Comparison of the Corporate Decision Networks of Nebraska and the United States
Stephenson, Kurt, Hayden, F. Gregory, Journal of Economic Issues
Institutional economists have long been concerned with identifying patterns, linkages, and interconnections that constitute a system [Ramstad 1986; Hayden 19821. Relationships among corporations have been of particular interest. The thesis of this paper is that structural modeling techniques can be used to assist in analyzing and learning more about the structure of corporate decision-making networks, thereby furthering our ability to measure, describe, and analyze corporate systems with a greater degree of consistency. These analytical techniques are demonstrated by comparing the decision-making network of the leading corporations operating in the state of Nebraska with the network for the United States as a whole. A data base for the corporations in Nebraska and the United States will be described, and comparative analysis of the two networks reported. The methods illuminate the structure of transcorporate activities and allow for holistic integration of corporate relations. The techniques are useful for evolutionary analysis in that they provide consistent indicators by which to trace evolutionary changes in the corporate pattern.
The authors are Senior Research Associate, Department of Agricultural and Applied Economics, Virginia Tech, and Professor, Department of Economics, University of Nebraska-Lincoln, respectively.
Corporate Decision Making and Overlapping Boards of Directors
Society has considerable need for communication and coordination among its components, and consequently, a system of collective decision making has developed among corporations. Part of this collective decision making is conducted through the overlapping governing boards of corporations. The meaning of the networks depends on what is flowing through the networks. When it is the directors of governing boards that are being delivered, real decision-making power is being concentrated.
Recognition of inter- and intraindustry decision sharing is regularly articulated in business and financial news articles. For example, when reporters were surprised that BMW and Rolls-Royce selected the same advertising firm, the president of the advertising firm explained that the two fit nicely in the same advertising firm because ". . . they don't consider themselves competitors as much as sharing an industry" [Elliot 1993, C5]. (He could have also added that the parent corporations of BMW and Rolls Royce are collaborators in other endeavors as well, for example, on aircraft manufacturing in Europe.
Using the ideas of anthropologist Clifford Geertz as a guide, Nelson Phillips and John Brown [1993, 1549] found that "instances of organizational and extraorganizational communications are the symbolic forms, the texts, that constitute culture at the organizational level and constitute the corporate image as a cultural artifact at the societal level." We should not be surprised therefore that studies of the extraorganizational environment found that the corporate origin of the directors makes a difference both on a particular corporation's policies and on network decisions.
Board members have, of course, the legal right, duty, and power to govern the corporation. As Jay Lorsch and Elizabeth MacIver [1989, 1] state in their book, on the reality of corporate boards, the board room alone "conjures up visions of power, wealth, and privilege in the minds of most Americans," and publicly owned corporations do nothing to undermine that view. Instead, they symbolically enhance the lavish boardroom with a massive highly polished table where directors are to make crucial governing decisions that affect the welfare of the corporation, its stockholders, its employees, and the general public. Does the legality, however, reflect reality? Numerous studies indicate that it does.
Lorsch and MacIver, in an extensive study in which they personally interviewed directors of the largest corporations, concluded that boards are not "elitist corps of overseers with limited responsibility" [1989, 4]. …