Inherent limitations of demographic proxies in top management team heterogeneity research

Abstract

Top management team (TMT) heterogeneity—performance research using demographic indicators has contributed to strategic management by showing that top managers do indeed “matter” to firm outcomes. We argue, however, that limitations inherent in demographics-based TMT studies preclude their use in specifying how top managers influence their firms. This is an elemental problem because questions of how top managers can and should influence their firms are central to strategic management. Demographics-based TMT heterogeneity studies are limited by intrinsic trade-offs, which sacrifice: construct validity for measurement reliability; explanation for prediction; and prescription for description. We suggest “next steps” for improving the usefulness of future TMT studies (i.e., addressing the “how” question) by: (1) incorporating more substantive heterogeneity constructs, such as within-TMT power distributions, psychographic variances, and judgment differences; and (2) integrating qualitative research with the quantitative as a base for developing research questions that are more informed, salient, and interesting. We urge researchers to eschew demographic proxies, and instead direct their efforts toward more difficult, but potentially more rewarding, TMT issues.