Tag Archives: networks

Who’s Who in Spanish Corporate Governance?

Corporate Structure and Interlocking Directorates in Spanish Firms, 1917 – 1970

By Juan Antonio Rubio-Mondéjar  and Josean Garrués-Irurzun (Universidad de Granada)

URL: http://d.repec.org/n?u=RePEc:gra:fegper:01/12&r=his

Abstract

This paper analyses some of the characteristics of Spanish capitalism between 1917 and 1970. For that purpose, we resort to the technique known as interlocking directorates and applies the methodology of social network analysis (SNA) to the board of directors of the 210 largest Spanish companies, in a benchmark dates (1917, 1930, 1948 and 1970). The results allow us to answer the questions of what has been the evolution of the Spanish business structure over the twentieth century and which sectors have been central to each of the moments analysed. At the same time, we identify the main groups of companies, and the links established among them, assessing the role of financial sector in the national economic structure. Based on the relationships between the members of the Board of Directors and social capital theory, the second objective identifies the circle of Spanish economic power, quantifies the degree of cohesion, and follow its evolution over time, confirming its continuity/ disappearance.

Review by Beatriz Rodríguez-Satizábal

This paper was distributed by NEP-HIS on 2012-05-22. Juan Antonio Rubio-Mondéjar and Josean Garrués-Irurzun offer a striking overview of the corporate structure in Spain during the twentieth century following up the work by Carreras and Tafunnel published in the early 1990s.  Using Social Network Analysis (SNA), the authors build the interlocking directorates of the 210 largest firms by assets (manufacture -200- and insurance -10-) based on information collected from the Anuarios Financieros de Bilbao and Anuario Financiero y de Sociedades Anónimas de España. The examination of the characteristics of the corporate governance seems to be now one of the issues that require a long-term view, this paper offers a general approach to the Spanish case.

The paper is divided in four sections. The first presents a review of the theoretical literature on corporate governance and economic entrenchment, including an overview of the literature on Spanish capitalism. The next two sections discuss the methodological approach and the results of building the interlocking directorates for 1917, 1930, 1948, and 1970. The final section is a short conclusion that opens a discussion regarding the proliferation of business groups and the role of the board members.

Firms network in 1917 (p. 49)

The paper strikes the reader in two ways. First, the discussion on the theoretical approach to interlocking directorates presents the importance of identifying the networks in order to prove the existence of a traditional business elite. This follows the sociological approach on the role of the elites, but do not include the recently findings on the rise of business groups as an organizational form to increase the entrenchment of the business people. It is shown that between 1917 and 1970 the members of the boards in the largest Spanish firms were related and share common professions and family names. Moreover, the names collected proved that there have been only small changes in the corporate governance among the twentieth century. The old families remained and only a few new names appeared after 1948. However, there is no discussion in regards to the family businesses, an issue that has been well studied in the last decade by the likes of Paloma Fernández, Jesús Valdaliso, Eugenio Torres, Nuria Puig and others.

Secondly, Rubio-Mondéjar and Garrués-Irurzun introduce a hypothesis on the importance of the interlocking directorates among the largest firms as an answer to the close relationship between the industry and the banks. The result is that the interlocking directorates affected more than 80 per cent of the firms studied, with the majority of the members linked in both the manufacture industry and the banks. This brings back the discussion on the role of banks in development started by Alexander Gerschenkron, but also poses into discussion the relationship between politicians and businessmen. There is a novelty approach to the former, the results show that there is no a unique network that linked all the firms together and the banks did not used a collusive strategy; could this mean that the firms used other ways to increase their market power and keep their ownership control; or, maybe, there are some regional differences. In the case of the later, the results are a surprise for those who use Spain as a comparative case with the Latin American countries: differently from what is expected, a politician usually became a member of the board, but not the other way around. This gives a new meaning to the professional lobbying and poses a question on the links between the political and business elites, traditionally assumed as the same.

This paper brings a discussion on the literature on Spanish corporate governance that could be useful for those studying other countries. The methodological approach combines the use of historical data with the social network analysis, bringing the question of who is who to the understanding of the economic development of a late development country. Moreover, it leaves questions open for future research such as the relation between the changes in the economic and social environment with the interlocking directorates.

The History of Media Entrepreneurs

Who Are the Entrepreneurs: The Elite or Everyman?

By Heather Haveman (University of California, Berkeley), Jacob Habinek (University of California, Berkeley), and Leo A. Goodman (University of California, Berkeley)

URL: http://d.repec.org/n?u=RePEc:cdl:indrel:qt392635v2&r=his

Abstract

We trace the social positions of the men and women who found new enterprises from the earliest years of one industry’s history to a time when the industry was well established. Sociological theory suggests two opposing hypotheses. First, pioneering entrepreneurs are socially prominent individuals from fields adjacent to the new industry and later entrepreneurs are from an increasingly broad swath of society. Second, the earliest entrepreneurs come from the social periphery while later entrepreneurs include more industry insiders and members of the social elite. To test these hypotheses, we study the magazine industry in America over the first 120 years of its history, from 1741 to 1860. We find that magazine publishing was originally restricted to industry insiders, elite professionals, and the highly educated, but by the time the industry became well established, most founders came from outside publishing and more were of middling stature – mostly small-town doctors and clergy without college degrees. We also find that magazines founded by industry insiders remained concentrated in the three biggest cities, while magazines founded by outsiders became geographically dispersed. Finally, we find that entrepreneurship evolved from the pursuit of a lone individual to a more organizationally-sponsored activity; this reflects the modernization of America during this time period. Our analysis demonstrates the importance of grounding studies of entrepreneurship in historical context. Our analysis of this “old” new media industry also offers hints about how the “new” new media industries are likely to evolve.

Review by Beatriz Rodriguez-Satizabal

The paper was distributed by NEP-HIS on March 28, 2012. The study of entrepreneurship is nowadays a hot

Heather Haveman

topic among historians, sociologists, and economists. The title of this working paper by Heather Haverman, Jacob Habinek, and Leo A. Goodman should capture the attention of all these academics and particularly historian interested in the history of entrepreneurship.

Jacob Habinek

The resurgence of the entrepreneur as an important figure in the economic theory, after have been neglected for many years (when compared to say, the strategies of multinationals). This resurgence has been marked in the last three decades by an increase number of biographies of successful entrepreneurs, the creation of research projects such as the Global Entrepreneurship Monitor, and the recent proliferation of public policies towards financing entrepreneurs in order to promote economic development.

Leo A. Goodman

Dealing with the issue of the social background of the entrepreneurs has been an essential part of the discussion of who are they, what are their characteristics, and why they exist. In general, researchers have found that the background varies across countries, cultures, and industries, and, more importantly, being a successful entrepreneur offers a chance to increase social mobility.

Guided by the perception that recent research has not incorporated a historical perspective that assumes changes across time and space in the industry where the entrepreneurs are performing its activities, Haverman et al. goal is to answer to the question: how the social positions of entrepreneurs vary across the path of industry development? Basically, their interest is to know if there are any differences between the entrepreneurs enter early in the industry’s history and those appearing in its development later on. This represents the challenge of the paper; it is calling the attention over the relationship between the entrepreneur and the industry. In other words, the entrepreneur cannot be study without a full understanding of its industry, its dynamics and the causes that result in changes within it. Is returning to the basic approaches to entrepreneurship lead by J. Schumpeter, W. Sombart, and more recently, Mark Casson. It also offers a way to deal with this approach using quantitative analysis.

Taking as case study the American magazine industry between 1741, when the first magazines appeared, and 1860, the eve of the Civil War, the authors centred their attention on the social positions of the entrepreneurs (occupation, education, location) in two periods of the industry: 1741 to 1800 during which time American magazines were few in number, poorly understood, and small, and 1841 to 1860, when American magazines were common, generally accepted means of communication, and many reached mass audiences. The mass media industry is becoming a subject of interest both as a unit of analysis and a source (e.g. Richard John’s paper in the last number of Enterprise & Society),but there is still a lack of a specific definition of what is an entrepreneur in the media mass industry, which are the variables that define it; moreover, when today there is a boom of media innovators and journalists. Understanding that the scope of the study was limited by the information available is important to mention that the use of social positions as a starting point is not a revolutionary idea and the authors could enrich the paper by including other variables related with the social and political networks, the economic background, and, why not, the innovations they brought to the industry.

One of the first publications by Andrew Bradford dating to 1741.

Using a wide variety of sources that includes the magazines, dictionaries of biography, and books on the history of publishing, Haverman et al. gathered a sample of the founders of 148 magazines for the first period and 150 for the last one. To assess their hypothesis that in the early years of an industry the entrepreneurs are part of the elite and it changes when the industry is mature, the authors follow three methods: bivariate analysis, multivariate analysis, and log-linear analysis, the last being the one where the authors claim the novelty for future entrepreneurship studies that are willing to involve a historical perspective. As a result, Haverman et al. conclude that the entrepreneurs during the early years of the magazine industry where professionals (mostly lawyers), highly educated, members of the publishing trades, and mainly located in the cities known for being the first publishing centres (New York, Boston, Philadelphia). After the early years, this pattern changed. The audience for magazines increase, the production and distribution technologies were cheaper, and the copyright law developed making space for a new wave of entrepreneurs from different social backgrounds, ages, and located across the country.

This ambitious working paper brings a discussion on how to relate the history of entrepreneurship (the people) with the history of the industry (firms and aggregate supply). Relating the sociological characteristics of the entrepreneurs with the maturity of the industry seems to be a good idea, but the risk is that in the way of catching the individual characteristics of the links with the industry can be omitted.

VISA and the Origins of the Global, Retail, Electronic, Payments System

Electronic Value Exchange: Origins of the VISA Electronic Payments System
By David L. Stearns
London: Springer-Verlag, 2011.
xvii+240, hardcover 9781849961387 (RRP £45.00)

URL – http://www.springer.com/computer/general+issues/book/978-1-84996-138-7

Abstract – Although those born after the 1990s might never have known a time without them, payment cards and the electronic and computing networks they activate went through an explicit process of creation and adoption—a process which actively shaped these ubiquitous systems into what they are today. To understand why these systems ended up the way they did, one first needs to understand their origins, and how decisions made in their early years fundamentally shaped the way they evolved.

Electronic Value Exchange recaptures the origins of one of these systems in particular: the electronic payment network known as VISA. The book examines in detail the transformation of the VISA system from a collection of non-integrated, localized, paper-based bank credit card programs into the cooperative, global, electronic value exchange network it is today. Following an introductory chapter that sets the context, chapters adhere roughly to chronological order, building the story in a logical fashion.

Review by Bernardo Bátiz-Lazo

This is another instalment of Springer’s efforts under Martin Campbell-Kelly to offer an alternative to venue for publication in the History of Computing. It is also the book version of David Stearns’ dissertation (read under Donald MacKenzie at Edinburgh). One would ask what is novel, particularly on the back of David Evans and Richard Schmalensee’s Paying with Plastic, , a pioneering research on multi-sided markets through the study of credit cards. Well, Stearns offers a fascinating narrative that navigates somewhere between the sociology of finance, social studies of technology, retail banking and business history.

The book has a preface, an introduction, eight chapters and a conclusion. Length is well balanced with each chapter representing about 10% of the total. There is an alphabetic index and most references appear as footnotes. Sending citations, sources, references to interviews, and other material to the endnotes and leaving comments as footnotes, by the way, could have a better use of the lower margin. There are four illustrations and a handful of tables. This was a shame given that the subject mater was prone to both. For instance, see the very interesting yet inaccurate representation of the history of credit card debt in the “info graph” entitled Indebted to Plastic. So it is a pity as many more of the macro dimensions of the discussion could have been illustrated through active use of tables and graphs. There is also a list of interviewees and a helpful list of acronyms.

The preface offers a crystal clear map to the book (pp. xiv-xv), which I freely and unashamedly borrow as the backbone of my review. The style is open and quite engaging, the discussion is easy to follow but based on deep, detailed and authoritative fieldwork. However, at times one can still come across its roots as a dissertation and particularly the end section of several chapters. Another such example is that in spite of a clarification on page ix, we really learn about how the title relates to VISA’s story until page 136 (chapter 7). Here some of the end sections of the early chapters could have been used to explain how developments up to that point took Visa a step closer (or not) towards their dominant role in facilitating electronically-processed transactions and the emergence of a global retail payments system.

Chapter 1 begins the story with a brief stroll amongst the origins and early forms of charge cards, travel & entertainment cards, and store cards. Some of these plus the peculiarities of the Federal Reserve’s cheque clearing system are important, Stearns argues, to understand the path of development that credit cards took later on as well as the context in which one of these cards in particular, the BankAmericard licensed by Bank of America, is born. In this first chapter Stearns deals with why this system was born in California and not in any other of the 20 states that allowed inter-state branching (pp. 19-20). The US-centred view that emerges in the first chapter dominates the discussion onwards as, for instance, he fails to point out that correspondence banking and inter-bank clearing were well established in Europe long before the 1900s.

Chapter 2 analyses the national network built around the BankAmericard, pointing out its various operational and organizational problems. Here is when we are introduced to Dee Ward Hock, Visa’s founder and first chief executive.

Dee Ward Hock, Visa’s founder and first chief executive

Throughout the reminder of the book Stearns will describe how Hock’s philosophical ideas and strong personality shaped the structure and development of the Visa organization (initially known as National BankAmericard Incorporated or NBI) from its inception until Hock’s acrimonious departure in 1984. Stearns convincingly argues that Hock’s strong personality and ideas have a major impact on the growth of Visa. But although he endeavours to present these in their context and tries to have different ‘voices’ speak, the narrative often reads more like a biography of Hock than a business history of Visa. Stearns does note that Hock had little schooling and goes on to explain his ideas on biological evolution but not that these were also common amongst US management scholars of the 1950s and 1960s (such as Russell Ackoff and Edith Penrose). He presents inter-bank collaboration as somewhat of an epiphany for Hock. This could have had more impact if the limitations of US regulation had been explained in a bit more detail or presented in a wider context, that is, along side the fact that collusive and non-collusive collaboration was common amongst European banks whilst this was an anathema to the predominant conception of competition in US retail banking. Alternatively, he could have argued how in the search for scale and scope capitalist organizations are ready to embrace principles that would be typical of mutual and co-operative forms.

Stearns takes a bit of a sociological detour in Chapter 3 to discuss the role of the operating regulations in a co-operative network like NBI/Visa. His aim is to link the social dynamics of the system to the establishment of the operating regulations. His point is that these emerge from the almost collapse of the NBI network. Therefore, he says, these regulations are a key part of what makes the Visa system ‘work’ at the inter-organizational level. Stearns also argues that Visa’s role in adjudicating these rules helps establish just enough ‘trust’ between the competing participants for the system to function and grow. Although he could have used the more ‘sophisticated’ framework of transaction cost economics rather than ‘trust’ to explain how Hock and the regulations are able to realign incentives and avoid renegotiating contracts, his argument here is nevertheless clear, namely that Visa’s technical infrastructure was and still is, very adept at moving transactional information between participants in the system, but the operating regulations were and are the one thing which allows participants to coordinate their work in response to that information.

Chapters 4 to 7 offer some of the most thrilling and well research aspects of the book. Here is where Stearns background as a computer programmer comes to the fore, as he is able to explain in simple, layman terms the intricacies of building a major computer system. I must admit my eyes did water in incomprehension … but only once! (during the explanation of ACP/TPF installations, circa p. 128-9 – which I skipped without much loss). In any event, these chapters make a real contribution to the field as he is able to grasp the importance of details that would have escaped the researcher with an economics or history background. As I said, developments are explained largely without jargon and with the non-specialist reader very much in mind.

Their iconic ad, which was intended to communicate Hock’s vision for the card.

In Chapter 4 he begins to deal with the technological aspects of Visa by describing in detail NBI’s first computerized authorization and clearing systems, known mostly by their acronyms BASE I and II. NBI was of course not the only organization building such systems in the early 1970s, and these chapters put their systems in the context of other similar efforts by individual banks, independent processors, and bank service organizations. Chapter 5 also discusses NBI’s first significant technical failure, a program intended to run within the member banks’ processing centres, known as BASE III.

Chapter 6 charts the various ways in which the system was expanded throughout the 1970s, both technically and organizationally. On the organizational side, he discusses the formation of the international version of the organization and the name change to ‘Visa’. It was a pity that the story of the judiciary process around the antitrust battles narrated in this chapter relied mainly on articles published in American Banker and no attempt was made to look at actual court records. However, the story behind the institution of ‘duality’ offers further ammunition to show that the so-called random events that lead to path dependence are not so random after all but often based in organizational logic. Specifically, his research show that Visa predominates over Mastercard among other thing because at the critical point after the introduction of ‘duality’, Visa is able to respond limit opportunities for banks (and their customers) to migrate to Mastercard.

On the technical side, Chapter 6 discusses the shift of BASE I to the Airline Control Program (ACP) running on IBM hardware, the creation of a second cooperative data centre, the expansion of the electronic authorization network internationally, and multi-currency settlement. By holding organizational and technical aspects together he offers interesting insights into the so called ‘productivity paradox’, in other words, he can tell exactly when and how computer systems enabled the organization to grow and expand. This is somewhat a departure from previous studies on the history of computing in business (and certainly in banking), which have documented the use of technology to increase efficiency. Stearns’ focus on Visa gives us the first glimpses of early computer applications that enhance effectiveness in financial service organizations.

Chapter 7 returns to the technological aspects of authorization, describing how Visa helped fully-automated the point-of-sale. It discusses the various debates surrounding how to make the cards machine readable, and Visa’s role in stimulating the development and widespread adoption of inexpensive merchant dial terminals. Here Stearns sometime dwells into multi-sided markets but without really tackling the issue head on.

Point of Sale Terminal, circa 2012

Chapters 8 and 9 examine the ways in which the role of the central organization had to be worked out through a series of power struggles with the member banks. Chapter 8 chronicles an episode of the ‘cashless society’ through the history of Visa’s debit card, first introduced in 1975, but not widely issued until several decades later. This chapter argues that this delay had more to do with the ways in which the debit card clashed with the member banks’ existing electronic funds transfer (EFT) plans, and disputes about Visa’s role in the deposit side of the banks. Chapter 9 continues the theme of negotiations by discussing other controversial moves by the central organization: the creation of a Visa-branded travellers cheque; the direct signing of the national retail giant JC Penney by Visa USA; and various signs of empire building that eventually resulted in Hock being forced out of the organization.

Chapter 10 concludes the book by summarizing the narrative. Again there is perhaps a little bit too much of this and echoes a dissertation rather than a research monograph. It frames the book’s contribution around the grand themes discussed at the start. But I feel the reader can get easily lost in his attempt to offer two new dynamics that Stearns thinks may apply to the study of other payment systems or cooperative transactional networks in general. A number of terms and concepts emerge here that were not introduced before and its really rather late in the text to ask the reader to reflect on this rather than flagging them at the start as it is the convention.

You can read Stearns’ witty and insightful musings regularly on his tech.soul.culture blog.

Acknowledgements A shorter version of this review is forthcoming in Business History. Many thanks to Kevin Tennent and the editorial board of NEP-HIS Blog for allowing early publication.

Poscript Click here for David Mason’s review in EH.net (02.Mar.2012).