Networks and Institutionalization: A Neo-structural Approach

We are not equal in our capacity to defend our regulatory interests, even in egalitarian systems. Very generally speaking, neo-structural sociology starts with the principle that divergent interests and forced interdependencies complexify the regulatory process and development of institutions. It requires an understanding of interdependencies as relational infrastructures that are often conflictual, dynamic and multi-level. Modelling social processes in terms of networks adds much to the reflection on the way individual and collective agents defend their regulatory interests in institutionalization processes, and therefore to joint regulation as a social and political process.

Selznick’s connection between structure and culture is still illuminating today with respect to understanding institution building by small networks of top-level institutional entrepreneurs that we call collegial oligarchies. At a very high level of generality, defining norms for collective action, i.e. the political process in a collectivity, depends upon who are the actors promoting these rules, what are their strategies to carry out this regulation within the system of their interdependencies, and what are the relational infrastructures that they are able to create and mobilize to do that. In this spirit, neo-structural sociology looks at institution building by exploring the relational dimension of ‘institutional work’ (Lawrence, Suddaby and Leca, 2011) or political work (Lahille, 2015; Christopoulos and Ingold, 2015), i.e. at the system of interdependencies in collegial oligarchies of institutional entrepreneurs involved in institutional framing.

In particular the neo-structural approach to regulatory activity reveals the ways in which strategic agents politicise their exchanges, especially by building relational infrastructures, for example, social niches or forms of social status. Controlling those relational infrastructures gives them a structural position that enables them to frame or guide the negotiation of rules, including building forms of consensus and normative alignments that are more or less long lasting. Observing the inconsistencies between these forms of status proves to be a powerful tool in the analysis of regulatory process

These inconsistencies are also the reason for difficulties in properly specifying status in statistical network models (Lazega, Mounier, Snijders and Tubaro, 2012).

Why are members with several, heterogeneous, high and inconsistent forms of status – multi-status oligarchs – particularly efficient as institutional entrepreneurs when operating in collegial oligarchies and using conflicts of interests? Neo-structural sociology has long contributed to research in this area (compared, for example, with Owen-Smith & Powell, 2008; Glückler, Suddaby & Lenz, forthcoming) not only by framing institutionalization in these terms but by explaining the efficiency of high-status inconsistency. This efficiency relies on the agents’ ability to lose status on one dimension and use a rhetoric of sacrifice to ‘manage the losers’ of the institutionalization process (Lazega, 2001) – i.e. to manage actors who stand to lose out from changes in the rules. These multi-status oligarchs are not just boundary spanners: they are improbable linchpins with high probability of being either sidelined or punching above their weight. They have to choose, for example, between broadening their constituency (with a view to the long-term stability of the institution) and establishing oligarchic closure.

Indeed, since actors organize their collective action around projects and rules, changing the rules is equivalent to breaking promises made to these actors. Using a position of high-status inconsistency is efficient in terms of institution building when actors are able to combine a form of power (control of resources that others need, i.e. finance, expertise, technique, time, law, etc.) with a form of legitimacy (discourse on behalf of the collective about the value of the new norms that is considered credible and compatible with its overall project). This credibility is increased when change of rules is presented as a cause of loss of status for the institutional entrepreneurs themselves. This loss of status is often presented as personal ‘sacrifice’ of status for the common good. But this loss is very relative, if not false, when this ‘sacrifice’ jeopardizes one dimension of status without jeopardizing the other high and uncorrelated dimension of status. Combined with other factors, this justification of broken promises is thus more likely to obtain normative alignment from the losers of the process – those who had previously organized themselves around the former rules – without forcing the entrepreneurs to lose all forms of status. Losing out on one dimension of status (while still keeping the other dimension) is thus equivalent to rhetorical creation/purchase of much needed legitimacy. Electoral politics rely very often on this rhetoric of ‘loss’ of status that institutional entrepreneurs claim to accept for the general interest. Examples of such ‘sacrifices’ are provided in the two illustrations below.

The strength of these actors (their Weberian Herrschaft) is increased when they are able to join forces in what we call a collegial oligarchy. Institutional entrepreneurship is strengthened in a regulatory college bringing together several persons with high-status inconsistency and conflicts of interests. This helps to draw a wide variety of constituencies into the process. Together, multi-status oligarchs become both vertical and horizontal linchpins in multiple, potentially conflicting domains and levels of regulation. Together they are able to negotiate, select and stabilize not only the formulation of new norms, but also the conventions and interpretations of these priority norms (Favereau and Lazega, 2002).

The main reason for which the creation of a collegial oligarchy is efficient in bringing together structure, culture and collective agency is that a group of heterogeneous leaders, even fraught with initial disagreements, diverse constituencies, or antipathies, can evolve over time. Years, often decades, of common and discrete collaboration create proximities, personalized relationships and fragile structural equilibria where mutual critique decreases over time. Being in a collegial regime of personalized relationships reduces the capacity to challenge others’ normative choices, to disagree. Members use their personalized relationships because they facilitate discussion over time – even when these are not necessarily quiet relationships. The important feature of this collegial and oligarchic closure is that it excludes stakeholders that would not agree with the regulatory solutions and compromises hammered out as ‘weak culture’ (Schultz and Breiger, 2010). This notion suggests that one can draw new and different actors (foreigners) into this process with the right choice of words. Oligarchic closure and cross-cutting networks have consequences for political participation: if you are not at the table, you are on the menu.

The Commercial Court of Paris is a 450-year-old court specialized in commercial litigation and bankruptcy. It is the first-level judicial institution enforcing, creating and updating business norms. The 1807 French Code de Commerce was written by its President. Heterogeneous, high and inconsistent dimensions of the social status of the judges in this court come from the fact that they are all business persons, often successful executives or entrepreneurs, and at the same time officers of justice with the highest possible probity expected from (sworn-in) civil servants/judicial judges. The institution is truly judicial, and delivers fast, cheap, pragmatic, precedent-based justice using a special ‘practical’ procedure. Judges are not just business people, but also voluntary lay judges (50% with a law degree) who are endorsed by an industry and coopted by their peers. 45% are retired and 55% are still paid by their employers or own their own company (in 2000). The composition of the court is characterised by an over-representation of the financial industry (38% of all judges are bankers and insurers). The building sector, another highly litigious sector, sends in 10% of the judges. There are many examples of how these judges do punch above their weight. One example is provided by the story of how they saved the French banking sector from bankruptcy in the 1990s (Lazega, Mounier, Lemaire, 2017). Another example is the very resilience of this institution thanks to its built-in problem of conflicts of interests and institutional capture.

This court has a strong formal organization, with a rule that judges rotate each year around its carrousel of 20 chambers. We have used the metaphor of the spinning top to model the combination of these organized mobilities (rotation) and emergence of a pecking order in the dynamics of the advice networks among all these judges (Lazega, Lemercier, Mounier, 2006). High-status inconsistency is obvious and conflicts of interests are institutionalized (Lazega & Mounier, 2012), as shown by the composition of the chambers in this court in 2000, illustrated by Figure 1. In this figure, bankers are in pink. Banks are the main creditors in the economy; the very simple fact that so many bankers sit in bankruptcy chambers illustrates the level of institutional capture.

Figure 1

However, the domination of bankers also extends, beyond bankruptcy chambers, to epistemic domination in the other activities of this court. To show this, we measured the advice network among these judges in 2000, 2002 and 2005, as represented in Figure 2. An analysis of this dataset using Snijders and Nowicki’s (1997) stochastic blockmodelling shows that, in these networks, bankers with a law degree are consistently the most central advisors for their peers. Statistical analyses (mentioned above) of the dynamics of this structure confirm how this collegial oligarchy controls the court epistemically.

Figure 2

The three figures visualize the cyclical dynamics (centralization-decentralization-recentralization) of status in the advice network among the judges in the court. Core, semi-peripheries and periphery identified with Snijders & Nowicki’s (1997) stochastic blockmodelling. Source: Lazega, Sapulete & Mounier (2011).

The evolution of social and epistemic status in these cyclical dynamics is indeed characterized by the capacity of this handful of members to keep their epistemic authority and maintain their highest centrality scores over time: they surf at the top of a wave of centralization, decentralization and recentralization of the system that was measured in this case.

Thus, and importantly from a neo-structural perspective focused on institutionalization, the multiple dimensions of status of these specific actors in this system are high, inconsistent and stable relative to the cyclical dynamics of the system. This capacity creates a competitive advantage in the struggle to define the priority norms in the court.

Bankers with a law degree not only exercise epistemic control but also use this control to promote specific norms in the court. We measured normative controversies in the court and asked each judge to read jurisprudential cases summarizing these controversies, to use their discretion in judicial decision making, and to discuss them with us in face-to-face interviews. One of the cases concerned ‘predatory prices’ and assessment of punitive damages in a case of unfair competition. We found that money does talk in this institutionalization process: bankers were spreading self-serving norms of non-punitivity for such damages. Snijders’ Siena models (Lazega, Mounier, Snijders and Tubaro, 2012) of increasing super-centrality of bankers with a law degree over time helped us track the expected dynamics, exposing the fact that no pure normative homophily was driving this spread of non-punitivity. It was rather reflexive alignment of the majority of judges on the normative choices of the super-central bankers (multi-status oligarchs) who achieved normative steering of the court by building epistemic authority thanks to their super-centrality combined with predictable rhetorics of status sacrifice: ‘We [banks] could benefit from the current excess of punitivity, but punitivity in principle is bad for the economy’. Other judges aligned their normative choices with those of these multi-status oligarchs.

This institutionalization process is not driven by pure normative choices. It is rather driven by normative choices combined with specific relational infrastructural dynamics in two processes. Firstly, by a dialectic of overload for the super-central members (who cannot answer all the requests for advice) and normative conflicts (Lazega, Sapulete and Mounier, 2011). Secondly, by the carrousel of chambers across which judges are rotated once a year, with many non-random infractions to the rule and a limited time horizon for all, including for the members in the core emerging from the movement. Driven by rotation and induced by delegation and turnover in these advice networks, oscillation (centralization, decentralization, recentralization) produces a form of rewiring that signals to most judges whose normative choices survive in these normative controversies.

This first example confirms the capacity of the neo-structural theory to account for this institutionalization. Our second example also involves judges punching above their weight in institution building.

This second case is about institutionalization of common norms at the emerging European Unified Patent Court that is meant to build a unified intellectual property (IP) regime for all European countries. It is based on the same approach as in the previous example, this time with judges working at the international level to build this judicial institution (scheduled to come into existence in 2018). It starts with a familiar pattern of EU institution building, beginning with the failure of European national governments to agree on common solutions and to concentrate enough power at the European level to impose such institutions (Dehousse, 1999; Thatcher, 2002). Here institutional entrepreneurs are corporate lawyers specialized in patents, representatives of a public/private regulator (the European Patent Office, EPO) and activist European judges with high-status inconsistency (civil servants openly involved in lobbying and political work). The position of these judges can also be characterized by high-status inconsistency because they openly cross the lines of division of powers – thus aggrandizing their role in democracy. This lobbying for the creation of a transnational court to enforce a legal instrument, the European patent created in 1973, was accompanied by work trying to create a common interpretation (‘harmonization’) of the European patent.

Indeed, the normative controversies, both substantive and procedural, about the interpretation of this patent concern the assessment of the ‘inventive step’ of an invention, the determination of the scope of protection afforded by the patent, the involvement of technical experts, and the use by judges of personal rules considering patents either as exceptions to the rule of copying or as rewards for the inventor. These disagreements led to a fragmented normative space in European IP. An example concerning an anti-depressant drug called Escitalopram is a good illustration. Generic supplier companies have long sought the revocation of a basic patent held by a pharmaceutical company that first synthesized this molecule. A Dutch court in The Hague decided on complete cancellation of the product and process claims for lack of an ‘inventive step’. In Germany, the Bundespatentgericht decision was the same. However, a decision of the French Tribunal de Grande Instance in Paris was that the product claims by the pharmaceutical company were valid. In the United Kingdom, a first instance court decided to invalidate the product claims, but for a different reason (namely insufficiency of disclosure). The case is still regularly revisited. This fragmentation facilitates forum shopping by multinational companies, and the emergence of ‘zombie’ patents.

Prodded and assembled by the corporate lawyers and by EPO, activist European IP judges started to network and convene at the so-called Venice Forum, a field-configuring event, to lobby for the construction of this European court and work together on harmonizing their interpretations by hammering out a ‘European Compromise’. Where governments failed, a small collegial oligarchy of super-central judges emerges from these events and is poised to create the new European IP regime. This collegial oligarchy of judges is perceived by their peers as primi inter pares who should sit on the future Court of Appeal of the UPC and make decisions that will create a common jurisprudence. Three different networks of European judges were measured at the Venice Forum: the network of national and foreign peers (present at the Venice Forum) with whom judges personally discussed patent issues; the network of national and foreign peers whose decisions they read; and the network of national and foreign peers whose decisions they had actually cited at least once in their own decisions. Figures 3.1 to 3.4 identify the most central high-status inconsistency Venice Forum judges assembled in a ‘conclave’

This word was used by lawyers and judges themselves. For example: ‘On a personal level, cohabitation – almost in a conclave – allowed us to get to know and appreciate each other (…) Patent judges from the main European intellectual property countries confronted their points of view, sometimes very frankly, but always with courtesy’.

Figure 3.1

Figure 3.2

Figure 3.3

Figure 3.4

Figures 3.1–3.3: The Venice Forum collegial oligarchy: Three different networks of European judges measured at the Venice Forum

Multi-status oligarchs, i.e. super-central UK, German, Dutch judges, dominate this heterogeneous set of 38 Venice Forum judges. Losers are French, Southern and Central European judges.

Super-centrality in the uniform network is explained at 99% by centrality in the three other networks, by membership in a block of countries sharing the same kind of capitalism, and by judges’ use of experts in the legal procedure (a discriminant feature separating the UK from the Continent at the time). Analysis of the judges’ positions in the controversy combined with their positions in the networks shows a slightly chaotic situation: personal ties between judges across borders do not lead (automatically) to convergence and ‘harmonization’. At the time (2009), judges actually disagreed on several key issues with the peers that they had selected as the future representatives of the Unified European position. These super-central judges at the core of the network, the future rule makers according to their peers, also did not agree with each other (yet). This analysis of the Venice Forum relational infrastructure identified the judges who later came up with the 2016 Rules of Procedure of the UPC, a compromise based on rhetorical/possible ‘sacrifices’ of distinctive procedural features of each big country’s national ‘legal culture’: orality and adversarial procedures by the UK; saisiecontrefaçon by France; and bifurcation by German judges. Lazega, Quintane and Casenaz (2016) provide ERGM analyses of the emergence of this uniform network and identify the costs for each of the Venice Forum judges in terms of alignment upon the kind of judge whom they have selected in this uniform network. Based on future ‘forced’ normative alignments, winners of the institutionalization process are Germany and the UK, losers are Southern and Central Europe. Here again, this case confirms the capacity of the neo-structural theory of institutional entrepreneurship outlined above to account for the construction of this institution.