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Interlocking Directorates in Large American Corporations, 1896-1964*

Published online by Cambridge University Press:  11 June 2012

David Bunting  and
Jeffery Barbour
David Bunting
Affiliation:
Graduate Student in Economics, University of Oregon
Jeffery Barbour
Affiliation:
Graduate Student in Economics, Florida State University
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Abstract

An examination of interlocking directorates in major American businesses since 1896 indicates that the incidence of interlocking has declined considerably in this century.

Type
Research Article
Information
Business History Review , Volume 45 , Issue 3 , Autumn 1971 , pp. 317 - 335
Copyright
Copyright © The President and Fellows of Harvard College 1971

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References

1 Bunting, David, “The Rise of Large American Corporations: 1896-1905,” (Ph.D. dissertation, University of OregonGoogle Scholar, in preparation), Chapter II.

2 Noyes, Alexander D., Forty Years of American Finance (New York, 1909), 344.Google Scholar

3 Seven hundred ninety-three trusts (453 industrial and 340 local or “natural”) are listed in the Congressional Record, XXXVI (1903), pp. 1848–1854Google Scholar; 628 trusts are found in the Congressional Record, LI (1914), 14218–14221Google Scholar; Moody has 445 industrial, utility, and transportation trusts, see Moody, John, The Truth About The Trusts (New York, 1904), 453–477.Google Scholar

4 Some well known failures and frauds are found in Arthur Dewing, S., Corporate Promotions and Reorganizations (Cambridge, Mass., 1914Google Scholar); the viability of these promotions is indicated by Livermore, Shaw, “The Success of Industrial Mergers,” Quarterly Journal of Economics, L (1935–1936), 68–95.CrossRefGoogle Scholar

5 Noyes, Forty Years of American Finance, 118.

6 Pratt, Seno S., “Our Financial Oligarchy,” World's Work, X (1905), 6704.Google Scholar

7 Ibid., 6704–6705.

8 Congressional Record, XLII (1908), 3795.Google Scholar

9 U.S. National Resources Committee, The Structure of the American Economy: Part I. Basic Characteristics (Washington, 1939), 163.Google Scholar

10 Dooley discusses his results as if they describe interlocking in 1965; however, his bibliography indicates he used 1964 data. See Dooley, Peter C., “The Interlocking Directorate,” American Economic Review, LIX (1969), 314–323.Google Scholar

11 Ibid., 322.

12 U.S. Senate, Committee on the Judiciary, Subcommittee on Antitrust and Monopoly, Economic Report on Corporate Mergers: Part 8a (Washington, 1969), 27.Google Scholar

13 We are assuming these organizations maintained their approximate relative position in the economy from 1896 to 1964. The only data we have for the 100 largest industrial corporations supports this assumption. In 1899 the 100 largest industrials (including mining) held 35.2 per cent of U.S. industrial capital; by 1904 this share increased to 42.9 per cent. See Bunting, “The Rise of Large American Corporations,” chapter II. In 1935, the 100 largest manufacturing corporations held 40.8 per cent of manufacturing assets; by 1964 this share was 45.8 per cent. See U.S. Senate, Economic Report on Corporate Mergers, 173.

14 For an extended discussion of the Manual of Statistics see Bunting, “The Rise of Large American Corporations,” chapter I.

15 See, generally: United States Investor, X–XVI (1899–1905Google Scholar); Josephson, Matthew, The Robber Barons (New York, 1962Google Scholar reprint of 1934); and Myers, Gustavus, History of the Great American Fortunes (New York, 1909, 1936).Google Scholar

16 Hawkins, David F., “The Development of Modern Financial Reporting Practices among American Manufacturing Corporations,” Business History Review, XXXVII (Autumn, 1963), 135–147.CrossRefGoogle Scholar

17 For industrial corporations: Assets =1.11 (capitalization), R2 = .9993, t = 284,27, N =.48. For railroad corporations: Assets = 1.09 (capitalization), R2 = .9922, t = 138.68, N = 50.

18 These manuals, for any given year, primarily included information regarding the preceding year. For example, unless specifically indicated otherwise, Moody's for 1936 contained 1935 information.

19 For discussions of various methods see: Dooley, “The Interlocking Directorate,” 315; Edwards, Corwin D., Maintaining Competition (New York, 1964Google Scholar reprint of 1949), 137; U.S. House of Representatives, Committee on the Judiciary, Antitrust Subcommittee, Interlocks in Corporate Management (Washington, 1965), 9–10Google Scholar; and U.S. Senate, Economic Report on Corporate Mergers, 198.

20 U.S. National Resources Committee, Structure of the American Economy, 307.

21 This method has ample precedent. See Ibid., 163; Dooley, “The Interlocking Directorate,” 314–16; and U.S. House of Representatives, Interlocks in Corporate Management, 9. In fact, this method is used in every study of interlocking we have found.

22 That is, we multiply the number of individuals by their number of positions and divide by total positions for each year.

23 In light of the recent controversy over the bankruptcy of the Penn Central Railroad, we calculated the proportion of nonfinancial corporations included in our sample which were interlocked with one or more of the twenty largest banks in 1964. We found that 68 per cent of the largest 100 industrials, fifty utilities, and twenty-five railroads were interlocked with at least one large bank. Most interlocked with the banks were industrials (75 per cent), followed by rails (67 per cent) and utilities (50 per cent). Thus a large part of American productive capacity is linked to these large commercial banks via interlocking directorates. One need not have much imagination to visualize the magnitude of these percentages should commercial banks in general, rather than the largest twenty such banks, be considered.

24 We selected four interlocked directorships rather arbitrarily. We do not suggest that this particular number has some special significance in and of itself. Further, we make no claim that the number of interlocking positions held is a perfect ordinal, much less cardinal, measure of economic influence. We maintain only that an individual who holds a relatively large number of positions is likely to have an influence in the business community.

25 Industrials, railroads, public utilities, and banks each constitute a sector. Since investment houses were not interlocked with each other (see Table 1), we combined them with banks for this discussion.

26 This conclusion is quoted in U.S. House of Representatives, Interlocks in Corporate Management, 28.

27 Allen, Frederick L., The Lords of Creation (New York, 1966 reprint of 1935), 83–85.Google Scholar

28 Ibid., 83.

29 Dictionary of American Biography (New York, various years), XIX, 176.Google Scholar

30 Ibid., VI, 84.

31 Ibid., XX, 606–611.

32 Ibid., VII, 188.

33 Ibid., XXII–XXIII, 601–603.