This paper is available free of charge European Association of Evolutionary Political Economy (EAEPE) 2008 Conference, University of Rome III, Rome 6-8 November RA/X Network Analysis of Systems of Political Economy The Italian Chamber of Lords Sits on Listed Company Boards. An Empirical Analysis of Italian Listed Company Boards from 1998 to 2006 P. Santella, C. Drago, A. Polo This paper is available free of charge on IDEAS: http://mpra.ub.uni-muenchen.de/2265/1/MPRA_paper_2265.pdf and SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1027947

P.Santella, C.Drago, A.Polo Theories on the function of interlocking directorships: the bright side Cooptation: sharing the board with directors of resource companies (bankers, suppliers, clients) Monitoring: bankers sitting on the boards of their debtors Legitimacy: inviting individuals with ties to important organisations Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 2

Theories on the function of interlocking directorships: the dark side decrease competition in the market for corporate control violate directors’ fiduciary obligations as the agents of stockholders improve the ability of the controlling shareholders to expropriate the minority shareholders Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 3

Theories on the function of interlocking directorships: the dark side “The practice of interlocking directorates is the root of many evils” (Brandeis)‏ Section 8 of the Clayton Act 1914 USA prohibited interlocks between firms competing in the same markets. Interlocking would facilitate the collusion between firms creating an informal communication channel between directors who could use it to make agreements against the consumers. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 4

Interlocking directorships in Italy: an old story Ciocca (2007): since the end of the 19th century the Italian capitalism is characterised by cross-shareholdings, company pyramids, shareholder agreements, interlocking directorships. Rinaldi (2004), Rinaldi and Vasta (2005): between the end of the II World War and the 1970s interlocks (established through a very small number of directors) played an important role in guaranteeing the stability of the system Bianchi et al (2005): widespread recourse to director interlocks as a characteristic of the Italian stock market since the ‘70s. This may have favoured collusion, non-aggression pacts, and reduced competition. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 5

Chamber of Lords: the data Board composition for the Italian stock market (MTA market, in 2006 99% of the total capitalisation of Borsa Italiana). We cover the 1998-2006 period for a total of 21,000 directorships. From the initial dataset we obtain firstly the two-way matrices and secondly the adjacency matrices to analyse the network of companies and the network of directors. We compare all the listed companies with the Italian Blue Chips index MIB30/S&P-MIB 40. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 6

Methodology Exploratory Data Analysis approach Initial dataset Directorships analysis Two way matrices Social Network Analysis Adjacency matrices Network components Network cohesion Network centrality Network longitudinal data Link persistency Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 7

Directorships by director 1998-2006 Link1 Link2 All data are collected in the initial database that generates the affiliation matrices and two new tables/datasets: directorships by directors and board size by company 1998- 2006 Directorships by director 1998-2006 Link1 Link2 Board size by company 1998- 2006 Link1 Link2 Initial database (all directorships in 1998-2006)‏ Affiliation matrices by year (two-way matrices) used in network analysis Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 8

Network of longitudinal data Adjacency matrices by year according to the network analysis methodology Affiliation matrices by year (two-way matrices) according to the network analysis methodology We applied the network analysis to the adjacency matrices to study the structure of the interlocking directorship network Network of longitudinal data Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 9

We use the interlocking directorships database (in Access format) present in the page

The interlocking directorships database

We collect data for each board 1998-2006 (source: Consob)‏

We archive the data in the “interlocking database”. The table structure: we collect data for directors (name and surname) in each company over the time

…So as to obtain the directorships data view over the time… The query permits the automatic computation…

…and the affiliation matrix used in the first part of the analysis…through the Ucinet software we obtain the adjacency matrix

Multiple directorships From 1998 to 2006 the same directorship structure every year: Onetimers (one board): 84% Twotimers (two boards): 10% Multilinkers/Lords (more than two boards): 6% Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 16

P.Santella, C.Drago, A.Polo 3 or more Directorships 1998-2006 2 1 1998 1999 2000 2001 2002 2003 Interlocking directorships in Italy 1998-2006 2004 P.Santella, C.Drago, A.Polo 2005 17 2006

P.Santella, C.Drago, A.Polo Directorships by director: how many boards for multitimers? Over the nine years considered we observe a reduction in the maximum number of directorships by director (from 8-10 in 1998-1999 to 6-7 in 2005- 2006) Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 18

P.Santella, C.Drago, A.Polo Directorships 1998-2006 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 19 The two vertical lines represent 1 directorship and 2.5 directorships every year. The great majority of the directors are on the left of the 2.5-directorship line

P.Santella, C.Drago, A.Polo Directorships by director and gender Very different pattern between male and female directors during the years. Overwhelming majority of male directors with respects to female directors Female directors 4% of the total of directors in 1998. They increase to 5% in 2006. Few “Lords” (or big-linkers) female directors, who tend to be part of families Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 20

Directorships by gender 1998-2006 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 21 The two vertical lines represent 1 directorships and 2.5 directorships every year

P.Santella, C.Drago, A.Polo Board size by company General structural stability of the system Reduced variance of company board size in 2005 and 2006. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 22

Board size 1998-2006 (on the x axis)‏ Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 23

Director flows over the nine years Being one or multi timer determines the career path In particular we have two different career paths: one path for one-timers/two-timers and one path for big linkers. - For instance, low mobility from one directorship to four directorships. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 24

P.Santella, C.Drago, A.Polo Number of directors by directorships 1998 in the row-1999 in the columns Flows 1998-1999 1999   1998 1 2 3 4 5 6 7 8 9 10 (vuoto)‏ Totale complessivo 1146 (80%)‏ 42 231 1427 30 111 20 172 13 40 65 332 16 2326 2674 1511 182 73 17 2570 4270 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 25

P.Santella, C.Drago, A.Polo Number of directors by directorships 2005 in the row-2006 in the columns Flows 2005-2006 2006   2005 1 2 3 4 5 6 7 (vuoto)‏ Totale complessivo 1360 (78%)‏ 45 329 1736 53 139 13 23 229 18 36 76 11 21 14 349 9 1820 2181 1769 214 63 33 2174 4270 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 26

P.Santella, C.Drago, A.Polo Lords We identify 75 Lords, directors with at least 2.5 directorships per year from 1998 to 2006 (at least 23 in nine years). Lords are the main system connectors. Specific patterns for each Lord: stability, growth and decline. Lords tend to belong to families and to be also shareholders. Lords are overwhelmingly male Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 27

Directorships by director 1998-2006 (first eleven ones)‏ Lords: different career paths Directorships by director 1998-2006 (first eleven ones)‏ Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 28

Families: the rising sons Over the nine years emergence of several families such as Benetton, Pesenti, Ligresti, Caltagirone. Negative correlation in the same family (the father declines, the son rises)‏ Families ensure continuity over time: they are network stabilizers. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 29

Families on the rise and families declining Directorships by Families 1998-2006 (first eleven ones)‏ Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 30

P.Santella, C.Drago, A.Polo Networks Lords are the main connectors. We move on to examine the companies they connect: the company network. We examine the structure of the nine networks in 1998-2006. In particular we study three aspects: (i) cohesion, (ii) centrality and (iii) links persistency over the time. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 31

P.Santella, C.Drago, A.Polo Networks Nodes represent the “actors” of the system, links represent the relationships between two actors (interlocks) Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 32

P.Santella, C.Drago, A.Polo Networks Blue chip companies (1998-2006): slides 29-37, 48,55 Listed companies (1998-2006): slides 42- 52 Directors (1998-2006): slide 47 Blue chip financial companies (1998-2006): slides 56-65 Networks are directly generated by directorships data Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 33

P.Santella, C.Drago, A.Polo Blue Chips Network visualization: emerging patterns Structural stability of the system Low number of isolates and low number of components Reduced density over the time Mediobanca is the center by betweenness over the period 2000-2006 Focus on financial companies to explore interlocks and competition Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 34

Italian Blue Chips 1998

Italian Blue Chips 1999

Italian Blue Chips 2000

Italian Blue Chips 2001

Italian Blue Chips 2002 2002

Italian Blue Chips 2003

Italian Blue Chips 2004

Italian Blue Chips 2005

Italian Blue Chips 2006

P.Santella, C.Drago, A.Polo Listed Company Network: structural aspects Blue chip companies are the most central companies into the entire company network according to betweenness This center does not change its relevance during the nine years We now move on to examine the entire structure of the network of listed companies Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 44

Components and Isolates Starting from any of the nodes it is possible to reach any other node. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 45

P.Santella, C.Drago, A.Polo Components and Isolates In nine years one main component (all the companies communicate with all the other companies): percentage goes from 73% in 1998 to 76% in 2006. The number of isolates decreases over the time (-5% in nine years)‏ Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 46

Y-axis scales used are different to improve data visualization First component Isolates Total components Total companies Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 47 Y-axis scales used are different to improve data visualization

Density Proportion of links (ties) with respect to the total. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 48

P.Santella, C.Drago, A.Polo Density and clustering coefficient S&P MIB companies show a higher level of density than listed companies. The network density decreases over the time Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 49

Density: listed companies Density: Blue Chips Clustering coeff. : listed companies Clustering coeff. : Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 50 Y axis -scales used are different to improve data visualization

Centrality in terms of betweenness Betweenness: the number of paths that pass through a node Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 51

P.Santella, C.Drago, A.Polo Centrality: betweenness The more central companies and directors in the network tend to not change in 1998-2006 Same actors are central year by year (although changing positions)‏ Stability in centrality Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 52

P.Santella, C.Drago, A.Polo 1998   1999 2000 ras spa - riunione adriatica di sicurta' 2030.759 holding di partecipazioni industriali spa 2451.808 mediobanca spa 1825.219 1677.957 1696.096 olivetti spa - ing. c. olivetti & c. 1802.526 camfin cam finanziaria spa 1483.435 1415.616 1371.234 pirelli spa 1395.999 banca commerciale italiana spa 1308.372 1301.471 interbanca spa 1290.043 1154.36 1115.958 seat - pagine gialle spa 999.101 telecom italia spa 1047.878 impregilo spa 993.903 alleanza assicurazioni spa 964.006 986.07 marzotto spa - manifattura lane gaetano marzotto & figli 882.544 snia spa 912.343 954.442 banca agricola mantovana spa 875.813 846.899 940.705 finmeccanica spa 697.662 banca nazionale dell'agricoltura spa 805 882.354 la fondiaria assicurazioni spa 681.561 2001 2002 2003 2355.615 2350.234 pirelli & c. spa 1635.933 2120.525 2135.646 1444.443 2085.832 2129.524 1354.654 2067.12 2043.115 meliorbanca spa 1293.605 1482.371 autogrill spa 1267.117 rcs mediagroup spa 1229.456 1387.732 1175.203 1164.718 1364.332 1100.181 acea spa 942.389 1295.58 edison spa 914.343 banca monte dei paschi di siena spa 937.792 965.355 881.888 telecom italia mobile spa 919.392 884.339 863.617 fondiaria - sai spa 881.123 2004 2005 2006 1860.264 3167.294 3280.198 1391.94 1524.077 1192.814 indesit company spa 1131.634 1522.533 atlantia spa 1185.565 986.33 ras holding spa 1280.437 1121.498 932.653 1151.503 1049.374 843.001 1029.008 1028.248 826.006 979.757 987.167 818.726 884.164 sanpaolo imi spa 985.211 sorin spa 775.081 assicurazioni generali spa 752.291 fiat spa 956.376 italcementi spa fabbriche riunite cemento 740.019 750.376 892.5 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 53

P.Santella, C.Drago, A.Polo 1998   1999 2000 erede sergio 93993.7 149080.844 133784.2 rocca gianfelice 83777.39 sabatini paolo 62273.074 colaninno roberto 63700.89 gutty gianfranco 64041.82 61545.5 lucchini luigi 53355.86 pesenti giampiero 48589.09 nefri nicolo' 56180.273 ciani carlo 48889.73 zanetti emilio 48430.3 49119.219 savona paolo 48426.52 puri negri carlo alessandro 47562.43 tronchetti provera marco 46847.922 martini giandomenico 45381.76 falck alberto 45541.22 bondi enrico 46670.504 benetton alessandro 44313.18 philippe jaques emile georges 43673.75 42853.523 grande stevens franzo 42226.88 scotti luigi 40953 40795.27 pesenti carlo 41634.43 marzotto pietro 40458.36 40660.262 40800.44 2001 2002 2003 104042.6 benetton gilberto 140041.844 ligresti gioacchino paolo 96292 fabrizi pier luigi 80176.91 120045.992 81597.98 colombo umberto 75630.25 109354.102 78151.69 69549.06 buora carlo 96253.141 vitale marco 72945.02 68017.09 83896.25 71297.66 mion gianni 63983.19 83417.453 caltagirone francesco gaetano 67237.89 doris ennio 63929.04 71619.156 59352.57 62036.42 70764.25 molinari amato luigi 52416.11 callieri carlo 60560.67 ripa di meana vittorio 66140.508 48460.98 60272.25 60541.945 greco mario 44593.6 2004 2005 2006 66750.5 68241.828 giarda dino piero 88647.31 61795.77 della valle diego 61266.453 84861.02 59666.06 59166.613 perissinotto giovanni 78911.78 56663.8 58954.586 ligresti giulia maria 73635.03 52904.91 57786.688 gros pietro gian maria 70473.06 clo' alberto 52258.23 ligresti jonella 57655.289 acutis carlo 69772.48 50945.4 56314.344 65073.34 50696.54 56254.73 64987.32 46235.07 54613.691 59031.6 43003.77 54373.855 ciampicali pier antonio 58392 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 54

P.Santella, C.Drago, A.Polo Geodesic distance Distance between two actors in a network (number of relations in the shortest walk)‏ Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 55

P.Santella, C.Drago, A.Polo Geodesic distance The distance of 1 and 2 tends to decrease over the time The average geodesic distance tends to decrease over the time Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 56

P.Santella, C.Drago, A.Polo 1998 1999 2000 2001 2002 2003 2005 Interlocking directorships in Italy 1998-2006 2004 P.Santella, C.Drago, A.Polo 57 2006

All listed companies: average geodesic distance is around 3.5 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 58

P.Santella, C.Drago, A.Polo Asimmetry The asimmetry of the network increases over time. More central companies increase their centrality over the time . Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 59

P.Santella, C.Drago, A.Polo Network centralization A centralized network is a network that typically presents many links around a central one. A decentralized network shows no particular differences between nodes Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 60

P.Santella, C.Drago, A.Polo Network centralization The network becomes more centralized over the years. The network centralization increases for the listed companies, where the Blue Chips show an higher level over 1998- 2006 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 61

Listed companies: centralization Blue Chips: centralization Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 62

P.Santella, C.Drago, A.Polo Financial Blue chips Network We now move on to explore the financial blue chips network, as a sub-group of companies in the same business sector (such companies are supposed to be competition with each other). Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 63

P.Santella, C.Drago, A.Polo Links persistency over the time We observe a main component for financial companies during 1998-2006. The network in this case contains few isolates The structure shows a very similar pattern with Mediobanca central in all networks Link persistence during 9 years. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 64

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 65 1998 Italian Financial Blue Chips

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 66 1999

Italian Financial Blue Chips 2000 Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 67 Italian Financial Blue Chips 2000

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 68 2001 Italian Financial Blue Chips

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 69 2002 Italian Financial Blue Chips

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 70 2003

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 71 2004 Italian Financial Blue Chips

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 72 2005

Italian Financial Blue Chips Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 73 2006 Italian Financial Blue Chips

P.Santella, C.Drago, A.Polo Summary. Our main findings: Multiple directorships around 16-17% of the total number of directors every year. Stability of career paths over the time: it is difficult for directors with one or two boards to move on to three or more directorships. We identify 75 “Lords” who sit on more than 23 boards in nine years (at least 2.5 boards per year). Lords are predominantly male and tend to be part of families of directors/shareholders. They are the main company connectors. The company network is characterized by one component with more than 70% of all the listed companies. The higher number of connections for the Blue Chips (MIB 30-S&P MIB 40). Companies in central position within the network tend to remain central over the nine years. Persistence in the links among almost all the financial and non-financial companies belonging to the Blue Chips index MIB 30-S&P MIB 40. Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 74

P.Santella, C.Drago, A.Polo Conclusion Board interlocks in Italy go back to the end of the 19th Century According to the literature, their function is to ensure collusion. We examined board interlocks from 1998 to 2006 The extent, depth and persistence over time of interlocks especially among the main Italian financial companies raise doubts on the extent of a competitive behaviour Interlocks are pervasive across financial and non-financial companies: systemic collusion? Interlocking directorships in Italy 1998-2006 P.Santella, C.Drago, A.Polo 75 75