Joint ventures represent, of course, only one form of interorganiza- tional linkage; and involving a partial pooling of assets, they are only slightly less powerful interfirm linkages than merger. Somewhat less involving are the placing of representatives from environmental groups or organizations on advisory committees or boards of directors. Although interlocking directorates do not involve the same degree of commitment of resources as joint ventures, they do facilitate interactions between the organizations over time. Thus, the practice of interlocking boards provides opportunity to evolve a stable collective structure of coordinated action through which interdependence is managed. The establishment of friendships,,the exchange of information, and the identification with the focal organization would all facilitate stable relationships among organizations. In royal houses, the practice of arranging marriages with members of other royal families to cement alliances was quite common. This practice of placing in one organization a representative from another to cement the bond between them continues to the present.
Interlocking directorates, we would argue, are one form of a more general tendency to manage the environment by appointing significant external representatives to positions in the organization. Known as cooptation, this is a strategy for accessing resources, exchanging information, developing interfirm commitments, and establishing legitimacy. Of all forms of interorganizational coordination, it is one of the most flexible and easiest to implement, two advantages that have made its use pervasive. The flexibility derives from the fact that any organization can create advisory or directing boards and appoint outsiders to them. The organization has considerable discretion and can choose to appoint representatives from the environment as dependence requires. Of course, individuals may refuse the invitation to join the board, but they would not be likely to do so if the linkage would offer advantages to them and their organizations as well.
There are three points of view which might explain the appointment of outsiders to an organization’s advisory or governing board.
The first recognizes the possibility of appointing people with managerial skills to provide the organization with managerial expertise. For small organizations, with limited resources to develop a bank of management talent itself, this may be an important reason for selecting board members. We know of a small, privately held consulting firm which appointed to its board a vice-president of the World Bank, a major contributing author to Fortune magazine, and one of New York’s top corporate lawyers. The board members were all friends of the president of the firm, and the appointments were made to tap their business expertise. The first advice the board offered was to get out of the business of selling time and develop a marketable product which could be leased for a fee. This was an idea that had not occurred to the president, and he accepted the advice. As a result, his business was transformed from one of consulting for a few hundred dollars a day to one of selling standardized information and analytic services to corporations throughout the world, with a tremendous increase in income.
Another perspective emphasizes the controlling or governing function of the board. Publicly held corporations, for instance, are required to establish boards which are elected by the shareholders, the owners of the corporation. The board’s ostensible function is to oversee the organization’s operations and ensure that the interests of the owners are served. Boards are empowered to choose the management of the corporation and to vote on major corporate decisions. In public organizations as well, the board may be viewed as a means of control over the organization. Indeed, advocates of greater social responsibility for business firms have occasionally held that boards of directors could accomplish this objective.
This second perspective ignores the fact that executives in organizations frequently have considerable control over the board. Not only does management itself own stock and occasionally sit on the board, but also management controls the information that the board members receive about the organization and its operations. Through the control of information, management can see to it that board members, who are only associated with the organization on a part-time basis, are essentially prevented from exercising control except under the most extreme circumstances.
Cooptation describes a situation in which a person, or set of pep- sons, is appointed to a board of directors, advisory committee, policy making or influencing group, or some other organizational body that has at least the appearance of making or influencing decisions. Such appointment may occur either by means of an election or by direct- invitation. Through providing at least the appearance of participating in organizational decisions, cooptation tends to increase support for the organization by those coopted. The perspective of gaining support is the third that one can use to analyze boards of directors. When an organization appoints an individual to a board, it expects the individual will come to support the organization, will concern himself with its problems, will favorably present it to others, and will try to aid it. Many aspects of the situation promote commitment to the organization (Salancilc, 1977). A board member is publicly identified with the organization, and thus may be expected to accept some responsibility for its actions. The board meeting itself places the member in the presence of others, and one might expect the normal situational influences producing conformity, adherence to norms, and cooperation to operate. The individual is placed in a role, and the expectations associated with that role determine his or her behavior. Finally, the feeling of participating in setting organizational policy makes the individual both more identified with, and more committed to, that policy. The link between participation and cooptation, and the consequence for achieving support has been noted by Gamson (1968), among others. The individual has been coopted; the organization’s interests become his or her in- terests.
How cooptation works, is; nicely illustrated by the following example. In a large state university in the early 1970s, various pressures were being felt by campus administrators from women faculty, non- academic staff, and students who were concerned with discrimination in hiring, promotion, and pay, as well as in the recruitment and financing of graduate students. Since there were various federal regulations also proscribing discrimination, the university administration felt under some pressure to accommodate at least some of the demands. Furthermore, as a public university, it could not well afford to have active and vocal opposition. This university’s solution (a strategy adopted by many others as well ) involved the creation of a Committee on the Status of Women. To this committee were appointed the most vocal, well-connected, and powerful women active in this area. The committee was given some stationery, some research assistant support, and various other trappings of legitimacy, including occasional meetings with the chancellor and official recognition in university publications and documents.
While not completely successful in defusing the demands, as the women, after all, were not strictly coopted but were left on a committee to talk to each other, the strategy did substantially reduce the level of activity. The committee became concerned with maintaining its position in the organization, its recognition, its research assistance, its access to the chancellor. Given a stake in the organization, the group became concerned with maintaining that stake. Procedural issues began to dominate substantive concerns, the demands and complaints gave way to concern with bureaucratic procedures, and the level of opposition was significantly reduced. The quieting of opposition through the technique of setting up a subunit within the organization to absorb the protest has been described by Leeds (1964) and has been used in the War on Poverty to absorb active community political leaders. Participation, it seems, has two effects. First, persons become committed to organizational actions because they are identified as having cooperated in their formulation. Second, persons become committed to the organization to maintain their perceived access or influence. It becomes possible for individuals to justify going along on the basis that if they did not participate and comply, things would be even worse, and that it is worth some level of compromise to maintain the limited degree of access and influence that has been granted.
It customarily takes time to develop the degree of commitment to the organization that is required to obtain continuing support from: significant segments of the environment, and appointments to boards offer two advantages in this regard. First, the appointment forces regular and legitimate contact with the organization, which provides opportunities for information sharing. The organization is in a position to obtain information from important interest groups and at the same time present information and persuade representatives to its own position. The second advantage is that potentially hostile elements can be neutralized by the fact that any one board member represents only a small proportion of the entire board in most cases. The forced need to make decisions may create pressures for uniformity (Festinger, 1950).; The more integrated the person becomes with the organization and the; fewer the ties to other organizations, the more likely will initial opposition be neutralized through conformity pressures. Select groups of elite who participate in decision making in secrecy with few ties to other- group invariably develop social consensus. Selznick (1949) has described in detail the manner in which interests initially hostile to the Tennessee Valley Authority were coopted and convinced to support the project.
Loss of Organizational Autonomy
By appointing persons to the organization’s governing board, particularly those with initially incompatible interests, the organization be-comes susceptible to the influence of these individuals. While the or-ganization may be in a position to socialize and obtain the support of external groups through cooptation, the organization may be altered-by the bringing of external organizations into its councils. Selznick (1949) has noted the dilemma posed by the use of cooptation. While s.support may be achieved, the original aims of the organization may be diverted. In the instance of the Tennessee Valley Authority, local conservative agrarian interests, initially hostile to the project, were coopted but in the process many of the New Deal aims and objectives of the program were diverted, and many of the project’s activities ultimately benefited these agrarian interests.
Possibly it is the belief that one can influence the organization that motivates outsiders to accept appointments to boards. Dooley (1969), who examined interlocking directorates among the 200 largest manufacturing corporations, noted that the interlocks between manufacturing organizations and financial institutions have been consistently maintained since the 1930s. Dooley also noted that these enduring networks limited the organization’s autonomy and imposed restraint from the outside community on the organization. Our own analysis would suggest that such mutual exchanges are designed to impose constraint because it is simultaneously constraining (organizing) the actions of interdependent organizations that enables each to face a stable, certain environment. Having a bank representative on the board may help the organization obtain financing, but it also helps the bank place loans. While there is no specific evidence, it would seem that the stability observed by Dooley (1969) would be a function of the extent to which the network served the interests of all parties simultaneously. Levine (1972), using a smallest space analysis, developed a map of the sphere of influence derived from the patterns of interlocking among manufacturing and financial institutions. Levine found there was a great deal of geographic clustering, with banks occupying central positions in the networks. This geographic clustering may derive from the fact that organizations in the same area are most interdependent with each other, being more in competition for labor, capital, and markets.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition