Top Management Team Intrapersonal Functional Diversity and Adaptive Firm Performance: The Moderating Roles of the CEO-TMT Power Gap and Severity of Threat.

Changlong Ma,Yuhui Ge,Jingwei Wang

doi:10.3389/fpsyg.2021.772739

Changlong Ma, Yuhui Ge + Show 1 more

Open Access

https://doi.org/10.3389/fpsyg.2021.772739

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Abstract

While usually argued to be improving firm performance, the effect of top management team (TMT) functional diversity on firm performance is mixed. Bridging the TMT diversity, team adaptation, and threat-rigidity literature, we present a contingency model in which the relationships between intrapersonal functional diversity (at both CEO and TMT levels) and adaptive firm performance depend on the CEO–TMT power gap and severity of threat. To test our hypotheses, 270 firms, which have been severely affected due to the COVID-19 pandemic, were selected from China's A-share listed companies. Multiple regression analyses have shown that a moderation of CEO intrapersonal functional diversity's effect on adaptive firm performance by the CEO–TMT power gap is moderated by the severity of threat. However, no significant main or interaction effect of TMT intrapersonal functional diversity was found. The findings of this study have implications for the recovery or improvement of firm performance in threat situations.

Highlights

Various crisis episodes like the Chernobyl accident, Wenchuan earthquake, global financial crisis (2008–2009), and COVID-19 epidemic have occurred frequently in recent years, and new crisis episodes may break out at any moment
According to the recommendations of Maynard et al (2015) mentioned above, this paper focuses on the intrapersonal functional diversity at both CEO and top management team (TMT) levels under the different situations of severity of threat, and three sub-questions are proposed: First, CEO with narrower or broader functional experiences, what kind of CEO is more adaptive? Second, what kind of TMT is more adaptive, TMT composed of executives with narrower or broader functional experiences? Third, with different combinations of the internal (i.e., CEO–TMT power gap) and external environment, what is the relationship between intrapersonal functional diversity and adaptive firm performance at both CEO and TMT levels
We argue that the CEO–TMT power gap is a double-edged sword, which generates both positive and negative dynamics that moderate the relationship between the CEO/TMT intrapersonal functional diversity and adaptive firm performance

Summary

Introduction

Various crisis episodes like the Chernobyl accident, Wenchuan earthquake, global financial crisis (2008–2009), and COVID-19 epidemic have occurred frequently in recent years, and new crisis episodes may break out at any moment. Top management team (TMT) is the focus entity of an organizational strategic decision, which determines the survival and development of enterprises to a large extent. According to the Upper Echelons Theory (Hambrick and Mason, 1984), TMT characteristics are associated with managerial knowledge, values, and perceptions and can be used to predict organizational outcomes. The last few decades have witnessed a rapid growth of the body of studies examining the relationship between TMT diversity and organizational outcomes, and the findings are full of confusion (Hambrick et al, 2015). Very few studies have been conducted on how teams adapt to challenging or threat situations (Marks et al, 2000; Gevers et al, 2015; Klein and Kozlowski, 2016), especially the moderating role of both internal and external environments. The demographic characteristics of executives are valid, albeit incomplete and imprecise, proxies of executives’ cognitive frames (Hambrick, 2007)

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