Corporate Governance & Organization Life Cycle: The Changing Role ...

1.3.1. Resource Dependence Theory

From the resource dependence perspective, the behavior of an organization can be best understood by analyzing the environmental context, as well as the various tangible and intangible flows of resources between the organization and its environment. For instance, the long-term performance of an organization operating in the defense industry depends on its relationships with a few key customers—various government entities at home and abroad. Accordingly, an organization operating in this industry adjusts its strategy to the characteristics of this particular environment. The organization is viewed as a “coalition of interests” (Pfeffer & Salancik, 1978, p. 258), with the main objective being survival through the appropriate exchanges within a competitive environment. This lays the foundation for a political view of organizations. Control over resources provides power and the means to influence. As well, the authors presented various possible organizational responses to environmental constraints, including compliance or even avoiding compliance through the use of alternative strategies. Organizations can gain control through vertical and horizontal mergers or avoid compliance with antitrust regulations through business alliances or coalitions. Finally, organizations can use the power of government to favorably influence their environment. The senior management team of an organization may either adapt its strategy to the constraints imposed by the environment or modify the constraints by changing the environment itself. The first option could lead to joint ventures or to the appointment of directors connected to major stakeholders, such as suppliers. The second option could motivate an organization to enter the political field through lobbying or the financing of political parties. One key idea presented by Pfeffer and Salancik (1978) is that power usually ends up in the hands of those perceived as the most able to manage the environment and procure the resources that are the most critical for the organization. In that regard, from the perspective of resource dependence, the primary function of the board is to interface with the external environment: scanning the environment, representing the firm in the community, and securing valuable resources (Zahra & Pearce, 1989).