INSUMOS Y SUMINISTROS

One of the theories which has been used infrequently in understanding corporate governance and firm performance both in developed and emerging markets is resource dependency theory. The resource dependency paradigm dates back to Selznick (1949) and his research on the Tennessee Valley Authority (Bryant and Davis, 2012). Selznick reported that, when faced with resilient opposition, the Tennessee Valley Authority would include opposition members on its governing board (Bryant and Davis, 2012, Selznick, 1949). This policy, termed co-optation, was a tactic or strategy used by the Tennessee Valley Authority to minimise external uncertainty by exercising some level of control over the source of uncertainty.

The theory was developed later on by Pfeffer (1972) in his paper ‘Size and Composition of Corporate Boards of Directors: The Organization and its Environment’ and later on in Pfeffer and Salancik (1978) book titled The External Control of Organizations: A Resource Dependence Perspective. Since then, the theory has attracted a lot of attention from strategy to finance scholars in understanding organisational complexities. In fact, it has often been used as a complement to agency theory in corporate governance research. Even though this theory has been used as complementary to agency theory, it is very much distinct from both agency and stewardship theory. Whereas agency theory and stewardship theory are concerned with the alignment of the interest of agents and principals, resource dependency moves away from this form of internal conceptualisation of relationships. Instead it looks at the organisation as an entity operating in an uncertain environment. Resource dependency theory offers a theoretical basis for internal corporate governance mechanisms such as boards of directors as a resource to the company (Daily et al., 2003, Hillman et al., 2000, Pfeffer and Salancik, 1978). Advocates of this theory see boards of directors as contributors and as boundary spanners (linking the firm internal networks with external sources of information) of the firm and its environment ( e.g. see Daily et al., 2003, Hillman et al., 2000, Pfeffer and Salancik, 1978).

According to Pfeffer (1972), if boards as an internal corporate governance mechanism act as environmental linking bodies, when firms are confronted with greater external resource dependencies, a larger board with a greater proportion of outside directors will be necessary to reduce these dependencies (Bryant and Davis, 2012, Huse, 2007, Pfeffer, 1972, Pfeffer and Salancik, 1978). Evidence from Pfeffer (1972) study provides support for: i) positive correlations between organisation resource dependencies related to sales and finance and the

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number of outside directors; ii) positive correlations between finance and regulation and the number of directors. In relation to Pfeffer (1972) results, the rationale within this theory is that boards should be structured and composed in such a way that reflects a firm’s resource dependencies. As such, Pfeffer (1972) observed that, when board composition and structure were different than the normative or reflective size for a given level of a firm’s external resource dependence, organisational financial performance declines in proportion to the amount of misalignment from required board structure.

Following on from the preceding discussion, outside directors according to the resource dependency theory provide access to resources needed by the firm (Bryant and Davis, 2012, Miller and Sardais, 2011, Daily et al., 2003, Pfeffer, 1972). For instance, outside directors who are also executives of banks may assist in securing credit for the firm. Similarly, outside directors who are legal practitioners provide legal advice both in private communication with the firm’s executives or during board meetings which ceteris paribus may otherwise be more expensive for the organisation to secure (Kiel and Nicholson, 2003, Daily et al., 2003). The provision of these resources by the board as an internal corporate governance mechanism enhances the firm’s operation, firm financial performance and survival in the long run (Daily et al., 2003).

In relation to the composition of the boards as an internal governance mechanism, both agency theory and resource dependency theory have advocated for more outside directors or non- executive directors, but they differ in that the latter is concerned with the composition and inclusion of outside directors in relation to a firm’s dependencies. Whereas the former is in relation to independence in monitoring and control of management. Agency theory board taxonomy distinguishes between outside directors and inside directors; however, the resource dependency taxonomy retains the typical inside director classification but disaggregates the outside directors into three distinct classes, namely business experts, support specialists and community influencers (Bryant and Davis, 2012, Hillman et al., 2000). Therefore an efficient resource dependent board will modify its structure and composition by adding additional non- executive directors in the category of support specialists, business experts and/or community influencers to reflect new resource dependencies as required by the firm (Bryant and Davis, 2012). Inside directors in the resource dependency taxonomy are there to fulfil the task of meeting the internal resource dependency requirements of the firm (Bryant and Davis, 2012, Hillman et al., 2000). As Bryant and Davis (2012) put it, as former or current executives of the

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firm, executive directors are best placed to provide knowledge and expertise vis-à-vis the strategic and day-to-day needs of the firm (Bryant and Davis, 2012).

In fact, some scholars have noted that, historically, CG scholars have often regarded composition of boards with a bias towards agency theory (Bryant and Davis, 2012, Hillman et al., 2000), and this is more evident in the very few studies conducted so far in Africa (see section 3.6 and table 4). This is one of the areas where this study seeks to contribute to CG empirical research by looking at, in addition to board compositional constructs of agency theory, board interlock and busyness constructs within resource dependency taxonomy. Therefore, given this limitation and the need to understand CG beyond agency theory prescriptions, this study uses agency theory, stewardship theory and resource dependency theory to understand internal CG mechanisms within an African context (Kumar and Zattoni, 2015). Specifically, the limitations of each of the theories and their empirical predictions enable a triangulation of governance constructs to provide a robust and comprehensive understanding of CG–firm performance in a comparative African context.