An Institutional Contingency Perspective of Interlocking Directorates

• Date: 01 July 2019
• Published date: 01 July 2019
• DOI: http://doi.org/10.1111/ijmr.12182

International Journal of Management Reviews, Vol. 21, 277–293 (2019)

DOI: 10.1111/ijmr.12182

An Institutional Contingency Perspective

of Interlocking Directorates

Rosa Caiazza , Albert A. Cannella Jr,1Phillip H. Phan2and Michele Simoni3

University of Naples Parthenope, Palazzo Pacanowski, Via Generale Parisi, 13, 80132 Naples, Italy, 1Blue Bell

Creameries Endowed Chair, Department of Management, Texas A&M University, 4221 TAMU, CollegeStation,

TX 77843-4221, USA, 2The Johns Hopkins Carey Business School, 100 International Drive, Baltimore, MD 21202,

USA, and 3University of Naples Parthenope, Palazzo Pacanowski, Via Generale Parisi, 13, 80132 Naples, Italy

Corresponding author email: rosa.caiazza@uniparthenope.it

Interlocking directorates, in which companies are linked by the directors that serve

on their boards, exist globally.It is an expression of hegemonic power exercised by the

elites of a society,and has been studied with great interest by organizational sociologists,

management scholars and financial economists. The interest emanates from the effect

that interlocks have on wealthcreation and distribution, and from the perspective that

interlocks can tell us how elites in a society arenetworked. Although diverse theoretical

perspectives haveinformed the research on interlocking directorates, this reviewshows

that the Anglo-American perspective dominates. This dominance is notable not only in

the volume of Anglo-American studies, but also in theories employed by international

studies. For example, most international studies use agency theory to investigate the

welfare implications of interlocks, but many countries do not use the Anglo-American

legal regime, which is the basis for agency theory. This paper expands the theoretical

basis of the review to include class hegemony and resource dependence, to articulate

better the causes and consequences of interlocks in the international context. The pa-

per also extends theory by showing that institutions have an important influence on

interlocks, so that the latter can be welfare-depleting in one institutional setting, while

welfare-enhancing in another. The review concludes by discussing the implication for

future research.

Introduction

Board interlocks exist when a member of one firm’s

board serves on the board of another. Over the past

century, this phenomenon has diffused widelyin cor-

porations around the world, so that scholars have ac-

knowledged the need for a better understanding of its

causes and consequences to develop more complete

theories of corporate governance. From a theoreti-

cal standpoint, interlocks illustrate a form of social

hegemony that is also interesting to sociologists and

public policy scholars. Interlocks are important phe-

nomena because (1) they are ubiquitous in corporate

life around the world and (2) they implicate the roles

of the top echelon in an important wealth-creating

engine, the public corporation. The purpose of this

review is to explore the institutional environmentthat

affects the roles of decision-makers in selecting new

directors, the logics behind the selections and the ex-

pectations of the players involved. In so doing, we

hope to shed light on the question, posted by Mizruchi

(1996): ‘What do interlocking directorates really do?’

To date, the research has spawned a multitude

of theories and policy implications, which have

sometimes resulted in contradictory conclusions.

Specifically, in the organization sociology literature,

Pfeffer and Salancik (1978) promulgate a resource-

dependence perspective, while Useem (1979) views

interlocks as manifestations of class hegemony in

the corporate world. These two perspectives describe

competing causal mechanisms for interlocks. Re-

source dependence theory concludes that interlocks

are welfare-enhancing, while class hegemony theory

concludes that interlocks are welfare-depleting.

C2018 British Academy of Management and John Wiley & Sons Ltd. Publishedby John Wiley & Sons Ltd, 9600 Garsington

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278 R. Caiazza et al.

These perspectives have fueled competing explana-

tions for interlocking directorates and their effects.

Some of these result from differences in the own-

ership structure of companies across the economy,

the extent to which capital is needed from external

markets to fund growth, antitrust and securities

regulation, and factors such as the role of families

and corporate groups in business. The fact that

these factors can differ sharply across institutional

contexts further complicates the story. To approach

this problem, we propose a general framework,based

on how different institutional settings might affect

interlocking directorates, to classify existing studies

and guide future research.

Mizruchi’s (1996) review of interlocks was pub-

lished more than 20 years ago and, since then, the

world has experienced two major global recessions

(1997 and 2007), the Internet bubble (1999), the

emergence of social media, global financial regula-

tory regime change and the rise of China as a global

economic power. In short, the institutions that define

the landscape of corporate-governance practices and

the context of interlocking directorates has changed

so significantly that we believean updated review and

reflection of the literature is required.

In this review, we discover that the premise for

much of the research since Mizruchi’s (1996) work

continues to be grounded in the Anglo-American,

or agent–principal, view of corporate governance.

Studies on interlocks in international contexts are

largely based on constructs such as the separation

of ownership and control from the agent–principal

literature. When the institutional contexts in these

studies are considered, they are usually treated

as statistical controls or undesirable sources of

deviation from the model situation. We believe that

these features of the extant research hamper further

theoretical and empirical inquiry.

In the next sections of the paper, we first conduct

a systematic literature review by searching Business

Source Premier, Ebsco-Host, JSTOR and Caspur

databases to identify research on interlocking

directorates. These four overlapping databases cover

the peer-reviewed journals that publish research

on interlocking directorates. We use a structured

approach to identify a list of 150 studies published

between 1914 and 2017 that directly focused on

interlocking directorates. We then use a classification

framework to organize the literature. Our framework

relies on a combination of two widely cited reviews

of interlocking directorate research (Mizruchi 1996;

Palmer et al. 1986). Following Mizruchi (1996),

we classified each study according to whether it

focused on the antecedents or the consequences

of interlocks. Following Palmer et al.(1986), we

classified each study according to whether it focused

on the organization or individual level of analysis.

Next, we develop a rubric for analyzing the literature

to show how the institutional setting is really a third

classification factor that might significantly alter the

theoretical and empirical conclusions from the extant

literature. Finally, we discuss the implications for

future research and the way in which scholars might

approach the topic to advance understanding.

What we think we know about

interlocking directorates

The fragmented nature of the literature on interlock-

ing directorates reflects the multifaceted nature of

the phenomenon. It draws from a mixture of dis-

ciplines and levels of analyses. Studies that adopt

the organizational level of analysis overwhelmingly

draw upon resource-dependence theory (Pfeffer and

Salancik 1978). The resource-dependence perspec-

tive is about how organizations secure the factors of

production and other inputs that they need to survive

through a process of network-building and relation-

ship management. These studies view the antecedents

and consequences of board interlocks as motivated

by firm-level resource needs (Burt 1983; Mintz and

Schwartz 1985).

Studies at the individual level of analysis are based

on class hegemony theory (Domhoff 1967). Class

hegemony theory describes the ways in which mem-

bers of the corporate elite maintain their status and

power in society. The effect of class hegemony can

be seen in the existence of member-restricted so-

cial clubs, legacy allowances for admissions to elite

schools and higher education institutions and cliques.

Class hegemony theory views the antecedents and

consequences of interlocks as linked to the com-

monly shared parochial needs (power, social recogni-

tion, economic security) of the individuals of a class

(Useem 1984).

The joint consideration of these theoretical criteria

allows us to map the reviewed studies onto a two-by-

two (2 ×2) matrix (Figure 1). The matrix highlights

four possible combinations of criteria: (I) antecedents

at the organizational level; (II) consequences at the

organizational level; (III) antecedents at the individ-

ual level; and (IV) consequences at the individual

level.

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