Abstract The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

Citation: Vitali S, Glattfelder JB, Battiston S (2011) The Network of Global Corporate Control. PLoS ONE 6(10): e25995. https://doi.org/10.1371/journal.pone.0025995 Editor: Alejandro Raul Hernandez Montoya, Universidad Veracruzana, Mexico Received: March 29, 2011; Accepted: September 15, 2011; Published: October 26, 2011 Copyright: © 2011 Vitali et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Funding: The authors acknowledge financial support from the ETH Competence Center “Coping with Crises in Complex Socio-Economic Systems” (CCSS) through ETH Research Grant CH1-01-08-2; the European Commission FP7 FET Open Project “FOC” No. 255987. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. Competing interests: The authors have declared that no competing interests exist.

Introduction A common intuition among scholars and in the media sees the global economy as being dominated by a handful of powerful transnational corporations (TNCs). However, this has not been confirmed or rejected with explicit numbers. A quantitative investigation is not a trivial task because firms may exert control over other firms via a web of direct and indirect ownership relations which extends over many countries. Therefore, a complex network analysis [1] is needed in order to uncover the structure of control and its implications. Recently, economic networks have attracted growing attention [2], e.g., networks of trade [3], products [4], credit [5], [6], stock prices [7] and boards of directors [8], [9]. This literature has also analyzed ownership networks [10], [11], but has neglected the structure of control at a global level. Even the corporate governance literature has only studied small national business groups [12]. Certainly, it is intuitive that every large corporation has a pyramid of subsidiaries below and a number of shareholders above. However, economic theory does not offer models that predict how TNCs globally connect to each other. Three alternative hypotheses can be formulated. TNCs may remain isolated, cluster in separated coalitions, or form a giant connected component, possibly with a core-periphery structure. So far, this issue has remained unaddressed, notwithstanding its important implications for policy making. Indeed, mutual ownership relations among firms within the same sector can, in some cases, jeopardize market competition [13], [14]. Moreover, linkages among financial institutions have been recognized to have ambiguous effects on their financial fragility [15], [16]. Verifying to what extent these implications hold true in the global economy is per se an unexplored field of research and is beyond the scope of this article. However, a necessary precondition to such investigations is to uncover the worldwide structure of corporate control. This was never performed before and it is the aim of the present work.

Discussion The fact that control is highly concentrated in the hands of few top holders does not determine if and how they are interconnected. It is only by combining topology with control ranking that we obtain a full characterization of the structure of control. A first question we are now able to answer is where the top actors are located in the bow-tie. As the reader may by now suspect, powerful actors tend to belong to the core. In fact, the location of a TNC in the network does matter. For instance, a randomly chosen TNC in the core has about chance of also being among the top holders, compared to, e.g., for the in-section (Table S4 in Appendix S1). A second question concerns what share of total control each component of the bow-tie holds. We find that, despite its small size, the core holds collectively a large fraction of the total network control. In detail, nearly of the control over the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of TNCs in the core, which has almost full control over itself. The top holders within the core can thus be thought of as an economic “super-entity” in the global network of corporations. A relevant additional fact at this point is that of the core are financial intermediaries. Figure 2 D shows a small subset of well-known financial players and their links, providing an idea of the level of entanglement of the entire core. This remarkable finding raises at least two questions that are fundamental to the understanding of the functioning of the global economy. Firstly, what are the implication for global financial stability? It is known that financial institutions establish financial contracts, such as lending or credit derivatives, with several other institutions. This allows them to diversify risk, but, at the same time, it also exposes them to contagion [15]. Unfortunately, information on these contracts is usually not disclosed due to strategic reasons. However, in various countries, the existence of such financial ties is correlated with the existence of ownership relations [23]. Thus, in the hypothesis that the structure of the ownership network is a good proxy for that of the financial network, this implies that the global financial network is also very intricate. Recent works have shown that when a financial network is very densely connected it is prone to systemic risk [16], [24]. Indeed, while in good times the network is seemingly robust, in bad times firms go into distress simultaneously. This knife-edge property [25], [26] was witnessed during the recent financial turmoil. Secondly, what are the implications for market competition? Since many TNCs in the core have overlapping domains of activity, the fact that they are connected by ownership relations could facilitate the formation of blocs, which would hamper market competition [14]. Remarkably, the existence of such a core in the global market was never documented before and thus, so far, no scientific study demonstrates or excludes that this international “super-entity” has ever acted as a bloc. However, some examples suggest that this is not an unlikely scenario. For instance, previous studies have shown how even small cross-shareholding structures, at a national level, can affect market competition in sectors such as airline, automobile and steel, as well as the financial one [13], [14]. At the same time, antitrust institutions around the world (e.g., the UK Office of Fair Trade) closely monitor complex ownership structures within their national borders. The fact that international data sets as well as methods to handle large networks became available only very recently, may explain how this finding could go unnoticed for so long. Two issues are worth being addressed here. One may question the idea of putting together data of ownership across countries with diverse legal settings. However, previous empirical work shows that of all possible determinants affecting ownership relations in different countries (e.g., tax rules, level of corruption, institutional settings, etc.), only the level of investor protection is statistically relevant [27]. In any case, it is remarkable that our results on concentration are robust with respect to three very different models used to infer control from ownership. The second issue concerns the control that financial institutions effectively exert. According to some theoretical arguments, in general, financial institutions do not invest in equity shares in order to exert control. However, there is also empirical evidence of the opposite [23], Appendix S1, Section 8.1. Our results show that, globally, top holders are at least in the position to exert considerable control, either formally (e.g., voting in shareholder and board meetings) or via informal negotiations. Beyond the relevance of these results for economics and policy making, our methodology can be applied to identify key nodes in any real-world network in which a scalar quantity (e.g., resources or energy) flows along directed weighted links. From an empirical point of view, a bow-tie structure with a very small and influential core is a new observation in the study of complex networks. We conjecture that it may be present in other types of networks where “rich-get-richer” mechanisms are at work (although a degree preferential-attachment [1] alone does not produce a bow-tie). However, the fact that the core is so densely connected could be seen as a generalization of the “rich-club phenomenon” with control in the role of degree [3], [28], Appendix S1, Section 8.2. These related open issues could be possibly understood by introducing control in a “fitness model” [29] of network evolution.

Supporting Information Appendix S1. Supporting material: Acronyms and abbreviations, Data and TNC Network Detection, Network Control, Degree and Strength Distribution Analysis, Connected Components Analysis, Bow-Tie Component Size, Strongly Connected Component Analysis, Network Control Concentration, Additional Tables. https://doi.org/10.1371/journal.pone.0025995.s001 (PDF)

Acknowledgments Authors acknowledge F. Schweitzer and C. Tessone for valuable feedback, D. Garcia for generating the 3D figures, and the program Cuttlefish used for networks layout.

Author Contributions Conceived and designed the experiments: SB. Analyzed the data: SV JBG. Wrote the paper: SB SV JBG.