■ Introduction to the paper
- Title: Corporate Networks
- Authors: WK Carroll, MJ Huijzer, JP Sapinski
- Source: Handbook of Social Network Analysis, 2024
- See also: Park & Oh, "The Core of Board Networks and Firm Value", Frontiers in Physics, 2023
■ What is Interlocking Directorate?
- A structure in which one person participates in two or more corporate boards of directors simultaneously
- Director of company A concurrently serves as director of company B → A and B share the same directorship
- When these connections are formed across multiple companies → a corporate network is created.
- In 1905, it was first demonstrated that Germany's six largest banks had 1,350 concurrent director connections with industry.
■ What the paper reveals — Concurrently serving as a director is a guide to capital power
- Concurrent director network = realistic terrain of capital relations
- As capital becomes more concentrated, the director network is also concentrated around a few people.
- The more directors are at the center (hub) of the network, the more they can intervene in corporate decision-making.
- Park & Oh (2023): The more a company is at the core of the director's network, the more significantly its corporate value is affected.
- Concurrently serving as a director is a channel for information and control.
■ Evangelist’s Empathy: Changing executives is a reorganization of the network
- When executives are replaced, it is not simply a change of one person.
- The entire network to which the executive belongs enters the company.
- In particular, you should pay attention to the following signals:
[Signal 1] Sudden input of board members from outside
- Existing board members are pushed out and new people take over the board.
- The key is which network the new board of directors is connected to.
- If a person connected to a specific private equity fund or power joins the board of directors → it is a sign of an inflow of funds.
[Signal 2] Overlapping concurrent positions as outside director
- A specific outside director appears in several companies at the same time
- Companies are connected through these outside directors.
- It has a connecting role, not a monitoring role.
[Signal 3] Entry of the largest shareholder’s specially related person to the board of directors
- The most effective way to control the board of directors without equity
- It is not revealed in public announcements, but can be traced through relationships.
■ Relational Risk Human Risk
- RaymondsRisk tracks 49,446 executives across all KOSPI and KOSDAQ companies.
- Change in connection of executive network = Human Risk indicator
- Which company is the new director connected to? → The direction of fund flow can be estimated.
- A rapid increase in the density of concurrent directorships = a signal that certain forces are expanding their control over the company.
- Executive network indicators generate abnormal signals before financial indicators
■ Conclusion
- The list of executives is not just personnel information.
- Where the executive comes from and where he or she is connected to determines the future of the company.
- Capital moves through relationships
- Reading relationships is reading the movements of capital.
■ Reference materials
- Carroll, Huijzer, Sapinski, Corporate Networks, Handbook of Social Network Analysis, 2024
- Park & Oh, The Core of Board Networks and Firm Value, Frontiers in Physics, 2023: https://www.frontiersin.org/journals/physics/articles/10.3389/fphy.2023.1099870/full
- RaymondsRisk White Paper: https://www.konnect-ai.net/whitepaper
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