EFFECT OF RECRUITMENT POLICIES

Effect of Recruitment Policies on the Internationalization of Interlocking Directorates

Effect of Recruitment Policies on the Internationalization of Interlocking Directorates

Introduction

How are recruitment practices propagated across firms? This article proposes, and empirically verifies, that observed recruitment practices are partly the outcome of network effects among firms with common directors. While firms attempt to select directors whose other directorships are at firms with similar recruitment practices (“familiarity effect”), this matching of recruitment practices is imperfect because other factors also affect the director choice. This generates an “influence effect” as directors acquainted with different practices at other firms influence the firm's recruitment to move toward the practices of those other firms. These network effects cause recruitment practices to converge (Byrd & Mizruchi, 2005, pp. 129-173).

The cohesion of USA inter corporate networks is more problematic than ever. Interlocking directorates are more cohesive in USA than in most Western countries (Windolf 2002). An interlock (or interlocking directorate) occurs, when the director of a company sits in the board of another company. Following P. Bourdieu (1989), scholars underline the homogeneity of USA business elite and the presence of numerous former bureaucrats at the top of the main USA companies. Social reproduction is thus alleged to be the underlying mechanism of cohesion. Though, such an assertion, contradict the fact that USA economy is supposed to be a financial market economy (Collin, 1998, pp. 719-746). Since the late 1990s, the USA economy has experienced policies of financialisation and an increasing part of foreign investment in the capital of its main companies. We may then question the sustainability of interlocks cohesion under such conditions. Are former bureaucrats still so central in corporate networks? What is the structure of capital networks? Does it allow the persistence of their power? Our approach is based on a comparison between the recruitment and capital networks of the major 125 USA companies at the Paris Stock Exchange. Studies focus on either interlocking directorates. Those on interlocks emphasize the weight of social mechanisms, whereas those on equity linkages conclude that economic and political factors as protectionist interests prevail. (Collin, 1998, pp. 719-746).

Context

Corporate networks in USA demonstrate strong peculiarities compared to those in other main Western countries. P. Windolf analyzed interlocking directorates in Europe and the United States (2002). Among the 374 main firms in USA, fewer are interconnected; isolates represent a bigger share (43%) than in Germany (32%), and mostly than in the United States (14%) and in the United Kingdom (8%). However, interconnected firms are more integrated than in the other countries. The density among firms with ties is higher (4.92) than in Germany (4.21), in the United States (1.89) and the United Kingdom (1.53). These firms do not only exhibit more interlocks, but also more multiple interlocks among each other. The proportion of multiple relationships (20%) is rather high. Moreover, interlocks in USA seem to be more centralized, as the firm with the highest number of interlocks in these countries is USA. In brief, the USA corporate network has the most ...