Top Management-Team Diversity and Firm Performance: Examining the Role of Cognitions

Abstract

Demography research rarely examines the black box within which the cognitive diversity of the top management team is assumed to affect firm performance. Using data from 35 simulated firms run by a total of 159 managers attending executive education programs, the current research tested several hypotheses concerned with (a) the relationship between demographic and cognitive team diversity and (b) the reciprocal effects of diversity and firm performance. Results showed that members of high-performing teams tended to preserve multiple interpretations early in the team's life cycle, but that they moved toward greater clarity near the end of the life cycle. These high-performing teams, therefore, exhibited both early interpretative ambiguity and late heedful interrelating. Cognitive diversity in teams affected and was affected by changes in firm performance. Surprisingly, there was no evidence of any effect of demographic diversity on measures of cognitive diversity.

Board diversity and firm performance: The Indonesian evidence

“…Observable or readily-detected attributes include demographic characteristics such as gender, race, ethnicity, and age; while nonobservable or underlying attributes include cognitive characteristics such as education, tenure, professional background, and personal values (Kilduff et al, 2000;Milliken and Martins, 1996). Observable attributes appear to be the focus of most research on diversity (Erhardt et al, 2003).…”

“…Other observable attributes that have been studied in the current literature include race or ethnic background (Carter et al, 2003;Erhardt et al, 2003;Richard et al, 2004), age (Kilduff et al, 2000;Siciliano, 1996), and nationality (Oxelheim and Randøy, 2003). Less frequently, researchers have also drawn particular diversity of non-observable attributes into their attention, such as tenure (Hambrick et al, 1996;Tihanyi et al, 2000), educational level (Herrmann and Datta, 2005;Smith et al, 1994), and occupational backgrounds (Goodstein et al, 1994).…”

Demographic Diversity in the Board and Corporate Tax Planning in American Firms

“…( Erhardt et al, 2003) In addition, Kilduff et al, (2000) argue that the research literature concerning the effects of group diversity on organizational outcomes reflects two different approaches. The first approach is referred as demographic; it concentrates on cognitive diversity in terms of proxy variables such as gender, age, ethnicity, and nationality.…”

Joint Impact of Interdependence and Group Diversity on Innovation

“…The demographic approach emphasizes differences in directly measurable demographic attributes of individuals, such as gender, age, and tenure as determinants of attitudes, group process and effectiveness. The cognitive approach, in contrast, studies differences among team members through direct questionnaire measures of perceived differences in knowledge, values, and skills between individual team members who may be homogeneous or heterogeneous on demographic indicators (e.g., Kilduff et al, 2000;Nemeth, 1986).Research has shown that both types of group diversity may have both beneficial and detrimental effects on team functioning. On the one hand, demographic diversity may offer some advantages, including an increase in creativity, innovation, and the quality of performance (e.g., Drach-Zahavy & Somech, 2001;Watson, Kumar & Michaelsen, 1993).…”