Entrevista dirigida al Sr Jaime Villareal

One of the many areas with limited literature in emerging African economies relates to the concept of interlocking directorates.Significant empirical studies on

interlocking directorate constructs have been carried out in the US, the UK, Europe, Canada and Australia. Thus far, the exact extent and structure of interlocking

directorates among African firms is still unknown, nor have there been studies linking this construct to firm performance.

From a resource dependency view, boards of directors are potentially an essential strategic resource for the firm, particularly with relation to the firm’s external resource needs. These linkages include networks/affiliations to business elite, competitors, banks, or market and industry intelligence (Van der Walt and Ingley, 2003, p.220 , Phan et al., 2003). Unlike agency theory, which asks for more NEDs for the purpose of monitoring management, resource dependency theory holds that

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outside directors are interlocks between the firm and its external environment (Pfeffer, 1972, Pfeffer, 1973, Pfeffer and Salancik, 1978, Salancik and Pfeffer, 1978). In this context, diversity is seen as a broader range of backgrounds among outside directors in providing resources needed by the firm (Pfeffer, 1972, Pfeffer, 1973, Pfeffer and Salancik, 1978, Salancik and Pfeffer, 1978). In fact, resource dependence theory contends that organisations appoint NEDs to the board for the purpose of tapping into resources they bring from their external linkages (Pfeffer, 1972, Pfeffer, 1973, Pfeffer and Salancik, 1978, Salancik and Pfeffer, 1978, Peng, 2004). More so, Peng (2004) opines that more resource-rich NEDs are solicited on boards to help bring in needed external resources which enhance the firm’s financial performance. It is argued that the size of a firm is directly connected to the number of board interlocks it has with other firms (Ong et al., 2003). In addition, the frequency of board interlocking with financial firms reflects dependency of the firm on the external sources of capital to finance its growth requirements (Ong et al., 2003). In addition, interlocking directors enable firms to acquire scarce resources and thereby assist in survival and growth of the firms. In fact Pfeffer and Salancik (1978) postulate that the principal role of outside directors is to provide the firm with external linkages (e.g. information and expertise), create channels of communication with related firms, provide support from external groups or organisations and legitimise the firm in its external environment. Thus, boards should be composed of members with both internal and external resource links. Internal resources may include executive directors who have

knowledge of the firm, while external resources may include business experts, support specialists and community influencers. Therefore, the composition of the board

should reflect its resource needs, which consequently enhances firm financial performance.

Contrary to the preceding arguments, from class hegemony theory, interlocks are formed to serve mutual protection of interest of a social class (Phan et al., 2003). Thus, the appointment of board members is driven by identification of similar

backgrounds, political beliefs and characteristics within personal networks of existing board members, resulting in ‘class hegemony’. As a result, the primary attention of directors will be to serve the purpose of protecting class welfare by extending the courtesy to persons who belong to the class. This has a detrimental effect on the firm performance as this limits criticality and independence in board discussions, leading

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to lack of monitoring (Phan et al., 2003). In such a scenario, board members have a

laissez faire attitude in their functions and as such will be ineffective monitors, and firm value maximisation will fall. In a nutshell, the inclusion of outside directors leads to more interlocks because directors favour nomination of individuals who belong to same social ‘class’, hence expanding board interlock but with negative effect on firm performance. A similar line of argument is rooted in institutional theory, which argues that appointing NEDs for their networks may merely represent an organisation’s attempt to comply with institutional pressures and may not necessarily have a positive impact on firm performance (DiMaggio and Powell, 1983).

The empirical evidence on board interlock is also mixed. For example Fich and Shivdasani (2006) looked at the impact of interlocking directorates on firm

performance and their results show an inverse statistically significant relationship to market-to-book ratio of firms. However, Ong et al. (2003) studied interlocking directorates among 295 listed Singaporean firms and found a positive relationship with firm performance (using total assets, ROA, return on sales and profit before tax as proxies). Peng (2004), using 405 publicly listed firms in China, suggests that interlocking directors affect sales growth positively. Fich and White (2005) studied reciprocal CEO interlocks and firm performance using data for 576 firms in 1991, and their results indicated a positive relationship between Tobin’s Q and reciprocal CEO interlocks. Pombo and Gutiérrez (2011) also studied board interlocks and firm performance using 335 Colombian firms for the period 1996–2006. They reveal a positive relationship between board interlocks and firm performance (using ROA as a proxy). Following these empirical results, the following hypotheses is proposed in relation to interlocking directorate construct:

H07a: There is a statistically significant positive relationship between board

interlocks and firm financial performance as measured by both ROCE and the Q-ratio.

H17a: There is no statistically significant positive relationship between board

interlocks and firm financial performance as measured by both ROCE and the Q-ratio.

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On the other hand, some scholars have argued that director busyness limits the ability of directors to perform their board tasks (Falato et al., 2014, Ferris et al., 2003, Jiraporn et al., 2009). Arguments for the busyness hypothesis suggest that directors holding more directorships outside a firm have less time to spend serving on board as a result of their commitment to attend board meetings in other firms (Jiraporn et al., 2009,pp.819). In addition, busy directors will not be able to monitor, control and evaluate management behaviour which may adversely impact on firm performance. As such, owing to lack of time, busy boards will allow managers to pursue their objectives at the expense of shareholders’ interest (Di Pietra et al., 2008).

Conversely, a director’s busyness may signal success to fund providers. As Di Pietra et al. (2008) posit, this is because efficient and successful directors tend to sit on other boards, which signals success. This arguably enhances increased equity valuation in the stock market and impacts positively on firm performance.

In Western economies, a limited number of studies had examined the impact of director busyness on firm financial outcomes. For example Di Pietra et al. (2008) and Field et al. (2013) reported a positive director busyness–firm performance association. However, Falato et al. (2014) reported a negative association. There is a dearth of research examining the director busyness–firm performance association. This study attempts to fill this gap by examining the following hypotheses:

H07b: There is a statistically significant negative relationship between director

busyness and firm financial performance as measured by both ROCE and the Q- ratio.

H17b: There is no statistically significant negative relationship between director

busyness and firm financial performance as measured by both ROCE and the Q- ratio.