The Impact of Top Management Team Composition on Product Recall Risk

Abstract

Removing faulty products from the market can have major financial and non-financial damages for firms. Nevertheless, it is still unknown how firms can prevent such product recalls. Drawing on the upper echelons theory, stating that firm outcomes are reflections of its top executives, our study examines the impact of top management team composition on the risk of a firm having a product recall for medical devices. Analyzing a large longitudinal dataset of S&P 500 firms, our results indicate that firms have a reduced risk to have a product recall if they have a senior executive that is responsible for operations, i.e., chief operations officer (COO), and increased risk if they have a senior executive responsible for innovation, i.e., chief technology officer (CTO). In addition, we show that the risk of a product recall decreases even further when the COO has a long tenure with the firm. Our findings contribute to theory and practice in several ways: Theoretically, we advance the product recall literature by giving insights about the importance of top management team composition for the likelihood for firms to experience product recalls. Furthermore, we contribute to upper echelons research by showing that functional managers can influence non-financial outcomes. For practitioners, we advance the understanding of the reasons for product recalls and possible prevention strategies.