Economic Liberalization and Corporate Governance: The Resilience of Business Groups in LatinAmericaAuthor(s): Ben Ross SchneiderSource: Comparative Politics, Vol. 40, No. 4 (Jul., 2008), pp. 379-397Published by: Ph.D. Program in Political Science of the City University of New YorkStable URL: http://www.jstor.org/stable/20434092 .

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Economic Liberalization and Corporate Governance

The Resilience of Business Groups in Latin America

Ben Ross Schneider

In 1980 the largest private, domestic firm in Mexico, Banamex, was a sprawling, highly diversified, closely owned, and family-controlled business group, also known as a grupo economico or just grupo. Twenty-five years later, the Banamex group was long gone, and many observers expected that decades of profound economic and political liberalization would have transformed the rest of the corporate landscape as well. Yet by the middle of the first decade of the 2000s the largest private firm in Mexico, and for that matter in all of Latin America, the grupo Carso, was a similarly sprawling, widely diversified, family-controlled grupo. The names may change, but the corporate form lives on. Similar comparisons could be made for the other large countries of the region. In fact, for the past fifty years, scholarship on large domestic firms has consistently documented the dominance of family-owned, diversified business groups.I Why do these traditional patterns of corporate governance in Latin America have such staying power?

Beyond empirical questions, there are three broader reasons for examining corporate governance in Latin America, two theoretical and one practical. A first theoretical motivation is to stretch the geographical scope of recent theorizing on corporate governance in developed countries. In particular, one set of arguments finds the roots of differences in corporate governance in political factors like relative labor power and distinct electoral systems. Were these arguments to hold for Latin America, then democratization throughout the region should have generated strong pressures for reform in corporate governance. A second theoretical motivation is to assess institutional stability and change in the face of globalization. This debate is well-worn, though as yet unsettled, and corporate governance in Latin America is an apt focus for further assessment both because business organization should be more responsive than other sorts of institutions to changing economic pressures and because Latin America has been at the vanguard of global economic integration. On the practical side, implicit in the program of market oriented reforms that swept Latin America in the 1 990s was the expectation that private business would take over from the state the responsibility for leading development. Despite this implicit expectation, there is little systematic research on how business

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protagonists responded to new market opportunities and only fragmentary data on their strategies and practices.

On some dimensions, especially ownership, change in corporate governance was rapid and profound. Starting in the 1980s and accelerating in the 1990s, governments privatized state-owned enterprises and removed restrictions on foreign direct investment, prompting huge shifts in assets from state to private ownership and from national to foreign ownership. But despite the massive reallocation of corporate assets, many traditional practices persisted. As the dust settled on the buying spree of the 1 990s, four core features emerged among remaining large domestic firms. One feature was partial and new: international expansion by some large private firms, now also known as emerging multinational corporations or Translatins. The three other features-concentrated ownership (blockholding), diversification, and family ownership-resembled long standing practices in corporate governance.

The controversial features of institutional continuity in these business groups is theoretically contested in part because so much recent scholarship suggests there should be greater change and convergence toward U.S. standards of dispersed ownership, professional management, and specialized operations.2 For example, about corporate governance, many arguments in developed countries privilege causal factors like political coalitions and integration of capital markets that have changed dramatically enough in Latin America to raise expectations of sharper discontinuities. An alternative, composite interpretation highlights ongoing incentives, resulting largely from volatility and market imperfections, to maintain grupo governance as well as persistent advantages that business groups have over other domestic and foreign competitors, primarily in terms of preferential access to capital, information, and policymaking. For the most part, the three components of grupo governance-blockholding, family control, and diversification will be treated as a composite whole, but the analysis will also address complementarities among the three.3

Globalization, Democratization, and Convergence

Two broad categories of arguments would expect economic and political liberalization in Latin America to produce significant changes in corporate governance: those that emphasize the transformative economic forces of globalization, especially product market competition and the integration of capital markets, and those that privilege political factors like labor power, coalitions, and electoral systems. The first, globalization approach focuses largely on diversification; the second, more on ownership concentration.

In the economic and globalization perspective, some argued that competition in product markets would force firms to specialize in a process one author called "globalfocusing."4 Moreover, as equity markets become more global, and as more Latin American firms raise capital on Wall Street, they become more subject to the homogenizing pressures of U.S.

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securities analysts and institutional investors who pushed dediversification and favored refocused attention on core competence among U.S. firms in the 1990s.5 In addition, the transnational spread of U.S.-style management training, as well as the increasing flow of managers across borders, would also contribute to expectations of change and convergence.

Politics were also transformed in Latin America after the 1980s in ways that would, according to a number of theories, generate expectations of change in corporate governance. In recent years scholars developed several political explanations for patterns of dispersed ownership in the United States and Britain versus the blockholding predominant in continental Europe. Although the causal arguments vary, all would, if extended to Latin America, predict greater movement towards dispersed ownership. For example, Mark Roe argues that greater labor power, both in national politics and within firms, promoted more concentrated ownership in social democratic countries of Europe, while the weakness of labor in the United States favored dispersed ownership.6 In Latin America in recent decades labor strength declined both in unions and elections, certainly by European standards, and might therefore be expected to facilitate movement toward U.S.-style dispersed ownership. Focusing on macro institutional differences between majoritarian and consensual political systems, several authors argue that the greater policy volatility associated with majoritarian systems favors more dispersed ownership, as in the United States and Britain, while consensual systems provide greater stability that encourages the sorts of long-term investments and patient capital associated with blockholding in continental Europe.7 Extended to Latin America, most new democracies would tend toward the majoritarian and volatile end of the spectrum and hence strengthen incentives for more dispersed ownership.

Although blockholding persisted, and the overall empirical record does not bear out most of these expectations of change, it is important to note significant shifts on some dimensions of corporate governance. For example, the 1990s were a remarkable period of asset churning due to a coincidence of large privatization programs, new inflows of foreign capital, and efforts by domestic firms to increase economies of scale and scope. Foreign investors were major protagonists in both privatization and mergers and acquisitions generally. Inflows of foreign direct investment in Latin America more than quadrupled from the late 1980s to the turn of the century, though the composition of that investment shifted dramatically from greenfield investment to acquisitions and from manufacturing to services.8

Flows of foreign direct investment out of Latin America also increased, though at only a fraction of the inward flow, as large domestic firms acquired subsidiaries in other countries.9 In this article's sample, over three quarters of large domestic grupos had subsidiaries in other countries of Latin America, and around half had subsidiaries outside Latin America (mostly in the United States and Europe), though only about a third of them received more than 25 percent of their revenue from abroad. Most of

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these Translatins produced bulk commodities (with relatively stable technologies) like steel, cement, cellulose, and food products, and a few were also active in services like electricity, telecommunications, and retail commerce. Some of the leading Translatins were also among the most specialized firms, which would seem to lend support to the global focusing hypothesis that globalization forces greater concentration on core competence. However, among the small minority of large specialized firms, most of them were specialized before market reform, often for idiosyncratic reasons. For example, the Brazilian mining giant CVRD and aircraft manufacturer Embraer were state enterprises that were first created, and later privatized, as specialized operations. Moreover, it is hard to find cases of diversified grupos that successfully adopted strategies of narrow specialization in response to economic integration. Many grupos readjusted their portfolios and sold off some marginal or uncompetitive firms but often at the same time expanded into new sectors or consolidated a strategy of channeling investment into three or four main sectors.10 In sum, aside from increases in foreign direct investment and cross-border acquisitions, few other trends confirmed theories of globalization and expectations of change.

Continuities in Grupo Governance in Latin America

In terms of ownership concentration, virtually all listed firms in Latin America have a controlling shareholder, usually owning well above the common threshold for blockholding of 20 percent. Sometimes the ultimate ownership is obscured by pyramid schemes and nonvoting shares, but studies that unravel these complex structures invariably find in the end a single controlling shareholder, family, or controlling bloc. In addition, many large firms are privately held and not listed on the stock exchange. In Brazil there was a single, famous exception of a retail firm, Lojas Renner, with dispersed ownership, that was ironically difficult to run because the shareholders were so unaccustomed to the absence of a controlling blockholder.1' The fact that as of 2006 all of the largest firms in Latin America had a controlling blockholder disconfirms expectations from the political theories discussed earlier that majoritarian politics (as well as other sources of political volatility) and weak labor politics would favor dispersed ownership. In fact, volatility seems to encourage grupo governance, in that concentrated ownership and centralized control can facilitate rapid adjustment, without raising management worries about adverse reactions from minority shareholders, analysts, or "the market."

Multisectoral diversification and conglomeration among large domestic corporations are long-standing traditions in LatinAmerica. While many conglomerates in LatinAmerica rationalized their diverse holdings, they did not get swept up in the deconglomeration fad that took hold in the United States in the 1980s. In the United States conglomeration was popular in the 1960s and 1970s but by the 1980s was vilified as "the biggest collective

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error ever made by American business."12 The subsequent specializing shift in the United States to "core competencies," "refocusing," and "back-to-basics" did not catch on in Latin America (or most of the rest of the developing world).13

One of the most comprehensive studies of big industrial firms in Latin America begins by noting that the universe of big stand-alone firms "is very small in the region. Big firms are, by a large majority, part of formal or informal groups."14 A more recent survey of Latin America found that, "on average, almost 80% of large listed firms are affiliated to an economic group."15 Moreover, for most grupos the scope of diversification covers not just one or two sectors but most of the main sectors of the economy, and conglomerate subsidiaries regularly have no market or technological relation to one another. A comparative study of the five largest grupos in eight countries in Latin America found that thirty-four of forty grupos had diversified into four or five different sectors, out of a total of five.16 On average, the large firms examined here had subsidiaries in over three of seven different sectors, and only about a quarter specialized more narrowly in one or two sectors.17

Were deconglomeration a natural response to market reform, it would be well advanced in Chile, the country with the longest neoliberal orientation. In fact, diversified conglomeration in Chile was the predominant form of corporate organization under a succession of very different development strategies: import substituting industrialization (1950s and 1960s), radical neoliberal reform (late 1970s), and pragmatic neoliberalism (1980s on).'8 Each period offered some peculiar incentives to diversify, and different business groups dominated in successive periods, yet what stands out is the enduring popularity of the group form. The history of the Luksic group illustrates well this progression.'9 Founded in the 1950s in copper mining, the group expanded broadly into metal processing, electricity, manufacturing, shipping, fishing, forestry, and agriculture. During the socialist government of the early 1970s, the Luksic group expanded abroad into Argentina, Brazil, and Colombia. After the military coup in 1973, the group resumed investment in Chile and diversified into telecommunications, hotels, banking, beer, and railways. Much of the recent diversification in Luksic and other grupos had a defensive quality, as grupos moved into naturally protected, nontradable, and service sectors. By the late 1990s, about three-quarters of the grupos in this sample had subsidiaries in sectors not subject to competition from imports, perhaps a more predictable, risk-averse response to trade opening.

Family capitalism is endemic in Latin America.20 In the 2000s over 90 percent of the largest private firms in Latin America (n=32) were controlled by families, and most had several family members in top management positions. Moreover, thousands of large nonlisted firms in Latin America are presumably family-owned.2' In the United States, in contrast, only a third of the largest, Fortune 500 firms were family-controlled.22 By another calculation, the percentage of inheritors in command of big businesses in Great Britain, France, and Germany ranged from 15 to 35 percent in the early decades of the

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twentieth century but dropped below 10 percent by the end of the century.23 For the present sample of groups in Latin America, the proportion of controlling heirs is over three-quarters.

Family capitalism has evolved, albeit slowly and incrementally, since the 1990s. Among all types of large firms, family enterprises lost some ground in the 1990s to multinational corporations and scattered institutionally owned firms (especially ex state enterprises).24 However, the great majority of large, private, domestic firms remained family-controlled, and even new grupos adopted traditional styles of family management.25 In terms of direct family control, many firms shifted gradually to more professional management by hiring more outside managers, shifting family members out of formal management positions on to company boards, and sending heirs to get MBAs abroad.26 The process of moving families to the board was pronounced in Brazil and Chile, where general programs in improving corporate governance were also quite visible. However, it is still an open empirical question as to just how much control families really relinquished. For example, some family "board members" continued to work daily alongside professional managers, and in other cases the board met very frequently, even weekly, to keep management on a short tether. In sum, despite piecemeal moves toward professionalization and separation of ownership and management, families maintained firm control over the great majority of the largest business groups.

The growing integration of capital markets gave foreign firms opportunities to sell shares on Wall Street, and by 2006 over 200 firms in Latin America had issued shares in the form of American Depository Receipts (ADRs). Many of these firms were subsidiaries of multinational corporations or state-owned enterprises, but among them were also many business groups or their member firms, including nearly half the grupos in this article's sample. As noted earlier, several scholars expect this integration through capital markets to pressure firms to converge along U.S. lines of corporate governance.

While the dozens of grupos that issued ADRs did have to comply with stricter reporting requirements, they did not change fundamental patterns of diversification, blockholding, and family control.27 All the family firms in this sample that issued ADRs remained family-controlled. In fact, ADRs initially reinforced concentrated control, since shares held as ADRs did not have votes or were automatically voted with management.28 Grupos issuing ADRs were slightly less diversified (3.3 sectors per group) than those not (3.7 sectors per group). However, the more specialized firms were already less diversified before issuing ADRs.

In sum, aside from major increases in flows of foreign direct investment, inward and outward, there were few other dramatic changes in corporate governance among the largest grupos. These continuities suggest that the motor of change lies not in factors like globalization, capital markets, political systems, labor power, or trade liberalization. At a minimum, theories that privilege these explanatory variables need to be modest about the geographic and historical scope of their arguments.

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Explaining Continuities: Incentives and Advantages

The benefit of considering incentives and advantages together is that the combination can account both for why business groups manage to outcompete more specialized firms, both domestic and foreign, and why, when they win, they choose to remain tightly held family conglomerates. There are some interesting cross-national variations in grupo governance but the focus here is on the striking similarities across the large countries of the region.29

First are the two main sources of incentives to form diversified business groups: volatility and small stock markets.30 Macroeconomic and political volatility is high and enduring. Latin America "suffers from an extremely volatile macroeconomic environment."3" For the period 1970-2000, volatility for output, terms of trade, and capital flows in Latin America was higher than in Asia and almost twice as high as in developed countries.32 Market reforms initially added to volatility and "were slow to produce an impact at the microeconomic level because of the great uncertainty they generated."33 Over the 1 990s greater macroeconomic stability became the norm, but new democracies introduced additional sources of instability and uncertainty. At the same time, many business groups moved more of their investments into commodity sectors where international prices and demand have historically been subject to greater volatility.

This volatility encouraged continued diversification. For example, in announcing in 2005 the establishment of a construction subsidiary, Juan Rebelledo, the vice president of the huge mining firm, Grupo Mexico, explained that "the construction firm has the advantage, the same as with the railroad firm [another subsidiary], of being countercycical to copper, so that when the prices of that metal go down a lot, these firms can provide liquidity, and that is the advantage of having a relatively diversified and controlled portfolio." Or, as a manager at the Brazilian conglomerate Camargo Correa put it more starkly: "if we had stayed only in construction, we'd be dead by now." Moreover, outside Latin America, diversification to manage risk is a ubiquitous corporate strategy in both developed and developing countries, and even in the United States among privately held, family-controlled groups like Pritzer and Cargill that are not subject to the specializing pressures of the stock market.34 A broader comparative hypothesis would be that greater volatility would encourage diversification across a wider range of sectors, which at first glance seems to be the case in comparing groups in Asia and Latin America.35 In addition, against the political theories considered earlier, volatility also encourages blockholding as owners seek to maintain tight control in order to be able to adjust rapidly to changing circumstances.36

Due in part to volatility and weak property rights, stock markets are small. By some measures stock markets in Latin America grew a lot after 1990, especially measured by total market capitalization, which more than quadrupled from 8 percent of GDP in 1990 (an average for the seven largest economies) to 34 percent in 2003. However, over the same period turnover fell from 30 to 20 percent, and the number of firms listed actually

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dropped from 1,624 to 1,238. In contrast, over the same period in seven developing countries of East and Southeast Asia, market capitalization almost doubled to 80 percent of GDP, turnover increased slightly to 152 percent, and the number of listed firms more than doubled.37 Even where stock markets had grown substantially, as in Brazil and Chile, the largest markets (proportionally) in the region, they were in fact smaller than traditional

measures would indicate. For example, in Chile stock market capitalization surged in 2003 to 119 percent of GDP. However, many listed firms traded only a small portion of their total value, liquidity was low, and the turnover ratio was only eight percent, which is "very low by international standards," and well below even regional averages.38 While initial public offerings and secondary issues increased in some years in the 2000s, the overall underdevelopment of stock markets provided incentives for business groups to maintain concentrated ownership. Moreover, by limiting opportunities to sell equity in their groups, family blockholders had fewer possibilities for diversifying their portfolios by investing in shares of other firms and hence stronger incentives to diversify within the grupo in order to protect their wealth and manage risk.39

Beyond continuing incentives for business groups to maintain their diversified, blockholding structure, the question remains why, in more open and competitive markets, did specialized firms and multinational corporations not outcompete them. This process was certainly evident in sectors where multinational corporations dominated and managed to buy out local competitors. However, compared to potential rivals, business groups still had a number of competitive advantages that can be summarized as preferential access to capital, to information, and to policymaking. All three vary with size and hence gave business groups an edge in competition with smaller, specialized, domestic firms, while the information and policy access favored grupos over multinational corporations.

Although reforms of recent decades diminished this constraint, the relative scarcity and high cost of capital still gave business groups an edge over specialized firms (and multinational corporations over domestic firms).40 Most firms in the region relied on retained earnings for investment resources, and business groups had the advantage of being able to draw on multiple firms for earnings. Moreover, some grupos relied heavily on intragroup debt (lending from one subsidiary to another). In Chile "such debt represents on average over 20 percent of the liabilities of the Chilean corporate sector."41 The cost of credit is partly a function of size, which gives business groups a first advantage, and larger firms have better access to international sources.42 Diversification and internationalization also reduce the cost of borrowing, as creditors favor firms with multiple sources of income in multiple currencies. After 1990 fewer business groups were organized around major banks, as many had been before 1980, yet about half the grupos in this article's sample had subsidiaries in finance, which suggests a continuing advantage to internalizing some banking functions.

While overall multinational corporations still have the lowest cost of capital, preferential access to information, especially information across the whole local economy,

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gives grupos an advantage over both foreign and specialized firms.43 The extent and quality of information processing is partly a function of size but also of scope, especially if business groups have part of their operations in finance. The information advantage may also be greater for grupos in smaller economies where multinational corporations are less likely to invest in information and to tailor their operations to local tastes and customs. The evolution of the Chilean retail sector is revealing. Some heavyweight multinational retailers (including Home Depot, Sears, and JC Penney) entered the Chilean market in the 1990s only to withdraw in frustration some years later. At the same time some Chilean retailers expanded rapidly. Part of their success derived in fact from their diversification. So Falabella, for example, offered customers both retail stores and personal financial services and managed to dominate lower income segments of the credit card market, a market the multinational companies neglected. The larger lesson was that Chilean grupos knew the peculiarities of the customers and markets better than multinational entrants.44 In many instances the information advantage is largely intangible; in others it has a more visible and deliberate manifestation in large research and planning departments. The Brazilian conglomerate Camargo Correa, for example, had a department of twenty-five professionals, independent from the operational subsidiaries, charged with identifying new opportunities for acquisitions, recommending divestment of underperforming assets, and planning overall strategies for diversification.

Of the three kinds of advantages, it is in politics that grupos most outdistance their rivals. For example, grupos benefit disproportionately from measures designed to favor "national capital" or the "national bourgeoisie," as with restrictions on foreign ownership, discrimination in public contracts, sympathetic regulations, or subsidized credit. Preferential policies have continued through a variety of changing development strategies. So, for example, grupos benefited under import substituting industrialization from protection, licensing, and subsidized credit, then later during privatization from favorable regulation.45 In this sample, over 80 percent of the business groups (n=23) participated in the privatization process, and over two-thirds leveraged privatization into greater diversification. Privatization did create a handful of new specialized, nonfamily firms like CVRD and Embraer in Brazil and LAN and Enersa in Chile. However, these firms stand out more as exceptions that prove the rule. Moreover, in Brazil the government retained a "golden share" (veto power) in part to fend off multinational suitors in privatized firms. Without such protections, Enersa in Chile was bought by Spanish

multinational corporations.46 Overall, though, the origins of grupos can not be tied to any single development strategy. Government commitment to a "national bourgeoisie," using the policies of the day, gives business groups a leg up.

Moreover, grupos simplify coordination and communication for governments. When

policymakers needed information or cooperation, they regularly called together, formally or informally, the heads of the largest business groups.47 In Mexico, for example, all major grupo owners belonged to the Consejo Mexicano de Hombres de Negocios (Mexican

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Council of Businessmen). The CMHN had forty or so members, by invitation only, and CMHN explicitly excluded multinational corporations and smaller firms. The CMHN met every month for lunch with a government minister and usually annually with the president of Mexico. This sort of access was repeated throughout Latin America, though usually more informally, and if anything with smaller numbers of the very largest business groups. This privileged access gave grupo owners ample opportunity to present their views, as well as gain important advantages in information on policymaking. This access was part of broader informational advantages that business groups had based also on formal research departments and formal access to information on policymaking. According to the head of the former Banamex group in Mexico, business groups sometimes paid employees to be presidents and directors of business associations which provided another potential source of advantage in information on policymaking. All forms of access increased the potential returns from politically sensitive assets (for example, subject to government promotion, regulation, or intervention, as in public utilities and media) for groups relative to other foreign or national investors.48

This view of political advantages is less restrictive and empirically sounder than several path dependence formulations based on arguments that interest groups wield their power in politics to maintain privileges and the rules that favor them.49 In most periods most business groups seem to have enormous power. However, much of the empirical evidence on policymaking undermines basic interest group approaches to path dependence. Major policies affecting business groups, especially market reforms, changed dramatically in ways that hurt many preexisting grupos, sometimes mortally, without much evidence that business groups had a direct hand in designing these reforms. In most countries, governments implemented many policies of market reform without much prior input from grupos.50 Moreover, while some policy changes helped some groups, especially privatization programs, they drove others under. It is remarkable that some family firms have survived for generations, but more striking is that many seemingly powerful economic empires have collapsed, and similar looking new ones have emerged to replace them. Theoretically, a high level of turnover among business groups is not consistent with interest group formulations of path dependence.5"

For the most part, the three features of grupo structure -concentrated blockholding, family control, and multisectoral diversification-are treated here as a composite whole because they occur so regularly together. However, it is also worth considering the micro complementarities among them, where the presence of one increases the returns from, or

incentives for, the other two (see Figure 1). Thus, as noted earlier, because the business group provides income and wealth over the long run to family members, the incentives to diversify are greater than if the owners were dispersed investors or large institutional blockholders that have diversified portfolios outside any one firm (arrow 1). Moreover, if families are owners, then diversification can ease succession crises and family relations

generally by offering opportunities for multiple heirs to manage separate pieces of the

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grupo.i2 On a slightly different dimension (of positive emotional but negative economic returns), family owners may hold on longer to subsidiaries for sentimental reasons where professional managers might be more inclined to sell. At the same time, diversification can increase the returns to family over professional management. Diversification raises information costs and asymmetries and thereby exacerbates principal/agent problems for which family management is one solution (arrow 2).5 Furthermore, if diversification does not require cutting edge technological or managerial expertise, then professional talent is potentially less valuable than strong principal control over agents of the sort provided by kinship ties.54

Both family control and diversification, in turn, increase the returns to blockholding by increasing the discount that potential minority investors would demand (arrows 3 and 4). Diversification raises information costs to outside investors, and the resulting organizational complexity increases opportunities for majority shareholders to expropriate them. Similarly, outside investors are wary of family firms, in part because families have tax and other incentives to extract maximum salaries, benefits, and consumption from

Figure 1 Complementarities among Blockholding, Family Control, and Diversification

j amily control andL management 10t

5. Lack of capital / \ markets . A c of o

concentratdierses thrug stockem marketm

AeBo acenfathtepr e of wealthsestherensB / / management \ 3

/ s ~~~~and\\ /

/3 & 4. Risk sneso

/ / of minority\ \ / expro-\ \

Blockholding (and pria_on underdeveloped Multisectoral

stock markets) p d~~~~~~~~~iversification stock markets) ~ 6. Absence of opportunity to

diversify through stock market

A - P* B means that the presence of A increases the returns to B.

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the business group.55 From the family perspective, if outsiders are unwilling to pay what grupo owners think their shares are worth, then why sell them? Furthermore, as noted earlier, the dominance of blockholding, of which the underdevelopment of the stock market is both cause and consequence, favors family control and diversification (arrow 5). The absence of opportunities for diversifying through stock markets increases the returns to internal conglomerate diversification (arrow 6). Lastly, the lack of well developed financial intermediation through banks, bonds, stocks, and other means does not so much increase the returns to family control as make it the default.

In sum, the approach that best illuminates the resilience of business groups in Latin America focuses primarily on incentives, advantages, and micro complementarities among family capitalism, concentrated ownership, and multisectoral diversification. Put counterfactually, in the absence of complementarities and incentives like volatility and shallow capital markets, large groups might trend toward greater specialization and dispersed ownership. And, without their continuing advantages in capital markets, information processing, and political access, business groups would have greater difficulty competing with specialized firms and multinational corporations.

Conclusions and Implications

What are the practical and theoretical implications of the resilience of diversified, family controlled grupos in Latin America? Among the theoretical implications, the resilience of business groups challenges much theorizing on corporate governance in developed countries and belies expectations of rapid institutional change in response to globalization. It might be tempting to conclude that these theories will be more illuminating once developing countries have consolidated effective legal systems and working financial markets. However, this hope neglects the extent to which legal and financial systems in Latin America have modernized in recent years. Chile is instructive in this regard.

Many of its legal and financial indicators are close to standards for developed countries, yet business groups still predominate. Overall, theorizing on developed countries could benefit from extending its geographic scope and incorporating more of the kinds of factors analyzed here.

Given the so far muted response of business groups to globalization, broader institutional change in corporate governance, if and when it happens, seems more likely to come gradually and incrementally-through processes like institutional displacement and layering-rather than as an abrupt transformation.56 For example, if new firms created in the 1 990s and 2000s are adopting different ownership structures and corporate practices, they may, if they grow and multiply, start to edge aside or displace grupos as the dominant domestic firms. Other incremental changes within grupos, or institutional layering, such as moving family members from management to the board and increasing

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outside investment in the firm, may ultimately lead to greater separation of ownership and management. However, it is still too early to tell how far and fast displacement and layering might go.

Years from now major firms in Latin America may be mostly specialized, professionally managed corporations, without controlling shareholders. Alternatively, decades hence, scholars may again be marveling that business groups managed to survive decades more of modernization, liberalization, and economic integration, as they have of business groups in Sweden, Japan, Belgium, Italy, and other developed countries. This scenario would justify recasting the standard empirical puzzle; instead of asking why corporate governance in country X differs so much from the United States, the question should be why are practices in the United States so different from the rest of the world. To date most theorizing on business groups starts with the presumption that corporate governance in the United States and Britain is at the vanguard and other countries are arrayed somewhere behind them in a march toward U.S.-style, widely held, professionally managed firms specialized in core competences. This teleological view pushed past theorizing on business groups to seek out the imperfections and peculiarities of non-U.S. contexts to explain "deviant" group behavior.57 However, as research accumulates on business groups, it finds them thriving in an ever wider variety of contexts, which should encourage researchers to turn the question around. If groups are a pervasive feature of modern capitalism, then they should be looking for ubiquitous causes, as are many of the factors identified here, and asking instead what are the peculiar factors that give rise to such anomalous forms of corporate governance in the United States.58 Sidelining the United States and Britain as major points of reference could also help shift theorizing to focus more on variations among economic groups and the possibility that distinctive political, social, and economic contexts give rise to different types of grupos.59

On the practical side, how well-suited are grupos to forge business-led development in the twenty-first century? Research on this question is scant, especially in light of the importance of the answer to the future welfare of the region. In fact, the behavior of business groups raises serious reservations, in principle, that merit deeper empirical investigation.60 First, some of the most spectacular growth among grupos has come through foreign acquisitions by Translatins. Over the medium run, this may be the best

way for large firms in Latin America to survive and thrive in a buy-or-be-bought world. Nonetheless, the strategy has short-term opportunity costs if the alternative to buying firms abroad were to build new plants at home. Moreover, Translatins are unlikely to reap

many of the benefits other multinational corporations get, especially in manufacturing, because most are in lower technology sectors with lower requirements for research and development and fewer global economies of scale.

Second, while family management can bring benefits such as loyalty, long-term commitment, and often generations of experience, genetics are hardly the best basis for recruiting raw managerial talent, especially for firms that can afford to pay the highest

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salaries. Moreover, family firms are subject to damaging, sometimes fatal, succession crises. One major study found that only 20 percent of family firms lasted more than sixty years, and of the surviving firms two-thirds had stopped growing.61 Lastly, and more speculatively, business group strategies in Latin America often seem defensive and cautious, especially in the case of business groups that expanded into regulated and nontradable sectors. To the extent that development depends on private investment, societies are likely to prefer that the animal spirits of their capitalists tend more toward the competitive, risk taking, and innovative end of the spectrum. None of these concerns should gainsay the remarkable entrepreneurial successes of some grupos. However, it is still an open empirical question as to what sorts of contributions business groups are best suited to make to development and what sorts of policies might push them to contribute more.

Appendix on Data Collection

Reliable, comparable data on economic groups are scarce, so a variety of sources (listed below) was used to piece together composite portraits as of 2006 of the sample of thirty three of the largest private domestic, nonfinancial firms in Brazil, Mexico, Argentina, Chile, and Colombia.62 The sample is unlikely to have omitted any of the largest grupos in each country, but it is impossible to fix a clear lower threshold. Therefore, some of the grupos included here may not be larger than some other grupos not included, or may subsequently have been eclipsed by rising grupos, but such selection problems on the margins seem random and should not introduce any significant bias.

Cases

Argentina: Arcor, Macri, SCP/Soldati, Techint.63 Brazil: Camargo Correa, CVRD, Embraer, Gerdau, Ipiranga, Odebrecht, Telemar,

Vicunha/CSN, Votorantim. Chile: Angelini, Briones, Falabella, Luksic, Matte/CMPC. Colombia: Ardilla Luille, Carvajal, Santo Domingo, Sarmiento Angulo, Sindicato

Antioquefno. Mexico: Alfa, Bimbo, Carso, Cemex, Desc, Femsa, Grupo Mexico, Imsa, Modelo,

Vitro.

Variables

Diversification: The number of different sectors firm subsidiaries are involved in out of a

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Ben Ross Schneider

total of seven: manufacturing, agriculture, food processing, mining, finance, construction, and nonfinancial services (including media, communications, and transportation). The average was 3.5 sectors per firm, and 52 percent had subsidiaries in finance (banking, insurance, pension funds, or stock brokerage). In terms of nontradables, 73 percent of firms had subsidiaries in sectors that were not subject to import competition, such as perishable food products, media, or public utilities (energy, telecommunications, and transportation). Translatins (Latin American Multinational Corporations): The data set includes three separate measures: regional Translatins with subsidiaries in Latin America, 77 percent (n=30); international Translatins with subsidiaries outside Latin America, 48 percent (n=29); and consolidated Translatins that get more than 25 percent of revenues come from subsidiaries abroad, 34 percent (n=32). Family Control: 91 percent of the firms (n=32) were family-owned, usually with multiple family members and generations represented in top management positions. In these family-controlled firms, the mean number of generations that had participated in

management was 2.7 (n= 28). In 80 percent of the firms, the top managers were heirs of the founding owners (n=28).

Information for the data set was collected from periodical reports, especially the specialized business press in each country, for example, America Economia (Chile), Exame (Brazil) and Valor (Brazil)), annual reports, company and other websites, and some academic scholarship; Durand; Daniel Chudnovsky, Bernardo Kosacoff, andAndres Lopez, eds., Las Multinacionales Latinoamericanas: Sus Estrategias en un Mundo Globalizado (Mexico City: Fondo de Cultura Economica, 1999); Diego Finchelstein, "El Comportamiento Empresario Durante la Decada de los Noventa: El Grupo Macri," Realidad Economica, 203 (April 2004), 26-49; Peres; Schneider, "New Corporate Governance."

NOTES I am grateful to the Tinker Foundation for financial support and to Felipe Alonso, Richard Locke, Gerald

McDermott, Edward Gibson, James Mahoney, Leonardo Martinez, Rory Miller, Jason Seawright, Ken Shadlen, David Soskice, Kathleen Thelen, and seminar participants at Northwestern University and the Harvard Business School for comments on previous versions. 1. See Ben Ross Schneider, Business Politics and the State in 20th Century Latin America (New York:

Cambridge University Press, 2004), pp. 43-50, for a historical review and more bibliography; Nathaniel

Leff, "Industrial Organization and Entrepreneurship in the Developing Countries: The Economic Groups," Economic Development and Cultural Change, 26 (July 1978), 661-75; Francisco Durand, Incertidumbre y soledad: Reflexiones sobre los grandes empresarios de Am?rica Latina (Lima: Friedrich Ebert Stiftung, 1996);

Wilson Peres, ed., Grandes empresas y grupos industriales latinoamericanos (Mexico City: Siglo Ventiuno, 1998); Mauro Guillen, The Limits of Convergence: Globalization and Organizational Change in Argentina,

South Korea, and Spain (Princeton: Princeton University Press, 2001). 2. I adopt a fairly restrictive definition of business groups as diversified collections of firms subject to

centralized ownership and financial coordination. For further conceptual discussion, see Mark Granovetter,

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"Business Groups and Social Organization," in Neil Smelser and Richard Swedberg, eds., Handbook

of Economic Sociology, 2nd ed. (Princeton: Princeton University Press, 2005); Tarun Khanna and Jan

Rivkin, "Interorganizational Ties and Business Group Boundaries: Evidence from an Emerging Economy," Organizational Science, 17 (May-June 2006), 333-52; Ben Ross Schneider, "How States Organize Capitalism: Cross National Variations in Business Groups" ( unpublished ms., 2007).

3. The empirical material draws on an original data set on the governance structures of nearly three dozen of the largest domestic, nonfinancial firms in five major countries of Latin America (see the Appendix for details) and field research in Chile, Mexico, and Brazil, including over twenty interviews with business executives, members of group-owning families, and expert observers.

4. Klaus Meyer, "Globalfocusing: From Domestic Conglomerates to Global Specialists," Journal of Management Studies, 43 (July 2006), 1109-44. A related group of arguments locate the origins o? grupos in

past policies associated with import substituting industrialization and state-led development. For example, if domestic firms diversified in response to import substituting industrialization and other policy distortions of state-led development, then the trade liberalization of the 1990s should have reduced incentives for diversification and expanded opportunities for more specialized growth into international markets. Guillen;

Pankaj Ghemawat and Tarun Khanna, "The Nature of Diversified Business Groups: A Research Design and Two Case Studies," Journal of Industrial Economics, 46 (March 1998), 35-61; Andrea Goldstein and Ben Ross Schneider, "Big Business in Brazil: States and Markets in the Corporate Reorganization of the 1990s," in Edmund Amannand and Ha Joon Chang, eds., Brazil and Korea (London: ILAS, 2004), pp. 48-74.

5. See Frank Dobbin and Dirk Zorn, "Corporate Malfeasance and the Myth of Shareholder Value," Political Power and Social Theory, 17 (2005), 179-98; John Coffee, "The Future as History: The Prospects for Global

Convergence in Corporate Governance and Its Implications," Northwestern University Law Review, 93

(1999), 641-707; Rafael La Porta, Florencio L?pez-de-Silanes, Andrei Shleifer, and Robert Vishny, "Investor Protection and Corporate Governance," Journal of Financial Economics, 58 (2000), 3-27.

6. Mark Roe, Political Determinants of Corporate Governance (Oxford: Oxford University Press, 2003). 7. Peter Gourevitch and James Shinn, Political Power and Corporate Control: The New Global Politics of

Corporate Governance (Princeton: Princeton University Press, 2005), p. 10. See, also, Peter Hall and David

Soskice, "An Introduction to Varieties of Capitalism," in Peter Hall and David Soskice, eds., Varieties of Capitalism (New York: Oxford University Press, 2001), pp. 1-68.

8. C?sar Calder?n, Norman Loayza, and Luis Serven, Greenfield Foreign Direct Investment and Mergers and Acquistions: Feedback and Macroeconomic Effects, World Bank Policy Research Working Paper 3192

(Washington, D.C.: World Bank, 2004), p. 22; Koji Miyamoto, Human Capital Formation and Foreign Direct Investment in Developing Countries, Working Paper 211 (OECD Development Centre, 2003).

9. For a full review, see ECLAC, Foreign Investment in Latin America and the Caribbean 2005 (Santiago: United Nations, Economic Commission for Latin America and the Caribbean, 2006).

10. For similar findings of continued diversification among business groups in Chile and India, see Tarun Khanna and Krishna Palepu, "Policy Shocks, Market Intermediaries, and Corporate Strategy: The Evolution of Business Groups in Chile and India," Journal of Economics & Management Strategy, 8 (Summer 1999), 274. In one of the most dramatic restructurings, Bunge y Born, one of Argentina's best known grupos, was extremely diversified coming into the 1980s, when it hired external consultants who devised a bold plan of specialization. The sprawling grupo proceeded to sell off all subsidiaries not related to core lines in agribusiness. However, the firm also moved its headquarters to New York, left only a small subsidiary in Argentina, and thus ceased to be a leading Argentine firm.

11. Interview with Jos? Luis Osorio, Dec. 5, 2005. 12. Gerald Davis, Kristina Diekman, and Catherine Tinsley, "The Decline and Fall of the Conglomerate

Firm in the 1980s: The Deinstitutionalization of an Organizational Form," American Sociological Review, 59

(1994), 563. 13. David Knoke, Changing Organizations: Business Networks in the New Political Economy (Boulder:

Westview, 2001), pp. 117-19. 14. Celso Garrido and Wilson Peres, "Las grandes empresas y grupos industriales latinoamericanos en los

a?os noventa," in Wilson Peres, ed., Grandes empresas y grupos industriales latinoamericanos (Mexico City: Siglo XXI, 1998), p. 13. In Colombia, the four largest grupos (accounting for 20 percent of GDP) controlled 278 firms in 1998 and had minority holdings in other firms. Beatriz Angelika Rettberg, "Corporate Organization and the Failure of Collective Action: Colombian Business during the Presidency of Ernesto Samper (1994-1998)"

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(Ph.D. diss., Boston University, 2000), ch. 3, p. 16. In Chile, "groups are the predominant form of corporate structure." Some fifty conglomerates control "91 percent of the assets of listed non-financial companies in

Chile. There is no clear decreasing trend in these figures." Fernando Lefort and Eduardo Walker, "The Effect of

Corporate Governance Practices on Company Market Valuation and Payout Policy in Chile" (Business School,

PUC, Chile, 2004), p. 4. 15. Fernando Lefort, "Ownership Structure and Market Valuation of Family Groups in Chile," Corporate

Governance, 5 (2005), 8. 16. Durand, p. 93. 17. My sample and Durand's are not comparable and hence can not support the interpretation of decreasing

diversification. Even within sectors, firms in Latin America tended to diversify more than similar firms in

developed countries, largely in response to fluctuations in demand. For example, on the capital goods industry in Brazil, see Edmund Amann, Economic Liberalization and Industrial Performance in Brazil (New York:

Oxford University Press, 2000), esp. pp. 233-48. 18. See Eduardo Silva, The State and Capital in Chile: Business Elites, Technocrats, and Market Economics

(Boulder: Westview, 1996); Lefort, "Ownership Structure." 19. Ben Ross Schneider, "The New Corporate Governance in Latin America and the Implications for Business

Led Development," paper presented at the annual meetings of the American Political Science Association,

Washington, D.C., 2005. 20. See IDE, Family Business in Developing Countries (Institute of Developing Economies, JETRO, 2004). 21. Garrido and Peres, p. 32. 22. Andrea Colli and Mary Rose, "Family Firms in Comparative Perspective," in Franco Amatori and Geoffrey

Jones, eds., Business History around the World (Cambridge: Cambridge University Press, 2003), p. 339. 23. Youssef Cassis, Big Business: The European Experience in the Twentieth Century (Oxford: Oxford

University Press, 1997), p. 126. 24. Goldstein and Schneider, p. 61. 25. The Grupo Carso, owned by Carlos Slim, the richest man in Latin America, emerged in the 1980s and 1990s as a new, aggressive, and innovative business group. However, Slim has carefully groomed his children for top management positions. So committed was he to family capitalism that in 2003 Slim invited, at his

expense, the heads of several dozen of the largest firms throughout Latin America?and their children?to meet in Mexico for three days to talk about family firms. See Schneider, Business Politics, p. xxii. Wealthy group-owning families have since made this meeting an annual retreat in different countries each year. 26. Alexandre di Miceli, Governan?a corporativa em empresas de controle familiar: Casos de destaque no

Brasil (S?o Paulo: Instituto Brasileiro de Governan?a Corporativa, 2006). 27. Studies of European and Mexican firms that listed in the United States also found little change in

governance. Gerald Davis and Christopher Marquis, "The Globalization of Stock Markets and Convergence in Corporate Governance," in Victor Nee and Richard Swedberg, eds., The Economic Sociology of Capitalism (Princeton: Princeton University Press, 2005), pp. 352-91; Jordan Siegel, "Is There a Better Commitment

Mechanism Than Cross-Listing for Emerging Economy Firms? Evidence from Mexico" (unpublished paper, 2006). 28. Garrido and Peres, p. 32. 29. Schneider, "How States Organize." 30. These causes are constant and therefore do not fit some conceptions of path dependence in political

science. See James Mahoney, The Legacies of Liberalism: Path Dependence and Political Regimes in Central America (Baltimore: The Johns Hopkins University Press, 2002). However, constant causes are more common in discussions of path dependence in corporate governance, where they are also grouped with

efficiency, structural, functional, or transaction cost explanations. Lucian Bebchuk and Mark Roe, "A Theory of Path Dependence in Corporate Ownership and Governance," Stanford Law Review, 52 (November 1999), 127-70. Although less direct, the weak legal system and consequently higher transaction costs also encourage

grupo governance, as well as limit the growth of the stock market, and raise the cost of capital to nongroup borrowers.

31. IDB, Good Jobs Wanted: Labor Markets in Latin America (Economic and Social Progress in Latin America: 2004 Report) (Washington, D.C.: Inter-American Development Bank and Johns Hopkins University Press, 2003), p. 133.

32. Ibid., p. 116.

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33. Barbara Stallings and Wilson Peres, Growth, Employment, and Equity: The Impact of the Economic

Reforms in Latin America and the Caribbean (Washington, D.C.: Brookings Institution Press, 2000), 12. 34. La Reforma online, Aug. 23, 2005: interview at Camargo Correa, Aug. 2, 2006. See Granovetter,

"Business Groups," p. 430; John Ward, Perpetuating the Family Business: 50 Lessons Learned from Long Lasting, Successful Families in Business (New York: Palgrave, 2004).

35. Schneider, "How States Organize." 36. Garrido and Peres, p. 32; Eduardo Silva, "State-Business Relations in Latin America," in Laurence

Whitehead, ed., Emerging Market Democracies (Baltimore: The Johns Hopkins University Press, 2002), p. 66.

37. Barbara Stallings, Finance for Development: Latin America in Comparative Perspective (Washington, D.C.: Brookings Institution Press, 2006), p. 124.

38. Ibid., pp. 158-59. 39. Volatility and undeveloped stock markets are major incentives for, or constant causes of, grupo

governance. While grupo governance can be viewed as a functional or efficient response to this set of market or institutional imperfections, the response also has an indirect political feedback effect. That is, would-be reformers who would like to strengthen the legal system or bolster the stock market are unlikely to find allies

among the grupos that have found individual solutions to these collective challenges. To the extent that they weaken potential reform coalitions, grupos may thus help to perpetuate the constant causes, as well as their

advantages. 40. Credit markets in Latin America were also "very small...On average the ratio of credit to the private

sector to GDP in the 1990s was close to 35 percent, roughly a third of the size of the average credit markets in East Asia and the developed countries." IDB, Competitiveness: The Business of Growth (Economic and Social

Progress in Latin America) (Washington, D.C.: Inter-American Development Bank, 2001), p. 57.

41. Manuel Agosin and Ernesto Pasten, "Chile: Enter the Pension Funds," in Charles Oman, ed., Corporate Governance in Development (Paris: OECD and CIPE, 2003), p. 85.

42. According to La Porta, Lopez-de-Silanes, Schleifer, and Vishny, p. 21, "the lion's share of credit in

countries with poor creditor protection goes to the few largest firms." See also Khanna and Palepu, p. 291 ; and Luciano Coutinho and Flavio Marcilio Rabelo, "Brazil: Keeping It in the Family," in Oman, ed., p. 50. Earlier

scholarship focused on scarcities in capital and management expertise in the 1950s and 1960s. See Leff. Both these constraints were somewhat relaxed by the 1990s. However, other cross-national research finds little evidence for the capital market function. Tarun Khanna, "Business Groups and Social Welfare in Emerging

Markets: Existing Evidence and Unanswered Questions," European Economic Review, 44 (May 2000), 753. 43. Akira Goto, "Business Groups in a Market Economy," European Economic Review, 19 (1982), 61-63. 44. Andr?s Ib??ez Tardel, "Retail Internationalization in Latin America," Powerpoint presentation (Santiago:

Pontificia Universidad Cat?lica de Chile, 2006). See, also, Alvaro Calder?n, "El modelo de expansi?n de las

grandes cadenas minoristas chilenas," Revista de la CEPAL, 90 (December 2006), 151-70. 45. Guillen; Luigi Manzetti, Privatization South American Style (New York: Oxford University Press, 1999),

pp. 83-84. 46. It also seems that diversified family grupos may be better able to fend off the onslaught of foreign

acquisitions than specialized or institutionally owned firms. Families, especially founders, attach emotional value to the firm that can consequently put the sale price out of reach, unless the firm is under severe competitive pressure or facing a succession crisis. From the perspective of the multinational corporations, most buyers are

looking to acquire a firm, and market share, in their core product line and have little interest in acquiring a

conglomerated holding that they have difficulty valuing (and running). 47. Schneider, Business Politics. 48. Interview with Augustin Legorreta, ex-president of Banamex, July 28, 1998. In an example outside

the region, the largest groups in Israel grew up precisely around politically sensitive sectors in defense related industries. David Maman, "The Emergence of Business Groups: Israel and South Korea Compared," Organization Studies, 23 (2002), 737-58.

49. Douglass North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1990); La Porta, Lopez-de-Silanes, Schleifer, and Vishn, p. 21; Bebchuk and Roe.

50. For a review, see Ben Ross Schneider, "Organizing Interests and Coalitions in the Politics of Market Reform in Latin America," World Politics, 56 (April 2004). Other studies show that many grupos benefited

handsomely from market reforms and infer backwards prior influence. However, evidence of direct influence is

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scarce. In corporate law, the adoption of reforms in the 1990s and 2000s to enhance the protection of minority shareholders and other measures that favor grupo competitors belie arguments that interest groups drive path dependence through favorable laws and policies. In a possible exception, the Brazilian congress voted down a

major reform in corporate law in 2001. The motives for this legislative rejection are opaque, but it may be one

good illustration of interest groups sustaining path dependence. Coutinho and Rabelo, p. 49. 51. Over a longer period in Brazil, less than one quarter of the 500 largest firms in 1973 were still among the

top 500 by 2006. Valor Online, Sept. 25, 2006. 52. Interview with Jos? Erm?rio de Moraes Neto, Votorantim, December 9, 2005; Ivan Lansberg and Edith

Perrow, "Understanding and Working with Leading Family Businesses in Latin America," Family Business

Review, 4 (Summer 1991), 130. 53. Interviews with top managers of Camargo Correa and Itau, August 2-3, 2006; Khanna and Palepu, p.

280. 54. See Mark Granovetter, "Coase Revisited: Business Groups in the Modern Economy," Industrial and

Corporate Change, 4 (1995), 108-9. Moreover, if imperfections (like the oligopolies common in many

countries) generate rents in particular markets, they create further incentives to diversify as well as additional

transparency and agency problems between owners and managers, making tight hierarchical and/or family control again attractive options. Peter Gourevitch, "The Politics of Corporate Governance Regulation," Yale Law Journal, 112 (May 2003), 1829-80.

55. Interview with Jos? Luis Osorio, December 5, 2005. See Institute of International Finance, Corporate Governance in Brazil: An Investor Perspective (Washington, D.C.: Institute of International Finance, Inc.,

2004), p. 7. 56. Wolfgang Streeck and Kathleen Thelen, "Introduction: Institutional Change in Advanced Political

Economies," in Wolfgang Streeck and Kathleen Thelen, eds., Beyond Continuity (New York: Oxford University Press, 2005), pp. 1-39.

57. Collin even asked if group survival in Sweden might be the result of deep cultural propensities for

solidarity and equality, an argument that would not get far in Latin America. Sven-Olof Collin, "Why Are These Islands of Conscious Power Found in the Ocean of Ownership? Institutional and Governance Hypotheses Explaining the Existence of Business Groups in Sweden," Journal of Management Studies, 35 (November 1998), 719-46. 58. Dirk Zorn, Frank Dobbin, Julian Dierkes, and Man-Shan Kwok, "Managing Investors: How Financial

Markets Reshaped the American Firm," in Karin Cetina and Alex Preda, eds., The Sociology of Financial Markets (New York: Oxford University Press, 2006), pp. 269-89.

59. Schneider, "How States Organize." 60. For a skeptical review, see Randall Morck, Daniel Wolfenzon, and Bernard Yeung, "Corporate Governance,

Economic Entrenchment, and Growth," Journal of Economic Literature, 43 (September 2005), 655-720. 61. Ward, p. 6. 62. The criterion of nonfinancial makes the sample more homogeneous and comparable cross-nationally and

excludes only the three large Brazilian banks, Bradesco, Itau, and Unibanco. These banks were somewhat less diversified than the sample mean, though Bradesco only recently so, but they all had controlling owners, and two of the three had family control and management. 63. Two other storied grupos of the late twentieth century, Bunge y Born and P?rez Companc, were not

included. In 1999 Bunge y Born was absorbed by Bunge Argentina, a subsidiary of Bunge, now headquartered in New York. P?rez Companc was acquired by Petrobr?s in 2001. Before these acquisitions both firms were

typical grupos with third generation managers and broad diversification into four or more sectors.

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