The Moderating Role of Top Management Team Diversity in Strategic Change in a Multicultural Context

• Author: M. Rosario González‐Rodríguez,Biagio Simonetti,M. Carmen Díaz‐Fernández
• Date: 01 December 2019
• Published date: 01 December 2019
• DOI: http://doi.org/10.1111/emre.12306

The Moderating Role of Top Management

Team Diversity in Strategic Change in a

Multicultural Context

M. CARMEN DÍAZ-FERNÁNDEZ,

1

M. ROSARIO GONZÁLEZ-RODRÍGUEZ

2

and BIAGIO SIMONETTI

3

1

Department of Business and Administration,University of Seville, Seville, Spain

2

Department of Applied Economics, University of Seville, Seville, Spain

3

Facoltà di Scienze Economiche ed Aziendali, University of Sannio, Benevento, Italy

This paper analyses the influence of corporate governance diversity on corporate strategic changes in an

international multicultural context with a view to overcoming the deficiencies of previous studies. The results

achieved may reveal to what extent diversity in the composition of a top management team provides a clear picture

of the internal complexity that arises in the strategy decision-makingprocess. In order to fill the gap in the literature,

and given the nested structure of the dataset, a multi-level econometric model is applied which reveals the clear

interaction effects among the TMT diversity dimensions on the corporate strategic change.

Keywords: corporate governance; TMT diversity; strategicchange; upper echelons; multilevel econometric model;

moderator effects

Introduction

Over recent decades, society has witnessed an on-going

globalisation process of industries which is exerting a

major impact on the majority of organizations. The trend

of increasing diversity in the workplace is evident as a

result of this process of globalization. Recognition of the

importance of employing top managers with attributes

and skills for the comprehension of a more complex

international business environment and of the dynamic

of foreign markets is essential for companies to face

competition effectively (Herrmann and Datta, 2005).

Due to the great influence of top managers on

organizations, the question of how team diversity

influences managerial decision making has been widely

addressed in the literature (Boerner et al., 2011; Shin

et al., 2012; Bjornali, et al., 2016).

Upper echelons (Hambrick and Mason, 1984), rooted

in the behavioural theory of the firm, suggests that

managerial decisions are not always rational, but rather

influenced by the values of the team and by the cognitive

base of their members since they affect the perception of

the situation, and therefore the way final managerial

choices are made, and firm performance (Goll et al.,

2001; Elbanna and Naquib, 2009; Logue, 2010; Coad

and Timmermans, 2014). Through focusing on these

postulates, the direct relationship between managerial

traits and strategy choices has been largely studied

(Wiersema and Bantel, 1992; Nielsen and Nielsen, 2011,

2013; Crossland et al., 2014). However, the findings

attained are generally contradictory and inconsistent with

regard to whetherteams of greater diversity are associated

with better managerial outcomes. Scholars in the upper

echelons field suggest that these inconsistent results are

due to several reasons: the unit of analysis employed.

Whereas certain research focuses on the influence of the

CEO’s traits on different aspects of firm strategy (Wu

et al. 2005; Crossland and Hambrick, 2011; Hsiang

et al. 2013; Crossland et al., 2014), other centres on its

analysis of top management teams’(TMTs) demographic

characteristics (Shin et al., 2012; Lu et al., 2014).Authors

such as Hambrick et al. (2005) explain the ambiguity and

incongruent results as a consequence of not taking into

consideration the moderating role played by the

environment. More recently, a number of authors, for

instance Goll et al. (2008: 202), have shown that

Correspondence: M. RosarioGonzález-Rodríguez,Department of Applied

Economics,University of Seville, Seville,Spain, Tel: +34954557546.

E-mail: rosaglez@us.es

DOI: 10.1111/emre.12306

©2018 European Academy of Management

European Management Review, Vol. 16, 9–, (2019)

973

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managerial attitudes and behaviours related to the

implementation of strategy changes are not only mainly

conditioned by environmental determinants, but also by

the organizational factors, top managers’demographic

characteristics, and their managerialdiscretion, commonly

referred as the ‘latitude of managerial actions’.Yet,tothe

best of our knowledge, very few studies have considered

the influence of the effects of interaction among the

diversity of demographical attributes on firm outcomes

and strategy change (Li et al., 2012). These interaction

effects reveal the internal complexity of the TMTs in

making the best managerial decisions. Furthermore, as

Tacheva claims (2007: 62): ‘It is remarkable that upper

echelons makes no distinction between different aspects

of diversity. Instead, diversity is often treated as a general

construct hypothesized as having uniform effects

regardless of the particular attributes to which it is

empirically applied’(i.e., Finkelstein and Hambrick,

1990, 1996; Forbes and Milliken, 1999; Golden and

Zajac, 2001). As a consequence of that posture, the

majority of earlier research had been considering TMT

diversity as a unique construct without making a

distinction between different dimensions of diversity,

such as education, functional experience, industry and

international experience. Faced with this stance, later

researchers in the demographical diversity and strategy

field have challenged the assumption that all types of

diversityhave the same effect on group strategicprocesses

and performance outcomes. It is starting to be widely

accepted that it is necessary to both differentiate among

the different dimensions of TMT diversity (Díaz-

Fernández, 2004; Tacheva, 2007) and, ‘regarding each

dimension, to distinguish each one from the other and to

separately study them’(Tacheva, 2007: 63). Reinforcing

these premises, the results achieved by some researchers

had shown that various diversity dimensions have

differing effects on group and organizational outcomes

(Carpenter andFredrickson, 2001; Athanassiouand Nigh,

2002; Auh and Menguc, 2005; Boone and Hendriks,

2009; Homberg and Bui, 2013; Díaz-Fernández et al.,

2015a, 2015b). In sum, the consideration of the multiple

dimensions of TMT diversity presents a recurrent gap in

the literature which needs to be addressed in order to

explain the ambiguous and contradictory results in upper

echelons. In this sense, Jackson (1992: 368) establishes

that: ‘whereas a general construct of diversity might be

useful in the context of theorizing, when conducting

empirical research it is important to decompose the

construct to the level of single attributes and identify the

most important ones’. Although upper echelons is

inherently a multilevel theory (Cannella and Holocomb,

2005), since it involves a nested structure of individuals,

teams, organizations and industries, not many

organizational demography studies have considered the

multilevel character of the upper echelons (Carpenter

et al., 2004; Nielsen, 2009; Shin et al., 2012), thereby

leaving new lines of research yet to be explored in this

area.

This study aims to cover such gaps in the research by

shedding light on the criticism in which upper echelons

evolved. In addition to the arguments outlined above,

and by using a three-level hierarchical model (TMT

observations, companies, and the industrial sector), this

research contributes to the literature by analysing the

interaction effect of the demographical variables of the

TMT on corporatestrategy change within the lowestlevel

of the multilevel model (TMT observations). The

multidimensional aspects of diversity are then considered

in the analysis. Apart from the interest in the moderator

effects between the third and the second level of the

hierarchical model structure as demonstrated in previous

research (Carpenter, 2002; Bunderson and Sutcliffe,

2002; Cannella and Holocomb, 2005; Boerner et al.,

2011), a better comprehension of TMT composition and

its influence on corporate strategy changes requires an

in-depth study of the moderator effects at the lowest level

of the hierarchicalstructure. In this way, the framework of

this paper drawsfrom upper echelons, team diversity,and

multilevel analysis.

In order to address the gap in the literature, the

following research questions must be answered: Does

diversity in the educational level and in educational

background positively favour corporate strategy change?

Is the influence exerted by diversity in education on

strategy changes conditioned by the high diversity in top

managers’functional experience, industrial experience

and international experience? Does the diversity in the

top managers’functional experience positively influence

corporate strategy change? Does the influence of

functional diversity on corporate strategy change

depending on the diversity in the other demographical

traits, such as educational diversity, industry and

international diversity? Are TMTs with greater diversity

in industry experience more prone to strategy change? Is

the influence that the TMTs with greater functional

diversity exert on corporate strategy change greater for

higher levels in education diversity, functional diversity,

and international diversity? Does diversity inn

international experience favour corporate strategy

change? Is this influence moderated by the characteristics

of other top managers?

A recognition that the knowledge held by an

organization regarding TMT composition can influence

the decision-making process in corporate governance has

meant that, despite the criticism that the formation of

upper echelonsinitially brought about, further exploration

into this relationship remains of utmost importance

(Carpenter and Fredrickson, 2001; Wally and Becerra,

2001; Carpenter et al., 2004; Cannella et al., 2008;

Crossland andHambrick, 2011). The present paper strives

M.C. Díaz-Fernández et al.

©2018 European Academy of Management

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