There are some problems with the previous analysis of corporate,, boards which are not present in a subsequent study of the size, function, and composition of hospital boards of directors (Pfeffer, 1973). The analysis of corporate boards considered only a few dimensions of composition, such as the proportion of insiders and the proportion of persons from financial institutions. Furthermore, a cooptative intent, was assumed in the study. In the study of hospital boards of directors,, a questionnaire was mailed to hospitals in Illinois asking about the structure of the board, its function, and other aspects of the hospital’s; context. The 57 responses were used in the analyses.
One focus of this study was to examine whether the function of- the board could be explained by the environmental context of the hospital. There are two functions of boards as mentioned previously— linkage with the environment and administration. The importance of these functions would be expected to vary with the context of the, hospital. Some hospitals are dependent on their local community for funding and support, while others are less dependent. We would argue that those hospitals more dependent on local community support would have a greater likelihood of using the board for linkage with the environment rather than administration. On the other hand, hospitals less dependent on the local community would be less likely to use the board to obtain environmental support and would emphasize the administrative function of the board.
The chief administrator of each hospital was asked to rank from 1 to 4 in order of importance four possible functions of the board of directors and from 1 to 5, criteria by which board members should be selected. These two sets of questions can be used to assess the importance of the two functions of the board in the hospital. Administrators were also asked about the context of the hospital, including its ownership, source of funding, and size. There were three types of hospitals represented in the sample: private, nonprofit hospitals; private, nonprofit hospitals affiliated with religious denominations; and government hospitals. We expected that governmental and religious hospitals would be less dependent on their local communities. Governmental hospitals are linked to the governmental organizations that control their budgets, and while the community may be an important source of political support, ft’ is not likely to be an important source of funds. Religious hospitals are somewhat less dependent on the local community also, as they are affiliated with national organizations that .may provide support and control.
If boards are used to cope with those portions of the organization’s environment most critical for survival, then we should find that fund raising will be more important for organizations which axe private, nonprofit hospitals and which receive relatively more money from private contributions. For organizations which receive larger shares of their money from the government or are affiliated with the government or a religious denomination, we would expect that administration would be the more important board function. Also, size should affect the organization’s dependence on the local community. Larger size would render the organization more visible, requiring more social support. Also, larger size probably means the organization would have larger financial requirements which might also increase dependence on the local environment.
In Table 7.3, simple correlations are presented between contextual variables and the two measures of the importance of environmental linkage as a function of the board. As can be seen in that table, the basic argument is supported. The importance of fund raising as a function of the board is more important to the extent the hospital obtains its capital budget from private donations and to the extent it is private and nonprofit. In Table 7.4, correlations between contextual variables and the function of the board in administration are presented. Administration is more important to the extent capital budget funds are obtained from the federal government, and less important to the extent funds are raised from private donations.
The size of the board is also predicted by the context of the hospital and the function the board is expected to serve. As we argued for the boards of corporations, board size is determined by the organi-, zation’s need for integration with the environment. The greater the need for effective external linkage, the larger the board should be. For this sample of hospitals, the size of the board was positively associated with the size of the hospital (r = .59, p < .001) and was also associated with the importance of the function of the board for fund raising (r = .46, p C .001) and with the hospital being classified as private, nonprofit (r = .39, p < .005). Hospital boards were smaller to the extent that administration was perceived as a more important function of the board. .
The composition of the board was related to the board s function and to the organizational context. Hospitals located in rural areas tended to have more persons from agriculture on their boards, while hospitals located in areas with large proportions of persons employed in manufacturing had more persons from manufacturing on the board. The proportion of persons employed in financial institutions was, as might be expected, correlated with the proportion of the capital budget obtained from private donations (r = .43, p < .01) and with the size of the budget (r = .29, p < .05). These results indicate that board members are chosen according to the functions they are ex-pected to serve and in order to provide linkage between the organiza- . tion and its social context.
1. Environmental Cinkage and Organizational Effectiveness
We have argued that social linkages with external organizations are important for the organization as a means of stabilizing the environ-ments and for ensuring favorable resource exchanges. We found in the case of interlocks among corporations that appropriate levels of linkage with the environment tended to be associated with higher levels of profitability. We can extend this question to our study of the 57 hos-pitals, and ask whether hospitals were differentially effective depending on how well integrated they were with their relevant social en-vironments. One measure of effectiveness is whether the organization is able to sustain sufficient support from its environment to be able to acquire resources. This measure is similar to Yuchtman and Seashore’s ir (1967) suggestion that the outcome of a generalized competition for resources provides a yardstick for measuring how well an organization is faring.
To exanube the effectiveness of the hospitals, measures were col-lected concerning the growth in the number of beds and the budget during the preceding five years, as well as the addition of new facilities and services. All three measures constitute alternative indicators of the organization s effectiveness in acquiring resources. While growth is not the only, or a perfect, indicator of effectiveness, it does indicate the extent to which the organization can generate support and resources from the environment. In this instance, we hypothesized that the hos-pital’s effectiveness would be greater when the board was selected for fund raising, community influence, and political connections, and would be less effective to the extent the board’s primary function is administration and the composition of the board fails to match the hospital’s social context. A board which does not represent the political and social interests of the community or does not coopt significant financial and political elites is not likely to be effective.
More detailed presentations of the effects of the board on the three measures of effectiveness and the other indicators of community support can be found in Pfeffer (1973). In summary, the analyses consistently substantiate the theoretical argument. Hospitals were found to have grown to the extent that they had political connections, financial institutional representation, and a board composition that was appropriate to the agricultural or manufacturing character of the area. With the exception that government hospitals tended to grow more, all of the factors associated with budget growth were dimensions of board ; composition and function and were consistently in the predicted direc-tions.
To briefly summarize this study, the boards of directors from this particular sample of hospitals were selected quite explicity for their potential to link the organization to important sources of support, when the organization depended on the external environment more for support. Private hospitals, most dependent on the local community, selected directors who performed the task of integrating the institution with the environment. Government hospitals, less dependent on the local community, placed a greater emphasis on the administrative function of the board. Organizations that did not structure their board consistent with their requirements for integration with the social context were less effective than those that did. From this study and evidence on corporate boards, it would appear that cooptation as a strategy for managing the organization’s environment is an important determinant of organizational support; and cooptation is itself explained by the organization’s context and requirements for linkage with the environment.
Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition