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Page 1 of 39 Organization Science, an INFORMS publication
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3 INTERLOCKING DIRECTORS AND THE STUDY OF CORPORATE GOVERNANCE
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5 STRUCTURES: THE CASE OF MEXICO
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10 Abstract
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The characteristics of the boards of directors of all Mexican firms in the countrys stock market as of
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14 2004, and the interlocking directorate structure between them formed are used as a case to test the
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16 conceptual usefulness and empirical limitations of agency-theory based accounts of corporate governance
17 institutions in countries where the separation between ownership and control has historically been less
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19 prevalent than in the Anglo-American experiences. As a conclusion it is argued that agency-theory
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21 models, as is the case with broader transaction-costs models of social interaction, are empirically useful
22 but they have to be seen as the micro-level parts of larger societal and political processes, and thus
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24 mediated by them. The institutional theories of the new economic sociology offer a way to conceptualize
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and operationalize research designed to understand these linkages between the micro-level of agency
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27 theory and the macro-level of economic sociology take place.
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32 INTRODUCTION
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The study of organizations corporate governance bodies has been of interest to a wide range of
36 social researchers almost since the inception of the corporation as the main legal means by which a group
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38 of individuals with diverse interests attempts to coordinate the activities of what are generally understood
39 to be profit-oriented economic enterprises. That researchers from wildly diverse intellectual traditions
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41 and disciplinary backgrounds should be attracted to the study of the matter should not surprise us. In the
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43 assessment of political scientists Peter A Gourevitch and James Shinn ( 2005:3), Corporate governance
44 the authority of a firmlies at the heart of the most important issues of society. In a market oriented
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46 society where capital, particularly in its financial form, is central, these authority structures generally
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decide who has claim to the cash flow of the firm, who has a say in its strategy and its allocation of
49 resources influencing not only the efficiency of the firms themselves, but many dimensions of the body
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51 politic of the society in question as a whole (Gourevitch & Shinn, 2005:3).
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53 The different ways in which a particular system of corporate governance structures historically
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55 develops in relationship to, and in complexly interwoven patterns with, other dimensions of a social
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system broadly understood, is only recently begun to bee systematically explored. The research reported
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Organization Science, an INFORMS publication Page 2 of 39
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3 here, by focusing on the heretofore little explored case of Mexico, seeks to suggest a way in which this
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5 type of work can be carried out using the analytic concepts and techniques of social network analysis.
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7 The core of my argument is pretty straightforward and based on the following ideas:
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9 a) The standard agency theory/transaction costs based accounts regarding the functional relationship
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11 between boards of directors and firm performance fails to take into consideration the social
12 embeddedness of these governance structures and thus performs poorly when attempting to account
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14 for observed patterns throughout the world.
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16 b) A similar conceptual limitation can be said to hinder the epistemic value of the law and
17 economics work of Rafael La Porta and his colleagues, since it fails to take into consideration the
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19 social processesi.e., the embeddedness though which legislations are enacted.
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c) In the absence of a completely or clearly articulated, universally applicable theoretical account of
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22 how the social embeddednes of these institutions takes place, work that systematically explores
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24 how ownership and governance structures relate to and are influenced broader societal economic
25 and political processes is needed in order to enhance the theory itself.
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29 In other words, rather than proceed in a purely deductive fashion with the explicit formulation of
30 hypothesis derived from a theory that at least in principlehas universal epistemic validity, research
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32 also has to include a healthy dose of inductive and exploratory work (for a discussion of the importance of
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this type of research in management and related areas see Eisenhardt & Graebner, 2007) that will
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35 eventually allow for the re-formulation of the existing theory in a manner that also takes into
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37 consideration the multiple contexts in which the phenomena under the ontological purview of the theory
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38 take place (for a more in-depth discussion of how this kind of work relates to the functional logic of much
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40 social science research see Kincaid, 1994; Salmon, 2007).
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In the elaboration of the argument I proceed first to offer a brief critical review of the theories that
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43 have been put forth to explain the nature and function of firm governance structures attempting,
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45 nevertheless, to highlight points of conceptual continuity and complementariness. I then offer a sketch of
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the historical context within which the practices of corporate governance have taken shape in Mexico.
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48 This historical backdrop represents the context from which specific working hypothesis about the social
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50 embeddedness of governance structures can be developed and consequently tested (one of the first
51 proponents of using working hypothesis in inductive research was Robinson, 1951). In the final section I
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53 present the results of systematically assessing a series of working hypothesis (about the roles of
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55 geography, industrial sector, banks and the effects on firms operational and stock performance) about the
56 ways in which firms governance structures are embedded in Mexican society.
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60 3
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6 THEORY DEVELOPMENT IN CORPORATE GOVERNANCE
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8 Economists; the law and economics tradition
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11 Since the publication of The Modern Corporation and Private Property by Adolph Berle and
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Gardiner Means scholars from different theoretical persuasions have sought to (1) empirically assess the
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14 extent to which there has been an actual separation between property owner who invests in a modern
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16 corporation and the managers who purportedly run the enterprise (Berle & Means, 1991:355), and (2) in
17 a theoretically informed way elaborate on what the implications both internal to the firm and external to
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19 it of this supposed trend might be. The dominant approach found in most of the academic research
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21 concerning the mechanisms of governance of large corporations has been informed by transaction cost
22 economics and agency theory (Fama, 1980; Fama & Jensen, 1983; Jensen, 2003; Jensen & Meckling,
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24 1976; Williamson, 1985, 1988, 1996). These approaches build on Ronald Coases insight that many of
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the internal structures of a modern business organization consist of a system of relationships which come
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27 into existence when the direction of resources is dependent on an entrepreneur (Coase, 1937:393) who is
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29 acting as a coordinator attempting to reduce the risk of an inherently uncertain endeavor. In other words,
30 these approaches postulate the idea that the firm and most if not allof its structures, including its
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32 governance ones, should be functionally explained as somehow adaptive responses to the costs of
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34 transacting inherent to the industry, technology, pertinent legislation, etc. of a particular organization.
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36 Note that Coase states that these organizational structures come into existence because of the
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decisions of the entrepreneur, and are thus presumably are aligned with his/her personal interests. What
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39 the so-called managerialist thesis developed out of Berle and Means work suggested was that insofar as
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41 managers ran the day-to-day operations of a firm, their own personal self-interests might not be aligned
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43 with those of the stock owners, resulting in a potentially inefficient if not illegitimate use of firm
44 resources. What agency theorists attempt to offer is a conceptual account of the conditions under which
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46 the potential for a misalignment of interests between owners and managers is reduced. Much of the
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discussion for Jensen, Meckling and Fama revolves around ways by which owners can provide effective
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49 monitoring mechanisms (Mizruchi, 2004:586) that are presumably optimal in their cost and thus
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51 increases value to the firms equity holders. Interestingly enough many of the institutions and governance
52 structures that have been developed to address this divergence between the interests of principals and
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54 their agents have been substantially influenced by the ideas of these economic and legal theorists, making
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56 the tracing of their impact an apt topic for research in its own right (Davis, 2005).
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6 Lawyers; the law and finance effort
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8 Until recently most of the theoretical work coming out of the so-called law and economics
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10 tradition built on the conception of the corporation presented by Berle and Means in which capital is
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12 dispersed among many small shareholders while control is concentrated in the hands of a few managers.
13 This type of ownership structure, and its related monitoring and controlling governance mechanisms, was,
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15 to some extent, assumed to be not only the dominant form existing in the United States, but also around
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the world. Whatever divergence was reported empirically from this, presumably natural pattern and other
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world regions, the theoretical model developed by this intellectual tradition could explain it as a result of
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20 differences in the scope of the firms in question and/or the production technology available to them in
21 these countries. It was assumed that whatever was happening in the United States () would generalize
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23 and spread as the technology of production spread around the world (Gourevitch & Shinn, 2005:29).
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25 The comparative empirical work of Rafael Laporta and his colleagues (regularly abbreviated by their
26 initials LLS&Vin the literature), perhaps more than that of any other researcher or group of them, has
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28 as they themselves put itbegun to question the empirical validity of this image (La Porta, Lopez-de-
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Silanes, & Shleifer, 1999:471).
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32 What the work of La Porta and his colleagues has made abundantly clear is that there is no single,
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34 dominant or somehow natural governance pattern of large publically traded companies around the
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35 world. Moreover, that the patter of dispersed stock ownership which had struck Berle and Means as
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37 being at odds with a classical understanding of the nature of capitalism and the work of scholars in the
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law and economics tradition had attempted to reconcileappears to be, in fact, relatively uncommon,
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40 unless we look at specific countries, or focus on very restrictive measures of control (La Porta, et al.,
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42 1999:502). In part because its proponents believed that the presumably universal functionalist model of
43 how these economic institutions of capitalism (Williamson, 1985) solved the agency problems of
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45 contracting that results from the separation between ownership and control, the corporate governance
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47 systems of other nations were largely ignored because the American system was thought to represent the
48 evolutionary pinnacle of corporate governance (Davis & Useem, 2002:243). Based on the findings by
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50 La Porta and his colleagues there is a growing willingness to consider broader social context based
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accounts about what explains the differences between countries in their ownership patterns (La Porta,
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53 et al., 1999:473), a development that opens up interesting possibilities for theory-building of models with
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55 more explanatory power and empirical content.
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3 The central tenant of LLS&Vs work is what by its critics has been called the Quality of
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5 Corporate Law argument (Gourevitch, 2003:1830; Roe, 2002:236ff). Working from the idea that
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7 corporate governance is, to a large extent, a set of mechanisms through which outside investors protect
8 themselves against expropriation by the insiders (La Porta, Lopez de Silanes, Shleifer, & Vishny,
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10 2000:4), they regard a countrys legal system and its enforcement structure as the main determinant of
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how ownership, and thus governance structures are patterned. In their ground breaking comparative study
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13 of legal environments (that offer good vs. poor legal shareholder protection) and its impact on the
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15 ownership structure that characterizes large firms (widely held vs. a variety of blockholder types) La
16 Porta and his colleagues collected and coded data from 27 countries for a total of 691 firms, and found
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18 extensive empirical support for the notion that dispersion of ownership goes together with good
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20 shareholder protection (La Porta, et al., 1999:496).
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22 A related notion central to this approach is the idea that the differences in the quality of legal
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24 protection conferred by a countys legal system are, in their turn, in good part determined by their
25 historical origins. Whether a legal code in place in any particular country has its origin in English
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27 common law or Roman civil law (with its historical/regional variants) is important for explaining the
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29 degree of protection given to investors (Beck, Demirg-Kunt, & Levine, 2003). In general terms,
30 countries whose legal rules originate in the common-law tradition tend to protect investors considerably
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32 more than the countries whose laws originate in the civil-law, especially the French-civil-law tradition
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(La Porta, Lopez-de-Silanes, & Shleifer, 1998:1151).
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Political Economists offer their two grains of salt
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41 Explanations based on the quality of corporate law argument not only incomplete, but more
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43 importantly, conceptually misleading (Roe, 2003:3). These accounts are incomplete because they cannot
44 explain why several wealthy European nations protect minority shareholders well but nevertheless still
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46 have concentrated ownership (Roe, 2002:235); Several nations have, by measurement, good corporate
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law but not much diffusion and hardly any separation (Roe, 2002:271). It is misleading both because of
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49 some somewhat harmless deductive fallacies (Gourevitch, 2003:1839ff; Roe, 2002:242ff), but most
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51 importantly because it fails to conceptually realize that legal system is a moderating variable that itself
52 has to be accounted for by models of how diverse group interests in society are politically negotiated
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54 (Luhmann, 2004). Law is not an autonomous force (Gourevitch, 2003:1864); corporate law is usually
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56 just a supporting prop, not the central institution (Roe, 2002:234). The degree of investor protection
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3 and its enforcement are not exogenous variables. They can be altered via the political process, which in
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5 turn may respond to economic interests (Pagano & Volpin, 2001:504).
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These critiques to the law and finance account which is itself a conceptually broadening
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9 critique to the narrowness found in the law and economics approach of neo-institutional economistsI
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11 believe seek more to complement the process of theory building/development than to bring down other
12 researchers conceptual edifices. True, in the process its proponents might consider it necessary to
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14 remove some misaligned bricks or poorly collated mortar, but on the whole these political economy
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16 approaches to corporate governance can be understood as mostly seeking to broaden the scope of the
17 analytic model by calling our attention to the fact that legal systems are the outcome of complex political
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19 processes. In these processes, that have a dynamic nature only partially captured by simple functionalist,
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contingency or other conceptually related steady-state equilibrium models, different societal actors such
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22 as owners, managers, workers and state bureaucratsinteract in different arenas seeking to induce policy
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24 outcomes that best serve their economic interests. Thus understood, policy expresses the outcome of a
25 clash among interest groups, with various their preferences and relative power resources. Differences in
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27 policy among countries thus express differences in the strengths of alternative groups (Gourevitch,
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29 2003:1853).
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34 Sociological approaches and a conceptual common ground
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36 When it comes to thinking of business firms or organizations more generallynot solely as
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simple legal fictions which serve as a nexus for a set of contracting relationships among individuals
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39 (Jensen & Meckling, 1976: 310), but also as constituted by the actual, concrete behavioral interactions
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41 among individuals, the tradition of the new economic sociology (Swedberg, 1997) has been central. An
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43 important common objective informing most of the work within this research program (for a discussion
44 of what scientific research programs are see Lakatos, 1978) has been the avoidance of what are regarded
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46 as key conceptual and methodological limitations of past or competing explanations. On the conceptual
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side a central theme important for accurately studying how economic institutions and behaviors are
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49 embedded in social relations is the idea that both the over-socialized and under-socialized
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51 conceptions of social actors are misleading; a conceptual middle ground between both is not only more
52 empirically realistic, but also more theoretically productive (Granovetter, 1985, 1992). On the
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54 methodological side, an ongoing effort has been to develop data gathering and analysis techniques that go
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56 beyond the largely metaphorical use of social structure and related explanatory concepts on which the
57 theoretical notion of embeddedness rests (Freeman, 1992; Scott, 1988; Wellman, 1988). The inherently
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3 interdisciplinary field of Social Network Analysis has been central in the development of these tools, as
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5 well as their grounding in broader sociological theory (Carrington, Scott, & Wasserman, 2005; Freeman,
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7 2004; Wasserman & Faust, 1995).
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9 The use of these social network based methodological techniques for studying the social
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11 embeddedness of corporate governance structures has taken the form of what has come to known as
12 research on interlocking directorates. It focuses on the structural patterns that results from multiple board
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14 memberships; that is, by the links that are formed between corporate boards when they share member
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16 directors. In the past 30 years the work accumulated in this tradition has been extensive and has been
17 reviewed by others elsewhere (Davis, 2005; Mizruchi, 1996, 2004). For my purposes here it is only
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19 necessary to highlight some important notions and conclusions of this work since I believe it offers a
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conceptualand maybe also methodologicalcommon ground for assessing not only the social
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22 processes through which policy concerning corporate governance is created, but also concerning its nature
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24 and function in different settings.

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26 One of the first scholars to systematically take issue with the managerialist thesis that came out
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28 of the Berle and Means account, and particularly with the notion that this in turn had fundamentally
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changed the nature of a capitalist society giving way to a new post-industrial society in which class
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31 /power relationships had been superseded (Bell, 1973), was Maurice Zeitlin (1974). In his work he
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33 convincingly showed that the dispersion of ownership in American firms central to the argument for the
34 separation between ownership and controlhad never been as extensive as many since Berle and Means
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36 had simply assumed. With his data he was able to show that virtually all Fortune 500 companies in 1968
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were to some degree interconnected in a single network of directorate interlocks in which bankers are
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39 disproportionally over represented (Zeitlin, 1974:1104). Perhaps more important than just these facts,
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41 however, was his interpretation of them under a Marxist understanding of social relations, including the
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ones between owners and managers. Under this light, corporations are units in a class-controlled
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44 apparatus of appropriation (Zeitlin, 1974:1079); they could be viewed as tools of individuals or family
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46 groups who used them to accumulate capital (Mizruchi, 2004:589).
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48 The important conceptual issue here was not only how control should conceptually understood
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50 something that had been of great interest to Berle and Means but little explored afterwards, save in a
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purely legalistic waybut also, and perhaps more critically, how it was to be operationalized. Very
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53 much in the spirit of a resource dependence theory (Pfeffer & Salancik, 2003), Zeitlin and others after
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55 him have argued that conceptually control goes beyond simply establishing some percentage threshold
56 of stock one individual has in one isolated firm. For any particular firm, rather, it would be necessary to
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3 study the constellation of inter-corporate relationships in which it is involved before one can begin to
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5 understand where control is actually located (Zeitlin, 1974:1090), the idea being that this constellation is
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7 the set of social relationships in which the corporation is class-embedded.
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9 Another important figure in this tradition is Michael Useem (1986) who has in the context of the
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11 United States empirically explored the idea of C. Wright Mills (2000) that most decisions of national
12 importance are taken by a relatively small socially and politically cohesive group of individuals who run
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14 the government, mayor corporations and the military. Regarding the notion that managers and owners
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16 economic interests are divergent, he writes that his evidence suggests that managerial interests are
17 virtually indistinguishable from ownership interests (Useem, 1980:47), something that stems from the
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19 internal cohesion of them as members of a similar social class. Despite some internal divisions within the
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capitalist class e.g. between financial and industrial capital or between small and large industry
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22 membership in exclusive social clubs, attendance to private schools and extensive kinship networks all
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24 function as mutually reinforcing strands of cohesion (Useem, 1980:58).

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26 There, off course, have been critiques and observations made as to the limitations of this research
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28 tradition, both methodologically poor quality, generally macro-level data that seems to rely heavily on
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data-driven analytic techniques at the expense of theory and conceptually not well articulated theory
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31 regarding the causal effects of embeddedness in general or corporate interlocks in particular (for a quick
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33 review see Davis, 2005; Pettigrew, 1992). Regardless of their current limitations, however, I believe that
34 the notions and methods of the new economic sociologys structural approach to corporate governance
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36 represent the most promising way to proceed for empirical research seeking to understand the different
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manners in which these governance structures are articulated with other societal spheres and how this in
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39 turn affects their nature and functioning. As I stated in the introduction, much empirically informed and
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41 validated exploration of particular cases has to be carried out before a comprehensive embeddedness
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theory of corporate governance structures can be formulated.
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THE MEXICAN EXPERIENCE
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50 The historical backdrop
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A detailed history of how different societal actors have interacted to introduce neoliberal
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54 economic policy reforms in Mexico and how these reforms have given shape to corporate governance
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56 structures in the country is still waiting to be written. Such accounts exist for several countries (Morck,
57 2007) and as such constitute an invaluable source of material for a comparative understanding of the
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3 processes that give shape to these structures. For the Mexican case, however, what we have for now are
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5 only the broad outlines of how these economic reforms were introduced beginning in the 1970s and how
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7 this has resulted in an overarching realignment of power in society (Camp, 2006; Centeno, 1997; Lustig,
8 1998). In what follows I will attempt to offer a sketch of these changes.
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11 From the mid 1930s until the late 1970s the state played a delicate fine balancing act by trying
12 to answer to its diverse constituencies; it incorporated the mayor labor organizations into its bureaucracy
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14 and implemented populist-welfare state social policies (Cook, 1995), it adopted import substitution
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16 industrialization policies to stimulate the growth of key industries (Babb, 2004), and allowed for the
17 economic and political marginalization of rural populations at a rate that allowed for their migration to
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19 and absorption by urban centers (de Janvry, 1981; DeWalt, Rees, & Murphy, 1994). This period,
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regularly referred to as the Mexican miracle, saw sustained economic growth, averaging growth rates of
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22 6.2% per year as well as a rapidly urbanizing population; see table 1.
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26 INSERT TABLE 1 ABOUT HERE
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31 The details are complex, but broadly speaking two sets of problems appear to have been central in
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33 bringing this development strategy to an end during the mid 1980s. On the one hand, the private business
34 sectors growth allowed it ever increasing degrees of political and financial independence vis--vis the
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36 state and thus began to challenge its legitimacy as sole decider on economic policy (Camp, 1989, 2002).
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Even if the Mexican capitalist class never was either an economic or politically homogeneous group
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39 (Shadlen, 2002, 2004), they have historically exerted economic power over the state by the threat,
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41 realized or not, of capital flight (Gates, 2009:68). On the other hand, the increase in deficit spending,
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growing trade imbalances and international debt borrowing by the state made the whole development
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44 strategy economically fragile and prone to a mixed bag of currency devaluations and/or inflation
45
46 problems (Babb, 2004; Haber, Klein, Maurer, & Middlebrook, 2008). By the mid 1980s a combination of
47 higher interest rates on international loans and lower oil prices which were Mexicos main source of
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49 foreign currency to service its debttriggered the first of a series of economic and political crises that
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51 continued to plague the country until the end of the century. The responses to these crises radically
52 changed the economic (Lustig, 1998) and political (Camp, 2006) landscape of the country bringing forth
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54 new forms of social structures that functioned to mediate the interaction between the countrys diverse
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actors.
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3 Within the state-sponsored development model that characterized Mexicos economy until the
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5 mid 1980s, the business/capitalist sector interacted with government bureaucrats through a maze of state
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7 controlled channels. Central to the states control of these channels had been the 1936 Chambers Law
8 (Ley de Cmaras) revised in 1941which required all Mexican firms to join some state sanctioned
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10 chamber of commerce or industry. The idea was that these forums would allow business to express its
11
common interests and see that they were taken into consideration when formulating economic policy.
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13 Over the years, however, large export-oriented industrialists came to regard them as being too
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15 conciliatory and accommodating towards the states economic policy (Shadlen, 2002; Tirado, 2006).
16 Because of the political and economic weakening of the corporativist state these large industrialists
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18 pressured for the enactment of liberal reforms in the political and economic fronts (Centeno, 1997:67-73),
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20 and did so outside the state-sanctioned legal framework of business chambers. By doing this business
21 elites were not merely trying to change policies but instead attempting to reform the economic policy-
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23 making process (Shadlen, 2004:92).
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25 Voluntary business associations of different sorts had existed with different objectives since early
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27 in the century, but after the 1980 the Consejo Coordinador Empresarial (C.C.E. Business Coordinating
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29 Council), which is a peak or elite business group constituted by the CEOs of the largest firms, came to
30 exert the most influence on the course of the countrys policy reform process (Camp, 1989:150-170; Ortiz
31
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32 Rivera, 2002). Among the reforms that the C.C.E. advocated and were eventually put in place were the
33
ones common to other structural adjustment loans that the World Bank and the International Monetary
34
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35 Fund requested of their debtors/borrowers (Easterly, 2005): trade liberalization and the elimination of
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37 import restrictions, including if needed currency devaluations, privatization of state enterprises so that
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38 they are aligned to the incentive systems of the market, de-regulation of the economy so that the price-
39
40 system can signal the most efficient use of resources, flexibilization of the labor force, and the
41
enhancing of property rights and protection to capital investments.
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44 By the end of the century, close to 20 years after they began, many of these reforms had run its
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46 course and completely transformed the economic and political institutions in the country. With the close
47 collaboration some would argue it was more akin to guidance and supervision (Gates, 2009)of the
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49 C.C.E. three consecutive technocratic administrations, the last the PRI as a ruling party has seen
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51 (Miguel de la Madrid 19821988, Carlos Salinas de Gortari 19881994, and Ernesto Zedillo 19942000),
52 the countrys economy had opened up to international competition in virtually all fields activity and the
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54 North American Free Trade Agreement (NAFTA) with the United States and Canada had seen 6 years of
55
life (Fairbrother, 2007; Haber, et al., 2008; Lustig, 2001; Schneider & Wolfson, 1999).
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6 Corporate governance in Mexico
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8 In their comparative assessment of corporate governance around the world Rafael Laporta and his
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10 colleagues collected data from the 20 largest firms in Mexico; the ones that had American Depositary
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12 Receipts, and are thus interested in attracting foreign capital (La Porta, et al., 1999:475). From this data,
13 and by their definitions of control, Mexico comes out as the country with the highest proportion of
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15 family-owned firms since all 20 of the firms considered fall in this category. It is also the country where
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the percentage of minority shareholders needed to call an extraordinary board meeting is highest, 33%;
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with Japan being the lowest with only 3% needed (La Porta, Lopez-de-Silanes, Shleifer, & Vishny,
19
20 1998:1128). Aside from these general observations and some broad descriptive remarks from Husted and
21 Serrano (Husted & Serrano, 2002) who also comment on the two bodies of law that deal with corporate
22
23 governance in Mexico and how these compare with OECD agreed best practices on the matterlittle is
No
24
25 known about corporate governance in Mexico.
26
27 By using the information published in the Mexican Stock Exchange (Bolsa Mexicana de Valores /
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28
29 http://www.bmv.com.mx/) for the year 2004 by the 115 companies that then traded I hope to offer some
30 systematic insight on the structure and functioning of corporate boards of these firms. Because these
31
is
32 firms participate in the Mexican stock market they are legally obligated to publish both their audited
33
34 financial statements and the conformation and affiliations of their boards of directors. These two sources
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35 of information allow for an empirical exploration of two sets of ideas that serve as our guiding working
36
37 hypothesis:
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38
39
a) How do some of the ideas from the embeddedness approach to corporate governance relate to the
40
41 Mexican experience and what can they tell us about the nature and function of these structures.
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42
43 Since they have been considered in other countries, and thus allow for comparative case-based
44 theory building, two particular working hypotheses to explore here are: (1) what role do macro
45
46 regional and sectorial dimensions play in the embeddedness of corporate governance structures; (2)
47
48 what role do financial institutions play in the network of corporate directorates.
49 b) How do some of the observational predictions from of the law and economics tradition,
50
51 especially as they are articulated by agency theory, fare on the Mexican data. Three crucial
52
hypotheses from this traditionthat have thus far not been assessed in Mexicocan be tested: (1) a
53
54 higher proportion of independent board members has a positive effect on firm financial
55
56 performance; (2) board chairman being different person than the CEO has a positive effect on firm
57
58
59
60 12
!
1 !
2
3 financial performance, and (3) larger board size hinders their effectiveness and thus has a negative
4
5 effect on firm financial performance.
6
7
Table 2 gives some of the basic characteristics of the 115 firms in question. Just to have an idea
8
9 as to the importance of these firms and put them in perspective on the national economy, the total value of
10
11 their assets represented 36.1% of the countrys Gross Domestic Product for that year. In terms of their
12 corporate boards, as can be seen, with an average of 20.6 members which includes some 6 substitute
13
14 members Mexican boards are quite large, especially when compared with 10.4 average members Coles
15
16 and his colleagues report for American companies (Coles, Naveen, & Naveen, 2008). These results are
17 also striking given that the Code of Best Practices that the C.C.E. published in 1999 and that the
18
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19 Mexican Stock Exchange endorses, but evidently does not enforcerecommends that boards be between
20
3 and 15 members in size and that the practice of substitute members be abandoned whenever possible
21
22 (C.C.E., 2006:14). Even if considering only those board members that are active, and substitute
23
No
24 members are not considered, close to 50% of the firms had more than the 15 members recommended as
25 an upper limit. A correlation of 0.302 between board size and the firms assets and of 0.404 with their
26
27 sales suggests that larger firms tend to have larger board sizes.
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28
29
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30
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32
33 -------------------------------------------
34
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35
36
37 In order to systematically analyze the structural embeddedness of these firms as evidenced from
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38
the directorate interlocks between them, a 115 x 115 valued symmetric matrix was created from the lists
39
40 of their published board members; each cell ( nij ) in this matrix represents the number of board members
41
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42 from one company ( i ) that also sit on the board of another company ( j ). Using the UCINET computer
43 software for social network analysis (Borgatti, Everett, & Freeman, 2002) a series of structural metrics
44
45 were computed, some for the firms themselves, some for the network as a whole; descriptive statistics are
46
47 given in table 3 and figure 1 gives a birds eye view of the whole network with firms as nodes and lines
48 representing the sharing of one or more board members between them. As can be seen, firms are densely
49
50 interwoven amongst themselves; with the exception of 9 firms that have no interlocking directors any pair
51
of reachable firms is remarkably close to one another. Even if the density of the network as a whole is
52
53 somewhat low since only 7.6% of all possible ties between firms are present, as evidenced by the 0.44
54
55 clustering coefficient the probability that two acquaintances of a randomly chosen node are themselves
56 connectedthe graph has the tale-tale properties of a small-world network (Watts, 1999). In their study
57
58
59
60 13
!
1 !
2
3 of the remarkable structural stability of American interlocking directorates between 1981 and 2000, Davis
4
5 and his colleagues report clustering coefficients of 0.24 for 1982, of 0.24 for 1990, and of 0.22 for 1999;
6
7 the average geodesic distances they give between reachable firms for these same years are 3.38, 3.46 and
8 3.46, respectably; and finally, the average number of links to other firms are 10.0, 8.8 and 8.6 (Davis,
9
10 Yoo, & Baker, 2003). As can be seen by comparing these results from with the ones shown in table 3, the
11
small world of Mexican corporate boards is significantly smaller than the one found in their American
12
13 counterparts; firms are closer to each other and there is a much higher probability that two randomly
14
15 chosen firms are connected to each other.
16
17 -------------------------------------------
18
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20
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21
22 -------------------------------------------
23
No
24 INSERT FIGURE 1 ABOUT HERE

25 -------------------------------------------
26
27
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29
Geographic and Macroeconomic Patterns
30
31
is
32 Geography has been found to be important in explaining patterns in social networks in general
33
34 (McPherson, Smith-Lovin, & Cook, 2001; Wellman & Potter, 1999), as well as in directorate interlock
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35 networks in particular (Mizruchi, 1996; Scott, 1991, 1992). By coding each firm to geographic regions as
36
37 defined by the National Institute of Statistics and Geography INEGI, by its acronym in Spanish
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38
(http://www.inegi.org.mx) based on where they have their corporate headquarters it is possible to
39
40 calculate the density of interlocks by region; the results are shown in table 4. INEGI recognizes five
41
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42 geographic regions in the country as shown in the map on the right of table 4 however none of the 115
43 firms for which we have data is located in the south of the country, which is also the least economically
44
45 developed since it contributes the least to the countrys Gross Domestic Product. Based on the Human
46
47 Development Index (HDI) as estimated by the United Nations Development Program (UNPD, 2005),
48 however, the countrys capital and surrounding small states, and not the south, are the ones with the
49
50 lowest social development scores. As can be seen from part (b) of table 4, 100 out of the 115 firms
51
considered come from only two regions, the center and the northeast, the latter being slightly larger as
52
53 gauged by average annual sales. These two regions northeast, basically the city of Monterrey, and
54
55 center, fundamentally Mexico Cityhave historically been the countrys most important poles of
56 economic activity and have thus attracted most attention from economic historians (Camp, 1989; Moreno-
57
58
59
60 14
!
1 !
2
3 Brid & Ros, 2009:211ff). In part (a) of table 4 one can see the regional interlocking densities and further
4
5 attest to the higher levels of cohesion of these two important geographic regions. Based on the estimated
6
7 regression coefficients of a dyadic analysis of variance model for variable homophily (as implemented in
8 UCINET, Borgatti, et al., 2002) not shown it can be determined that the observed density of 20.3%
9
10 (i.e. the proportion of interlocks present out of all possible ones) for the northeast region of the country
11
is 14.5% larger than expected (p value = 0.000) in a random network of this size and overall density, and
12
13 that the 8.6% observed density in the countys center is 2.9% larger than randomly expected (p value =
14
15 0.048); the densities for the other regions, as well as for the values of the densities created by between
16 region linkages, are about what one would expect given the overall density of the network.
17
18
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19 These results show that in regions where there have historically been higher levels of economic
20
activity by large firms, the number of interlocking directors present is also proportionally higher. The
21
22 exceptionally high density found in the northeast region will not surprise anyone familiar with the
23
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24 history of the city of Monterrey and the set of related families who have been central in the industrial
25 development of the region (for an historical account see Camp, 1989:208-221); these families have been
26
27 considered to be the quintessential example of a kinship based business group (Granovetter, 1994:455).
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29
-------------------------------------------
30
is
32
33 -------------------------------------------
34
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35
36
37 Another set of variables that have been suggested as important for understanding patterns in the
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38
directorate interlocks between firms is the industrial sector in which they compete. In their classic
39
40 formulation of resource dependence theory Pfeffer and Salanick (2003) argued all manner of external
41
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42 linkages a firm has might among other thingsserve to monitor the markets on which companies
43 participate, and thus reduce uncertainty as to its resource flows. Elaborating on this notion Pfeffer
44
45 (Pfeffer, 1992) further argued that directorate interlocks in particular as types of external linkages
46
47 might function as means that directors have to exchange information about resource constraints and
48 dependencies that firms are subject to. To asses this idea the most general Standard Industrial
49
50 Classification code (SIC) for each firm was employed to create a reduced density matrix shown in table 5.
51
The idea behind this data matrix is similar as the one employed in table for to asses regional patterns; the
52
53 diagonal cells in the matrix give the observed densities in each of the industrial sectors (e.g. 21.2% of all
54
55 possible links are present amongst firms in the transportation and communication sector, whereas only
56 3.6% are present for mining and construction firms) while the off-diagonal cells give the proportion of
57
58
59
60 15
!
1 !
2
3 directorate linkages that exist between industrial sectors. Again based on a variable homophily model it
4
5 is possible to say that the observed density of the transportation and communication sector is 13.6%
6
7 higher that would be randomly expected (p value = .012) in a network with the similar overall density of
8 the one at hand. The density of firms in services which includes most of the countrys large
9
10 corporativos or corporate headquarters is slightly higher (6.4%) than would be expected, but with
11
marginal statistical significance (p value = 0.055), whereas firms in the commercial sector have a
12
13 statistically important (p value = 0.023) lower density (5.2%) than would be expected. Most of the off-
14
15 diagonal cells, with the exception of the 18.8% density between the mining and construction and
16 transportation and communication sectors, are not statistically meaningful, suggesting that these types of
17
18 directorate intersectorial interlocks are not important for Mexican firms.
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19
20
The explanation for the higher than expected density between the above mentioned sectors is
21
22 simple: Grupo Mexico originally called Grupo Industrial Minera Mexico, the countrys largest zinc
23
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24 and copper mining and smelting operationhas as a board member Claudio X. Gonzlez Laporte, CEO
25 of Kimberly-Clark Mexico, and member of a total 14 boards of directors; this connects mining company
26
27 Grupo Mexico to many other firms in several sectors, but specially to the transportation and
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28
29 communication firms where Mr. Gonzlez Laporte is also in high demand.
30
31 -------------------------------------------
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32
34 -------------------------------------------
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35
36
37
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38
Explaining the cause of the higher than expected density within the transportation and communication
39
40 sector is also quite simple: Telfonos de Mexico (the telecommunications monopoly providing fixed-line
41
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42 telephone and internet services to most Mexican users and many others throughout Latin America),
43 America Mvil (a holding company providing mobile and wireless services to some 200 million
44
45 subscribers in Latin America, including a dominant market share in Mexico) and Carso Global Telecom
46
47 (also a conglomerate of telecommunication related companies) are all companies owned by tycoon Carlos
48 Slim Heli whose estimated net worth in 2010 by Forbes was 53.5 billion dollars, making him the
49
50 worlds richest man. Slim Heliu, his three sons and other members of the extended political family form
51
a dense web of interconnections between most of the countrys telecommunication firms. Furthermore,
52
53 highly sought after Mr. Gonzalez Laporte also sits as an outside member in all of the Slim Hel controlled
54
55 firms, including Grupo Financiero Inbursa the banking and financial branch of the Slim empire.
56
57
58
59
60 16
!
1 !
2
3 The centrality of financial institutions
4
5
6 The notion that financial institutions are at many levels central for the functioning of a capitalist
7
system has a long history in the social sciences (Keister, 2002; Soref & Zeitlin, 1992). At the time Berle
8
9 and Means wrote The Modern Corporation and Private Property the political sensibilities of American
10
11 policymakers were still strongly influenced by the findings of the Pujo Committee mandated by the U.S.
12 Congress to investigate the extent of economic power in the hands of a handful of Wall Street bankers
13
14 (Chernow, 2001). These sensibilities and preoccupations about the threat of a bank-controlled economy
15
16 that would, according to the liberalist capitalist mantra, be less efficient than a more decentralized market
17 for capital flowswere central motivations for the passing of legislation, such as the Glass-Seagall Act of
18
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19 1933, that sought to limit the extent of bank control in the economy (Roe, 1994). Other countries, as is
20
the famous and well documented case of Germany, never undertook such legislative measures; as a result
21
22 they have a capitalist system in which large universal banks play an important role as providers of capital
23
No
24 in the networks of corporate control (Fohlin, 2007). Several social network informed studies on the
25 centrality of banks in the network of interlocking directorates in the United States have found
26
27 notwithstanding the legislative efforts mentionedthat they tend to occupy central and stable positions
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28
29 (Mariolis, 1975, 1982). It has been only as a consequence of the changing nature of the banking industry
30 since the late 1980s and their declining importance in the capital-raising efforts of large corporations
31
is
32 who rely evermore on a decentralized system of financial intermediation for their capital requirements
33
that banks have lost some ground in terms of their centrality (Davis & Mizruchi, 1999).
34
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35
36 Mexicos capitalist economy at first state-guided, more recently somewhat more liberalized
37
has had a complex history with its domestic financial sector. During the period of state sponsored
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38
39 development from the 1930s to the 1970sthe number and variety of private banks grew to some 114
40
41 and their role in financial intermediation services also gained some ground (Moreno-Brid & Ros, 2009:87
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42
& 111). In 1982, however, President Jos Lpez Portillo blaming bankers for the countrys inability to
43
44 service its external debt because of falling exchange rates expropriated their assets taking control over the
45
46 whole banking industry (Haber, et al., 2008:100). After little more than a full ten years under state
47 control, in 1991, banks were privatized as part of a broad program of privatization of state-run
48
49 enterprises (Haber, 2005:2327) by the administration of Carlos Salinas de Gortari within the broader
50
51 series of structural neoliberal reform. By the mid 1990s the accumulation of non-performing loans
52 held by banks because of a series of regulatory deficiencies in the hastily implemented privatization
53
54 reforms led national banking authorities to accept a financial bailout plan designed by the bankers
55
themselves, which was as poorly implemented as the privatization had been (Haber, 2005). In an effort to
56
57 minimize the risks of a similar problem occurring in the future, in 1995 foreign banks were allowed to
58
59
60 17
!
1 !
2
3 acquire controlling interests in Mexican banks which led to a much needed recapitalization of the
4
5 systemand then in 1997 new accounting standards, which more closely approximated internationally
6
7 accepted ones, where put in place. These last two changes have resulted in a completely new type of
8 banking system in the country, one that as of 2003 was 83% under foreign control.
9
10
11 In terms of the structural position of banks in the network of interlocking directorates in 2004,
12 table 6 shows that despite the drastic changes the Mexican banking system had been subjected to in the
13
14 previous two decades, the five major banks in the country occupy, under several metrics considered (for
15
16 details on these metrics see Bonacich, 1987; Borgatti, 2003; Freeman, 1979), in more central positions in
17 the network. The boards of banks have an average of close to 7 more members than non-bank boards,
18
Do
19 these extra members represent an about one extra interlock each which results in banks having an average
20
of 6 more interlocks than their peers in other types of firms, and, as a consequence banks are connected to
21
22 a higher proportion of all other firms by paths of length-two (about 23% more), also attestable by their
23
No
24 geodesic distance to all other firms being smaller.

25
26 -------------------------------------------
27
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29
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30
31
is
32
33
34 The flipside of this phenomenon is that there are some firms which are closer to banks than
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35 others. Some authors have suggested, and in some cases found evidence (Uzzi & Gillespie, 2002) for the
36
37 idea that this closeness to banks might have some kind of benefit to the firms in question, particularly in
bu
38
terms of access to favorable credit options to finance some dimension of their operation. No evidence for
39
40 this relationship, or any kind of direct financial advantage for the firms in question was found for this in
41
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42 our data. Being structurally closer, or farther from banks might have more to do with the financial
43 diversification strategies that owners of large Mexican corporations pursued during the 1990 following
44
45 the re-privatization of Mexican banks.
46
47
Take, for instance, the case of the largest bank in the country, now called Grupo Financiero
48
49 BBVA Bancomer since in 2000 it was acquired in a merger by Spanish bank, Banco Bilbao Vizcaya
50
51 Argentaria (BBVA) (Oyama, 2002). When the government in 1991 began the privatization of the banks it
52 had nationalized back in 1982, a group of investors from the city of Monterrey acquired 51% of the bank
53
54 that had been known simply as Bancomer before the nationalization (Fraser, 1991). Several of these
55
56 investors already belonged to the boards of other firms in which they too held important equity interests,
57 and now came to sit on the board of the bank. When the bank began to run into trouble by the late 1990s
58
59
60 18
!
1 !
2
3 a series of foreign banks began to acquire shares in an effort to capitalize the bank, and this culminated
4
5 with the merger with the Spanish bank BBVA. Throughout this process the original group of investors
6
7 who had acquired the bank from the Mexican government continued to hold equity and thus sit on the
8 banks boardeven if they eventually loss control. In this way the companies to which the investors had
9
10 originally belonged to came to be interlocked with the bank not so much because the firms from which
11
they came were seeking out sources of financial capital, or because the banks themselves were looking to
12
13 keep a close-eye on their clients investments, but rather because the owners of the firm were seeking to
14
15 diversify their own personal equity. In this sense the link represents more the diversification of the
16 capitalists class interests (Useem, 1986; Zeitlin, 1974) than any functional resource-dependent
17
18 relationship between firms or sectors (Pfeffer, 1992).
Do
19
20
21
22
23 Embeddedness effects on firm stock market performance
No
24
25
A central idea in the agency theory account is that certain features of corporate governance
26
27 structures will be functionally important in enhancing firm performance since they relate to the boards
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28
29 monitoring effectiveness regarding the doings of management. The features that have received most
30 empirical attention are:
31
is
32
33 a) The composition of the board in terms of the proportion of independent members (i.e., individuals
34
who do not hold a managerial position within the firm) since theory suggests would be more
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35
36 efficient monitors (Fama, 1980; Jensen & Meckling, 1976; Morck, Shleifer, & Vishny, 1988) and
37
thus better firm performance is to be expected with their presence; empirical results assessing this
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38
39 idea have been mixed (Dalton, Daily, Ellstrand, & Johnson, 1998; Hermalin & Weisbach, 1991).
40
41 b) The duality of the CEO also serving as Chairman of the board is seen as a conflict of interests since
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42
43 part of the job of the board is to hire, fire, and compensate the CEO (Jensen, 1993:862); thus,
44 when this situation is present, one should expect weaker firm performance. Empirical results have
45
46 been mixed too (Baliga, Moyer, & Rao, 1998; Dalton, et al., 1998).
47
c) A large board size is seen as problematic since they are less likely to function effectively and are
48
49 easier for the CEO to control (Jensen, 1993:865). Consequently it has been suggested that larger
50
51 board sizes will be related to poorer firm performance (Raheja, 2005; Yermack, 1996); most
52 empirical research finds this negative correlation.
53
54
55 The work of sociologists, on the other hand, and in a less forceful manner that of political
56
economists as well, has in a boarder manner argued that since corporate governance structures are
57
58
59
60 19
!
1 !
2
3 embedded in multiplex social relations from which they cannot but artificially be separated e.g. by
4
5 analytically assuming ceteris paribus clausesit is quite possible that they perform societal functions
6
7 other than purely economic ones (DiMaggio & Powell, 1983). Pfeffer and Salancik, in their list of
8 benefits firms might accrue by having board linkages to other organizations, mention as the fourth one
9
10 the value for legitimating the focal organization. Prestigious or legitimate persons or organizations
11
represented on the focal organizations board provide confirmation to the rest of the world of the value
12
13 and worth of the organization (Pfeffer & Salancik, 2003:145). The formulation of a working-hypothesis
14
15 derived from these social-embeddedness considerations could be stated as follows:
16
17 a) Firms which as a result of their linkages are more prestigious than others will be able to capitalize
18
Do
19 on this prestige and reflect it on their financial performance. This could be due to their enhanced
20
ability to favorably finalize lucrative business contracts/deals/agreements with diverse
21
22 constituencies, or simply because the firm is able to attract more equity from investors in the stock
23
No
24 market.
25
26 There is a long tradition within structural sociology of trying to operationalize the related
27
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28 concepts status, prestige, power, influence, and the like (Faust, 1998; Freeman, 1979; Wasserman
29
& Faust, 1995:169-215). One of the most influential metrics available is known as eigenvector
30
31 centrality, it was originally proposed by Philip Bonacich (1972, 1987, 2007) and has been successfully
is
32
33 employed in interlocking directorate research in the past (Mizruchi & Bunting, 1981), particularly in the
34 context of board status as derived from their sociostructural embeddedness (Davis & Robbins, 2005). It
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35
36 can be intuitively understood as a weighed sum of not only direct connections but also indirect
37
connections of every length thus taking into consideration the whole structure in the network (Bonacich,
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38
39 2007:555).
40
41
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42 The results of the standardized regression models in table 7 offer a series empirical evaluations of
43 both the agency theory and social-embeddedness ideas about the effects of board oversight efficiency and
44
45 structural prestige on firm financial performance as proxied by the returns on assets and by the ratio
46
47 between the market value of a firm and its book value. The use of returns on assets as a measure of a
48 firms operational performance is quite standard in the literature; the use of the market value to book value
49
50 ratio on the other hand is, as Fama and French have argued based on the standard efficient market
51
hypothesis framework, a stable and reliable assessment of firm performance as viewed by stock holders
52
53 and equity investors (Fama & French, 1995). Regarding the independent variables in the models, four of
54
55 them are of conceptual importance while the others are general control covariates. The first variable is
56 eigenvector centrality as a measure of the structural prestige of a firm (the base 10 logarithm of this
57
58
59
60 20
!
1 !
2
3 metric is employed in order to achieve a more Gaussian distribution since many centrality measures are
4
5 highly skewed when dealing with social phenomena (Newman & Park, 2003)). The next three are the
6
7 three most common board characteristics that have been assessed in hundreds of studies of American
8 firms; board composition as the proportion of independent board members, a dichotomous variable to test
9
10 for the effects of CEO Duality, and the size of the board itself.
11
12
13
14 -------------------------------------------
15
17 -------------------------------------------
18
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19
20
21 The first 3 regression models test the effects of the mentioned variables on market to book value
22
23 ratio, where as the last 3 do so on the returns on assets metric. As can be seen, these last 3 models in all
No
24
25 cases yield statistically unstable coefficients and the models themselves, based on the low F-values, do
26 not fit the data well. Of the first three, only models 1 and 2 offer clearly acceptable fits to the data (i.e., p-
27
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28 values < 0.05) since model 3s F-value yields a 0.065 p-value that can be considered marginal at best.
29
30 It is clear from the positive and stable coefficient in the eigenvector centrality variable in models
31
is
32 1 and 2 that occupying more central positions in the network of interlocks has a positive effect on the
33
34 amount investors are willing to pay for a companys stock above its value in books. These results are in
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35 line with the idea that the a firms prestige is enhanced by being linked to other prestigious firms though
36
37 socially important individuals such as Mr. Gonzalez Laporte or Slim Heliu previously mentionedand
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38
that this prestige is seen as a valuable by investors in the stock market. This same prestige variable,
39
40 however, has no effect whatsoever on the firms operational performance as measured by returns to
41
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42 assets. I interpret these results as suggesting that while being more prestigious is something that can be
43 capitalized in the stock market, thus far firms do not appear to be capable of utilizing this situation to their
44
45 advantage at an operational level (e.g. negotiating more advantageous contracts with suppliers,
46
47 distribution channels, etc.).
48
49 The coefficients of the agency theory variables in all cases save one yield statistically unstable
50
51 results. The only instance in which a variable from this theoretical tradition yields a statistically
52 significant result is found in regression model 3; the variable in question is board size. What is striking,
53
54 however, is the positive sign of the coefficient since based on the conceptual considerations discussed
55
56 above one would have expected a negative relationship given that larger boards are supposed to be
57 inefficient, thus reflect badly on performance. In this model the eigenvector centrality variable measuring
58
59
60 21
!
1 !
2
3 prestige is not present, and I suspect that board size is functioning in a similar manner. The lack of stable
4
5 regression coefficients for these agency theory variables on models 1, 2 and 3 suggest that these traits of
6
7 boards are not being employed as signaling devises by investors in the Mexican context to asses a boards
8 effectiveness, independence or efficiency. Their unreliable results on models 4, 5 and 6 suggest that they
9
10 have no noticeable effect in reducing the transaction costs involved in keeping managers in line with
11
owners interests is found; Mexican boards do not seem to be involved in the monitoring of managers,
12
13 they do seem to be important for signaling firm prestige, however.
14
15
16 The reasons as to why these traditional agency theory board composition variables do not have
17 the theoretically expected effect go to the heart of the whole conceptual discussion regarding the world-
18
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19 wide variability in governance structures with which I began this article. Agency theory postulates the
20
existence a series of probabilistic relationships between specific dimensions of social interaction, and it
21
22 does so under the axiomatic assumption that they are universally true. When these relationships are not
23
No
24 found in particular empirical instances an erroneous conclusion would be to state that, thus, the theory as
25 a whole is universally wrong. The far more likely, and intellectually productive scenario is that the theory
26
27 has epistemic validity only under those circumstances when the assumptions all of which might not be
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28
29 either explicitly formulated, consciously recognized, or both on which it is built are met. Such is I
30 believe the case regarding the notion of the universal separation between ownership and control, and the
31
is
32 purely cost-reducing-economic function of governance structures on which agency theory was developed.
33
When these, or other assumptions are not met (and meeting them is evidently a matter of degree, not an
34
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35 either/or issue), there are no epistemically solid basis on which to expect the theory to apply or help
36
37 clarify observed empirical patterns. The work that has to be done needs to be designed to help determine
bu
38 what those circumstances are under which the predictions of the theory empirically pan out.
39
40
41 In the process of theory building, which necessarily includes the empirical testing of ideas and the
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42
semantic clarifications that ensue (Quine, 1993, 2004), one finds that theories tend to fall into logical
43
44 hierarchies regarding their efficient explanatory domains (Merton, 1957). This is I believe the case of the
45
46 logical relationship between the theories sketched in the introduction to this article. They constitute an
47 ever-expanding empirical domain where they are applicable, from the most micro and particular ones of
48
49 transaction costs and agency theory, to the more macro and general ones of the socio-political economy of
50
51 capitalism.
52
53
54
55
56
57
58
59
60 22
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2
3 CONCLUDING REMARKS
4
5
6 Throughout this article, when it was deemed appropriate I have made the concluding remarks or
7
comments necessary for each section. I have, thus, very little to state here that would add to what has
8
9 already been said. One issue I deliberately left of both the conceptual review and empirical treatment
10
11 regarding the Mexican experience concerns the question of convergence towards some, presumably,
12 universal or somehow natural form of social structure regarding firm governance in particular, or
13
14 capitalism in more general terms. This is an issue over which there is little conceptual clarity and much
15
16 discussion within the corporate governance literature (Davis & Marquis, 2005).
17 As an anthropologist I find these discussions of fundamental theoretical importance and also
18
Do
19 extremely interesting, while at the same time, however, somewhat reminiscent of discussions that
20
dominated anthropology during large part of the 20th century (for details on this history see Carneiro,
21
22 2003; Harris, 2001:80-249). These discussions in anthropology began with the first tentative efforts to
23
No
24 classify the known worldwide ethnographic variability at the time still based on little systematic or
25 reliable evidenceinto some kind of theoretical model. Evolutionary thinking coupled with the periods
26
27 blind belief in the notion of progress the two not always being clearly demarcated at the time (Bowler,
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28
29 1989; Nisbet, 1980) being the dominant conceptual schemes naturally lead scholars to devise a series
30 of classificatory systems that invariably arranged world societies along some unilineal continuum of
31
is
32 societal evolution with western European naturally holding the top/convergent echelon in the model.
33
This period also saw the rise and in some cases fallamong other such unilineal models of historical
34
tri
35 progression, Hegelian dialectical idealism, a wide variety of nationalisms, historical and racial
36
37 determinisms, social Darwinism, Spencerism, historical materialism in the works of Marx, Engels and
bu
38 then Lenin and Mao, and lets not forget the liberal-progressive belief that free markets would lead to the
39
40 technical innovations and societal arrangements that allow for a more unrestrained manifestation of the
41
true nature of the human spirit. Needless to say, most of these ideas have come to be understood more as
te
42
43 the ethnocentric doctrines of specific peoples in concrete historical circumstances than epistemically
44
45 transparent models of empirical processes. More empirically flexible, multilinear historical schemas are
46
the ones now employed to model and understand processes of social change (for examples of such models
47
48 see Johnson & Earle, 1987; Sanderson, 1995; Trigger, 1993). An important theoretical objective for these
49
50 models is be able to explain under which particular empirical conditions it is reasonable to hold true
51 specific theoretical predictions, and under which conditions alternative models are more likely; all within
52
53 the domain of a single scientific research program.
54
55 In the other only published academic work on Mexican corporate governance practices, its
56 authors naively and somewhat simplistically at least in my mindconclude that as international (i.e.
57
58
59
60 23
!
1 !
2
3 foreign) capital increases its stake in Mexican firms these will inevitably move towards the Anglo-
4
5 American model of corporate governance, and that this trend will represent an improvement over the
6
7 more paternalistic system now in place (Husted & Serrano, 2002:346). It might well be the case that as
8 international capital demands more accountability, transparency and legal means of investor protection,
9
10 Mexicos system and all other systems, for that matterwill converge towards the Anglo-American
11
model. But this idea rests on a series of important assumptions that might not be as general as some of its
12
13 proponents believe. For one, it assumes that the main reason for the existence of these structures its best
14
15 functional explanationis the economic services they provide in minimizing transaction costs between
16 social actors (DiMaggio & Powell, 1983). As I have tried to argue, and attempted show for the Mexican
17
18 case, they might be there for other reasonsi.e., serve other societal functions which might be more
Do
19
20 important or somehow valuable for a particular society in the long run or based on its particular path-
21 dependent history. If this latter scenario is the case in Mexico, convergence might occur in some aspects,
22
23 but not others, some of the convergent-changes might be purely formal i.e. in paper, without any actual
No
24
impact on the behavioral doings of individuals or firms, as I believe is the case regarding the C.C.E.s
25
26 publication of its code of best practices for corporate governanceswhile in some dimensions there
27
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28 might be no convergence at all.

29 The variety of manifestations of ownership and corporate structures around the world should not
30
31 be that surprising. They reflex the particular, historically dependent, social processes upon which they are
is
32
33 built. As scientists what we need to do is strive to, in all their variety and as coherently as possible,
34 explain them.
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37
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6 TABLES
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9
10
11
12 Table 1. Mexican Growth
13
14
At the end of the decade
15 Average Economically active population
16 GDP Population Urban Comerce
17
18 Decade Growth for (millions) Population Agriculture Industry & Services
Do
19 1900s 3.24 15.2 29% 67% 12% 15%
20
21 1910s -0.10 14.3 31% 71% 11% 7%
22 1920s 1.27 16.6 33% 70% 13% 6%
23
No
24 1930s 2.57 19.7 35% 65% 11% 13%

25 1940s 5.14 25.8 43% 58% 12% 19%
26
27 1950s 6.30 34.9 51% 54% 14% 23%
tD
28 1960s 6.64 48.2 59% 39% 17% 26%

29
30 1970s 6.43 66.8 66% 26% 12% 20%
31 1980s 2.34 81.2 71% 23% 19% 38%
is
32
33 1990s 3.38 97.5 75% 18% 19% 46%
34 Source: INEGI (2009)
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 33
!
1 !
2
3
4 Table 2. Board and Firm Characteristics
5
6 Std.
7 Mean Deviation
8
9 Total Board Members 20.57 7.31
10 Active Board Members 14.02 4.49
11 Substitute Board Members 6.00 5.49
12 Independent Board Members (%) 23.1% 9.4%
13
14
15 Assets * 37.04 82.13
16 Liabilities * 22.88 61.58
17 Equity * 12.87 26.28
18
Do
Annual Sales * 18.28 31.58
19
20 Return on Equity (%) 8.04% 29.85%
21 Return on Assets (%) 3.90% 6.59%
22 Debt / Equity Ratio 1.97 3.20
23 * Millions of 2004 Pesos
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 34
!
1 !
2
3
4 Table 3. Socio-structural Characteristics
5
6 Firm level metrics Mean Std. Dev. Min. Max.
7 No. of links to other boards 8.66 8.02 0.00 31.00
8
9 % of members who form links 42.0% 37.8% 0.0% 172.2%
10 Distance to all reachable firms 2.75 1.05 1.00 8.00
11
12 Density of firms's personal network 40.0% 27.8% 0.0% 100.0%
13 Burt's Effective Size of network 5.34 4.98 0.00 20.08
14
15 Network level metrics Value
16
17 Network Density 7.6% (996 ties of 13,110 possible)
18
Do
Watts' Clustering Coefficient 0.44
19
20 Network Centralization 19.9%
21
22
23
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 35
!
1 !
2
3
4 Table 4.
5
a) Regional Interlocking Densities
6
7 North North
8
9
Center East West West
10 1 Center 8.6% 7.6% 4.4% 1.3%
11
12 2 Northeast 7.6% 20.3% 4.2% 6.3%
13 3 West 4.4% 4.2% 5.6% 0.0%
14
15 4 Northwest 1.3% 6.3% 0.0% 6.7% $
16 "
17 b) Regional Development Characteristics
18 Mean
Do
19 #
20 Firms Sales* HDI GNP !
21 1 Center 76 19.42 0.77 44.7% %
22
23 2 Northeast 24 23.33 0.82 15.5%
No
24 3 West 9 4.36 0.78 17.0%

25
26 4 Northwest 6 5.99 0.81 13.1%
27 5 South 0 - 0.79 9.7%
tD
28
29 * Millions of 2004 Pesos
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 36
!
1 !
2
3
4 Table 5. Sectoral Interlocking Densities
5
6 Mining Transp &
7 & Const Manuf Comun Comm Services Financial % GDP Firms
8
9 Mining & Const 3.6% 4.5% 18.8% 7.2% 14.0% 6.6% 5.4% 8
10 Manufacturing 4.5% 6.2% 6.5% 4.9% 8.3% 7.3% 33.0% 41
11
12 Transp & Comun 18.8% 6.5% 21.2% 8.8% 14.7% 6.4% 4.6% 12
13 Commerce 7.2% 4.9% 8.8% 2.3% 7.7% 6.5% 6.9% 19
14
15 Services 14.0% 8.3% 14.7% 7.7% 14.0% 9.3% 11.0% 17
16 Financial 6.6% 7.3% 6.4% 6.5% 9.3% 11.8% 2.5% 18
17
18
Do
19
20
21
22
23
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 37
!
1 !
2
3
4 Table 6. Bank's Centrality in the Network
5 t - tests
6
7 No. of Number of Reach Centrality Distance to all
8 Firms Board Size Interlocks (k = 2) firms
9
10 Banks 5 27.20 14.60 0.59 2.33
11 Non-Banks 110 20.26 8.39 0.36 2.77
12
13 Banks difference in means 6.94 6.21 0.23 -0.44
14 P Value 0.027 0.063 0.02 0.002
15
16
17
18
Do
19
20
21
22
23
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 38
!
1 !
2
3
Table 7. Standardized regression models for effects on firm performance
4
Dependent Variable Market to Book Value Return on Assets
5
Model 1 2 3 4 5 6
6
R Squared 0.266 0.192 0.192 0.145 0.067 0.101
7 Adj. R Squared 0.146 0.104 0.091 0.024 -0.008 0.005
8 F Value 2.215 2.177 1.905 1.202 0.897 1.050
9
Std. Coef.
Std. Coef.
Std. Coef.
Std. Coef.
Std. Coef.
Std. Coef.
Std. Error
Std. Error
Std. Error
Std. Error
Std. Error
Std. Error
P Value
P Value
P Value
P Value
P Value
P Value
10
11 Independent Variables
12 Eigenvector Centrality 0.30 0.16 0.03 0.32 0.14 0.01 - - - 0.09 0.01 0.51 0.11 0.01 0.33 - - -
13 Prop. of independent members -0.17 1.85 0.23 - - - -0.03 1.61 0.84 -0.12 0.10 0.36 - - - -0.03 0.09 0.78
14 CEO is Chairman of Board -0.03 0.29 0.85 - - - -0.02 0.27 0.90 -0.10 0.02 0.45 - - - -0.08 0.02 0.50
15 Board Size 0.14 0.02 0.37 - - - 0.28 0.02 0.04 0.15 0.00 0.31 - - - 0.19 0.00 0.14
16 Control Variables
17 Manufacturing company -0.16 0.47 0.43 -0.12 0.47 0.56 -0.19 0.43 0.33 -0.32 0.03 0.13 -0.15 0.02 0.29 -0.25 0.03 0.22
18 Services company -0.17 0.52 0.32 -0.14 0.52 0.43 -0.10 0.48 0.57 -0.28 0.03 0.12 -0.16 0.02 0.21 -0.14 0.03 0.40
Do
19 Commercial company -0.08 0.52 0.66 -0.04 0.51 0.83 -0.01 0.49 0.97 -0.23 0.03 0.23 -0.06 0.02 0.65 -0.14 0.03 0.45
20 Transport or commun. company 0.08 0.57 0.62 0.12 0.56 0.45 0.15 0.53 0.36 -0.26 0.04 0.13 -0.09 0.03 0.44 -0.21 0.03 0.19
Geographically in 'center' -0.05 0.42 0.80 -0.02 0.42 0.91 -0.03 0.35 0.83 -0.09 0.03 0.62 -0.11 0.03 0.53 -0.06 0.02 0.69
21
Geographically in 'northeast' -0.17 0.45 0.34 -0.14 0.46 0.42 -0.11 0.39 0.47 0.08 0.03 0.67 0.11 0.03 0.53 0.09 0.03 0.56
22
23
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60 39
!
1 !
2
3
4
5
6 FIGURES
7
8
9
10
11 Figure 1. Network of Interlocking Directors
12
13
14
15
16
17
18
Do
19
20
21
22
23
No
24
25
26
27
tD
28
29
30
31
is
32
33
34
tri
35
36
37
bu
38
39
40
41
te
42
43
44
45
46
47
48
49
50
51
52
53
54
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57
58
59
60 40

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24 and function in different settings.

24 function as mutually reinforcing strands of cohesion (Useem, 1980:58).

24 INSERT FIGURE 1 ABOUT HERE

24 geodesic distance to all other firms being smaller.

28 INSERT TABLE 6 ABOUT HERE

28 might be no convergence at all.

24 Mathematical Sociology, 2(1), 113-120.

42 Vancouver, BC - Canada: Empirical Press.

28 Systems. The Journal of Finance, 48(3), 831-880.

28 Networks. Annual Review of Sociology, 27, 415-444.

42 Measures. Administrative Science Quarterly, 26(3), 475-489.

24 1930s 2.57 19.7 35% 65% 11% 13%

28 1960s 6.64 48.2 59% 39% 17% 26%

24 3 West 9 4.36 0.78 17.0%

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