Economic Liberalization and Corporate Governance: The Resilience of Business Groups in

Latin America
Author(s): Ben Ross Schneider
Source: Comparative Politics, Vol. 40, No. 4 (Jul., 2008), pp. 379-397
Published by: Comparative Politics, Ph.D. Programs in Political Science, City University of
New York
Stable URL: https://www.jstor.org/stable/20434092
Accessed: 21-06-2019 14:42 UTC

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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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Comparative Politics July 2008

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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 Ben Ross Schneider

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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Comparative Politics July 2008

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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 Ben Ross Schneider

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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Comparative Politics July 2008

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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 Ben Ross Schneider

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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Comparative Politics July 2008

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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 Ben Ross Schneider

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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Comparative Politics July 2008

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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 Ben Ross Schneider

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

AeBo acenfathtepr e of wealthsesth

/ / management \ 3
/ s ~~~~and\\
/ /3 & 4. Risk sne
/ / of minority\ \
concentratdierses
/ expro-\ thrug stockem
\marketm
Blockholding (and pr
underdeveloped Multisectoral
stock markets) p d~~~~~~~~~iversifica
stock markets) ~ 6. Absence of opportunity to
diversify through stock market

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

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Comparative Politics July 2008

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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 Ben Ross Schneider

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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Comparative Politics July 2008

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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Comparative Politics July 2008

"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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 Ben Ross Schneider

(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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Comparative Politics July 2008

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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 Ben Ross Schneider

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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