Modelos de aprendizaje

Boards of directors come into play to fill the gap between ownership and control and for the purpose of controlling and maintaining an effective organization where ownership and management are separated (Garg, 2007). This is one of the roles that boards are expected to play in addition to other roles stated by Goodstein, Gautam and Boeker (1994) as cited in Ghosh (2006:435), i.e.,

“Corporate boards fulfill three roles […]. First, boards play an institutional role: providing a link between the organization and its environment. Second, boards discharge a governance role: monitoring and disciplining of inefficient management. The third role of the board is strategic: chartering the future growth path of the firm in a competitive setup”.

The roles that are expected of boards are mainly linked with the major theses outlined by different theories viz. the agency, stewardship, stakeholders, resource dependence and social capital theories. These theories, which are briefly discussed in the subsequent sections, have greatly influenced the nature and development of corporate governance (Mallin, 2010; Tricker, 2009).

2.4.1 Agency Theory

The agency theory deals with the challenge on how to ensure that the agent (managers) acts in the interest of the principal (shareholders) (Mallin, 2010; Tricker, 2009; Jensen & Meckling, 1976). The agency problem occurs in situations where owners are not in a position to manage/control the organization they own, that is, when there is separation of ownership and control (Bhasa, 2004). It also deals with

the agency problem, which is the likelihood of conflicting goals, abuse of power, and information asymmetry and provides the framework for handling such situations between the principal and agents (Fama, 1980). The problem lies in the self interest that the agent demonstrates which may not favor the interests of the principals (Berle and Means, 1932; Fama & Jense, 1983; Ramos & Olalla, 2014). According to Tricker (2009:219), “[T]he agency theory looks at corporate governance practices and behavior through the lenses of the agency dilemma‟‟, which arises whenever a principal enters into a contract with an agent to manage a property. Tricker (2009:217) explains the situation by quoting Smith (1776) that, “The directors of companies, being managers of other people‟s money, cannot be expected to watch over it with the same vigilance with which they watch over their own”. Thus, to align the interests of the agent with the shareholders, agency costs that include monitoring costs are incurred (Jensen & Meckling, 1976; Marnet, 2004).

Agency theory is based on a narrow theoretical scope (Tricker, 2009) and the assumption that humans are utility maximizers, self-seeking and opportunistic. Therefore, the main issue is the extent to which mangers, as agents, act in the interest of shareholders. Corporate governance is thought to be one of the mechanisms to constrain the opportunistic behavior of the agent that requires the establishment of a board of directors that oversees the activities of the agent (Mallin, 2010). The theory views the board of directors as a means of control through monitoring (Mallin, 2010; Dulewicz & Herbert, 2004; Mueller &Barker III, 1997; Hermalin & Weisbach, 1991; Fama & Jensen, 1983; Fama, 1980). One can deduce from the previous discussion that boards as governance mechanisms monitor the management and through their control on the selection of directors, proposed by its nomination committee composed of non-executive directors, can improve the overall performance of management. As a governance mechanism, the key role of boards would be to reduce the agency costs and maximize shareholders wealth. It is for these reasons that boards have become one of the essential governance institutions in corporate organizations.

In a nutshell, the theory views a board of directors as an important governance mechanism which provides important services and executes control functions. Mallin (2010:15) further elaborates that, “In the context of corporations and issues of corporate control, agency theory views corporate governance mechanism, especially the board of directors, as being an essential monitoring device to try to

ensure that any problems that may be brought about by the principal-agent relationship, are minimized.”

The agency theory, though the mainstay of research for the past three decades, is criticized for studying the complex nature of corporate governance using a relatively narrow theoretical lens of contract relationships that involves principals and agents. As a simplistic model it is also easily challenged by posing the question „who is the agent for whom‟ in a situation where there is a chain of investments. As Tricker (2009:222) puts it: “… the ultimate beneficial owner invested through a pension fund, which invests in a hedge fund, which invests in a private equity company, which places funds in the hands of financial institutions, which invests in the shares of listed company but lends them as collateral for another transaction, who is agent for whom …”. The agency theory is also criticized for its moral assumption about human behavior that people maximize their personal utility or that people are self-interested not altruistic.

2.4.2 Stewardship Theory

The stewardship theory argues against the assumption imbedded in the agency theory of opportunistic and self-interest human behavior. The stewardship theory states that there is no conflict of interest between owners (shareholders) and agents (managers) if there is an appropriate structure that allows coordination to be achieved most effectively (Dulwicz & Herbert, 2004). Thus, managers are trustworthy and good stewards of organizational resources rather than self serving individuals exploiting for private ends due to their position and information asymmetry (Ramos and Olalla, 2014).

The stewardship theory is constructed based on the belief of unification of command at the head of an organization. That is, unifying (combining) the CEO and chairman‟s role can be beneficiary to shareholders since this results in greater unity of direction and strong command and control. On the other hand, the agency theory does not believe in the CEO duality (combining the two roles in one person) because doing so results in concentration of power in one person with consequences of agency cost and lower return to shareholders (Mallin, 2010; Anderson & Baker, 2010).

Furthermore, Muth and Donaldson (1998) as cited in Dulwicz and Herbert (2004:263) indicated that “Stewardship Theory, in contrast to Agency Theory,

recognizes a range of non-financial motives of managers found in the occupational psychology literature, for example need for advancement and recognition, intrinsic job satisfaction, respect for authority and the work ethic”. So, the theory claims that managers are motivated by non financial motivators that include the factors listed above.

The stewardship theory is based on a positive view of human attitude that argues that people are not inclined to opportunism, and managers do like to pursue shareholders‟ interests; and board members with different experiences, competences and viewpoints, as a valuable resource to corporate boards, provide counsel and service to management to enhance their decision making process and impact corporate performance (Clark, 2004; Tricker, 2009; Anderson & Baker, 2010). In describing the stewardship nature of boards and demonstrating the relationship between boards and stakeholders, Tricker (2009:224) stated that,

“… each company is incorporated as a separate legal entity. The share holding members of the company nominate and appoint the directors, who then act as stewards for their interest. …. Ownership is the basis of power over the corporation. Directors have a fiduciary duty to act as stewards of the shareholders‟ interest. Inherent in the concept of the company is the belief that directors can be trusted.”

Tricker (2009: 224) plainly puts that the theory is based on a classical idea of corporate governance that “Directors‟ legal duty is to their shareholder not to themselves, or to other interest groups. Contrary to agency theory, stewardship theory believes that directors do not always act in a way that maximizes their own personal interests: they can and do act responsibly with independence and integrity”. Opponents of the stewardship theory recognize that the current corporate situation differs from the 19th century realities. They argue that the concept of appointing directors by shareholders owning a single company is naïve in modern circumstances where shareholders are remote and do not nominate the directors. In complex organizations, there is lack of transparency, accountability, and commitment seriously challenging the stewardship role of boards. Moreover, though the theory serves as a legal foundation for company legislation, the late 20th and 21st century corporate collapses have eroded trustworthiness of boards owed under the stewardship model (Tricker, 2009).

2.4.3 Stakeholder Theory

The stakeholder theory considers a wider group of constituents instead of focusing only on shareholders‟ interests. According to Freeman (1984:46), “A stakeholder in an organization is (by definition) any group or individual who can affect or is affected by the achievement of the organization‟s objectives”. Stakeholder groups include: employees, creditors, customers, suppliers, government, and local community (Tricker, 2009; Mallin, 2010; Anderson & Baker, 2010). This theory propounds, “… the growing recognition by boards of the need to take account of the wider interests of society” (Gay, 2002 as cited in Dulwicz & Herbert, 2004:263). This implies that, corporations have many relationships with stakeholders (constituent groups) and the action of one has implications for the other. Therefore, the stakeholder theory is concerned with such relationships based on which the corporation takes into account the interest of the stakeholders in its processes and outcomes. Stakeholders play various roles in corporate governance and some of them including customers, creditors and employees are considered to be important components for its survival as they provide essential resources to the corporation. As a result, a stakeholder theory argues that the interests and concerns of stakeholders should get full attention in the process of directing and controlling a corporation (Spitzeck & Hansen, 2010).

2.4.4 Resource Dependence and Social Capital Theories

The resource dependence theory asserts that the effectiveness of a firm can be influenced by the ability of key organizational members to act as boundary spanners so that carefully selected outside board members can extract important resources from the environment that might not be available in the firm (Tricker, 2009; Daily & Dalton, 1993). One way to influence the external organizations on which firms depend on resources is to have outsiders on the board of directors that serve as a link between the two. The resources could include links to markets, access to capital and other sources of finance, provision of know-how and technology, relationship with business, political, and other societal networks and elites (Tricker, 2009). Therefore, to have access to these resources, the corporate structure of the board should match environmental demands. This is consistent with the organizational theory of systems approach that the organization is an open system that interacts with its environment and depends on it for its resources. This is also

propounded by the social capital theorists who argue that the networking board of directors with the external organizations has the potential to bring more resources to the firm due to the linkages established.

Despite differences in their areas of emphasis with regard to the roles of the board of directors, theories of agency, stewardship, resource dependence, and social capital suggest that board structure (composition) may affect corporate performance. Therefore the theories evince that board structure has significant impact up on organizational performance. The social capital and the resource dependence perspectives see outside board members as a link to external resources that can be used as a means to improve performance. Specifically, they facilitate access to capital, skills, and other type of resources (Mueller & Barker III, 1997), whereas the view of the agency theory is that, outsiders would control and limit self-serving and opportunistic behavior demonstrated by management. Empirical evidence associated with bankrupt organizations demonstrate that firms that have higher levels of inside control tend to experience bankruptcy, showing the value of outside board members. And the value of a board as a monitoring and control organ is affected by its composition (Mueller & Barker III, 1997).

Previous discussions revealed that the need for corporate governance and the dynamics of board of directors can easily be captured by none of the theories. The theories complement rather than contradict each other and none of them question the importance of board governance in corporate organizations.

Corporate board structure and processes, as mechanisms of corporate governance, have received considerable attention from researchers, academicians and policy makers (Ghosh, 2006). These two important components of corporate governance are discussed in the following subsections.