Financial Interest Groups and Interlocking Directorates

The role of banks in the interlock network--and in the corporate world--has been a long discussed issue, but the connection between finance capital and interest group formationh as been mostly ignored. This study seeks to reintegrate these ideas.
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    Social Science History Association is collaborating with JSTOR to digitize, preserve and extend access to Social Science History . Social Science History ssociation Financial Interest Groups and Interlocking Directorates Author(s): Beth Mintz and Michael Schwartz Source: Social Science History, Vol. 7, No. 2, The American Corporate Network, 1815-1974 ( Spring, 1983), pp. 183-204Published by: Social Science History AssociationStable URL: 22-07-2015 17:20 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at  info/about/policies/terms.jspJSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact This content downloaded from on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  Financial nterest roups and nterlocking irectorates BETH MINTZ University f Vermont MICHAEL SCHWARTZ SUNY, Stony Brook Many recent tudies f nterlocking irectorates ave paid special attention o the possible existence f interest roups or cliques within he corporate world Allen, 1978; Dooley, 1969; Mariolis, 1977; Mintz and Schwartz, 981a; Mizruchi, 982b). The search for conomic groupings f this ype dates from he early part of the twentieth entury when financial domination f industrial firms as thought o characterize merican usiness. Bank con- trol theory, n particular, osited the coalescence of individual companies nto a number f competing roups, ach organized around banking nterests. hus, Baran and Sweezy 1966: 17) define nterest roups s a number f corporations nder om- mon control, he ocus of power being normally n investment r commercial ank or a great amily ortune. Early work in this area, therefore, ttempted o identify separate groups of companies rganized round ither amily r financial nterests. ochester 1936), for xample, sed nforma- tion on stock ownership, anking dependence, ervice elation- ships, capital investments, nd oint ventures o identify many autonomous liques headed by founding amilies. weezy 1939) used a similar et of criteria o identify ight ominant inancial interest roups. Perlo (1957) replicated hese results 0 years later. As the century rogressed, he dominant heory f corporate control hifted o managerialism, paradigm hat assumes the replacement f ownership nd financial nfluence n the firm y the direction f unpropertied anagers. As a result, he concept SOCIAL SCIENCE HISTORY, Vol. 7 No. 2, Spring 1983 183-204 S1983 y the Social Science History Assn. 183 This content downloaded from on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  184 SOCIAL SCIENCE HISTORY of corporate nity egan o change: The modern irm as viewed as an autonomous ctor with hifting lliances o other ompan- ies rather han s a member f a larger roup. n response o this change n perspective, he question of who controls whom of early research was replaced by investigations f who interacts with whom. Instead of searching or clearly defined groups formed round ither bank or a founding amily, tudies egan to seek reas of relative ensity ithin he network f nterlocking which the modern firm nteracts Allen, 1978; Sonquist and Koenig, 1975). Dooley's (1969) work llustrates his approach. He identified 5 regional corporate groupings on the basis of the number of interties maintained within each group. No evidence f underlying ontrol r coordination was offered; no assertions f unified conomic ehavior were made. Although banks were found o be central, ooley did not nterpret his s evidence f financial ontrol. Conceptualizing nterest roups s a collection f companies under ommon ontrol as mportant mplications. lthough he role of banks in the interlock etwork-and in the corporate world-has been under much discussion f ate Glasberg, 1981; Gogel and Koenig, 1981; Kotz, 1978; Mintz nd Schwartz, 981 ; Mizruchi, 982a), the connection etween he theory f finance capital and interest roup formation as been nearly ost. The purpose of this tudy s to reintegrate hese deas. More specifi- cally, this article addresses two questions. First, t considers whether he orporate world s organized nto discrete roupings formed round financial nstitutions, s described y the theory of bank control. econd, it explores he mplication f nterest group formation or lite unity. he traditional heory f finance capital assumes both ntragroup nity n one hand and fierce intergroup ompetition n the other see especially elton, 970). If the orporate ector s characterized y discrete roups rgan- ized around financial nterests, e nterpret his s indications f points f cleavage n the ystem; s potentially ompeting actions within he corporate world. This content downloaded from on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  FINANCIAL INTEREST GROUPS 185 THE METHOD AND THE DATA The extensive iscussion entered n the ubstantive eaning of director xchanges Mintz and Schwartz, 1983; Mizruchi, 1982a; Palmer, 1980) has demonstrated hat nterlocks epresent many ifferent ypes f relationships ncluding ttempts o access important esources, o accommodate bankers, nd to add to company tatus by attracting restigious utsiders. ome inter- locks trace friendship etworks, thers race tockholding ela- tionships, till thers race ustomer-supplier inks. Despite their aried and changing oles, however, nterlocks always provide n opportunity or one or both of the connected firms o access vital nformation bout the other. Though the degree f access depends n the xpertise, oyalty, nd demeanor of the ndividual inking he two companies, we can safely nter- pret he xistence f an interlock s a symptom f nonantagonis- tic corporate elations. rom this we extrapolate proposition about financial roupings: wo companies onnected y n nter- lock are not typically members f competing nterest roups. Based on this proposition, Mariolis (1977) developed a method or dentifying iscrete roups n an interlock etwork. Derived from bank control theory nd based on the logic of centrality nalysis iscussed y Mizruchi n the previous rticle,' this method s called peak analysis. t uses a recursive efinition f clique membership: (1) A company s a peak f t s more entral han ll firms o which t s nterlocked. (2) A company s in a cluster f every irm more entral han it-to which t s nterlocked-is n that luster. (3) A firm hich onnects pward nto wo different lusters s not member f ither roup. Thus, orporation is a peak and defines cluster iff V r >0=*C >C j ii i j This content downloaded from on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions  186 SOCIAL SCIENCE HISTORY And orporation s a member f E i iff V r >0 and C >C * IcE 1 kl 1 k i where = the luster ssociated ith orporation i r = measure f overlap etween orporation and ij corporation C = centrality f corporation r = measure f overlap etween orporation and corporation C = centrality f orporation Mariolis, 977).2 k The notion f peak allows us to search or potential liques. Clearly, he most central irm n the network s a peak since, by definition, t is more central han any of its nterlock artners. Other highly entral ompanies re peaks and define liques only if hey nterlock ith orporations ess central han hemselves. t is therefore ossible to have only one peak in the network; t s also possible o have numerous eaks. We note two important mplications f this definition f corporate lique. First, wo ompanies eed not nterlock irectly to share lique membership; hey may tie to the clique through connection o the group peak or to different roup members. Competitors, ustomers, uppliers, r firms hat re legally ro- hibited rom nterlocking ay therefore e grouped ogether n the absence of direct ies. Second, a corporation need not be included n a clique. Any ompany nterlocked pward with wo firms n different lusters annot be considered o be in either group, ince this would violate the assumption hat competing groups void interlock elationships. This second consideration mphasizes hat all corporations are not necessarily ssigned o clusters. hus, peak analysis will This content downloaded from on Wed, 22 Jul 2015 17:20:51 UTCAll use subject to JSTOR Terms and Conditions
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