Resource dependence theory (RDT) (Pfeffer & Salancik, 1978) has its roots in economics and sociology. Its users claim that organisations use governing
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boards to try to exert control over their external environment by co-opting scarce resources and potentially hostile elements in the environment through directors’ external relationships or putting representatives of those institutions on the board (Muth & Donaldson, 1998; Pfeffer, 1972; Provan, 1980). RDT sees directors’ contribution as being “boundary spanning” agents between the company and its environment (Daily et al., 2003a, p. 372) that “act to buffer the organization from the uncertainties of its environment” (Provan, 1980, p.
221).
The four primary resources co-opted are said to be advice and counsel;
communication channels to external firms; assistance in obtaining resources;
and legitimacy (Hillman et al., 2000; Lynall et al., 2003). Through the provision of timely advice and counsel to management on the external environment, outside directors can reduce uncertainty (Hendry & Kiel, 2004;
Hillman et al., 2000; Stiles & Taylor, 2001; Zahra & Pearce, 1989) and aid firm survival by dealing with external threats (Dalton et al., 1998, p. 273).
Related to RDT are directors’ networks6 of connections. Directors’ networks of connections can reduce firm dependence or increase performance (Heracleous
& Murray, 2001; Hillman & Dalziel, 2003; Muth & Donaldson, 1998; O'Neal
& Thomas, 1995). Networks may be wide ranging: from simply letting management know the correct people to contact or influence; involvement in industry associations (Heracleous & Murray, 2001, p. 142); or links to customers, suppliers, and expertise (Muth & Donaldson, 1998). Director networks can be used to increase innovation, access new markets, decrease transaction costs and manage uncertainty (Heracleous & Murray, 2001, p.
137).
More formalised than network connections are interlocking directorates (Battiston et al., 2003; Boyd, 1990; Harris & Shimizu, 2004; Heracleous &
Murray, 2001; Mizruchi, 1996; O'Neal & Thomas, 1995). An interlocking
6 Networks are defined here as “long-term contacts between persons or organizations in order to obtain information and building resources” (Borch & Huse, 1993, p. 23)
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directorate is where “a person affiliated with one organization sits on the board of directors of another organization” (Mizruchi, 1996, p. 271). Interlocking directors provide access to important resources, opportunities to co-operate with other firms, legitimacy and information on business practices (Harris &
Shimizu, 2004, p. 778). Through their prestige, the directors’ role can enhance the firm’s legitimacy in society (Hillman et al., 2000; Pfeffer, 1973; Zahra &
Pearce, 1989) in order to extract resources for the firm.
RDT theorists argue that RDT will raise firm performance and increase returns to shareholders (Dalton et al., 1998; Hillman & Dalziel, 2003; Muth &
Donaldson, 1998; Zahra & Pearce, 1989). There appears to be empirical support for a link between the board’s boundary spanning activities and firm performance (Hillman, 2005; Hillman et al., 2000; Kula, 2005; Stiles &
Taylor, 2001). RDT, however, largely ignores other roles of the board, the inner workings of the board (Stiles & Taylor, 2001; Zahra & Pearce, 1989), and resource use through focussing only on resource attainment (Provan, 1980, p. 224). It is not a theory that has been tested against board role processes therefore.
RDT invokes an external focus for the board (Provan, 1980, p. 226). Much of the board’s service role is drawn heavily from RDT prescriptions (Gabrielsson
& Winlund, 2000; Levrau & Van den Berghe, 2007a). RDT proponents also see boards as strategists in their role of providing advice to the CEO and in aiding strategy development (Hillman & Dalziel, 2003; Zahra & Pearce, 1989).
RDT does not envision boards as evaluators of management (Hillman &
Dalziel, 2003, p. 386).
Under RDT prescriptions, the board’s tasks may include: a ‘linking task’ to important external resources, particularly finance (Bezemer et al., 2007;
Filatotchev & Toms, 2003) and influential groups (Borch & Huse, 1993;
Hillman, 2005; Pfeffer, 1973; Rhoades et al., 2000); supplying information, knowledge, experience and skills to management (Hillman & Dalziel, 2003;
Huse, 2007; Zahra & Filatotchev, 2004); networking and door opening (Huse,
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2005a, 2005b, 2007); maintaining good relations with external stakeholders (Cornforth & Edwards, 1999); enhancing legitimacy and prestige (Hillman et al., 2000; Pfeffer & Salancik, 1978; Provan, 1980), and lobbying regulatory bodies (Bezemer et al., 2007; Heracleous & Murray, 2001; Huse & Rindova, 2001). Overall, RDT proponents would expect a very collaborative relationship between the board and management.
Under RDT, the composition of the board will reflect the demands and uncertainties of the firm’s external environment (Borch & Huse, 1993; Boyd, 1990; Hillman, 2005; Pfeffer, 1972; Provan, 1980; Toms & Filatotchev, 2004).
These demands will change over time (Heracleous & Murray, 2001; Hillman et al., 2000). For example, the requirements of an “entrepreneurial threshold firm” (Zahra & Filatotchev, 2004) will differ from those of a declining industry (Toms & Filatotchev, 2004). RDT requires connected and well-networked directors with each director having differing networks (Huse, 2007;
Lynall et al., 2003). The board will also consist of stakeholders (Huse &
Rindova, 2001, p. 156) and community influential parties (Hillman, 2005;
Hillman et al., 2000) that provide legitimacy and prestige (Filatotchev et al., 2006; Provan, 1980) with experiences and skills aligned to environmental dependencies (Hillman, 2005; Westphal, 1999). A board driven by RDT principles will predominantly be composed of external directors with some executive directors for firm-specific information (Hillman et al., 2000). RDT may require larger boards with greater external linkages to resources and higher quality advice to improve firm performance (Dalton et al., 1999;
Pfeffer, 1973; Provan, 1980) or smaller boards consisting of “resource rich individuals’ (Boyd, 1990, p. 428). For a co-operative, that may implicate members who are major suppliers.
The strong link to one stakeholder group limits access to resources to the detriment of the organisation (Nicholson & Kiel, 2007, p. 601). The co-operative board may have strong linkages with supplier-shareholders to reduce uncertainty of supply (milk and capital) (Muth & Donaldson, 1998;
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Nickel & Moyano-Fuentes, 2004). This could isolate the co-operative from the environment and competition.
For the supplier-shareholder’s firm, RDT board representation could limit external risk by ensuring a market for their highly perishable goods, protecting transaction specific investments (Nunez-Nickel & Moyano-Fuentes, 2004, p.
1134), collectively achieving economies of scale in production, distribution and marketing (Katz & Boland, 2002), and by ensuring reliable behaviour of the company (Huse & Rindova, 2001, p. 164). This could secure favourable treatment for both sides of the transaction (Muth & Donaldson, 1998, p. 11).