Corporate masterminds – executive management teams in focus

Corporate masterminds – executive management teams in focus

Article Type: Guest editorial From: Team Performance Management, Volume 21, Issue 3/4

In the 30 years following the seminal work of Hambrick and Mason’s (1984) “Upper echelons: The organization as a reflection of its top managers”, research on executive management teams or top management teams (TMTs) has aroused extensive interest by academic scholars, business leaders and politicians alike (Bell et al., 2011). The central idea that Hambrick and Mason developed at that time was that executives act on the basis of their personalized interpretations of the situations and options they face and that the choices they make are a function of their idiosyncratic experiences, values and personalities (Hambrick, 2007). In this vein, Hambrick and Mason argue that if one wants to understand why organizations act the way they do, or why companies perform the way they do, it is mandatory to understand their most powerful actors – their executive management teams or TMTs (Hambrick, 2005). These ideas have galvanized researchers from various disciplines to put substantial effort into exploring how TMT characteristics affect the process of strategic choice and resulting performance outcomes as well as how TMTs are initially formed. Concerning the former, a primary interest of these studies lies in investigating how specific demographic diversity variables (e.g. gender diversity, educational background diversity, functional background diversity, national diversity) are related to performance outcomes, whereas TMT diversity refers to the distributional differences among members of the TMT with respect to a common attribute (Harrison and Klein, 2007). In this field, a lot of research has been devoted to corporate performance, as it is a particular outcome of interest, whereas other outcome variables, such as competitive behavior (Hambrick et al., 1996), innovativeness (Bantel and Jackson, 1989; Talke et al., 2011), geographic diversification (Tihanyi et al., 2000; Barkema and Shvyrkov, 2007) and strategic changes (Cho and Hambrick, 2006; Wiersema and Bantel, 1992), are only second-rate. A countless number of studies explored the impact of diversity on corporate performance, e.g. gender diversity (Campbell and Mínguez-Vera, 2008; Dezsö and Ross, 2012), age (Richard and Shelor, 2002), educational and functional diversity (Camelo et al., 2010; Cannella et al., 2008) or national diversity (Oxelheim and Randøy, 2003; Nielsen and Nielsen, 2013). The findings of these empirical studies on the effects of TMT demographic diversity on performance outcomes, however, remain highly controversial, as they range from positive (Barsade et al., 2000; Carpenter, 2002; Ely, 2004) through non-significant (Ferrier, 2001; West and Schenk, 1996) to negative (Michel and Hambrick, 1992). These ambiguous results pervade this field of research and, unfortunately, offer only limited guidance to practitioners and academics alike (Bell et al., 2011).

While this kind of research mainly addresses the composition of a company’s upper echelon, other approaches deal with the interaction between individual TMT members (Knight et al., 1999; Cannella et al., 2008) and the process of decision making (Simsek et al., 2005; Camelo et al., 2010). The matter of “context” is essential as well, with the internal (colocation of TMT members) and the external (environmental uncertainty) context moderating the relationship between TMT diversity and the firms’ performance (Cannella et al., 2008). Thus, it is not only relevant who the TMT members are, but also under what circumstances they interact.

In the light of recent changes at the top of several important multinational corporations (MNCs), e.g. Tim Cook taking over at Apple after the resignation and later death of Steve Jobs in 2011, or Steve Ballmer’s decision in 2014 to leave Microsoft, succession planning and TMT management have not lost in relevance (Graffin et al., 2013; Datta and Rajagopalan, 1998). Overall, the composition of TMTs, the interaction of their individuals and, finally, the effects of TMT action on company-specific outcomes appear to be among the most relevant questions in research on MNCs’ upper echelons.

Even today, 30 years later, we are witnessing an ongoing attention on TMTs caused, to some extent, by recent changes in the corporate business environment. First, an increasing number of governments have enacted laws on gender quotas or are currently discussing them, including Austria, Belgium, Denmark, Finland, France, Iceland, Ireland, Italy, Norway, Spain, Switzerland and The Netherlands asking companies to include more female members in their TMTs (Armstrong and Walby, 2012). Just recently, in March 2015, the government of the Federal Republic of Germany has passed a law which demands from publicly traded companies, that 30 per cent of the supervisory board seats are held by women. Second, the workforce on the labor market has become more diverse, having led to an increase of different nationalities in TMTs as well (Nielsen and Nielsen, 2013; Shen et al., 2009). Finally, companies have dramatically expanded their business operations to a wide array of countries, even in dangerous and hostile environments (Bader and Schuster, 2015; Czinkota et al., 2010). This, of course, also requires the inclusion of managers from foreign subsidiaries in the decision-making bodies (Greve et al., Forthcoming; van Veen et al., 2014).

As a result, we can say that, today, two things are still obvious: the discussions have not become silent, and the “absolute truth” has not been found yet. Without a doubt, TMT members are powerful, influential decision-makers in corporations and largely determine various external and internal outcomes. Whether there is a silver bullet that can predict the optimal TMT composition to achieve all desired outcomes – external and internal – can at least be challenged.

As many important questions still remain open, Carpenter et al. (2004, p. 768) stated as early as 2004 that upper echelon research “stands at an important crossroads.” and pointed to crucial inconsistencies and new emerging debates. Therefore, the only way to advance the field of research in this regard is to tackle the relevant problems, piece-by-piece. In this regard, this themed section is intended to shed more light on two important and under-researched topics and to contribute to determining the way of Carpenter et al.’s (2004)crossroads.

First, Carpenter et al. (2004) stress the importance of expanding the scope of application of the upper echelon theory and show that some authors have started to transfer the upper echelon model to various contexts, including different national settings, life cycle stages, business and corporate strategy arenas as well as public agencies, which significantly helped to enhance the generalizability of the upper echelon rationale. In this vein, the first manuscript in the themed section, entitled “Striving for Excellence: The Role of Top Management Team Diversity in Universities”, by Hattke and Blaschke applies upper echelon thinking to a higher education context – a context in which this concept has not been considered before. In particular, the authors explore whether sociodemographic diversity of TMTs in German universities influences desired performance outcomes, such as third-party-funded collaboration and scientific reputation. Considering that many German universities employ several thousand people and, due to budget constraints, are forced to economize their spending, it is only logical that they need to be managed – in certain ways – as a company, including an effective TMT. The empirical analysis of the manuscript is based on a unique longitudinal data set of 75 public German universities and indicates that TMT heterogeneity in terms of diverse disciplinary and educational backgrounds has significant positive effects on third-party-funded collaboration and scientific reputation. This is in line with previous research promoting the beneficial effect of TMT diversity on performance (Nielsen and Nielsen, 2013). Moreover, the study reveals that a legal framework ensuring a broad inclusion of status groups and external stakeholders in the decision-making processes and a high number of faculties facilitate the achievement of the desired outcomes. Overall, the study by Hattke and Blaschke is an innovative approach that helps validating and extending previous research in an increasingly important context.

Second, Carpenter et al. (2004) draw attention to contextual variables by highlighting that an increasing number of studies consider contextual effects that influence the relationship between TMT characteristics and outcome variables. Besides environmental and leadership contextual variables, organizational contexts (structure, strategy, degree of internationalization, etc.) are regarded as crucial factors. It is argued that organizational contexts create a host of relevant contingencies, which are often emanating from strategy and structure. For instance, Carpenter (2002) provides evidence that the relationship between various indicators of TMT heterogeneity and performance is stronger for highly internationalized companies. Therefore, they conclude that contextual variables play an important role in the advancement of the upper echelon perspective. In this matter, the manuscript “Unfolding the Concept of a TMT-Diversification Strategy Fit” by Weiss, Schneider and Lebid provides a conceptual framework in which the authors link a company’s diversification strategy with TMT composition and organizational performance. They also give guidance on how to measure the TMT–diversification strategy fit. The study substantially differs from prior studies in the TMT research, as it presumes a non-direct impact of TMT characteristics on organizational outcomes. Instead, the authors point out the importance of a highly underexplored research stream – the interaction between TMT characteristics and diversification strategy, resulting in a TMT–diversification strategy fit. This is an interesting way to account for contextual variables as demanded by Carpenter et al. (2004). Without a doubt, a company’s diversification strategy is important for its success. However, depending on the orientation of this strategy, different managerial capabilities are required. This needs to be reflected in the TMT accordingly. Weiss et al. tackle this problem with their conceptual framework, while also already paving the way for future, empirical research.

Finally, with regard to the upper echelon theory, Carpenter et al. (2004, p. 774) highlight its importance in management as well as in other disciplines, concluding their paper with the prediction that the upper echelon perspective will “continue to motivate new research and contribute to our understanding of the complex roles played by top managers and top management teams for many years to come”. This prediction was as correct as its message was necessary. The role of top managers embedded in a diverse team is extremely complex and not yet fully understood:

The call for papers of this themed section included topics of this sort, encouraging submissions to address different topics of executive management research; conceptual papers that use an interdisciplinary approach and combine different theoretical perspectives focusing on executive management teams; the role of executive team characteristics (e.g. gender and national diversity, international experience, international assignments) on behavior and strategic decision-making to mention the core of the call.

The readers will see that, despite the themed section only containing two manuscripts, the above raised issues were tackled in an excellent manner. The research conducted here is an important piece in the puzzle of clarifying the role of TMT members and helps to disentangle the interplay within the TMT, with its environment, and, finally, the impact on performance-related outcomes. Even though we are aware that Carpenter et al.’s (2004)prediction was made more than 10 years ago, it has not lost much of its relevance and we are positive that this themed section will contribute to answering some of the remaining questions.

We would like to express great thanks to the many scholars who provided us with support in compiling this themed section, most importantly during the review process. Their thorough and thoughtful reviews helped the authors to further improve their manuscripts and guided us in our judgment whether to accept or turn down a submission. Also, we would like to express our thanks to Petru Curseu and the editorial team of Team Performance Management: An International Journal for their untiring support. We and the authors hope that the readers see the same in it that we do: valuable as well as stimulating for new work in this important field.

Tassilo Schuster - Department of International Management, Friedrich-Alexander University Erlangen-Nürnberg, Nürnberg, Germany, and

Benjamin Bader - Institute of Corporate Development, Leuphana University of Lüneburg, Lüneburg, Germany

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About the authors

Tassilo Schuster is currently a Postdoctoral Researcher at the Department of International Management at the School of Business and Economics, Friedrich-Alexander University of Erlangen-Nürnberg, Germany. He received his Master of Science in Business Administration and his PhD in Business Administration from the University of Erlangen-Nürnberg in 2007 and 2011, respectively. Since 2013, he serves as Associate Editor of South Asian Journal of Global Business Research (SAJGBR). His main research interests are in the areas of international management, human resource management and management in emerging markets. He is particularly interested in business strategies focusing on low-income markets, corporate social and environmental responsibility, top management teams and expatriate management in high-risk countries.

Benjamin Bader is currently Professor of Strategic Management and Organization at the Leuphana University of Lüneburg, Germany. He studied business administration at the Friedrich-Alexander University of Erlangen-Nürnberg as well as at the American University in Washington, DC. During his studies, he was holding a scholarship of the Studienstiftung des deutschen Volkes in the Max Weber Program Bavaria. He was awarded his Doctorate Degree at the University of Hamburg, Germany. His main research interests are in the areas of international management, human resource management and strategic management. He is particularly interested in managing people in hostile environments as well as success factors of the expatriation and repatriation process.