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SASE 2016 network H:
The dark-side of resource dependency theory: from economic
democracy to financialization
Karin Jonnergård*, Ulf Larsson-Olaison** and Anna Stafsudd**
* Lund and Linnaeus University
** Linnaeus University
Abstract
The issue of the pros and cons with representatives from different interest group on
corporate board is lively discussed. Will representatives from stakeholders work in the
interest of the stake they represent or in the interest of the corporations where they are a
director? The issue has a renewed topicality as claim for e.g. consumer groups or experts on
environmental issues have been raised. In this paper we investigate the group that once
started the discussion, i.e. the employee representatives on the board of directors. From a
resource dependency perspective we are interested in two issues (i) are there significant
differences between the perception of responsibility for the firm between owner
representatives and employee representatives on the board? (ii) if so, are these differences
sustained over time? We report a longitudinal investigation of board of directors in Swedish
board indicated a convergence over the last twenty years between employees and owners
representatives on corporate board. This convergence is mutual, indicating that it might be
something else than the difference in whom you represent that drive the development.
1
Introduction
To whom do directors owe their allegiance? This rather straightforward question could from
the literature be answered in at least two ways. First, from a legal perspective (e.g. Blair,
1995; Stout, 2012) loyalty is owed to the corporation itself. Second, from an agency theory
perspective (e.g. Jensen & Meckling, 1976; Fama, 1980), loyalty is owed to the shareholders
of the corporation. It has been claimed by many (e.g. Stout, 2012; Weinstein, 2012;
Veldman, 2013), that following the global dispersion of shareholder value as a norm for
corporate decision-making, the second perspective has gotten the upper hand, regardless of
what the law says. Seemingly, this controversy could be regarded as an theoretical
distinction, as most ‘real-world’ legal systems acknowledge the possibility of directors
representing different interests (e.g. labor representatives, directors appointed by the state,
executive directors and so on), and thus acknowledging that the allegiance of the board
could be owed to multiple constitutes. However, what could be learned from the theoretical
distinction of either and or, is that what is normatively appropriate varies both in time and
space. That is, it might be claimed that, at one point and in one place, the ‘shareholder’
replaced the ‘corporation’, but it might so happen in the future, that the ‘shareholder’ is
replaced by something else.
Also, regarding allegiance, it needs be acknowledged that it is an individual attribute. As
such, it needs to be researched at the level of the directors. One tradition of board research,
acknowledging the importance of individual characteristic of directors, is the resource
dependency theory (RDT, e.g., Pfeffer and Salancik, 1978; Pearce and Zahra, 1992, Dalton,
et al, 1999; Hillman et al, 2009). RDT, views organizations as opens systems, which implies
that organizations are dependent on other organizations, and thus, the handling of these
dependencies is the key for organizational success, be that survival, creation of shareholder
value or creation of shared value. One important area where the organization could be co-
opting important external resources is the board (Pfeffer, 1972). While the RDT research has
been primarily concerned with the question of linking director characteristics to corporate
performance (c.f. Hillman, et al, 2009), the development of the theory surely demands
‘opening black boxes’ of actual board work (e.g. Zahra, 1996) and acknowledging that
directors co-opting resources from outside organizations also implies double loyalties and
complex allegiances (Veasey and Di Guglielmo, 2008; Campbell, et al, 2012).Thus, RDT is
focused on positive consequences for external relations on corporate performance, however,
the external relations also has the flip side of double loyalties - on one hand towards the
corporation and on the other hand towards the home constituency. For obvious reasons, the
interests of these two do not always coincide. In this this paper will refer to this as ‘the dark
side of resource dependency theory’.
2
In this paper, we empirically investigate perceptions among directors representing different
constitutes and we do so from a twenty year perspective. More specifically, we investigate if,
and if so in what way, perceptions among directors appointed as owner representatives’
differ from directors appointed as employee representatives’. The paper contains a
longitudinal investigation (1994-2014) of the directors’ perceptions of board responsibility
and board function in the largest listed Swedish corporations. Situated in a Swedish context,
it is acknowledged that the legal requirements during the entire period placed the director
allegiances towards both the corporation itself as well as towards the shareholder collective,
that is, both theoretical perspectives identified above has to be considered. Also, regarding
allegiance, Swedish law does not separate between the obligations of the directors
representing owners or employees. However, the requirement of employee representation
as an historical phenomena, dating from the 1970s, is associated with a political program of
economic democracy (see further Viktorov, 2006), far from today’s partial (e.g. Belfrage &
Kallifatides, 2016) or add-on (Jonnergård & Larsson-Olaison, 2013) financialization of
Swedish corporate governance. Therefore, this paper contributes to our understanding of the
complexity of director allegiance, as well as how such allegiance is related to the historic
development of what is normatively appropriate for directors in corporate governance. Our
aim is to investigate the development of directors' allegiance toward the corporation and
other constituents in order to develop an empirically founded theory of how social belonging
influence norms applied in the board work. The paper is structured as follows: First, we
discuss the historical component of director allegiance in Sweden for our longitudinal study;
Secondly, the ‘dark-side’ of resource dependency theory is explored along with the
consequences thereof on director allegiance; third, the empirical evidence based on a
longitudinal survey among Swedish directors is presented; and finally, after a discussion of
the implications the paper is concluded.
From economic democracy to the end of history - the financialization of Swedish
boards
Since it was first introduced in 1890, and still today, Swedish corporate law is based on the
notion of the sole proprietor and a unified system of corporate law with regards to size and
corporate purpose (i.e., Swedish law only acknowledge the AB [Sw: aktiebolag] for
investment with limited liability1). That is, unlike many other countries - e.g. UK distinguishing
private from public corporation or Germany between GmbH and AG - Swedish law only
acknowledge the AB, which has the stated purpose (unless otherwise declared) of profit
1 The distinction between ‘public’ and ‘private’ in Swedish corporate law only concerns capital
requirements, a form of creditor protection, and the present day distinction between ‘listed’ and ‘non-
listed‘ concern minority shareholder protection, all under the same umbrella of the AB.
3
maximization in on behalf of the shareholders. Today, this is a non-topic; however, that has
not always been the case. In 1972, the Social-Democratic government proposed directors
representing labor (in corporations with more than 100 employees, later on from 50
employees) and directors representing society (in the largest investment companies) with,
amongst other, this argument:
‘The standpoint - that the board of directors has a responsibility in total, towards all
stakeholder involved and in the interest of the corporation, rather than towards one specific
group - is slowly sinking in, both in the general debate and in board practice’
[Sw: Överhuvudtaget anses den uppfattningen mer och mer tränga igenom såväl i debatten
som i det praktiska handlandet att styrelsen i ett bolag har totalansvar företaget och den inte
i sitt handlande bör speciellt gynna den ena eller den andra gruppen av de i företaget
engagerade utan skall verka för hela företagets bästa], Prop. 1972:162, p. 60).
That is, when proposing a new law regarding board representation on behalf of society and
labor, the government also tried to redefine the corporate purpose in Sweden. This was part
of a larger program on behalf of the Social-Democrats. In the 1970s, Swedish Social-
Democracy had embarked on the program of ‘economic democracy’ as the step following
‘political democracy’. This program culminated a few years later with the wage-earner fund
debate (see further Viktorov, 2006 or Henrekson & Jacobsson, 2001), a reform invented for
creating the ‘social enterprises without owners’ (Meidner, 1975), but rather resulted in the
first Social-Democratic election loss since the 1930s.
Regarding the labor representatives on the boards, the Social Democratic government
acknowledged the potential problem with double loyalties (Prop. 1972:160), both with
regards to labor - shareholder and labor - labor relations. But rather than viewing labor and
shareholders as having conflicting interests, the government proposed that both groups had
a common interest in the good of the corporation. Therefore, the labor representatives were
given the same legal mandate and obligations as other directors. Then, as the program for
economic democracy never managed to fulfilled the redefinition of the corporate purpose,
not even in the new companies act from 1975, labor representatives was mandated to work
in the best interest of the corporation and the shareholder collective, as do all other directors.
However, not only considering the formal legal requirements, the mere existence of labor
directors, indicates a relevant conflict of interest as well as a number of potential situations
where these conflicts of interest would be displayed (e.g. plant-closings, excessive cash-
distributions to shareholders).
Since the 1970s, Swedish society has gradually transformed. Liberalization (e.g. of capital
movement in the 1980s) and globalization (e.g. joining the EU in the 1990s) has turned
economic democracy to business history rather than public policy. Nevertheless, the labor
4
representatives remained on the boards, probably as they are considered beneficial for both
labor and shareholders (see further Levinson, 2001), at least regarding labor relations in the
national Swedish setting (Sjölander, 2005), although an increasing number of unions has
chosen to opt-out of labor representatives (Berglund et al., 2013). Therefore, the labor
representatives on the corporate boards remains a distinguishing character of Swedish
corporate governance, even in times when increasing convergence is reported regarding
corporate law (Katelouzou and Siems, 2015) as well as corporate practice (Schnyder, 2016).
Also, the labor representatives has survived the onslaught of financialization in Sweden
(Belfrage & Kallifatides, 2016), although it seems that norms such as shareholder value has
been added - rather than replaced - traditional stakeholder norms on Swedish corporate
boards (Jonnergård & Larsson-Olaison, 2013), see further below.
Financialization, as such, is a rather fuzzy concept (see further, Dore, 2008; van der Zwan,
2014). Lazonick (2010, p 680) defines financialization as ’the evaluation of the performance
of a company by a financial measure, such as earnings per share’; Further Lazonick, claims:
‘The manifestation of the financialization of the U.S. economy is the obsession of corporate
executives with distributing “value” to shareholders, especially in the form of stock
repurchases, even if they accomplish this goal at the expense of investment in innovation
and the creation of U.S. employment opportunities’ (2010, p. 680). In another influential
article van der Zwan (2014), identifies three areas for where financialization has been
studied: i) as a new accumulation model superseding the Fordist model (French regulatory
school, see e.g. Boyer, 2013; Viktorov 2006); ii) the emergence of shareholder value as a
norm for corporate decision making (e.g. Aglietta, 2000); and iii) concerning the
financialization of the everyday (e.g. Erturk et al, 2007). Van der Swan basically defines the
concept following the theoretical traditions that has empirically studied it. A third attempt of
defining financialization follows from of Nölke and Perry (2007), who distinguish between
control financialization and profit financialization. Profit financialization, according to Nölke
and Perry, refers to the phenomenon that share of corporate profits coming from financial
operations rather than industrial operations is increasing, while control financialization is ‘the
process by which the maximization of shareholder value has become the primary objective
of firms’ managers’. (p. 8). It should be noted that in the framework proposed by Nölke and
Perry, control financialization drives profit financialization. Thus, when we empirically
investigate financialization, the link to corporate practice goes through equally fuzzy concept
‘shareholder value’.
Regarding shareholder value, we learn from the literature that it was invented in the USA
(e.g. Lazonick and O’Sullivan, 2000), despite a legal system (i.e. Delaware) favoring the
‘corporation’ (Stout, 2012) or more likely the ‘managers’ (Lazonick, 2010), it turns the interest
towards corporate decision-making favoring shareholders above everything else. The
5
inventors of shareholder value was consultants (Froud, et al, 2000) supported by lawyers
(Stout, 2012) and scholars (Weinstein, 2012). Besides these four groups (the managers, the
consultants, the lawyers and the scholars), the international institutional investor has been
the prime benefiter of the dispersion of shareholder value (Lazonick and O’Sullivan, 2000),
especially since they brought it with them as financial capital was globalized. However, and
perhaps because shareholder value is a loosely defined concept, as it dispersed throughout
the world, a variety of different contextual understandings has emerged (e.g. Fiss and Zajac,
2004). Thus, context is important when studying shareholder value and control
financialization.
Empirical research on financialization in Sweden shows rather mixed results. Belfrage
(2008) studying the latest pension reform (from pay-as-you go to an individually based)
provides evidence of a form of financialization of the everyday, that is, finance has entered
ordinary life in a way different from previously. Later on, Belfrage & Kallifatides (2016) has
traced financialization through a swelling financial sector and thus a debt-driven
development of the economy, although they point to signs of resistance at the corporate
level. Contrary, on the corporate level, Nachemson-Ekwall (2015) and Kallifatides et al
(2010) identifies a form of short-sightedness associated with creating value for current
shareholders, thus a form of financialized behavior among Swedish corporate decision-
makers. In a similar vein, Jonnergård & Larsson-Olaison (2016) describes a number actions
by Swedish controlling shareholders, that are not considered as normatively appropriate in a
traditional Swedish setting, while more unproblematic in a financialized. Also, Sinani et al
(2008) report figures of Swedish market capitalization as well as stock market turnover in
percent of GDP well in line with financialized countries such as US and UK, indicating a
prominent role of the stock markets. On the corporate level there are also indications of an at
least rhetorical dispersion of shareholder value among corporate managers (Blom, 2007),
while research on board of directors points to an ad-on effect, where shareholder value lives
side by side with more traditional stakeholder perspectives (Jonnergård & Larsson-Olaison,
2013). In conclusion, it is safe to say, that Swedish corporate governance has moved far to
the “right” of the issues of economic democracy apparent in the 1970s; this has occurred
through an import of international shareholder value practices that has introduced some
highly financialized workings of the economy, while these practices has been adopted to
meet local requirements, similarly to what could be expected following Fiss and Zajac
(2004).
The issue of allegiance and the loyalty of the board
6
In mainstream corporate governance research, the issue of allegiance and the closely
related question of loyalty emerged out of the discussion of directors’ dependencies on the
CEO in US corporations (Alderfer 1986) and the rise of the independent directors (Gordon
2007). Therefore, from the perspective of agency theory, director loyalty disturbs rationality,
and allows for inefficient decisions (Wagner 2011). From a resource dependence
perspective, however, loyalty to the corporation is implied as a basic assumption. In order for
directors to act as the link to the environment, a primary loyalty to the corporation is
assumed. Hillman et al’s (2009) review of the literature in the area holds that the RDT
assumption most often hold true and that co-option of the environmental dependencies
through board of directors is a successful strategy (as opposed to agency theoretical
assumptions that according to Hillman et al, 2009, often is refused by empirical research). At
the same time, including directors that ‘represent’ environmental dependencies implies that
these directors may have ‘double’ loyalties, i.e. be loyal both to the corporation on which
board she has a seat and the ‘dependence’ she is assumed to co-opt. A re-interpretation of
Mizruchi and Stearn’s (1993; 1988) research on the relation between representation of
financial institute on corporate boards and the financing of the corporation, could be that in
addition for assuring resources to the corporation, the financial representative did bring good
business to the financial institute. In this regard, the double loyalty would not imply any
conflicts but instead imply mutual advantages.
The situation may be substantially different if conflicts of interests also exist between the
representative of the environmental dependence and the corporation on which board she
has a seat. Within legal science a discussion of this situation has recently emerged, as it
gets more usual to offer board seat to e.g. representative of consumer or environmental
organizations (Veasey & Di Guglielmo 2008; Sepe 2013). The normative advice given in this
research is for turning a director's obligation of undivided loyalty to the common
shareholders into a default rule (Sepe 2013). Or as formulated by Veasey and Di Guglielmo
(2008:775):
While constituency directors can provide their sponsors with a voice in the
boardroom, they should not expect to be their sponsors' eyes and ears in all
circumstances. Constituency directors may breach their fiduciary duty of loyalty by
transmitting confidential corporate information to their sponsors despite any
contractual expectations to the contrary [...] In the end, whether in the decision-
making context or in some other setting, the primary basis upon which a constituency
director's conduct will be measured is whether the director's decision is based upon
the corporate merits of the subject before the board, rather than extraneous
considerations or influences.
7
An interesting case of board members which may be assumed to have double loyalties are
employee representatives on the board. Employee representation is a usual feature of
continental European and Scandinavian corporate governance models. Here we restrict
ourselves to discussing the Swedish case. As the reform of the board representation was
implemented in the early 1970’s (see further section above on the financialization of Swedish
boards) worries about conflicts of loyalties and destruction on efficient board work were
voiced. The result of the reform is not well-research, but in one study from 1998, Levinson
(2000; 2001) investigates the CEOs’ and Chairperson of the boards’ perceptions of
employees’ board representation. 61% of the CEOs and 69% of the Chairpersons were very
or rather positive to employee representatives on the board, while only 9% of the CEOs and
5% of the Chairpersons are rather or very negative. CEO and Chairpersons from large
corporations are more positive than their counterparts in smaller corporations (Levinson
2001: 265-266). The main advantages of employees on the board is according to these two
groups that employee representation contribute to the co-operative climate and that board
decisions get deeply rooted among the employees, and thus make it easier to implement
tough decisions. However, a relative large portion of the respondents also indicate risk of
information leakage (40% of the CEOs and 37% of the Chairpersons) while conflicts among
the board members seem to be a very small problem (7% of the CEO and 6% of the
Chairpersons mentions this).
This implies that the Vaesey and Di Guglielmo worries about information leakage gives some
credit in the Swedish case (but observe, it is the perception of CEOs and Chairpersons that
been investigated, not the actual presence of information leakage), but the worries of
destructive board work is not fulfilled. This might be due to employee representatives being
perceived as rather passive in the boardroom. Only 9% of the CEOs and 14% of the
Chairpersons perceive the employee representatives as having high or very high activity
during the board meeting (Levinson, 2001: 268). These results are partly confirmed by
Kärreman (1999). Through three in-depth case-studies Kärreman investigated the
perception of their mandate on the board among different board members in Sweden. The
analysis of the employee representatives clearly shows that this group views their mandate
on the board is to get informed and to contribute with information. This is well in line with the
advisory function of the board well in line with the resource dependency theory (Pfeffer and
Salancik 1978) as well as the function of legitimacy provider.
From the corporate perspective, it appears as the employee representatives generally have
at least not been destructive. The question is why? Getting back to the question of loyalty
two explanations are possible: (i) employee representative in board has decreased the
conflicts between the owners and the employees on the national level, and (ii) the values of
the employee representative and the rest of the board is similar, implying that the fear of
8
destructive board work is more or less a fiction. The second one may be viewed as a
confirmation of that the latent assumption behind resource dependency theory about loyalty
to the corporation is confirmed. Being a board member implies that loyalty towards the
corporation is prioritized. This might be explained by a respect for the fiduciary duty, it may
also be explained by social categorization theory and the idea that socialization into a board
group implies an adjustment to the norms of the group and a loyalty to this group. Knapp et
al (2011) have elaborated this idea in the setting of how to control management. Through
inclusion of top management in the ‘social categorization’ of board (or the elite of the
corporations) the negative effects of close control may be avoid. In a similar way, one may
expect that employee representative on the board through inclusion, would support the same
norms as the rest of the board and thereby minimize the risk of conflict. Alternative (or
complementary) one might suggest that what is considered normatively appropriate in the
society at large have changed due to the neoliberal turn and the financialization, and that the
norms of the employee representatives and the rest of the board members have converged
over time. This leads to two hypotheses partly opposite
H1. The difference between the norms of the employee representatives and the other board
members are insignificant
H2. The differences between the norms of the employee representatives and the other board
members have diminish over time
Method
In order to explore changes of perceptions and allegiances among directors, findings from
five surveys - sent to the board directors of Swedish listed corporations in 1994, 1999, 2004,
2009 and 2014 - were analyzed together with archival data.
Data collection
Data was collected through surveys complemented by archival data. Five surveys were sent
out in 1994, 1999, 2004, 2009 and 2014 in order to study director perceptions and norms. In
1994, the survey was sent to all board directors of the largest and most traded corporations
(‘‘A-listan’’ in Swedish) listed on the Stockholm stock exchange. All directors received one
survey referring to one specific company even if they served on several boards. In order to
reduce the number of interlocks, we excluded pure investment companies and banks from
our population, as they were known to consist of directors serving on several boards. The
surveys in 1999, 2004, 2009 and 2014 were sent to directors of the largest and most traded
corporations, listed on the Stockholm stock exchange, and to the board directors of
9
corporations targeted in earlier surveys, which still existed and had not been de-listed. In
Table 1, the population and response rate are described.
INSERT TABLE 1
The survey data was complemented by archival data collected from annual reports, the
periodical publication ‘Owners and Power’ (Sundqvist and partners), periodical publications
on the Stockholm stock exchange (Börsguide) and from the Stockholm stock exchange web-
page.
In this paper we have used two items from the survey complemented with data on the type
of directorship (owner-selected/employee representative). The first category of items (item
11 a-i) focuses on the extent of the responsibility of the board covering the perception of the
general responsibility of the firm and the owners as well as for specific topic as marketing,
tax policies etc. The second category of items focuses on the individual directors’ perception
of board work and his/her role on the board (item 12 a-f). The differences between groups of
directors as well as between different years were tested with T-tests.
INSERT TABLE 2 HERE
Results
Table 2 shows the means for 1994, 1999, 2004, 2009 and 2014 with columns in-between to
show the possible significant difference between for example 1994 and 1999. In the final two
columns, possible significant differences between 1994 and 2014 as well as 1999 and 2014
are shown, where the latter has been included to show possible significant changes over the
period as the board role questions 12a-12f were not included in the 1994 survey. Finally,
each yearly mean column has four cells for each question, where the first shows the mean
for all respondents, the second for board directors elected at the annual general meeting
(AGM) and the third board directors who are employee representatives (ER). The final and
fourth cell shows the possible significant difference in means for that year between AGM and
ER directors.
Starting with a general observation, it can be seen that for the responsibility questions 11a-
11i, significant differences between AGM and ER directors occur most frequently in 1994,
whereas they have decreased significantly by 1999 and even more so by 2004 and finally all
but disappeared by 2009 and 2014. The historical development is a bit less clear for the
board role questions 12a-12f, but significant differences between AGM and ER directors are
quite abundant in 1999, whereas they decrease in 2004 and 2009 and are quite less
10
numerous in 2014. Thus, it seems that a convergence between the AGM and ER directors
has occurred in the period of 1994 (or 1999) to 2014 and especially so for the responsibility
questions.
Continuing our discussion in a more detailed manner focused on each question, we can see
that no pattern of significant differences is noticeable for responsibility questions 11b
responsibility for all corporate actions irrespective of decisions and 11d responsibility for
organization of operational business. We will therefore instead continue the discussion of the
other responsibility questions.
11a concerns responsibility to owners and here we can see that this issue has increased in
importance between 1994 and 2014. Furthermore, the difference between AGM and ER
directors, where ER directors answered that this question was less important in 1994 has
disappeared by 2014. This change seems to be driven by the ER directors increasing their
opinion of the importance of responsibility to owners.
As for 11c responsibility above and beyond the law, we can see that this issue has increased
in importance between 1994 and 2014. This change regards all directors, but seems to be
driven by the AGM directors especially increasing their opinion of the importance of
responsibility above and beyond the law.
11e responsibility for the environment has also increased in importance between 1994 and
2014. Here, ER directors started with a higher opinion of this issue’s importance than AGM
directors, but a both director categories have increased their opinion over the period, no
differences are apparent in 2014.
Continuing with 11f responsibility for marketing, we can see that this issue has increased in
importance between 1994 and 2014. Furthermore, this increase seems to be driven by the
AGM directors increasing their opinion of the importance of responsibility to owners,
whereas the ER directors have both decreased and increased their opinion over the period,
although they started out in 1994 with a higher impression of its importance than AGM
directors, which has since disappeared.
As for 11h responsibility for relations with unions, this issue has increased in importance
between 1994 and 2014. Furthermore, the difference between AGM and ER directors, where
ER directors answered that this question was more important in 1994 has disappeared by
2014. This change seems to be driven by the AGM directors increasing their opinion of the
importance of responsibility for relations with unions.
Finally, when it comes to 11i responsibility for the corporation’s working environment, we can
see that this issue has not increased significantly in importance between 1994 and 2014
(although it has done so between 1999 and 2014). However, the AGM directors have
11
significantly increased their opinion of this issue’s importance between 1994 and 2014,
removing the significant negative difference between AGM and ER directors in 1994.
Turning to the board role questions, we can see that the patterns for significant differences
between AGM and ER directors as well as a change over time are less clear for questions
12a personally being responsible for collective decisions and 12e impossibility of keeping
informed as a board director.
Concerning 12b personally representing own opinion rather than that of a group, we can see
that this perception has decreased between 1999 and 2014 for AGM directors. However, ER
directors have the entire period answered that they agree less with this than AGM directors
and the AGM directors decrease is not enough to remove this difference.
As for 12c being a better director by discussing with others, there is a difference between
AGM and ER directors, where ER directors agreed less with this statement in 1999-2004,
whereas there was no difference in 2014.
12d concerns being able to affect the business as a director and the perception of this has
increased between 1999 and 2014. Furthermore, the difference between AGM and ER
directors, where ER directors agreed less with this statement in 1994, but the difference has
disappeared by 2014. This change seems to be driven by the ER directors increasing their
agreement with being able to affect business as a director.
Finally, 12f necessity of getting information about what is happening has increased in
importance between 1999 and 2014. Here, the ER directors started out by agreeing more
with this statement, but as AGM directors have increased their agreement over the period,
this difference is no longer present in 2014.
Coming back to the initial discussion, that we seem to see less differences in 2014 than in
1994, we can now add to this that we especially see an increase in the responsibility issues
regarding owners, going above and beyond the law, the environment, marketing, tax policy,
relations with unions and the corporation’s working environment. Thus, issues which were
already thought of as having a high importance in 1994, that is those regarding owners and
going above and beyond the law, have increased even further, whereas the environment and
tax policy have increased to high importance. Furthermore, marketing, relations to unions
and the corporation’s working environment have increased to higher but not quite as high
levels. As for the board role questions, we can see that being able to affect the business as a
director as well as necessity of getting information has increased from high to even higher
levels, whereas representing your own opinion rather than a group’s has decreased but
remain high. In general, all of the board role issues are considered important with exception
of being a better director if discussing with others. Taking these issues together, we find
indications that recommendations found in the corporate governance code seem to have
12
influenced the directors in general in owners becoming more important as well as total
responsibility for the corporation, whereas a tentative interpretation can also be suggested
that given the results for the board role questions, regulation regarding independence of
directors also seems to have had an impact. Finally, the importance of unions and working
environment has increased, but not to as high levels as other primary issues of the board
such as the responsibility towards owners. Interestingly, we even see in our findings that not
even ER directors started out in 1994 thinking that union and work environment were more
important than owners.
Discussion and conclusion
The opening question in this paper was: ‘to whom do directors owe allegiance’. In this paper
we do not consider this question from a legal perspective of defining fiduciary duty, nor did
we pose this question from a normative agency theoretical perspective; instead, we
considered allegiance as a person trait among directors that develops in relation to dominant
trends in society (e.g. economic democracy and financialization) as well as ongoing social
processes within the board (e.g. social categorization). Drawing on Resource Dependency
Theory (RDT, e.g. Pfeffer and Salancik, 1978; Hillman et al, 2009) we sat out to investigate
issues related to double loyalties (Veasey and Di Guglielmo, 2008; Campbell, et al, 2012), or
the ‘dark-side of RDT’, and indeed, we found significant differences in the perceptions
between the directors appointed by the owners and the directors appointed by the
employees. Thus, regarding allegiance from a RDT perspective, the empirical material
provided in this paper, indicates different perceptions of responsibility in relation to the
different directors’ home-constituents, where these perceptions pointed towards a favoritism
of the home-constituency, potentially at the expense of others as well as the corporation
itself. Therefore issues regarding loyalty must be important in an RDT setting, as not only
may the corporation co-opt different outside resources, but equally outside organizations
may co-opt the corporation.
Again, the different perceptions among the directors reported above, points towards that
directors appointed by different constituents perceive their responsibilities differently. Then,
to say that directors elected by the employees tend to feel larger obligations towards the
relations with the trade unions than do the directors elected by the AGM, or that the directors
elected by the AGM tend to feel larger responsibility for the well-being of the shareholders
than do the directors elected by the employees, must be considered as a truism. Such a
conclusion could have been reached without empirical data, simply by invoking common-
sense, or for that matter, neoclassical economic theory. However, from the empirical material
it is obvious that this relationship has evolved during the 20 years studied.
13
With a 20 year perspective, two issues stand out. First, during 1994 - 2004 the employee
representatives perceived significantly less responsibility towards the shareholders than did
the owner representatives, however, in the surveys from 2008 and 2014, these differences
disappeared (no significant differences). Second, for the period 1998 - 2004 the directors
elected by the owners perceived a significantly lower responsibility for the work environment
than did the employee elected directors; also these differences in perceptions disappeared
in the two final surveys.
Both these findings could be claimed to be caused by a more general increased sense of
accountability among the board of directors of the largest Swedish corporations. That is, the
directors generally perceive that that they have larger responsibility today than did they had
20 years ago. This is not strange, given the overall interest in corporate governance and
board-related issues that has emerged during these two decades. Earlier research has
pointed on increases in Swedish boards of directors items on the agenda and in their
participations in the corporate decision-making processes (Jonnergård & Stafsudd 2011;
Jansson et al 2013). However, it is not only that the overall sense of responsibility that has
gone up, but the fact that the employee representatives has converged on the owner
representatives regarding perceived responsibility towards the shareholders, while owner
representatives has converged on the employee representatives regarding perceived
responsibility for work conditions. Also, the employee representatives throughout the whole
period perceive a larger responsibility towards union relations than the owner
representatives and the employee representatives very much think of themselves as
representing someone else. That is, there are constant differences between the two groups
of directors. These converging trends, as well as the permanent differences, could be further
discussed to shed light on the theoretical themes of the paper: financialization and social
categorization.
First, regarding financialization, the paper posits that the Swedish society has developed
during these 20 years and that this might influence the perceived differences between the
different categories of directors. When the first survey was sent out in 1994 the debate on
economic democracy must have felt very real (for instance, the wage-earner funds was only
dissolved in 1991) and the concept of ‘shareholder value’ was most likely unknown. In 2014,
on the other hand, ‘shareholder value’ had been added to the norms of the boards
(Jonnergård & Larsson-Olaison, 2013) and economic democracy was as forgotten as
majoritarian Social-Democratic governments and bans on commercial television. These
societal changes could very much explain why labor representatives perceive an increasing
responsibility towards the shareholders, and that their perceived responsibility is almost as
high as the one among directors appointed by the owners. Thus, it is possible that a change
in society could explain the change in the perceptions of the directors. However, it is hard to
14
distinguish this change from the overall change in favor of a more accountable board in
general, especially as the same convergent pattern was evident for the owner elected
directors in relation to work environment.
Secondly, drawing on social categorization theory (Knapp et al, 2011) it was hypothesized
that directors appointed by the employees would, in time, be socialized into the norms of the
owner elected directors. That is, initial differences that would disappear over time
(hypothesis 2). The empirical results regarding responsibility towards the shareholders are
consistent with this hypothesis. However, the development of perception among the owner
representatives regarding working environment, points towards this being a mutual
development - it is not only the labor representatives that has been socialized, but also the
owner representatives. Moreover, it is equally evident from the empirical material that the
owner representatives have not being socialized regarding the importance of trade union
relations and the labor representatives has not come to acknowledge that they represent
themselves on the board as do the owner representatives. Thus, there are evidence of both
socialization and large remaining discrepancies.
A wild speculation emerging out of this is that what has happened is not too much a
financialization or that one category of board members have been socialized into another
category of directors’ norms and perceptions, but rather that the board at large has come
together as a group, strengthen in its independency from the top management team, i.e. a
change from a social categorization with the top management team and the owner
representatives on the one side and the employees representative on the other, to a
categorization with the board as a working team on the one hand and the top management
team on the other. The results regarding a decrease for owner representatives perception of
only represent the own opinion, that the possibility of influences have increased and that the
need of searching information by themselves is larger now than in 1999 could indicate such
a development. But these are weak indicators and the speculation remains a speculation
needed to be further before taking serious. So in future research an interesting hypothesis to
start with would be: Has the social and power relations between Swedish directors on board
and the top management teams of Swedish large companies changed over the last decades
and how has this influenced the employees representatives on the board? The idea of a
main conflict between employee representatives and the board of directors on the other
hand seems to be possible to lay to rest in peace.
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18
Table 2: Means and t-tests for differences of means
19
Table 2:continued, Means and t-tests for differences of means
20