The Italian Chamber of Lords Sits on Listed Company Boards. An Empirical Analysis of Italian Listed Company Boards from 1998 to 2006 P. Santella, C. Drago, A. Polo This paper is available free of charge on IDEAS: and SSRN: Workshop: “Models and Methods for relational data Università degli Studi di Salerno, Salerno, (Italy). July 13-14, 2009

P.Santella, C.Drago, A.Polo 2 Interlocking directorships in Italy Aim of the paper Analysing the interlocking directorship network of Italian listed companies over time and space Studying the collusion patterns among different companies and markets Comparing the network of the Italian financial interlocking directorship with France, Germany, UK, and the US (empirically verifying the different modalities of Bank-Firm relationship) Applying the SNA methodology to study the functioning of markets

P.Santella, C.Drago, A.Polo3 Interlocking directorships in Italy Methodology Initial dataset Adjacency matrices Directorships analysis Network components Network cohesion Network centrality Network longitudinal data Link persistency Two way matricesSocial Network Analysis Exploratory Data Analysis approach

P.Santella, C.Drago, A.Polo4 Interlocking directorships in Italy Data Board composition for the Italian stock market (MTA market, in % of the total capitalisation of Borsa Italiana). We cover the period for a total of 21,000 directorships. From the initial dataset we obtain firstly the two-way matrices and secondly the adjacency matrices to analyse the network of companies and the network of directors. We compare all the listed companies with the Italian Blue Chips index MIB30/S&P-MIB 40.

We collect data for each company board (source: Consob)‏ We archive the data in the “interlocking database”. The table structure: we collect data for all the directors (name and surname) in each company over the time… …so as to obtain the directorships data view over the time… The query permits the automatic computation …and the affiliation matrix used in the first part of the analysis…through the Ucinet software we obtain the adjacency matrix

P.Santella, C.Drago, A.Polo 6 Interlocking directorships in Italy Results Exploratory Data Analysis of the directorships over the time Social Network Analysis by considering: 1)The Italian Blue Chips (the most capitalized companies, about 80% of the total market capitalization) as an economic and financial centre of the entire system. 2) All the Italian listed companies either at company level and at director level. 3) Different sectors (or industries). We consider, in particular, the network of financial companies.

P.Santella, C.Drago, A.Polo7 Interlocking directorships in Italy Directorships The two vertical lines represent 1 directorship and 2.5 directorships every year. The great majority of the directors are on the left of the 2.5-directorship line- 84% one directorship (one-timers), 10% two (two-timers) 6% more than two (multi-linkers\Lords) Similar data structure over nine years. We observe a reduction in the maximum number of directorships by director in

P.Santella, C.Drago, A.Polo8 Interlocking directorships in Italy The two vertical lines represent 1 directorships and 2.5 directorships every year Directorships by gender Very different pattern between male and female during the years. Overhelming majority of male directors (96%) with respect to female directors (4%- 5% in 2006). Few Lords, female directors they tend to be part of families.

P.Santella, C.Drago, A.Polo Interlocking directorships in Italy (vu oto)‏ Totale complessivo (80 %)‏ (vuoto)‏ Totale complessivo P.Santella, C.Drago, A.Polo9 Interlocking directorships in Italy (vuoto )‏ Totale complessivo (78% )‏ (vuoto)‏ Totale complessivo Flows and Number of directors by directorships at time t in the row-time t+1 in the columns Being one or multi-timer determines the career- path. We have two career path one for one- timers\two timers one for big linkers. For instance low mobility from one directorships to four directorships

10 Interlocking directorships in Italy The first eleven directors by number of directorships ‏ Lords: different career paths We identify 75 Lords, directors with at least 2.5 directorships per year from 1998 to 2006 (at least 23 in nine years). They tend to belong to families and to be also shareholders. Lords are the main system connectors Families on the rise and families declining Directorships by Families (first eleven ones)‏ Over the nine years emergence of several families such as Benetton, Pesenti, Caltagirone. Negative correlation in the same family (the father declines, the son rise). Families ensure system continuity over the time

1998 Italian Blue Chips Structural stability of the system, low number of isolates and low number of components. Mediobanca is the center by betweenness either in the Italian blue chips network and the listed companies netwok.

P.Santella, C.Drago, A.Polo Interlocking directorships in Italy Changes year by year are due to changing alliances at the control of companies and corporate governance reforms

Over the time we observe a reduction of the density and a general simplification of the network. We extend our focus to different sectors, and we explore the financial one…

P.Santella, C.Drago, A.Polo Interlocking directorships in Italy FranceUK GermanyUS Internationally we observe a similar network structure for France and Germany where there are differences with US and UK. This is coherent with expectations on different financial models.

P.Santella, C.Drago, A.Polo15 Interlocking directorships in Italy Y-axis scales used are different to improve data visualization First componentIsolates Total componentsTotal companies All listed companies

P.Santella, C.Drago, A.Polo16 Interlocking directorships in Italy Y axis -scales used are different to improve data visualization Density: listed companiesDensity: Blue Chips Clustering coeff. : listed companiesClustering coeff. : Blue Chips Density: listed companiesDensity: Blue Chips Clustering coeff. : listed companiesClustering coeff. : Blue Chips Density: listed companiesDensity: Blue Chips Clustering coeff. : listed companiesClustering coeff. : Blue Chips Density: listed companiesDensity: Blue Chips Clustering coeff. : listed companies

P.Santella, C.Drago, A.Polo17 Interlocking directorships in Italy The more central companies in the network tend not to change in (for example Mediobanca, Pirelli and Ras)

P.Santella, C.Drago, A.Polo18 Interlocking directorships in Italy The more central directors in the network tend not to change in

P.Santella, C.Drago, A.Polo Italian Financial Blue Chips 2000 Focus on the different sectors: we observe a main component for financial companies during The network contains few isolates. The network shows a similar structure over time with Mediobanca at the center.

P.Santella, C.Drago, A.Polo Link persistence during 9 years. This result is coherent with others observed in the paper.

P.Santella, C.Drago, A.Polo Over time we observe a general simplification of the system… probably due to corporate governance reforms and market pressure (reduction of multiple diectorships).

P.Santella, C.Drago, A.Polo22 Interlocking directorships in Italy Conclusions. Our main findings: Multiple directorships around 16-17% of the total number of directors every year. Stability of career paths over the time: it is difficult for directors with one or two boards to move on to three or more directorships. We identify 75 “Lords” who sit on more than 23 boards in nine years (at least 2.5 boards per year). Lords are predominantly male and tend to be part of families of directors/shareholders. They are the main company connectors. The company network is characterized by one component with more than 70% of all the listed companies. The higher number of connections for the Blue Chips (MIB 30-S&P MIB 40 ). Companies in central position within the network tend to remain central over the nine years considered ( ). Persistence in the links among almost all the financial and non-financial companies belonging to the Blue Chips index MIB 30-S&P MIB 40.