The politics of the German company network

Abstract

For over 100 years, the company network was a major feature of organized corporate governance in Germany. This paper uses network visualization techniques and qualitative-historical analysis to discuss the structure, origins and development of this network and to analyse the reasons for its recent erosion. Network visualization makes it possible to identify crucial entanglement patterns that can be traced back historically. In three phases of network formation – the 1880s, 1920s and the 1950s – capital entanglement resulted from the interaction of company behaviour and government policy. In its heyday, the company network was de facto encompassing and provided its core participants, especially the banks, with a national, macroeconomic perspective. In the 1970s, increased competition among financial companies set in. In the 1980s and 1990s, declining returns from blockholding and increased opportunity costs made network dissolution a thinkable option for companies. Because of the strategic reorientation of the largest banks toward investment banking, ties between banks and industry underwent functional changes. Since the year 2000, the German government's tax policy has sped up network erosion. Vanishing capital ties imply a declining degree of strategic co-ordination among large German companies.

Keywords:

• Corporate governance
• Political economy
• Network analysis

Acknowledgements

The authors would like to thank Pablo Beramendi, Helen Callaghan, Renate Mayntz, Abraham Newman, Wolfgang Streeck, Sigurt Vitols and two anonymous referees for helpful hints and comments.

Notes

Colour versions of the network figures can be downloaded at http://www.mpi-fg-koeln.mpg.de/pu/workpap/wp03-9/wp03-9.html.

Involvement is measured in terms of the amounts of the firms' net value added represented by the respective share blocks. The advantage of using net value added is that this measure is not as biased as different capital market valuations (which would be the case if share block prices were used) or towards the high vertical integration of manufacture (which would be the case if yearly sales were used).

To simplify the terminology, the term ‘non-financial companies’ refers to industrial companies, which by definition include both manufacturing and trade.

For statistical analysis of the structure of the German company network, see Ziegler (1984), Windolf and Beyer (1996), Beyer (1998), Kogut and Walker (2001), Windolf and Nollert (2001), Heinze (2002).

Münchner Rück, Bayerische Vereinsbank, Bayerische Hypobank and Commerzbank also belong to the network core and are both actively and passively involved.

This cluster is centred on the RAG (Ruhrkohle AG) and its shareholders VEBA, VEW, Krupp and Thyssen. RAG, in turn, holds shares in Ruhrgas. Additional Ruhrgas shares are held by Mannesmann, Krupp, RWE and VEBA. Further energy and utilities companies are to be found in the periphery of this cluster: Viag, Veag, Bewag, EVS and Hamburger Gesellschaft für Beteiligungsverwaltung.

Daimler-Benz/Metallgesellschaft, Henkel/Degussa, Deutsche Bahn/Lufthansa, Bilfinger + Berger/Buderus.

However, the example of Deutsche Bank board (since 1933, supervisory board) member Emil Georg von Strauss, who was the vice-president of the Reichstag after 1933, shows that NSDAP involvement could also be found among bankers.

Unfortunately, due to insufficient data availability, it is not possible to adopt the presented visualization technique for historical points before the mid-1990s. With the introduction of the Federal Securities Supervisory Office (Bundesaufsichtsamt für den Wertpapierhandel, BaWE) in 1994, the transparency of capital links increased, since the disclosure of all capital holdings larger than five percent of target companies was required for the first time.

Some mergers and takeovers have reduced the number of companies. Mannesmann has been acquired by Vodafone; Thyssen and Krupp have merged; VEBA and Viag have merged (now e.on); and RWE and VEW have merged. A Swedish energy company has acquired VEAG and Bewag. The structure of the energy cluster would be further simplified by the proposed acquisition of Ruhrgas by e.on. In the financial sector, Bayerische Hypobank and Bayerische Vereinsbank have merged to form Bayerische Hypo-Vereinsbank; and Allianz has acquired Vereinte Versicherungen. In the retail sector, Schiekedanz and Karstadt have formed the new company Karstadt-Quelle. The chemical firm Hoechst has merged with the French company of Rhone-Poulenc; the new company, Aventis, has its home base in France. In the insurance sector, Italy's Generali has acquired AMB. Furthermore, some dropouts and new entrants have changed the structure of the network. Bilfiger + Berger, Deutz, Degussa, VEAG and Victoria (acquired by Allianz) have dropped out. New entrants are privatized companies like Deutsche Telekom and Deutsche Post; the software producer SAP; the media companies Kirch and Springer; EADS, which was formerly the aerospace section of Daimler-Benz, has become a separate company, as well as the de-merged parts of former Mannesmann.