the sample.

Table 1: Sample

Non-financial Financial companies companies No. % No. % Public companies 28 14 7 14 Semi-state companies 11 5 6 12 Multinational companies 75 38 23 46 Private family-owned companies 85 43 14 28 199 100 50 100

Source: The Top 1,000 (Business & Finance, 1994)

2 A list of the directors of the top 50 financial and top 200 non-financial companies was prepared (Mac Canna, 1994). Next, directors’ names were paired and separated. Each director was assigned a unique identification number.

Research findings The results reported below are compared with the results of in Stokman, Ziegler and Scott’s (1985) 1976 study of interlocking directorates in ten countries, based on the same sample size and selection criteria as used in this research.

Multiple directors The 249 Irish company boards contained a total of 1,935 directorships, spread among 1,751 individuals. Table 2 shows that this is low compared with other countries. This may reflect the small size of the Irish economy and the high proportion of private companies and foreign among Ireland’s top 250 companies.

In addition, Ireland has a strikingly low number of multiple directors compared with other countries. While the proportion in other countries ranges from 11 to 20%, only 8% of Irish directors sit on more than one board.

Table 2: International comparison of the number of Irish multiple directors

Austria Belgium Switzerland Germany France Britain Italy Holland Finland USA Ireland Number of Directors 2,430 2,203 2,999 3,943 1,931 2,682 1,737 2,321 3,110 3,108 1,751 Number of Positions 2,939 3,000 3,681 4,727 2,625 3,091 2,358 2,950 4,178 3,976 1,935 Number of Multiple Directors 271 373 405 420 378 282 322 357 564 564 138 Multiple Directors (%) 11% 17% 14% 11% 20% 11% 19% 15% 18% 18% 8% Source of non-Irish data: Stokman, Ziegler and Scott (1985)

Table 3 shows that Ireland has a disproportionately large proportion of directors who sit on two boards only, and none who sit on more than six. This has major consequences for the structure of the network (as the number of interlocks is a quadratic function of the number of directorships held by a director).

Table 3: Number of positions held by multiple directors

11 or 2 3 4 5 6-10 more Total % % % % % % % Austria * 65 17 9 4 4 2 100 Belgium * 57 19 9 6 6 2 100 Switzerland 67 19 6 2 5 1 100 Germany 60 20 9 5 5 1 100 France 60 19 9 6 6 0 100 Britain 69 21 6 3 1 0 100 Italy 63 17 7 5 7 1 100 Netherlands 64 17 8 6 5 0 100 Finland 61 20 6 6 7 0 100 USA 64 24 8 3 1 0 100 Ireland 76 18 5 1 0 0 100 Source of non-Irish data: Stokman, Ziegler and Scott (1985) * (Figures are as reported in Stokman, Ziegler and Scott (1985) - they do not add up to exactly 100%)

Table 4 lists the names of Irish directors with more than two directorships, with the number of directorships they carry (within the sample of 249 companies). All are male. A full list of multiple directors can be found in Mac Canna (1994).

Table 4: Top multiple directors

Five directorships Four directorships Three directorships Culliton, James P Barry, John Barry, Anthony D O'Connor, Stephen Casey, J E Bergin, Denis J Rafferty, Martin Flavin, James Carroll, N V G Joyce, Brian A Crowe, M J Shanahan, M A Crowley, Laurence G. Walsh, Vincent Daly, Vincent Davy, J Brian Dillon, Charles Ferguson, Vincent A Hayes, Jack Hynes, John Kilroym, Howard E Kilroy, Patrick McGuane, M D McGuckian, John B McSharry, Ray Meagher, John O'Brien, Anthony O'Reilly, Anthony J F O'Sullivan, J C Osborne, J R Quirke, Diarmuid F Ryan, Eoin Sullivan, Ed

Multiplicity Multiplicity is present, and is calculated as one, when there is one common director between two companies, two when there are two common directors, and so on. Multiple interlocks are important because they indicate the strength of links between companies. Table 5 shows that Britain scores lowest with a mean number of 1.09 interlocks per line. Ireland is next lowest with a mean number of 1.17 interlocks per line. By contrast, Belgium, Italy and Finland each have at least 1.5 interlocks per line, suggesting relatively stronger links among their top companies.

Table 5: Multiplicities of lines

Multiplicity (%) 4 or Total Mean no. of 1 2 3 more Total Lines interlocks per line Austria 78 15 4 3 100 909 1.36 Belgium 67 18 7 8 100 1,219 1.68 Switzerland 81 12 5 2 100 1,002 1.31 Germany 81 14 4 2 100 1,278 1.27 France 85 10 3 2 100 1,065 1.25 Britain 94 5 2 0 100 542 1.09 Italy 70 17 7 7 100 891 1.55 Netherlands 87 11 2 1 100 980 1.20 Finland 75 15 5 5 100 1,498 1.50 USA 84 13 2 1 100 1,086 1.20 Ireland 91 6 2 1 100 207 1.17 Source of non-Irish data: Stokman, Ziegler and Scott (1985)

Density A major aspect of the structure of a communication network is its density - the fraction of pairs of points between which a line exists. Any two corporations at distance 1 are directly linked by one or more common directors. At distance 2, two companies are linked through a third company. Pairs at greater distance can hardly be assumed to communicate through these interlocks and are omitted here as in other studies.

Figure 1 shows that Ireland has the lowest percentage of pairs of corporations at distance one and two. Only 1.3% of pairs of the top 249 Irish companies are linked at board level either directly or through a third party company. This contrasts sharply with other countries where 15-40% of company pairs are linked.

6 Figure 1: Percentage of pairs of corporations at distances 1 and 2.

1 2

0 Au Bel Ch Ge F UK It N Fi USA Irl

Centralisation The degree of an individual is the number of individuals at distance 1 to it, i.e. the number of adjacent individuals in the network. This is not the whole story, however. How well connected the individuals one is connected to are also important. This is described by an individual's centrality.

In Ireland the most centrally located company was CRH, with direct links to 12 other companies, followed by Allied Irish Banks with 11, Smurfit and Greencore with 10, Bank of Ireland, An Bord Bainne, and the Central Bank with 9.

A full list with the companies ranked in order of their 'connectedness' is given in Mac Canna (1994). Companies with five or more immediate neighbours are listed in Table 6.

Table 6: Best connected companies

Degree Company Degree Company 12 CRH plc 6 Flogas plc 11 Allied Irish Banks plc 6 Irish Agricultural Wholesale Society Ltd. 10 Greencore Group plc 6 James Crean plc 10 Jefferson Smurfit Group plc 6 P J Carroll & Co. Ltd. 9 An Bord Bainne Co-Operative Ltd. 6 Premier Tir Laighean Society Ltd. 9 Bank of Ireland 6 Unidare PLC 9 Central Bank of Ireland 6 Waterford Foods plc 8 Fitzwilton 5 Aer Lingus plc 8 United Beverages Holdings Ltd. 5 Braun Ireland Ltd. 7 DCC 5 Coras Iompair Eireann 7 Independent Newspapers plc 5 Fyffes plc 7 United Drug plc 5 Gowan Group Ltd. 5 Heiton Holdings plc 5 Irish Continental Group plc 5 Waterford Wedgewood plc 5 Hibernian Group plc

Network Specialists It was seen in other countries that a small number of 'network specialists' carry a large proportion of the interlocks in their network. These were termed 'big linkers' and are very important in the formation of networks. Ireland has the second-lowest number of these relative to other countries. The names of Ireland’s nine ‘big linkers’ are shown in table 7.

Table 7: Irish Network Specialists or 'Big Linkers'

Surname First Name Culliton James P O'Connor Stephen Rafferty M Barry John Casey J E Flavin James Joyce Brian A Shanahan M A Walsh Vincent

8 Discussion and conclusions The structure of the Irish network of interlocking directorates has been mapped and analysed. The data would appear to confirm the hypothesis that the network of interlocking directorates in Ireland is structured in nature and is not a random phenomenon. In general it was found that indigenous Irish plcs tend to be central in the network, while foreign and private companies tend to be isolated on its periphery. Some notable exceptions were found which suggest that some Irish companies taken over by foreign companies retain their Irish links.

Ireland has a loosely connected structure compared with other countries, i.e., Ireland’s network of interlocking directorates is relatively sparse, less dense. This is reflected in the relatively low percentage of multiple directors and the relatively fewer number of directorships per multiple director.

However, when account is taken of the size and configuration of Ireland’s economy, the mere presence of a ‘natural’ network structure suggests that the tendency to cohere into networks in Ireland is not so different to comparison countries. Ireland’s economic infrastructure is more dependent on foreign multinationals than any of the other comparison countries. Hence, a disproportionate number of the top 250 companies in the country are Irish subsidiaries of foreign multinationals with no independent boards. Another sizeable tranche of the 250 companies are private and family companies which are unlikely to have many, if any, outsiders on the board, and therefore less likely to have interlinkages with other companies at board level. The average size of the largest 250 companies in Ireland is the smallest of all the countries studied in this article.

For interlinkages to occur to any significant degree, there must be a critical mass of outside directorships. This tends to happen only among larger, well established domestic plcs. Ireland has disproportionately fewer such companies in its top 250 than any of the other countries studied. Hence, there are fewer outside directorship positions, and fewer outside directors. It follows that there are fewer outside directorship and fewer multiple directorship openings and therefore a sparser network,

9 given that the number of interlocks is a quadratic function of the number of directorships held by a director.

From this perspective, it is evident that there is actually intense linkage among companies that meet networking criteria - relatively large indigenous significant plcs, such as CRH and AIB. Thus, within the relative limitations and constraints of Irish business, the ‘old boys’ club’ flourishes where it can.

References Business & Finance: 1994, ‘Top 1,000 Companies’, Business & Finance , 27 January, Belenos Publications Limited, Dublin.

Mac Canna, L.: 1994, Networks of Corporate Power , MBA thesis, University College Dublin.

Stokman, F. N., Ziegler, R., and Scott, J.: 1985, Networks of Corporate Power: A Comparative Analysis of Ten Countries , Polity Press, Cambridge.

This article is based on Leo Mac Canna’s MBA thesis completed at University College Dublin. Niamh Brennan and Eleanor O’Higgins are lecturers in the Department of Accountancy and the Department of Business Administration, University College Dublin. Leo MacCanna is managing director of The Computer Department Limited.