The chemical brothers: Competition and the evolution of the board interlock network in the German chemical industry, 1950–2015

Abstract

Utilising a unique and original dataset on the board composition of the 35 largest German chemical producers over the 1950–2015 period, the article tracks the entire lifespan of the industry’s reconstituted board interlock network. Regarding the network as a mechanism for controlling competition among its members, we consider changes in its strength over time. We find that a close-knit network came into existence in the 1950s, culminating in the 1970s and 1980s, after which it began to weaken. We highlight the importance of various meeting places for top-level directors from the chemical industry, including bank boards, and moreover introduce a novel measure that makes it possible to consider the significance of past ties to the strength of the network. Situating the findings in a wider political-economic context, we suggest that in important respects Germany’s coordinated form of capitalism is likely to have been even more coordinated than has been recognised.

Keywords:

• Germany
• corporate networks
• chemical industry
• competition
• banks

Acknowledgements

We would like to thank the reviewers, the editor, colleagues at the Department of Organization and the former Department of Business and Politics (Copenhagen Business School) as well as participants in the corporate networks session at the Third European Conference on Social Networks in Mainz in September 2017 for many great comments. We are moreover grateful to Martina Maasjosthusmann at the Wirtschaftsarchiv, Wirtschafts- und Sozialwissenschaftliche Fakultät, Universität zu Köln and to the organisations that provided us with annual reports and other information.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on Contributors

Hubert Buch-Hansen is an Associate Professor at the Department of Organization, Copenhagen Business School. His research focuses on business networks, the regulation of competition and sustainability. He currently leads a research project, Longitudinal Elite Networks, which explores the long-term evolution of Danish elites.

Anton Grau Larsen is an Assistant Professor at Copenhagen Business School and Roskilde University. His research focuses on elites, corporate interlocks, networks and fields. He is currently a part of the Longitudinal Elite Networks project.

Notes

1 A board interlock occurs when a director simultaneously serves on the boards of two companies.

2 The data that support the findings of this study are openly available in Zenodo at https://doi.org/10.5281/zenodo.4720448.

3 In reality, the number of employee representatives was somewhat higher: prior to the 1990s, it does not appear from the annual reports of some of the companies in which supervisory board members were employee representatives. In cases where it could not be established whether an individual was an employee representative, s/he was categorized simply as a supervisory board member.

4 This measure can be seen to illustrate the usefulness of network analysis as a method for getting beneath surface appearances (Buch-Hansen, 2014b).

5 There can be various reasons as to why Stada did not interlock with other companies in the population. An important part of the explanation is to be found in the company’s rather unusual history. Stada has its roots in a pharmacists’ cooperative founded in 1895. It became a corporation (limited company) in 1970, yet only pharmacists and company employees were allowed as shareholders until 1993. The type of ownership relations that often exist in parallel with board interlocks were thus ruled out for most of the period covered here, including the decades during which the chemical industry’s board interlock network emerged and consolidated. Moreover, the company appears to have had a strongly international outlook from the mid-1980s onwards. Against this background, it can be hypothesized that intra-sectoral board interlocks in the German market were deemed less attractive than interlocks with companies in foreign markets. To assess this hypothesis, however, additional data and research are required.

6 Here we do not take multiple ties into consideration, i.e. that some company dyads were in some years connected through more than one tie.

7 Towards the very end of the time window, at which point the number of ties was low compared to earlier, the share of primary interlocks also grew.

8 In fact, ownership patterns in this and other industries have changed fundamentally in recent times. A 2017 report published by the German Institute for Economic Research reveals that the world’s largest institutional investor, BlackRock, has become heavily involved in the German chemical industry (Seldeslachts et al., 2017). Some scholars argue that such common ownership is a mechanism that serves to reduce competition (Elhauge, 2015).

9 Related to the issue of internationalisation, research has found that one factor causing the thinning of national board interlock networks is the large increase in foreign directors from the 1980s onwards (a case in point is Switzerland, see Bühlman et al., 2017; Ginalski et al., 2014, p. 118). Such directors typically do not hold multiple boards in a single country. Our data do not include information on the nationality of directors, and as such we cannot assess the hypothesis that the observed developments were partly caused by an increase of foreigners. It can be noted, however, that Van Veen and Elbertsen (2008) found a sample of German companies to have a significantly lower number of foreigners on their boards than had Dutch and British companies.

10 The exception was the steel industry, in which large competitors were linked via board interlocks.

11 Other forms of ties than those we have focused on here existed between the Big Three. For instance, Aftalion (2001, pp. 246–247) notes that in the 1950s and 1960s the managing boards of the Big Three ‘were headed by eminent chemists – Professors Wurster at BASF, Haberland at Bayer, and Winnacker at Hoechst – who knew one another and held one another in high esteem. […] these leaders were careful not to compete too relentlessly with each other’ (see also Winnacker, 1972, p. 101).