CHAPTER 7

Corporate Networks in Mexico

Corporate networks are the foreseeable links between companies and their leaders. They are formed by ties among directors sitting in more than one board—interlocks. These links are proxies of a country’s economic structure and its corporate governance system. Because economic action is embedded in social structures (Granovetter 1985), individuals are actors operating within a network. Individuals then can not only influence these networks but they are also constrained by them.

Networks emerge because boards are made of insiders and outsiders. Outsiders are usually recruited from other firms or from financial, public, or government institutions. This recruitment is many times based on shared backgrounds, friendship, or family ties (Scott 1991). Directors with more than three board positions are known as “big linkers” and they are considered an inner circle of the business elite, which can be politically influential and usually defend the interests of the business elite.

Differences in institutional backgrounds can lead to different developments of corporate networks across countries. The “cultural and historical embeddedness of personal, capital and commercial relations in business” (Scott 1991, 1995) deeply influences networks; Mexico experienced long periods of instability after independence from Spain in 1821. Stability prevailed for 34 years with the dictatorship of Porfirio Diaz (1876 to 1910) but then relapsed with the Mexican revolution (1910 to 1927). Political instability usually leads to weaker institutions: Maurer and Sharma (2001) suggest that poor protection of property rights in Mexico is a key reason for the existence of corporate elites. Because collateral was hard to repossess in a default case, banks and firms developed business groups to function as monitors and contract enforcers. Haber, Razo, and Maurer (2003) argue that to overcome poor property rights protection, the government and the elites developed an implicit regulatory pact where they became partners in the distribution of privileges and rents while guaranteeing enforcement of these rights to select groups. Personal elite connections were also necessary to get equity buyers or bank loans. Hence, firms in Mexico probably relied on networks to substitute for the country’s institutional failures (Musacchio and Read 2007).

In 1982 the Mexican banking system was nationalized; this event altered the country’s network structure since banks and business groups had developed intense relationships. Banks were privatized in 1989, reestablishing the network centralized structure. The Mexican financial crisis of 1994 altered the network structure again: after the crisis, foreign ownership of banks increased to more than 90 percent and the network experienced less interaction intensity as well as dispersion and withdrawal. This was probably because the network was losing significance both for domestic and foreign members. This last event proved more harmful for the network’s interlocking patterns than the 1982 nationalization (Salas-Porras 2006a).

Today, interlocking directorates are still commonplace in Mexico: not only within business groups but across them. This allows controlling shareholders to exercise a greater influence over firms. Independent directors are many times chosen on the basis of loyalty and personal relationships rather than on technical skills or unbiased views.

Because networks have proved to be a substitute for formal institutions, firm owners still use them to monitor each other negotiating in a system that relies more on traditions. Large shareholders also assume board positions to protect their investments and link their firms (Auvray and Brossard 2013). Countries dominated by business groups (i.e., Taiwan) show that board interlocks are primarily used as control mechanisms (Brookfield 2010). Thus, countries with high ownership concentration tend to have more interlocks and cohesive corporate networks. Cohesive networks also allow for collusion, collaboration, cooperation, and collective action, while fragmented networks foster autonomy, competition, and reduce contagion risks (Mizruchi 1996; Cárdenas 2014).

Musacchio and Read (2007) conclude that in Mexico: i) there are a large number of connections due to directors serving in various boards simultaneously and ii) politicians play a more important role in the network. In a more recent study that compares networks in Latin America, Cárdenas (2016) concludes that in countries where state–business relationships are moderated by strong business associations (i.e., Mexican CMN/CCE) and are open to free trade with developed economies, corporate elites form cohesive networks (Mexico, Chile). And in countries where business associations are weak, state–business relationships are particularistic, and domestic markets are protected from foreign competition—Brasil, Colombia—corporate elites do not feel the need to form cohesive networks.

In Tables 7.1, 7.2, and 7.3 we can see the main characteristics of the most central directors (1900 to 2015) and firms (2015). Please note how the importance of government ties decreases significantly in the two periods; in 1900 only two of the most central individuals were not tied to the government. In 2015 it is the opposite; only two of the most central individuals had government ties. It is also interesting to note that these two individuals had “technical” and not “political” ties to the government: Jaime Serra-Puche was secretary of commerce when NAFTA was negotiated and Everardo Elizondo was deputy governor for the Bank of Mexico.

Table 7.1 Most central directors 1900

Source: Based on Eigen centrality. Musacchio, A., and I. Read. 2007. “Bankers, Industrialists, and their Cliques: Elite Networks in Mexico and Brazil during Early Industrialization.” Enterprise & Society 8, no. 4, pp. 842-80.

Table 7.2 Most central directors 2015

Source: Based on Eigen centrality. Salvaj, E., J.L. Rivas, and M. Cordova. 2018. “Corporate Elites in Latin America.” Working Paper.

Table 7.3 Most central firms 2015

Source: Based on Eigen centrality. Salvaj, E., J.L. Rivas, and M. Cordova. 2018. “Corporate Elites in Latin America.” Working Paper.