Transcript From last time: population and airport traffic Colizza et al: city population goes as the square root of traffic through an airport • Gastner.

From last time: population and airport
traffic
Colizza et al: city population goes as the square root of traffic
through an airport
• Gastner & Newman: optimal design of spatial
distribution networks
optimize for the mean
distance a person has
to travel to a facility,
taking population
density into account
GOLFING ALONE? ELITE COHESION AND
COMMUNITY SOCIAL CAPITAL, 1986-1998
Jerry Davis and Chris Marquis
University of Michigan
February 25, 2003
Social Pressures in Informal Groups
(Festinger, Schachter, and Back, 1950)
The origins of social networks:
“What three people do you see most of socially?”
Networks and social
construction
“There are not usually compelling facts which can
unequivocally settle the question of which attitude is
wrong and which is right in connection with social
opinions and attitudes as there are in the case of
what might be called ‘facts’....The ‘reality’ which
settles the question...is the degree to which others
with whom one is in communication are believed to
share these same attitudes and opinions,” which
“tends to produce uniformity in the behavior of
members”
Festinger, Schachter, and Back, 1950
How are corporate boards like MIT
student housing?
TWA
AMEREN
ENERGIZER
BROWN SHOE
MAY DEPARTMENT
STORES
RALSTON PURINA
ANHEUSER BUSCH
Red arrows
are execs of
“sending”
firm; blue
lines are
“neutral”
directors
EMERSON ELECTRIC
FURNITURE BRANDS
Bonus question:
What do these firms
have in common?
How is Oakland like MIT student housing (ca.
1986)?
How is Oakland like MIT student housing (ca.
2000)?
Why study board interlocks?
“Finance capital, concentrated in a few hands and
exercising a virtual monopoly, exacts enormous
profits…tightens the grip of financial oligarchies
and levies tribute upon the whole of society for
the benefit of monopolists”
“The practice of interlocking directorates is the
root of many evils. It offends laws human and
divine....It is the most potent instrument of the
Money Trust”
Research hypotheses (cf. Brandeis,
1914)
Corporate America is overseen by a network of
rich white men who all know each other and
who coordinate their actions via bank boards
H1: Network
H2: Rich white men
H3: All know each other (“It’s a small world”)
H4: Bank boards
The JP Morgan Chase board’s ties
Interlocking boards as a corporate
elite network
• Shared directors (“interlocks”) are pervasive
among large corporations
• Interlocks between firms are almost random
WRT economic relations
• Almost no “horizontal” ties (among competitors)
• Very few “vertical” ties (~ 5% of firms have
prospective buyer/supplier on board)
• Some VC ties; few bank-sent ties
• Where do interlocks come from?
How directors are
recruited
Board Compositions in 1986
American
Express
Drew Lewis
Henry Kissinger
James Robinson III
Ross Johnson
Vernon Jordan
...............
Union
Pacific
Drew Lewis
William Grant
Downing Jenks
............
“Centrality” as an outcome of
the
director selection process
Intl Flvrs
Boise
Cascade
RH Macy
Time Warner
Archer
Daniels
Natl Svc
Inds
CBS
Freeport
McMoRan
AMEX BOARD (1994)
(partial membership)
Armstrong, Anne L.
Bowen, William G.
Culver David M.
Duncan, Charles W., Jr.
Furlaud, Richard M.
Greenough, Beverly Sills
Johnson, F. Ross
Kissinger, Henry A.
Jordan, Vernon E., Jr.
GM
Halliburton
Merck
Readers Digest
American Cyanamid
Panhandle Eastern
Chemical Bank
Coca Cola
Xerox
Sara Lee
Ryder System
JC Penney
Corning
Bankers
Trust New
York
United Technologies
When (and how) do firms recruit
“central” directors?
• The firm is subject to investor scrutiny
• Greater levels of ownership by financial institutions
• More “anti-management” shareholder proposals
• The firm is already central (more pathways for
recruiting; better gossip available)
• The firm out-performs its industry (better
learning opportunity)
• What does added centrality buy the firm?
• Higher subsequent “admiration” by analysts & execs
• NO discernable effect on overall performance
Microsoft board before McLaughlin
(11/99)
Microsoft board after McLaughlin
(1/00)
Ten most central firms in the interlock network,
1962-1982 (Eigenvector measure)
1962
1982
JP MORGAN [59]
AT&T [43]
CHASE MANHATTAN [54]
JP MORGAN [48]
CHEMICAL BANK [57]
CHASE MANHATTAN [43]
FIRST NATIONAL CITY
BANK [52]
SOUTHERN PACIFIC
RAILROAD [41]
MELLON BANK [34]
CITICORP [43]
MANUFACTURERS
HANOVER [46]
AT&T [37]
CHEMICAL NY [38]
PENNSYLVANIA
RAILROAD [34]
BANKERS TRUST [45]
MANUFACTURERS
HANOVER [36]
MOBIL [28]
IBM [38]
GENERAL FOODS [31]
BANKERS TRUST [39]
Numbers in parentheses are counts of interlock ties
Three possible networks: Regular,
random, small world (from D. Watts)
Regular
p =0
Small-world
Increasing randomness
Random
p =1
Data and sample I: The Fortune
1000
Strong ties only, all public
firms
Small worlds are surprising
when:
1. Network is large
7,708 directors served on 916 Fortune 1000 boards in 1999
2. Network is sparse
79% of directors serve on 1 board; 14% on 2; 7% on 3+
825 firms have >0 ties; among these, mean=8, median=6
3. Network is decentralized
Most central director serves on 9 boards
Most central firm has 34 ties
4. Ties are clustered
27% of ties are within same state
8% of tied companies shares 2+ directors
The small world of the corporate
elite
• For firms (n=813 for largest component)
• Mean geodesic (shortest path between two
nodes)==3.7
• Mean geodesic for random graph==3.4
• For directors (n=6724 for largest component)
• Average geodesic==4.6
• Average geodesic for random graph==3.2
From worst to best in four
steps
On average, any two
Fortune 1000 boards
are connected by less
than 4 degrees through
shared directors
Business Week rated
Conseco as one of the
worst boards and
Colgate as the best
Six degrees of JP Morgan
Chase:
Shortest paths from the Fortune 1000
Chase #
N of firms
Cumulative
1
34
4.5%
2
233
34.1%
3
374
81.8%
4
121
97.2%
5
17
99.4%
6
2
99.6%
7
2
99.9%
8
1
100%
Six degrees of Enron:
Shortest paths from the Fortune 1000
Enron #
N of firms
Cumulative
1
10
1.2%
2
49
7.6%
3
259
40.8%
4
330
83.1%
5
113
97.6%
6
18
99.9%
7
1
100%
From worst to second-worst
Who is in the inner circle?
Vernon Jordan
Senior Partner, Akin, Gump, Strauss
Rozanne Ridgway
Former Assistant Secretary of State; former
Ambassador to GDR
President, Morehouse School of Medicine;
former Sec’y of HHS
Former CEO, Lucent Technologies; former
CEO, Cummins Engine
Former CEO, Xerox
Louis Sullivan
Henry Schacht
Paul Allaire
Drew Lewis
Of Counsel, Womble, Carlyle; former senior
partner, Arnelle, Hastie, McGee…
Former CEO, Union Pacific
John Clendenin
Former CEO, BellSouth
Edward Brennan
Former CEO, Sears
John Stafford
CEO, American Home Products
Jesse Arnelle
How did Vernon Jordan get
there?
• 1972: joins board of Celanese; Celanese CEO serves on
Bankers Trust board
• 1972: joins Bankers Trust board; AT&T exec serves on
boards of Bankers Trust and JC Penney
• 1973: joins JC Penney board
• 1974: joins Xerox board; Xerox and AmEx execs serve
on boards of both Xerox and American Express
• 1977: joins American Express board; 2 Celanese
directors and 1 Penney director serve on RJR board
• 1980: joins RJR board
• 1982: joins Akin Gump Strauss at behest of Robert
Strauss, a fellow Xerox director...
How do interlocks matter?
• “If we want a biological metaphor for cultural
change, we should probably invoke infection rather
than evolution” (SJ Gould, 1997)
• The interlock network as a medium of “contagion”:
•
•
•
•
•
•
Setting CEO compensation (O’Reilly & al. 1988)
Recruiting directors (Davis 1993)
Making acquisitions (Haunschild 1993)
Changing structures (Palmer & al. 1993)
Adopting takeover defenses (Davis 1991)
Creating an investor relations office (Rao and
Srivimakur, 1999)
• Changing stock markets (Rao & al. 2000)
What difference does it make?
Diffusion of golden parachutes and poison pills among Fortune 500 firms
Ten most central firms in the interlock network,
1962-2001 (Eigenvector measure)
1962
1982
2001
JP MORGAN [59]
AT&T [43]
JP MORGAN CHASE [28]
CHASE MANHATTAN [54]
JP MORGAN [48]
PFIZER [26]
CHEMICAL BANK [57]
CHASE MANHATTAN [43]
SARA LEE [28]
FIRST NATIONAL CITY
BANK [52]
SOUTHERN PACIFIC
RAILROAD [41]
MELLON BANK [34]
CITICORP [43]
GEORGIA PACIFIC [29]
IBM [38]
AMR [25]
GENERAL FOODS [31]
DELL COMPUTER [19]
MANUFACTURERS
HANOVER [46]
AT&T [37]
CHEMICAL NY [38]
VERIZON [28]
BANKERS TRUST [39]
3M [25]
PENNSYLVANIA
RAILROAD [34]
BANKERS TRUST [45]
MANUFACTURERS
HANOVER [36]
MOBIL [28]
ALLSTATE [24]
BELLSOUTH [22]
How has the network
changed?
N
N
(component)
K (avg
degree)
L (avg
geodesic)
C
L
(random)
C
(random)
SW
quotient
1982 boards
648
581
10.0
3.38
0.24
2.76
0.017
11.34
1990 boards
591
524
8.8
3.46
0.24
2.88
0.017
11.87
1999 boards
600
546
8.6
3.46
0.22
2.93
0.016
11.84
1982 directors
6505
5854
19.0
4.27
0.88
2.94
0.003
186.82
1990 directors
5393
4768
17.0
4.30
0.87
2.99
0.004
169.21
1999 directors
5311
4760
16.0
4.33
0.87
3.06
0.003
183.03
Research hypotheses (cf. Brandeis,
1914)
Corporate America is overseen by a network of
rich white men who all know each other and
who coordinate their actions via bank boards
H1: Network
H2: Rich white men
H3: All know each other (“It’s a small world”)
H4: Bank boards
Social capital and community
prosperity: Putnam’s lament
• Social capital leads to “good government and
economic progress”:
• Networks foster “sturdy norms of generalized reciprocity”
• Networks facilitate gossip to gauge trustworthiness
• Networks house “templates” for successful forms of
cooperation (e.g., business alliances)
• Americans “bowl alone” at the expense of
civic life
• Substantial membership declines in voluntary
organizations
• Declines in voter turnout
• Declines generalized “trust”
Why has “social capital”
declined?
According to Putnam:
• Generational changes (farewell, greatest
generation)
• Increased TV watching (hello, MTV generation)
• Too much working, especially women (farewell,
Mrs. Cleaver)
• Urban sprawl (hello, Sunnyvale)
An Organizational Alternative
“How ironic would it be if, after pulling out of
locally rooted associations, the very business
and professional elites who blazed the path
toward civic disengagement were now to turn
around and successfully argue that the less
privileged Americans they left behind are the
ones who must repair the nation’s social
connectedness.”
-Theda Skocpol (1996, p. 25)
“Pittsburgh’s not-for-profit sector misses the generous
donations from Gulf Corporation and its employees.
Gulf’s donations to United Way amounted to $700,000
in 1983, when the firm’s total giving to local
organizations topped $2 million. Civic organizations
that lost money and volunteer support on account of
Gulf’s sale include hospitals, colleges, museums, and
the world-renowned Pittsburgh Symphony.”
-Hirsch, Pack your Own Parachute
Business and social capital
“Americans of all ages, all stations in life, and all types
of dispositions are forever forming associations.
There are not only commercial and industrial
associations in which all take part, but others of a
thousand different types…”
Tocqueville, Democracy in America
“People of the same trade seldom meet together, even
for merriment and diversion, but the conversation
ends in a conspiracy against the public, or in some
contrivance to raise prices”
Smith, The Wealth of Nations (ch. 10)
Social capital is (often) built while
you’re doing something else
“Members of Florentine choral societies
participate because they like to sing, not
because their participation strengthens
Tuscan social fabric. But it does.”
Robert Putnam, “The Prosperous Community”
Non-profits play a central role in the
business network (e.g., Carnegie Hall)
Name
Affiliation
Sandy Weill (Chairman)
CEO, Citigroup
William B. Harrison, Jr.
CEO, JP Morgan Chase
C. Michael Armstrong
CEO, ATT
Harry P. Kamen
CEO, MetLife
Frank Newman
CEO, Bankers Trust
Ronald Perelman
CEO, MacAndrews & Forbes
Joe Roby
Chair Emeritus, CSFB
James D. Wolfensohn
President, World Bank
Rudy Giuliani
Recovering mayor
And ~ 50 others, including: Bill Cosby, Marilyn Horne, Peter
Jennings, Yo-Yo Ma, Oscar de la Renta
Six degrees of Citigroup:
Shortest paths from 4157 Nasdaq/NYSE firms via shared directors
Citi #
N of firms
Cumulative
1
31
31
2
310
341
3
1280
1621
4
1549
3170
5
722
3892
6
199
4091
7
45
4136
8
14
4150
9
5
4155
Research Approach
• Unit of Analysis: US Community
• Interviews with 19 civic/organizational leaders
in a major metropolitan area and a small
community
• Statistical analyses of 62 communities (MSAs)
with >10 public corporations and major nonprofits in 1986 and 1998
Network data
• Boards of directors of all companies traded on
NYSE or Nasdaq
• Boards of all “major” non-profits (~700 listed in
Taft Directory in 1987 and in Guidestar database
in 1998 via Urban Institute)
• Divided into 62 community sub-samples
NATIONAL
SAMPLE
1986
1998
Organizations
3,709
6,283
Directors
30,620
45,854
Detroit 1986
Non-local Organization
Local Corporation
Local Non-profit
Local Bank
Detroit 1998
Local Non-profit
Non-local
Organization
Local
Corporation
Local
Bank
Local Non-profit
Local Bank
Minneapolis-St.
Paul: 1998
Non-local Organization
Local Corporation
Local Non-profit
Local Bank
The benefits to communities of local
business involvement
“We have extensive programs in [headquarters city]
that coordinate these activities and we provide a
venue where that is possible. We had a clean-up day
last May where employees were encouraged to help
clean areas of the communities where they worked.
In addition we fund a huge retiree volunteer
association. They logged almost 100,000 of volunteer
time last year. We provide them with a budget, but
aside from that, it is entirely employee run.”
– Manager of Corporate Philanthropy, Fortune
500 Retailer
Why they give
“A major commitment of ours is to the arts...
we feel that our work with [art museum] is just
as important to the economic stability of a
region as more direct giving.”
-Manager of Corporate Philanthropy,
Fortune 500 Utility
“Cultural things like the opera or [art museum]
are important to our recruiting activities.”
– Manager of Corporate Philanthropy,
Fortune 500 Manufacturer
Forging connections to local nonprofits
“We encourage our employees to participate in nonprofit activities. For instance, one of my regional
managers is taking the non-profit board member
development program run by the local chamber of
commerce. This is a program, where they take upand-coming corporate leaders and teach them
what they need to know to serve on a board of
directors. It is a rigorous program and we sponsor
that person. Then they try to set that person up
with an appointment to a board.”
– Manager of Corporate Philanthropy,
Fortune 500 Retailer
The business case for community
involvement
“Strong communities make strong community
banks, and vice versa…I require all my
managers to serve in the non-profit
community, and it’s a component of their
annual evaluation”
-Bank CEO
Before bank CEO involvement
After bank CEO involvement
The cost of losing local banks
“The local presidents are still involved in the
non-profits because people want them on the
board, but their giving is different because
local presidents do not have discretion over it
any more. The decisions always have to go
through [city] or [city], or where ever the
headquarters is.”
-President, Community Foundation
The costs of a well-connected
elite
“Because it was such a feudal society, they
whole idea of corporate philanthropy and
responsibility did not become as broad based
and so a lot of the institutional structure that
may have developed otherwise did not.”
-Former Senior Manager, Fortune 500
Company, Current Fortune 500 Board
Member
Directors' Charities Got NYSE Money
Contributions Went Up Under Grasso
By David S. Hilzenrath
Washington Post Staff Writer
Friday, September 19, 2003; Page E01
During Dick Grasso's tenure as head of the New York Stock Exchange, the exchange
and its charitable foundation made extensive contributions to organizations affiliated
with NYSE directors, including almost $2.8 million to schools and charities affiliated
with members of the committee that set Grasso's pay.
Last year, the exchange and its foundation contributed more than $1.3 million -- about
18 percent of total giving -- to groups affiliated with members of the board's
compensation committee, according to documents the NYSE submitted to the
Securities and Exchange Commission in response to questions about Grasso's pay…
Such contributions can help co-opt board members and make them less likely to
challenge a chief executive they are for overseeing, said Sarah Teslik, executive
director of the Council of Institutional Investors…
“Accountability suffers if you buy off your overseers," Teslik said.
Constructs underlying “community social
capital”
• Infrastructure: the density of non-profit
organizations and organizations for civic
engagement (e.g., Rotary)
• Involvement: levels of grassroots
volunteering
Factors shaping infrastructure and
involvement
• Corporate density: counts of corporations per
capita
• Bank density: banks per capita
• Elite cohesion: connections among corporate,
bank, and non-profit boards
Effects of Corporate Density
Supporting Community
Restricting Community
Infrastructure
More money for local programs
(“80% local”)
But where is the funding directed?
“80% within” elite
Arts
Recruiting benefits
Involvement
Volunteering aggregators
…but it is not always broad based
Hypotheses
More corporations, greater social
capital, civic orgs and
volunteering
Fewer corporations, greater social
capital, civic orgs and volunteering
Effects of Bank Density
Supporting Community
Restricting Community
Infrastructure
Bank trust departments as former
community foundations
“Banks are very important local
spenders”
Consolidated banking networks
leads to lower community investment
(Ratcliff 1980)
Involvement
Bank executives as community
leaders
More banks, more cohesive elite
Hypotheses
More banks, greater social capital,
civic orgs and volunteering
Fewer banks, greater social capital,
civic orgs and volunteering
Effects of Local Elite Cohesion
Supporting Community
Restricting Community
Infrastructure
Enhances non profit involvement,
esp. financial and expertise
rewards
Galaskiewicz (1997)
Too concentrated on elite only. E.g.
Local Feudalism
Hunter (1953), Ratcliff (1980)
Involvement
More opportunities for
volunteering
Only focused on few, doesn’t
become broadly based “majority
within elite”
Hypotheses
Greater the elite cohesion, the
greater the social capital, civic
orgs and involvement
Greater the elite cohesion, the lower
the social capital, civic orgs and
involvement
Dependent variables
• Number of large (assets>$10,000,000) non-profit
organizations per million (from Urban Institute)
• Elite-oriented: “Arts, culture & humanities;” “Philanthropy;”
golf; business-oriented
• Community-oriented: “Health care;” “Mental health & crisis
intervention;” “Employment;” “Housing & shelter;” “Public
safety;” “Youth development;” “Human services;” “Civil rights;”
“Community improvement”
• Voluntarism (DDB Needham annual lifestyle survey)-factor score of aggregated responses to:
• “In the past 12 months, how often have you done volunteer
work”
• “In the past 12 months, how often have you worked on a
community project”
• For 1985/1986 and 1997/1998
Operationalizations
• Corporate density per capita: # of corporate
headquarters/population (1986 HQ/1990 pop;
1998 HQ/2000 pop)
• Bank density per capita: publicly-traded
banks/population (1986 and 1998)
• Elite network
• Network: ties through shared directors among all locallyheadquartered NYSE and Nasdaq firms and major nonprofits
• Density, centralization, mean ties to non-profits…
Main findings
• Don’t believe Putnam; do believe Skocpol
• Corporate density promotes elite-oriented
non-profits but not community-oriented nonprofits
• But: denser networks among elites do
enhance community non-profits (to a point)
• Both bank and corporate density promote
grassroots voluntarism
Elite network density and community nonprofits
Community Non-Profit
Organizations/Million Residents
7
6
5
4
3
2
1
0
1
3
5
7
9
11
13
15
17
19
21
23
Elite Network Connectedness
25
27
29
31
33