3.6.1 Resource dependence theory

The rationale behind resource dependence is that ‘the most direct method for controlling dependence is to control the source of that dependence’ (Pfeffer and Salancik 1978: 143). According to resource dependence theorists, cooptation is a good tactic for managing this interdependence between companies, which can be implemented by inviting directors of interdependent companies on the board of directors (Pfeffer 1972: 222).

Cooptation is a good alternative for reducing uncertainty, which results from dependence on the external environment (Stiles and Taylor 2001: 17). The reduction of uncertainty is caused by the provision of information by directors (Zahra and Pearce 1989: 297). Trade associations, mergers, joint ventures, reciprocal trade agreements and coordinating councils are other methods to reduce the uncertainty, but are in some cases less applicable (Pfeffer and Salancik 1978: 144). There are three reasons why cooptation may be preferred over absorption of the whole company. Absorption may be ‘(1) legally proscribed, (2) impossible due to resource constraints, or (3) when partial inclusion is sufficient to solve the organisation’s problems of dealing with the external organisation’ (Pfeffer 1972: 222). Therefore, cooptation is mostly observed in situations involving very large organisations, which are too costly to absorb entirely. When financial institutions are concerned, the absorption of which is forbidden in some jurisdictions, and political organisations, which are impossible to absorb, cooptation is also preferred (Pfeffer 1972: 222). Cooptation is more flexible than absorption; however, less complete absorption leads to less than absolute control over the organisation (Pfeffer and Salancik 1978: 144-145).

The resource dependence theory stems from the fields of economics and sociological research that focus on the distribution of power within companies (Stiles and Taylor 2001: 16). Both disciplines cannot find consensus on what valuable resources are. According to sociologists, links with the nations’ business elite, access to capital and links with competitors are three important resources. Economists take a more generic approach and regard the board as the most important resource for the company, due to its ability to link with the external environment (Nicholson and Kiel 2007: 589). Pfeffer and Salancik identify four benefits of links with other companies: (1) providing information about each other’s activities, (2) facilitating communication between the companies, (3) providing commitments between the companies, and (4) providing legitimacy and prestige (1978: 145). It is considered important in this respect that the elected directors can provide input and advice and that they are good corporate citizens, who are noncontroversial and conscientious (Mizruchi 1996: 277-278).

The resource dependence approach shows resemblances with the board interlocks approach. Interlocks are observed when a person affiliated with one company sits on the board of another company. Although this relationship seems to be of no importance, board interlocks have been the subject of extensive research (Mizruchi 1996: 271-272). However, board interlocking theory focuses on links with competitors, while the resource dependence theory focuses on links with the external environment, which competitors are part of (Zahra and Pearce 1989: 297).

The view of resource dependence theorists, that a board is the essential link between the company and the environment, has consequences for board composition. The next subsection describes board composition in relation to the resource dependence theory.