Examining the Role of Homophily in the C-Suite for Strategic Decision-Making

Abstract

How firms differentiate their products from competitors is a fundamental strategic decision for the performance of a firm. From the broader upper echelons perspective, a firm’s strategy is shaped by the Top Management Team (TMT), consisting of the Chief Executive Officer (CEO) and his top executives. The Chief Marketing Officer (CMO) is usually the driver of differentiation. We need to scrutinize CEO-CMO duos in terms of their demographics and experience to present the underlying drivers out of which differentiation emerges. According to homophily theory, executives prefer to work with others, which are similar to them. Therefore, we set out to examine differentiation decisions of homogenous CEO-CMO duos in terms of demographics and experience using a cross-industry panel of U.S. S&P 500 firms over 12 years. We show evidence, that homogenous duos, which are highly educated, marketing experienced or male positively influence differentiation. On the opposite duos, in which executives have limited firm-specific experience or less experience because of their age negatively influence differentiation. Based on this evidence we contribute to theory by stressing out the need to combine upper echelons and homophily theory to not neglect significant factors for decision making in TMTs. Furthermore, we contribute to practice by presenting so far unconsidered factors in recruiting and appointing CEOs as well as CMOs.