Top Management-Team Diversity and Firm Performance: Examining the Role of Cognitions

Abstract

Demography research rarely examines the black box within which the cognitive diversity of the top management team is assumed to affect firm performance. Using data from 35 simulated firms run by a total of 159 managers attending executive education programs, the current research tested several hypotheses concerned with (a) the relationship between demographic and cognitive team diversity and (b) the reciprocal effects of diversity and firm performance. Results showed that members of high-performing teams tended to preserve multiple interpretations early in the team's life cycle, but that they moved toward greater clarity near the end of the life cycle. These high-performing teams, therefore, exhibited both early interpretative ambiguity and late heedful interrelating. Cognitive diversity in teams affected and was affected by changes in firm performance. Surprisingly, there was no evidence of any effect of demographic diversity on measures of cognitive diversity.