Abstract
Social network analysis emerged on a large scale in the 1970s, and the area in which it had the greatest impact was the study of large corporations. The primary focus of this work was on ties among firms through their boards of directors, known as interlocking directorates. This work did not initially address themes in organizational theory—its focus was more in political sociology—but as organizational scholars began to study how and why interlocks formed, interlock analysis became an important branch in our field.
Although some of the early work on interlocks had a comparative focus (see Stokman, Ziegler, and Scott, 1985), most involved studies of individual countries, and most of that work was focused on North America. Moreover, despite exceptions (Berkowitz et al., 1978–1979; Burt, 1983), most of this work focused almost entirely on director ties, and most used relatively crude measures of network structure, most commonly density. This changed after the publication of an article by Watts and Strogatz (1998), who developed a measure of network connectivity that was considerably more sophisticated than density. This, combined with the increased ease of data collection, led to several advances in the analysis of corporate networks.
Among the first studies to take advantage of the Watts–Strogatz measure was a piece by Bruce Kogut and Gordon Walker (2001). Examining ownership ties among German firms in the 1990s, Kogut and Walker showed that the network exhibited the characteristics identified by Watts and Strogatz as a “small world”—relatively low distances among the firms along with a high level of clustering—and that firms that played brokerage roles in the network were disproportionately likely to be involved in acquisitions. They also demonstrated, in a simulation, that the network was highly resilient; even with up to 200 randomly broken ties, the level of clustering was nearly 20 times as high as a randomly generated structure.
In The Small Worlds of Corporate Governance, Kogut has greatly expanded on the 2001 article. Based on a series of conferences between 2004 and 2009, the project brought together more than 30 leading network scholars representing 22 countries. Combining state-of-the-art network methods with an explicitly comparative focus, this book is the most comprehensive work on corporate networks ever published. Along with a related collection edited by Thomas David and Gerarda Westerhuis (2014), Small Worlds represents a new frontier in the study of corporate networks, one that will be an obligatory starting point for researchers in this area for years to come.
Kogut’s primary interest is corporate governance and, secondarily, its role in economic development. Earlier work by economists had suggested that the primary route to development was a system of free and open markets, underpinned by an active capital market, strong legal protections of shareholder rights, and effective monitoring of management. Although liberalization and privatization occurred worldwide over the past four decades, Kogut argues that nations responded to these forces in very different ways. The outcomes they experienced, however, at least in terms of their ownership and director networks, were often very similar. In other cases, virtually identical levels of liberalization and privatization led to very different outcomes. Kogut’s goal in the book is to account for this convergence and divergence. To do this, he employs two approaches. The first, which he calls “comparing the comparative statics,” involves examining groups of countries that experienced a similar “structural break,” or what is usually termed an exogenous shock. The second, which he refers to as “Can you grow it?” (a phrase from the field of complex systems), involves the examination of network change through simulations, in particular the “rewiring” of the connections among units.
Kogut lays out these arguments in an extensive, wide-ranging introductory essay that is simultaneously an exegesis on organizational, economic, and sociological theory (with a dose of philosophy of science), punctuated with a didactic essay on social network analysis. This chapter, running 50 pages of densely packed text, is by itself worth the price of the book.
The introduction is followed by a series of studies, all of them comparative, dealing with historical and institutional factors that account for cross-national variation in network structures. These include comparative analyses of Canada and the United Kingdom (Conyon and Shipilov), six countries—Brazil, Chile, Israel, Mexico, South Korea, and Taiwan—that experienced similar levels of liberalization but divergent network structures (Brookfield et al.), five formerly socialist countries—Bulgaria, Poland, Romania, Russia, and China—that experienced varying levels of liberalization and privatization (Guthrie et al.), and three countries with Germanic-style capitalism—Germany, the Netherlands, and Switzerland—versus three with Latin-style capitalism—France, Italy, and Spain (Ferraro et al.).
The findings are complex and defy easy summary. Although both Canada and the United Kingdom have small-world interlock networks, only Canada had a small-world ownership network, a difference Conyon and Shipilov attribute to Canada’s mercantilist history as well as attempts by the Canadian government to protect the country from outside influence. Despite similar levels of economic liberalization, network density increased over time in Brazil, Mexico, and Taiwan but declined in Chile, Israel, and South Korea. In each case, factors specific to the particular country—Carlos Slim’s dominance in Mexico and Brazil’s relative closure to foreign capital, for example—appeared to account for much of the cross-national variation. Post-socialist states that have liberalized with gradual privatization (Bulgaria and Romania) tend to have the most evident small-world networks, while a country that has neither liberalized nor rapidly privatized (China) has the least developed small world. And whatever factors distinguish Germanic from Latin-style capitalism, these nations exhibit no clear pattern in terms of their interlock or ownership networks. A fifth comparative chapter, by Edling et al., on the Scandinavian countries, shows that an increase in gender diversity among board members not only does not lead to a decomposition of the network but actually tightens it.
After a chapter by Davis, Walker, and Kogut—an updated version of the 2001 Kogut and Walker piece on Germany supplemented by a comparison with the United States—Kogut, both alone and with coauthors, steps back to consider two more general questions: in what ways do network structures emerge from purposive, micro-level decisions, and to what extent has a global small world emerged (the answer, still not much)? Kogut concludes the book by extolling the virtues of small-world analysis and outlines a set of policy implications.
This book is an impressive achievement, containing a staggering array of data, deftly handled by the authors. Unlike most edited volumes, the chapters hang together quite well, providing a narrative that one rarely sees in such efforts. The collective character of the project is reflected in the chapter on the global small world, whose authorship is listed as Kogut, Jordi Colomer, and “the contributors to this book.” The volume includes two useful appendices, one a primer on social network concepts and the other a description of the name-matching algorithms used in the book. In keeping with the spirit of the project, the authors have made their data available on a website (http://www8.gsb.columbia.edu/leadership/research/smallworlds/datadl).
I do have a couple of quibbles. Kogut states early on that he is ultimately concerned about the consequences of the network structures the book identifies. In fact, however, except for the chapter by Davis, Walker, and Kogut, the book’s focus is on network formation and structure. There is nothing wrong with this approach. There are now a plethora of works demonstrating that network structures have behavioral consequences, but nagging questions of endogeneity have led researchers to return to the question of network formation, as this book appropriately does. The ultimate goal, however, remains showing that networks have consequences. Perhaps Kogut can convene another conference to address this issue.
My second concern is that the data, extensive as they are, may ultimately be too narrow to fully address the important theoretical and substantive issues that Kogut raises in his introduction. Kogut is very up-front about this, conceding that qualitative discussions were necessary to fill in the missing pieces—and these discussions are often quite illuminating as well as compelling. Ultimately, however, one would like to see a degree of rigor in the sources and consequences of network ties comparable to the rigor in the network analyses themselves.
Despite these minor concerns, I highly recommend this book. Its dense pages will not be mistaken for a John Grisham novel. It is a source to consult regularly, however, for its important substantive focus, its frequently striking ideas, its remarkable handling of data, and its insightful and incisive discussions of the global business community. It deserves the attention of anyone interested in the role of the corporation in the contemporary world.