Top Management Team Diversity and Firm Performance: Moderators of Functional-Background and Locus-of-Control Diversity

Abstract

Past research on the relationship between top management team (TMT) compositional diversity and organizational performance has paid insufficient attention to the nature of TMT team processes in interaction with TMT diversity. We fill this gap by studying how three team mechanisms (collaborative behavior, accurate information exchange, and decision-making decentralization) moderate the impact of TMT diversity on financial performance of 33 information technology firms. We focus on two fundamentally different forms of TMT diversity: functional-background (FB) and locus-of-control (LOC). We argue that the former has the potential to enhance decision quality and organizational performance, whereas the latter might trigger relational conflict, and is, therefore, potentially detrimental to firm effectiveness. The ultimate aim of our study is to analyze which team processes help to transform distributed FB knowledge into high-quality decisions and organizational effectiveness, and which help avoid the potential detrimental effects of LOC diversity. We find that a TMT's collaborative behavior and information exchange are necessary conditions to unleash the performance benefits of FB diversity, but do not interact with LOC diversity. In addition, decentralized decision making spurs the effectiveness of functionally diverse teams, while at the same time reinforces the negative consequences of LOC diversity on firm performance.top management teams, team diversity, organizational performance

Liderança e gestão da qualidade – um estudo correlacional entre estilos de liderança e princípios da gestão da qualidade

“…Different studies have shown that senior management have an essential role in the implementation of strategic changes in organizations, such as the changes required for quality culture implantation (Boone & Hendricks, 2009;Bourgeois & Eisenhardt, 1988;Carmeli & Halevi, 2009). In fact, Salaheldin (2009) found results that prove the importance of top management commitment for the implementation of quality programs.…”

Sustainability in SMEs: Top Management Teams Behavioral Integration as Source of Innovativeness

“…Team members can attain this sort of knowledge by interacting frequently with other team members and exchanging information [4]. Because each TMT has members with diverse backgrounds [59], a variety of social and environmental knowledge and information exists within a TMT [60]. Thus, a behaviorally integrated TMT has a higher capacity to assimilate and incorporate social and environmental information into its decision making.…”

Board Heterogeneity and Organisational Performance: The Mediating Effects of Line Managers and Staff Satisfaction

“…While it is sometimes noted that TMT heterogeneity can be a 'double edged sword' (Hambrick, Cho, & Chen, 1996), there is now a substantial body of research highlighting the way these cognitive, symbolic and communicative consequences of heterogeneity impact on performance (Boone & Hendriks, 2009;Bunderson, 2003;Carpenter, 2002). For example, using a panel of 1,489 U.S. firms from 1999 to 2011, Harjoto, Laksmana, & Lee (2014) conclude that more heterogeneous boards are positively associated with increasing corporate social responsibility performance.…”

“…Although the findings of some studies are mixed (Homberg & Bui, 2013;Carmeli & Sheaffer, 2009), the balance of evidence suggests that demographic characteristics of TMT do have many positive consequences for organisations (Boone & Hendriks, 2009;Harjoto, Laksmana, & Lee, 2014;Naranjo-Gil, Hartmann, & Maas, 2008). These effects, in turn, are frequently explained by the cognitive, symbolic and communicative impact of more heterogeneous management teams, improving both the quality of strategic decisions and the likelihood that they will be translated and implemented (Milliken & Martins, 1996).…”