Broken Ties: Interlocking Directorates and Intercorporate Coordination

Broken Ties: Interlocking Directorates and Intercorporate CoordinationAuthor(s): Donald PalmerSource: Administrative Science Quarterly, Vol. 28, No. 1 (Mar., 1983), pp. 40-55Published by: Sage Publications, Inc. on behalf of the Johnson Graduate School of Management,Cornell UniversityStable URL: http://www.jstor.org/stable/2392384 .

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Broken Ties: Interlocking Directorates and Inter- corporate Coordination

Donald Palmer

? 1983 by Cornell University 000 1 -8392/83/2801 -0040/$00. 75

For detailed comments on the most recent versions ot this paper, I wish to thank Ronald Burt, Maggie McLoughlin, Jeffrey Pfeffer, Jerry Ross, and an anonymous ASQ reviewer. For comments on earlier drafts, I wish to thank Charles Perrow, Michael Schwartz, Joanne Martin, Jon Bendor, Dick Scott, the participants of the NIMH Research Training Program at Stan- ford University, and the members of the MACNET Research Group at SUNY-Stony Brook For patience, I thank the union wait- ers and waitresses at Zim's.

Little is known about the specific types of relationships that interlocking corporate directorates facilitate. This study examines the connective and directional continuity of all ties disrupted accidentally among 1,131 large U.S. corporations between 1962 and 1964to determinethe relative likelihood that different types of interlock ties facilitate relationships of formal coordination. In accordance with previous theory, the number and type of interlocks of which a tie consists was found to be related to the likelihood that it is a vehicle of formal coordination. However, previous assumptions aboutthe percentage of ties in thefull network that facilitate such relationships and the significance of interlock direction were not supported. The implications of these results for interpreting past results and directing future research are also discussed.@

Those who study corporate interlocking directorates are, in general, vague and pluralistic when it comes to specifying the types of relationships that interlocks facilitate, that is, give rise to and maintain. However, both organizational and political sociologists agree that one of the kinds of relationships that interlocks sometimes facilitate is ongoing joint corporate plan- ning, called here "formal coordination." What is more, studies by a number of political sociologists implicitly assume that the vast majority of interlock ties facilitate formal coordination. In this paper, I attempt to determine the relative likelihood that different types of interlock ties facilitate formal coordination. I also examine the validity of assumptions about the significance of interlock direction and speculate on the proportion of all ties that are vehicles of formal coordination in the network from which the data are drawn.

TYPES OF RELATIONSHIPS

Interlocks have been studied from two different but compatible perspectives, which are called here the "interorganizational" and the "intraclass" approaches.

According to the interorganizational approach, organizations are entities that possess interests. In pursuit of these interests, they establish relationships with other organizations. In this way, interlocking directorates are considered relationships between corporations or enterprises, and directors are considered the agents of these relationships, which may take several forms. Interlocking directorates may provide their partners with the opportunity to exchange specific information about their operations or general information aboutthe industrial sectors in which they are located. This information may allow them to formulate policies that are more sensitive to their environments (Dooley, 1969; Allen, 1974; Pfefferand Salancik, 1978: 161; Burt, 1979) and may even provide the basis for tacit forms of interorganizational coordination, such as anticompetitive price setting (Blair, 1976: 142-147). Interlock ties may also allow partners to influence one another's board-level policies, thus providing the basis for stronger forms of interorganizational coordination. If influence is based solely on the commitments of the interlocking director to the members of the two boards on which he or she sits, coordination will crystallize or dissolve as situations change (Pfeffer and Salancik, 1978: 161 -164). If, however, other boundary-spanning structures link the organiza-

40/Ad ministrative Science Quarterly, 28(1983): 40-55



Broken Ties

tions, either as consequences or preconditions of these social relationships, interorganizational coordination takes on a formal character. Some boundary-spanning structures, such as the shared organizational commitments of joint plans, programs, or routines, are relatively intangible (Allen, 1974: 394; Pfeffer and Salancik, 1978: 161), whereas others, such as resource exchange agreements (for example, debt), joint ventures, and intercorporate stockholding, are more concrete (Mintz and Schwartz, 1981 a).

Organizational sociologists adopting the interorganizational approach focus on the relationship between interlocking, patterns of resource dependence, and corporate effectiveness (Pfeffer, 1972; Allen, 1974; Bunting, 1976; PfefferandSalancik, 1978; Burt, Christman, and Kilburn, 1980; Burt, 1980a, 1980b, 1983; Pennings, 1980). They argue that the different forms of interfirm relationships that interlocks facilitate help corporations cope with resource dependence and improve their effectiveness. They seldom specify, however, the extent to which interlocks facilitate each form of interfirm relationship.

Most political sociologists adopting the interorganizational approach focus on the structure of the network of interlocking directorates among a population of firms. They argue that the different forms of interfirm relationships that interlocks facilitate may be considered "control" or "power" relationships and that the structure of the network is indicative of the structure of power among corporations linked in the network (Mills, 1956; Stanworth and Giddens, 1975; Norich, 1980; Gogel and Koenig, 1981). A precise power structure interpretation of the interlock network depends, however, on the extent to which interlocks facilitate the various forms of interfirm relationships. If interlocks primarily facilitate information exchange and information is a source of power, then it may be correct to consider interlocks to be traces of intercorporate power relationships. But such power relationships are qualitatively different from power relationships effected by interlocks that facilitate formal coordination (Palmer, 1983).

Some researchers attempt to interpret the interlock network in light of the different relationships interlocks may facilitate. For example, Mintz and Schwartz (1981 a, 1983) use the term "hegemonic" to describe the most central firms in the network, commercial banks. This label signifies that these institutions possess more power than other firms in the economy but not that individual banks control specific corporations.

Other researchers implicitly assume that the bulk of interlock ties facilitate formal coordination. This is particularly true of those who consider clusters of firms that interlock primarily among themselves to be economic interest groups (Levine, 1972; Knowles, 1973; Koenig and Sonquist, 1975; Beardenet al., 1975; Allen, 1978; Mintz and Schwartz, 1981 b; Mizruchi, 1 981). Interest groups are, by most definitions, groups of firms that coordinate their behavior (that is, their production and distribution) to maximize the profits of the group as a whole or of its dominant member, frequently at the expense of some of its constituents. Such coordination presumably entails the interpenetration of corporate administrative structures at levels other than the board level, the substance of formal coordination, as defined here. Thus, while the precision of organizational

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and some political sociological research can be improved by estimates of the extent to which ties facilitate formal coordination, the validity of political sociological research aimed at identifying interest groups depends on the validity of the assumption that the majority of all ties facilitate this kind of relationship.

According to the intraclass approach, individuals within the capitalist class or business elite are actors who possess interests. Organizations are the agents of these actors. In pursuit of their interests, capitalists establish relationships with other capitalists (Domhoff, 1967, 1971; Roy, 1981). Inthisway, interlocking directorates among firms can be considered the result of relationships between the interlocking directors and the other directors of the boards on which they sit. The complete assemblage of such relationships may be called a social network (Koenig and Gogel, 1981). The significance of these relationships for organizations may be divided into two categories. First, to the extent that the interests of directors are identified with the interests of the organizations to which they are principally affiliated, that is, the organization in which their main business interests rest (Bearden et al., 1975; Mintz and Schwartz, 1 981 a), interlocks may facilitate the several types of relationships already discussed above. Second, to the extent that the interests of directors are identified with other social groups that they belong to, specifically a social class or segment of a social class, interlocks may facilitate other types of relationships. One recent version of the intraclass approach, the class hegemony model (Koenig and Gogel, 1981), suggests that interlocks facilitate direct interaction and the communica- tion of techniques, values, and beliefs between directors. In this way, directors generate a common business elite or capitalist class culture that guides managerial behavior, socializes new directors into this culture, and socially controls deviant managerial behavior. A director's prominence and power within the business elite or capitalist class depends on his or her position in the social network. Some authors focus on the number of corporate board seats a director holds, called innergroup centrality (Zeitlin, Ratcliff, and Ewen, 1974; Useem, 1978, 1979; Ratcliff, 1980). Others focus on whether or not a director possesses a seat on the board of a financial institution, called finance capitalist status (Soref, 1 980). These indicators of prominence and power are highly correlated (Useem, 1979). Further, a director's position in the corporate board social network is highly correlated with his or her position in other social networks created by overlapping memberships in elite social clubs, business policy groups, and government policy groups (Ratcliff, Gallagher, and Ratcliff, 1979; Useem, 1979).

The interorganizational and intraclass approaches to the study of interlocking directorates are, in the abstract, not mutually exclusive. The two do, however, present qualitatively different images of the relationships interlocks facilitate. The analyses presented in the remainder of this paper are derived from these two approaches.

NETWORK STABILITY AND TYPES OF INTERLOCKS: FOUR HYPOTHESES

This study examines a unique type of stability in a well-defined corporate-interlock network by analyzing the connective and

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1

Mariolis and Jones (1980) examined the stability of the interlock network at the corporation level (i e, the stability of firm centrality measures over time), finding it extremely stable Ornstein (1982) examined the stability of over 7,000 interlock ties among the 100 largest Canadian firms between 1946 and 1977, finding somewhat less but still considerable stability (approximately 30 percent of all ties interrupted for any reason were connectively continued).

Broken Ties

directional continuity of those ties that have been accidentally disrupted or broken. An interlock tie is considered accidentally disrupted or broken if one of the interlocks that compose it is broken accidentally, that is, as a result of events that are unrelated to the interorganizational strategies of the firms it was linking. The purpose of this analysis is to (1) assess the relative likelihood that different types of ties are vehicles of formal coordination, (2) determine if interlock direction is indicative of the balance of power among firms linked in relationships of formal coordination, and (3) speculate about the percentage of ties between large firms that facilitate such relationships.1

Continuity of Connection

The connective continuity of ties is used to evaluate three hypotheses about the extent to which different types of interlock ties may facilitate formal coordination. Koenig, Gogel, and Sonquist (1979) asserted that interlock ties that facilitate formal coordination (in their terminology, "reciprocity" or "control") will be continued by the creation of new or the maintenance of already existing interlocks between the same firms when ties are accidentally disrupted. They collected a sample of ties between firms listed as among the 797 largest by Fortune Magazine in 1 970 that were composed of only one interlock and that were broken between 1969 and 1975 as the result of the deaths of the directors who created them. Only about 6 percent of the 78 ties they examined were continued in the year after the break. This led the authors to conclude that interlocks seldom facilitate formal coordination.

This study is based on Koenig, Gogel, and Sonquist's (1979) assumption that ties that facilitate formal coordination will be continued if accidentally disrupted or broken. There are at least two reasons why tied firms engaged in formal coordination should attempt to preserve this relationship of coordination afterthe tie that links them is disrupted. First, interlockties and the relationships they facilitate are generally thought to be predicated on specific characteristics of a firm's environment. Since the accidental disruption of a tie does not, by definition, coincide with changes in the firm's perception of the environment, the same factors that initially lead the firms to interlock and coordinate formally should lead them to preserve the relationship of coordination. Second, formal coordination entails the creation of other boundary-spanning structures, the costs of which are nonrecoverable. Although partners in a disrupted tie might, in the abstract, be able to enact with other firms new relationships that meet the demands that their environments place on them, the costs incurred would be greater than the costs of preserving the established relationship. If interlock ties facilitate relationships of formal coordination and the firms in this study linked by such ties choose to preserve these relationships of coordination, they should choose to reestablish the disrupted or broken interlock ties that linked them.

Ties other than those that facilitate formal coordination may also be continued if they are accidentally disrupted or broken. First, some ties that are not vehicles of formal coordination may be continued because they are vehicles of other intercorporate relationships. For example, ties that facilitate information exchange between two firms may be continued because one or

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2

Considering these three factors, one might justifiably wonder if any of the continued ties observed in the course of this study are really vehicles of formal coordination This possibility is explored in detail elsewhere (Palmer, 1982: Ch. 5). Unfortunately, there is no way to assess the extent to which these factors contribute to tie continuity. First, it is impossible to construct a realistic probabilistic model of the creation of interlocks. Second, even a case-by-case analysis of the ties in the data set used in this study cannot unambiguously reveal the cause of the creation of an interlock.

both partners in the tie are perceived by their partner as the best source of information in their industry. Second, some ties that are not vehicles of formal coordination may be continued merely as a consequence of social network processes. For example, retiring interlocking directors may recommend candi- dates to fill the vacancies on the boards that they are leaving. In such instances, the interlocking director may recommend a director of one of the firms on whose board he or she has sat, because he or she knows these directors better than others. If such recommendations are accepted, the tie will be reestab- lished. Third, it seems plausible that some ties will be continued as the result of random processes.2

This suggests that connective continuity is a necessary but not sufficient condition for labeling a tie a vehicle of formal coordination. Thus, the percentage of connectively continued ties in the data used here cannot be considered a direct estimate of the percentage of ties that facilitate formal coordination in the larger network from which the collection of ties is drawn. However, assuming that the factors that cause ties that do not facilitate formal coordination to be continued are equally preva- lent among different types of ties, the relative frequency with which different types of ties are continued may be considered indicative of the relative likelihood that each type of tie may facilitate formal coordination in the larger network.

The validity of this argument does not depend on the choice of either the corporation or the enterprise as the unit of analysis. A focal enterprise, when considered the principal organizational actor, presumably uses the corporate board that has proprietary jurisdiction over it to co-opt a member of another corporate board (i.e., establish an interlock tie with a corporation) which has proprietary jurisdiction over another enterprise with which the first wishes to link. When the tie facilitates formal coordination, other boundary-spanning structures are expected to link the enterprises as well. Enterprises engaged in formal coordination should attempt to preserve this coordination relationship when the tie that links their respective corporate boards is disrupted, for the same reasons corporate actors should. Tie disruption is not believed to coincide with changes in the circumstances that presumably motivate enterprises to engage in formal coordination, and other boundary-spanning structures should represent sunk costs to them as well. If directorate ties between the enterprises' corporate boards facilitate formal coordination, and the enterprises choose to preserve their coordination relationship, they should also choose to continue the tie between their respective corporate boards.

For theoretical reasons, however, the corporation was used as the point of focus in this study. Thus, "interlock tie partners" means tied corporations. The decision to interlock with a specific firm is most likely made by the interlocking director's fellow board members, that is, at the level of the corporation, even if the decision is primarily influenced by the location of the corporation's enterprises in the interindustry resource- exchange network (Burt, 1 980b; Burt, Christman, and Kilburn, 1 980). Since this study focuses on the creation of interlocks between specific firms, an event infused with intentionality, rather than on the distribution of interlocks among classes of firms at any one time, a characteristic of social structure that

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Broken Ties

may be interpreted without recourse to intentionality, the corporation is the appropriate unit of analysis.

The four main hypotheses presented below are derived from the interorganizational approach's view of the process by which interlocks facilitate coordination. Organizational sociologists generally view interlocks as co-optive devices. The appointment of a representative of another firm to the board of a focal firm provides the latterwith the opportunity to persuade that representative, through the mechanism of commitment processes, to influence the firm he or she represents in the interests of the focal firm (Pfeffer and Salancik, 1978: 161 - 164). Political sociologists who take the interorganizational approach view interlocks as infiltrative devices. The placement of a representative of the focal firm on the board of another firm provides the opportunity for the focal firm to influence the latter, through the direct participation of the representative in policy-making decisions on the other firm's board, in the interests of the focal firm (Bearden et al., 1975).

Many organizational and political sociologists differentiate between two types of interlocks: directional interlocks, created by persons principally affiliated with one of the firms linked, and nondirectional interlocks, created by persons not principally affiliated with either of the firms linked. Because directors who are principally affiliated with a firm are thought to be more willing and able than nonprincipally affiliated directors to play the role of firm's representative, integral to the functioning of interlocks as co-optive or infiltrative devices, directional interlocks are thought to facilitate coordination of all kinds more frequently than nondirectional interlocks (Sweezy, 1953; Bear- den et al., 1975; Pennings, 1980; Mintz and Schwartz, 1981 a). Mizruchi and Bunting (1981) have shown that, for the early twentieth century, the pattern of directional interlocks among large U.S. firms, which they call the strong tie network, more closely resembles accepted qualitative portraits of the structure of power in the economy of that time than the pattern of directional and nondirectional interlocks, which they call the full network. This suggests two related hypotheses: Hypothesis 1 (H1): Ties that consist of directional interlocks will be continued more frequently than ties that do not consist of directional interlocks. Hypothesis 2 (H2): Ties disrupted by the elimination of a directional interlock will be continued more frequently than ties disrupted by the elimination of a nondirectional interlock.

Ties may also be differentiated on the basis of the number of interlocks of which they consist. Several researchers argue that ties composed of more than one interlock (multiple-interlock ties) are more likely than ties composed of only one interlock (single-interlock ties) to facilitate coordination of all kinds (Bear- den et al., 1975; Koenig and Sonquist, 1975; Mintz and Schwartz, 1981 a, 1 981 b). This suggests a third hypothesis: Hypothesis 3 (H3): Multiple interlock ties will be continued more frequently than single interlock ties

Continuity of Direction

Directional continuity is examined to determine whether the direction of a tie's interlock is indicative of the balance of power between the firms it links. As the interlock typology

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suggests, only directional interlocks possess a directional com- ponent. Among firms linked by such interlocks, the corporation that elects a principally affiliated director of another firm to its board is the receiving partner to the link. The other firm is the sending partner. The relationship between interlock direction and the balance of power among tied firms depends on whether the interlock is a mechanism of infiltration or a mechanism of co-optation.

If the interlock is a co-optive device, the receiving firm is usually thought to be dominant. In this case, the receiving firm appoints a principally affiliated director of another firm to its board in an attempt to persuade the director to influence his or her firm of principal affiliation in the interests of the receiving firm. Re- searchers who adopt this view frequently note, however, that the co-opting firm may, in the process, become vulnerable to the influence of the co-opted firm (Pfeffer and Salancik, 1978: 164-165). If the interlock is an infiltrative device, the sending firm is usually thought to be dominant. In this case, the sending firm places one of its principally affiliated directors on the board of another firm in an attempt to influence the receiving firm in the sending firm's interests. Several researchers have used interlock direction as data for the construction of simplified maps of the interlock network (Warner and Unwalla, 1967; Bearden et al., 1975; Mintz, 1 978; Mintz and Schwartz, 1981 a, 1981 b; Mizruchi, 1981). Mizruchi and Bunting (1981) have demonstrated that such directed maps of the U.S. corporate network in the early twentieth-century are more consistent with widely accepted qualitative portraits of the structure of power in the economy of that time than are nondirected maps.

If direction is indicative of the balance of power among interlock partners, the directors who create interlocks that continue a disrupted tie should be principally affiliated with the same firm as the departed director. That is, the interlocks that continue the tie should be arranged in the same direction as the original broken interlock. For example, if a tie is a co-optive device, the dominant firm can maintain its position of power only by electing to its board another director principally affiliated to its tie partner. On the one hand, the dominant firm could not maintain its position of power by electing to its board a nonprincipally affiliated director of its partner, because it is not likelythat this director would be willing orable to exert influence overthe latter in the interests of the former. On the other hand, the dominant firm could not maintain its position of power by placing one of its principally affiliated directors on the board of its partner because, assuming that the tie remains a co-optive device, the latter, previously subordinate firm would then be considered dominant in the continued tie. The same logic applies if the original tie is an infiltrative device. This suggests a final hypothesis: Hypothesis 4(H4): Ties that consist of directional interlocks, when continued, will be continued in the same direction as the original tie.

DATA

The data were drawn from a larger data set, compiled by the MACNET Research Group at the State University of New York, Stony Brook, that includes all the interlocks that linked 1,131 large U.S. corporations in 1962, 1964, and 1966 and the principal affiliations of the directors who established the interlocks. The

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Broken Ties

corporations in the data set are all the firms listed by Fortune Magazine as among the 500 largest industrial or 50 largest merchandizing, transportation, public utility, and life insurance companies and commercial banks in any of the years between 1962 and 1972 inclusive, as well as 50 large investment banks (Bearden et al., 1975). Supplemental data on corporations and directors were gleaned from a data set compiled by Mariolis (1975), which consists of all the interlocks that linked 797 large U.S. financial and nonfinancial corporations in 1969, and from other standard business sources (Moody's annual; Standard and Poor's, annual).

Accidentally broken interlocks were identified as those that existed in 1962 but not in 1964 and that were created in 1962 by directors who, between 1962 and 1964, lost their seat on the board of their firm of principal affiliation. An interlock present in the 1962 MACNET data set is not present in the 1964 MACNET data set if a director who created an interlock between two firms in the 1962 data set did not create a link between these same firms in the 1964 data set. Directors lose theirseat on the board of their firm of principal affiliation as the result of death, retirement, change in place of employment, or other similar events. A case-by-case analysis using business press sources (Wall Street Journal, New York Times) suggested that the events associated with a director's loss of principal affiliation were not related to the interorganizational strategies of the firms he or she linked. Thus, interlocks that were severed at the same time as the directors who created them lost their principal affiliation were coded accidentally broken. The data used in the study consisted of all the ties in the 1962 MACNET data set that were accidentally disrupted or broken between 1962 and 1964, with two exceptions. First, ties involving firms acquired by another firm between 1962 and 1966 were excluded from the data set. Because an acquired firm seldom retains its corporate board after the acquisition, such ties cannot be continued. Second, ties that included investment banks were excluded, because many of these firms were undergoing reorganization from the partnership form of governance to the corporate board form. This transition confounded the procedure for identifying accidentally broken interlocks. The final data set consisted of 238 ties.

The connective continuity of ties in the data set were determined as follows: single-interlock ties were coded "broken" if the one interlock they consisted of was accidentally broken Multiple-interlock ties were coded "disrupted" if only one of the interlocks they consisted of was accidentally broken, and were coded "broken" if the rest of the interlocks that constituted them were broken, accidentally or otherwise. If a new interlock linked two firms in 1964 or 1966 that were tied in 1962 by either a single- or multiple-interlock tie, the tie was coded reconstituted." To be considered "new," an interlock must

have been created by a directorwho did not linkthe same firms in 1 962. If no new interlocks were created to join firms previously tied by a multiple-interlock tie, but at least one interlock remained between these firms in 1966, the tie was coded "maintained." If no new interlocks linked firms in 1964 or 1966 and no interlocks remained in 1966 to join firms previously linked by either a single- or multiple-interlock tie, the tie was coded "discontinued. "

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Because maintained ties are continued, it is possible that they facilitate formal coordination. However, because the firms linked by these ties took no action to continue them, one might infer that these ties were not vehicles of formal coordination. Without other data, one cannot determine which interpretation of tie maintenance is correct. Therefore, the less ambiguous measure of continuity, "rates of reconstitution," was used to evaluate the hypotheses about the relative likelihood that different types of ties facilitate formal coordination. The more ambiguous, and liberal, measure of continuity, "rates of maintenance or reconstitution," was used only to speculate about the percentage of ties in the 1962 MACNET network that were vehicles of formal coordination.

The directional orientation of multiple-interlock ties is frequently ambiguous, because such ties may be composed of several directional interlocks arranged in opposite directions. For this reason, the examination of directional continuity was restricted to single-interlock ties only. To increase the number of ties examined, the population of single-interlock ties was expanded to include ties accidentally disrupted between 1964 and 1966 that may or may not have been continued in 1966 and 1969. The direction of a single-interlock tie was the direction of the interlock it consisted of. If a broken tie was reconstituted with a directional interlock in the same direction as the original tie, directional continuity was coded "preserved."

METHODS AND RESULTS

Connective Continuity

The number of ties that were reconstituted, maintained and discontinued was cross-tabulated by Intensity (the number of interlocks composing a tie in 1962, coded as 1 or 2-or-more) and Interlock Content Type (the types of interlocks composing a tie in 1 962, coded as " no directional i nterlocks" or "at least one directional interlock"). The results are shown in Table 1.

Table 1

Relationship between Intensity, Interlock Content Type, and Continuity

Continuity

Intensity Interlock Content Type Discontinued Maintained Reconstituted

One Nondirectional 59 - 0 Directional 85 - 14

Two or more Nondirectional* 2 5 1 Directionalt 11 40 21

*These ties contain no directional interlocks. tThese ties contain at least one directional interlock.

The first and third hypotheses were evaluated by fitting competing log-linear models to the observed cell frequencies in the three-dimensional table, Reconstitution (R) by Intensity (I) by Interlock Content Type (T), where Reconstitution is a dichoto- mous variable coded as "reconstituted" or "not reconstituted."'

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Broken Ties

The model has the general form:

I , =0 + A, + AT+ XI In F,,k I? X j k f?

+XRT + XRI + At'

+ XRTI

where Fijk is the expected value for the entry in cell ijk, 0 is the grand mean of the logarithms of the expected values and the various X's are called effects (Fienberg, 1978). The first-order effects (that is, XR, XT, XI) represent the tendency for an interlock to fall into a given row or column in the table. For example, XI is the tendency for an interlock tie to be a single-interlock tie. The second- and third-order effects refer to relationships between the three variables. For example, X7RIT is the tendency fora tie to have the/th level of Reconstitution and thel'th level of Interlock Content Type. If none of the three variables are related to one another, the model of complete independence,

/j ik k i~k t

also written as, [R] [7f [/]

will best fit the data. H1 predicted that ties that include directional interlocks will be reconstituted more frequently than those that do not. This implies that XJT # 0. H3 predicted that the number of interlocks that a tie consists of is directly related to the likelihood that it will be reconstituted. This implies that XRI 0.

Only those models that control for the relationship between Intensity and Interlock Content Type were considered, that is, those that included the X T/ interaction (Swafford, 1980). Of these, Table 2 shows that the full second-order effect model (XRTI 0 or [TI] [Rf [RI]) fits the data best (G2 = 2.06, with one degree of freedom). Since XJT # 0 and XRI # 0, H1 or H3 cannot be rejected.

Table 2

Competing Log-linear Models of the Frequencies for the Cross-tabulation of Intensity (/), Interlock Content Type (7) and Reconstitution (R)

Model G2 df

[RT1] * 0.0 0 [TI] [PT] [RI]* 2.06 1 [TI] [PT] 9 88 2 [TI] [RI] 11 70 2 [TI] 150.30 4

*Signifies models that did not give rise to statistically significant errors in prediction ( 05 level). The saturated model, [RTI], was not considered most parsimonious because removal of the third-order interaction term did not result in a statistically significant decrease in the predictive power of the model.

The transformed log-linear parameter estimates presented in Table 3 indicate that containing more than one interlock added 1.036 to the log odds of a tie's being reconstituted or multiplied the odds of reconstitution by 2.821. Containing a directional interlock added 1 .868 to the log odds of a tie's being reconstituted or multiplied the odds of reconstitution by 6.483.

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3

A more compact way to analyze these data would be to fit competing log linear models to the four-way contingency table, Recon- stitution (R), Number Directional Interlocks (D), Number Nondirectional Interlocks (N), and Interlock Break Type (B) This would allow us to evaluate all three hypotheses simultaneously, consider more than two levels of Intensity, and control for the number of interlocks of each type present in a tie when testing H2 Unfortunately, even when the second and third variables were coded trichotomously (i e, 0, 1, or 2 more), the 36-cell table contained 12 structural zeros, 4 sampling zeros, and 12 cells with values less than 5. Analysis of such sparse tables is not recommended (Fien- berg, 1978) An analysis of the three- dimensional 18-cell table Reconstitution (R), Number Directional Interlocks (D), and Number Nondirectional Interlocks (N), which contained two structural zeros, one sampling zero, and five cells with values less than 5, agreed in every respect with the results reported in the text The most parsimonious model included only the RD and ND second-order interactions

Table 3

Parameter Estimates for the Most Parsimonious Model in Table 2 *

Log-linear Logit Interaction terms parameter estimates (A) parameter estimatest

Theta (mean) 2 513 Reconstitution (R)

Not reconstituted 1.133 Reconstituted -1 133

Intensity (/) One 0.359 Two or more -0 359

Interlock Type (T) Nondirectional -1.012 Directional 1.012

I/ Interaction One x Reconstituted -0.259 -0 518 Two or more x Reconstituted 0.259 0 518

RT Interaction Nondirectional x Reconstituted -0.467 -0 934 Directional x Reconstituted 0 467 0 934

IT Interaction One x Directional -0 351 Two or more x Directional 0.351

*This is the full second-order effect model, [T] [RflT [RI], which exhibited an insignificant likelihood-ratio chi-square of 2 06 with one degree of freedom.

tParameters for the logit model, which assume Reconstitution (R) to be the dependent variable, were obtained by doubling the log-linear parameter estimates that involve Reconstitution (R) The logit parameter estimates may be interpreted as follows. Containing more than one interlock adds 1.036 to the likelihood that a tie will be reconstituted. This is the difference in the parameter estimates for the two levels of the independent variable intensity at the same level of the dependent variable Reconstitution It is the same as saying that containing more than one interlock multiplies the odds of reconstitution by e1 036 or 2.821 (Swaf ford, 1980)

To evaluate the second hypothesis, Reconstitution was cross- tabulated by Interlock Break Type (coded dichotomously as "directional" or "nondirectional") for only those ties that included at least one directional and one nondirectional interlock. The results are shown in Table 4. Since the two were not positively correlated, H2 was not confirmed.3

Table 4

Cross-tabulation of Reconstitution by Interlock Break Type

Reconstitution Interlock Break Type Not reconstituted Reconstituted

Nondirectional 5 3 Directional 28 10

p> .10 (Fisher's Exact Test)

This result for Interlock Break Type directly contradicted the result for Interlock Content Type above. On the one hand, the presence or absence of directional interlocks in a tie was related to reconstitution. On the other hand, loss of a directional interlock was no more likely to be associated with tie reconstitution than was loss of a nondirectional interlock. One possible explanation of this discrepancy is that Interlock Content Type is related to the likelihood that a tie facilitates formal coordination

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Broken Ties

primarily among firms linked only by single-interlock ties. If so, one would expect Interlock Content Type to influence tie continuity less among multiple-interlock ties than among single-interlock ties. This is not the case, however, as shown by the absence of a nonzero XTI interaction in the most parsimonious model in Table 2. Another more mundane explanation is that the small number of cases made the cross-tabulation of Reconstitution and Interlock Break Type prone to errors in statistical inference.

Directional Continuity

Hypothesis 4 concerned the relationship between interlock direction and the balance of power between tie partners. Contrary to this hypothesis, only 14 of the 27 continued single-directional interlock ties were continued in the same direction as the original tie.

There are two reasons why directional continuity might not be preserved even though interlock direction was indicative of the balance of power among partners to the original tie. First, it is possible that interlocks that are co-optive devices can be substituted for broken interlocks that were infiltrative devices, and vice versa. If this occurs, although interlock direction is not preserved, the changed quality of the relationship that the interlock effects preserves the position of power of the previously dominant partner.

Second, it is possible that the reconstituting interlock was created by a director who was a representative of the same firm as the departed director, even though the former was not principally affiliated to this firm. According to the coding schema used, directors were considered principally affiliated to and, thus, representatives of a firm only if the director identified his or her main business interest with that firm. There are many relationships, however, that an interlocking director may maintain with a firm's directors, such as kinship ties and common social club, government or nongovernment policy-making group memberships, which qualify him or her to play the role of representative of the firm. The directors who created reconstituting interlocks in the "wrong" direction may have been representatives of the appropriate firm by virtue of one of these relationships. If so, following the class hegemony model of the intraclass approach, one would expect the directors who reconstituted interlocks in the wrong direction to have been more prominent and powerful in the business elite or capitalist class than other directors. After all, a director's prominence and power is derived from or correlated with membership in just those organizations that may facilitate relationships between that director and the directors of the appropriate firm, which may allow him or her to act as a representative of that firm.

Although the first alternative explanation could not be tested with this data, the second could. If it is correct, one would expect ties continued in the "wrong" direction (that is, with nondirectional interlocks or with directional interlocks oriented in the opposite direction of the broken interlock) to be reconstituted with interlocks created by prominent and powerful directors more frequently than ties continued in the "right" (that is, same) direction. When prominence and power was measured by the number of board seats a director held in 1962, called inner group centrality, this prediction was not confirmed. How-

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ever, when power and prominence was indicated by membership or nonmembership on the board of a commercial bank in 1 962, called finance capitalist status, the prediction was confirmed, as shown in Table 5.

Table 5

Cross-tabulation of Reconstituting Director's Finance Capitalist Status by Tie's Directional Continuity

Directional Continuity Reconstituting Director's Finance Capitalist Status Not preserved Preserved

Non-finance capitalist 2 10 Finance capitalist* 8 4

p < .05 (Fisher's Exact Text)

*Directors were coded finance capitalists if they sat on the board of a commercial bank, regardless of whether this bank was involved in the interlock in question.

It is important to emphasize, however, that, regardless of which of these post hoc explanations may be true, the evidence suggests that knowing interlock direction may be of little utility to researchers of the contemporary U.S. economy. If the first explanation is correct, we must conclude that the full network consists of some interlocks that are co-optive devices and some interlocks that are infiltrative devices. Without a case by case analysis of each interlock, we cannot determine which of the two devices an interlock corresponds to and thus cannot determine the balance of power between tie partners. If the second is true, it suggests that the true direction of a tie cannot be determined withouta thorough investigation of the relationships between each interlocking director and the directors of the firms he or she links.

DISCUSSION

We may draw some specific conclusions as well as speculate more generally from these results. Speaking specifically, only one of the claims about the relative significance of different types of interlocks was unequivocally supported. These findings were consistent with the claim of previous researchers that multiple-interlock ties are more likely than single-interlock ties to facilitate formal coordination. However, the study provided only partial support for the claim that directional interlocks may facilitate formal coordination more frequently than nondirectional interlocks do. These results were consistent with the hypothesis that ties that include directional interlocks are more likely to be vehicles of formal coordination than are ties that do not. They were not consistent, however, with the hypothesis that directional interlocks are more likely than nondirectional interlocks to facilitate formal coordination between firms that are linked by ties composed of both types of interlocks.

Finally, these findings did not support the claim, on which recent studies are based, that interlock direction is indicative of the balance of power between tied firms. An attempt to validate an alternative explanation for this evidence on interlock direction provided tentative support for the claim that directors may

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4

There are 1,498 directional and 2,761 nondirectional single-interlock ties and 470 directional and 148 nondirectional multiple- interlockties in the 1962 MACNET data set Nondirectional interlock ties were consid- erably underrepresented in the disrupted- tie data set This is primarily because many of the ties in the MACNET data set consist entirely of neutral, nondirectional interlock ties, that is, interlocks created by directors who were not principally affiliated to any firm in the MACNET data set. Because I could not detect when such directors lost their principal affiliation, I could not detect when these interlocks were accidentally broken and include them in the data set This unavoidable omission does not, however, bias the results. Since about 90 percent of the directors who created neutral, nondirectional interlocks were principally affiliated to business firms not in the MACNET data set, they were virtually identical with directors who created other nondirectional interlocks (Mintz, 1978), making the two types of nondirectional interlocks virtually identical

Broken Ties

sometimes be selected as representatives of a firm to effect formal coordination on the basis of their social-class ties to the directors of that firm rather than on the basis of their bureau- cratic or proprietary ties to the firm. Although these data do not allow us to conclude with complete confidence that there is no relationship between interlock direction and the balance of power between tied firms, one may conclude that simply knowing the direction of a tie does not allow researchers to characterize this balance. This conclusion directly contradicts the findings of Mizruchi and Bunting (1981). The fact that their data cover the U.S. economy in the early twentieth century, whereas these data cover the contemporary U.S. economy, may account for this discrepancy. Altogether, the evidence presented here seems to suggest that future interlock research aimed at elucidating the structure of formal coordination among large corporations in the contemporary U.S. economy should focus primarily on multiple-interlock ties that contain at least one directional interlock. However, the direction of these ties should be disregarded.

We may also speculate more generally about the proportion of ties that were vehicles of formal coordination in the interlock network from which the disrupted-tie data set used here was drawn. This bears on the validity of the implicit assumption of interest-group research that the majority of interlock ties facilitate formal coordination. To get a crude upper-bound estimate of the proportion of ties that facilitate relationships of formal coordination in the 1962 MACNETcdata set, I firstassumed that all continued ties (reconstituted or maintained) in the disrupted tie data set may have been vehicles of formal coordination in 1962. I then summed the products of (1) the rates of continuity (reconstitution or maintenance) in the disrupted tie data set and (2) the number of ties in the 1962 MACNET data set, for each type of tie, and then divided this sum by the total number of ties in the 1962 MACNET data set. From this calculation I inferred that only about 1 5 percent of all ties in the 1962 MACNET data set could have been vehicles of formal coordination.4 This implies that approximately 85 percent of all ties in the 1 962 MACNET data set were not vehicles of such relationships. These results are consistent with those of Koenig, Gogel, and Sonquist (1979). They examined only single-interlock ties and did not distinguish between different types of interlocks. The reconstitution rate that they found for single-interlock ties (6 percent), however, corresponds closely with the reconstitution rate that I found in this study (8.9 percent) for this type of tie.

Because this estimate is crude, we do not express it in the language of statistical inference; for example, it is not sur- rounded by confidence intervals. To do so would add little precision to the conclusion and obscure potential sources of error. On the one hand, it is not an estimate of the percentage of ties that actually were vehicles of formal coordination in the 1962 MACNET data set, but rather an estimate of the percentage of ties that could have been vehicles of formal coordination in that data set. As discussed earlier, there are at least three reasons why ties in the disrupted tie data set that did not facilitate formal coordination might be continued.

On the other hand, there are at least three reasons why ties in the disrupted tie data set that actually did facilitate formal coordination might not be continued. First, some ties that are

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vehicles of formal coordination may have been disrupted intentionally instead of accidentally. This would occur if the event that caused an interlocking director to lose his or her principal affiliation was intimately related to changes in the interorganizational strategies of one or both partners to the tie. Second, some ties, although disrupted accidentally, may be discontinued intentionally. This would occur if one or both partners to a tie decided, after the tie was accidentally disrupted, that the interfirm coordination effected by the tie was no longer beneficial. Third, some ties, although disrupted accidentally, may be discontinued without threatening the relationship of interfirm coordination that they effected. This would occur if other boundary-spanning structures that are self-monitoring persist to effect interfirm coordination after the tie is disrupted.

A case-by-case analysis using business press sources could not in all cases rule out these reasons as causes of the continuity or discontinuity of the disrupted ties studied here (Palmer, 1982: Ch. 5). It did suggest, however, that these factors were not ubiquitous. The crude estimate may thus be interpreted to indicate that the vast majority of interlock ties in the 1 962 MACNET data set did not facilitate formal coordination. This casts an impressive shadow of doubt over some of the conclusions drawn in political sociological studies of the structure of power in U.S. business that have been done with an interorganizational approach.

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Broken Ties: Interlocking Directorates and Intercorporate Coordination

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