1. 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:
and SSRN:

2. 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
P.Santella, C.Drago, A.Polo 2

3. 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
P.Santella, C.Drago, A.Polo 3

4. 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
P.Santella, C.Drago, A.Polo 4

5. 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
P.Santella, C.Drago, A.Polo 5

6. Chamber of Lords: the data
Board composition for the Italian stock market (MTA market, in % of the total capitalisation of Borsa Italiana).
We cover the 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
P.Santella, C.Drago, A.Polo 6

7. 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
P.Santella, C.Drago, A.Polo 7

8. 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
Directorships by director
Link1 Link2
Board size by company
Link1 Link2
Initial database (all directorships in )‏
Affiliation matrices by year (two-way matrices) used in network analysis
Interlocking directorships in Italy
P.Santella, C.Drago, A.Polo 8

9. 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
P.Santella, C.Drago, A.Polo 9

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

11. The interlocking directorships database

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

13. 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

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

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

16. 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%
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P.Santella, C.Drago, A.Polo 16

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

18. 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 to 6-7 in )
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19. P.Santella, C.Drago, A.Polo
Directorships
Interlocking directorships in Italy
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

20. 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 They increase to 5% in
Few “Lords” (or big-linkers) female directors, who tend to be part of families
Interlocking directorships in Italy
P.Santella, C.Drago, A.Polo 20

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

22. 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
P.Santella, C.Drago, A.Polo 22

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

24. 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.
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25. P.Santella, C.Drago, A.Polo
Number of directors by directorships 1998 in the row-1999 in the columns
Flows
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
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26. P.Santella, C.Drago, A.Polo
Number of directors by directorships 2005 in the row-2006 in the columns
Flows
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
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27. 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
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28. Directorships by director 1998-2006 (first eleven ones)‏
Lords: different career paths
Directorships by director (first eleven ones)‏
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P.Santella, C.Drago, A.Polo 28

29. 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
P.Santella, C.Drago, A.Polo 29

30. Families on the rise and families declining
Directorships by Families (first eleven ones)‏
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P.Santella, C.Drago, A.Polo 30

31. 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
In particular we study three aspects: (i) cohesion, (ii) centrality and (iii) links persistency over the time.
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32. P.Santella, C.Drago, A.Polo
Networks
Nodes represent the “actors” of the system, links represent the relationships between two actors (interlocks)
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33. P.Santella, C.Drago, A.Polo
Networks
Blue chip companies ( ): slides , 48,55
Listed companies ( ): slides
Directors ( ): slide 47
Blue chip financial companies ( ): slides 56-65
Networks are directly generated by directorships data
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P.Santella, C.Drago, A.Polo 33

34. 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
Focus on financial companies to explore interlocks and competition
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P.Santella, C.Drago, A.Polo 34

35. Italian Blue Chips
1998

36. Italian Blue Chips
1999

37. Italian Blue Chips
2000

38. Italian Blue Chips
2001

39. Italian Blue Chips
2002
2002

40. Italian Blue Chips
2003

41. Italian Blue Chips
2004

42. Italian Blue Chips
2005

43. Italian Blue Chips
2006

44. 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
P.Santella, C.Drago, A.Polo 44

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

46. 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
P.Santella, C.Drago, A.Polo 46

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

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

49. 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
P.Santella, C.Drago, A.Polo 49

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

51. Centrality in terms of betweenness
Betweenness: the number of paths that pass through a node
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52. P.Santella, C.Drago, A.Polo
Centrality: betweenness
The more central companies and directors in the network tend to not change in
Same actors are central year by year (although changing positions)‏
Stability in centrality
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53. P.Santella, C.Drago, A.Polo
1998
1999
2000
ras spa - riunione adriatica di sicurta'
holding di partecipazioni industriali spa
mediobanca spa
olivetti spa - ing. c. olivetti & c.
camfin cam finanziaria spa
pirelli spa
banca commerciale italiana spa
interbanca spa
seat - pagine gialle spa
telecom italia spa
impregilo spa
alleanza assicurazioni spa
986.07
marzotto spa - manifattura lane
gaetano marzotto & figli
snia spa
banca agricola mantovana spa
finmeccanica spa
banca nazionale dell'agricoltura spa
805
la fondiaria assicurazioni spa
2001
2002
2003
pirelli & c. spa
meliorbanca spa
autogrill spa
rcs mediagroup spa
acea spa
edison spa
banca monte dei paschi di siena spa
telecom italia mobile spa
fondiaria - sai spa
2004
2005
2006
indesit company spa
atlantia spa
986.33
ras holding spa
sanpaolo imi spa
sorin spa
assicurazioni generali spa
fiat spa
italcementi spa fabbriche riunite cemento
892.5
Interlocking directorships in Italy
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54. P.Santella, C.Drago, A.Polo
1998
1999
2000
erede sergio
rocca gianfelice
sabatini paolo
colaninno roberto
gutty gianfranco
lucchini luigi
pesenti giampiero
nefri nicolo'
ciani carlo
zanetti emilio
savona paolo
puri negri carlo alessandro
tronchetti provera marco
martini giandomenico
falck alberto
bondi enrico
benetton alessandro
philippe jaques emile georges
grande stevens franzo
scotti luigi
40953
pesenti carlo
marzotto pietro
2001
2002
2003
benetton gilberto
ligresti gioacchino paolo
96292
fabrizi pier luigi
colombo umberto
buora carlo
vitale marco
mion gianni
caltagirone francesco gaetano
doris ennio
molinari amato luigi
callieri carlo
ripa di meana vittorio
greco mario
2004
2005
2006
giarda dino piero
della valle diego
perissinotto giovanni
ligresti giulia maria
gros pietro gian maria
clo' alberto
ligresti jonella
acutis carlo
ciampicali pier antonio
58392
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55. P.Santella, C.Drago, A.Polo
Geodesic distance
Distance between two actors in a network (number of relations in the shortest walk)‏
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56. 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
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57. P.Santella, C.Drago, A.Polo
1998
1999
2000
2001
2002
2003
2005
Interlocking directorships in Italy
2004
P.Santella, C.Drago, A.Polo 57
2006

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

59. P.Santella, C.Drago, A.Polo
Asimmetry
The asimmetry of the network increases over time.
More central companies increase their centrality over the time .
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60. 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
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61. 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
Interlocking directorships in Italy
P.Santella, C.Drago, A.Polo 61

62. Listed companies: centralization Blue Chips: centralization
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63. 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).
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64. P.Santella, C.Drago, A.Polo
Links persistency over the time
We observe a main component for financial companies during 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
P.Santella, C.Drago, A.Polo 64

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

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

67. Italian Financial Blue Chips 2000
Interlocking directorships in Italy
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Italian Financial Blue Chips
2000

68. Italian Financial Blue Chips
Interlocking directorships in Italy
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2001
Italian Financial Blue Chips

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

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

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

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

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

74. 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.
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75. 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?
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