Upper Echelons Research Revisited: Antecedents, Elements, and Consequences of Top Management Team Composition

This study reviews recent research building on Hambrick and Mason’s (1984) upper echelons (UE) perspective with the aim of identifying challenges and opportunities for future UEbased organizations research. Our review highlights a number of central facets of the UE perspective: It is at once a theoretical framework predicting that organizations will be a reflection of their top management teams and a methodology that relies on executive demography as a measurement proxy for underlying individual and group cognitions and behaviors. In proposing new research directions, we challenge organizations researchers to (1) reconsider the universality of the top management team (TMT) construct, (2) carefully explore the practical and theoretical meaning of TMT demographic characteristics vis-à-vis the deeper constructs they are presumed to proxy, (3) integrate other determinants of managerial cognition and behavior into UE theorizing, and (4) revisit the roles of causality and intertemporal dynamics among the antecedents, consequences, and composition of top management teams. Carpenter, Geletkanycz & Sanders, Upper Echelons Research Revisited Forthcoming in Journal of Management 2 The last several decades have witnessed a surge of interest in top executives. For organizations researchers, a central catalyst was the 1984 publication of Hambrick and Mason’s upper echelons perspective (hereafter, we refer to Hambrick and Mason 1984 as “H&M.”). In that work the authors articulated a model in which top executives play a pivotal role in shaping major organizational outcomes. The study’s citation in over 500 subsequent refereed journal articles reflects its formidable impact and far-reaching scope. For that matter, H&M’s core ideas have extended beyond the management discipline to also shape research in psychology (e.g., Peterson, Smith, Martorana, & Owens, 2003) and mainstream economics (e.g., Bertrand & Schoar, 2003). With little indication that the scale or pace of the work’s diffusion is abating, the 20-year anniversary of Hambrick and Mason’s (1984) upper echelons (UE) perspective presents an auspicious occasion for us to review the impact, controversies, and challenges their theoretical article and framework created, and to explore some opportunities for future investigation. * * * Insert Figure 1 About Here * * * The original UE model is recreated in Figure 1. At its core, the UE perspective centers on executive cognitions, values, and perceptions and their influence on the process of strategic choice and resultant performance outcomes. Because executive cognitions, values, and perceptions are difficult to measure, the UE perspective invokes prior research on demography to suggest that managerial characteristics are reasonable proxies for underlying differences in cognitions, values, and perceptions. Reviewing briefly, the left-hand side of H&M’s original model shows the organization’s internal and external situation. Upper echelon characteristics such as age, functional background, and educational experiences are next taken as observable proxies for the psychological constructs that shape the team’s interpretation of the internal and external situation and facilitate formulation of appropriate strategic alternatives. The prominent role of psychological constructs, such as values and perceptions, are attributed to executives’ bounded rationality. Carpenter, Geletkanycz & Sanders, Upper Echelons Research Revisited Forthcoming in Journal of Management 3 In other words, faced with such common decision challenges as information overload, ambiguous cues, and competing goals and objectives, executives’ perceptions of stimuli are filtered and interpreted through cognitive bases and values. Because these psychological constructs are unobservable, the theory posits that observable managerial characteristics are efficient proxies that provide reliable indicators of the unobservable psychological constructs. What’s more, managers are expected to economize on these efforts by working collectively as a team. In turn, H&M propose that demography’s impact on cognitive processes will subsequently be revealed in strategic outcomes. Thus, the third box reports a range of strategic variables, from innovation to response time, that are expected to reflect executive team characteristics. Finally, H&M’s model predicts that resultant organizational performance, gauged along a number of dimensions from profitability to the firm’s basic survival, will ultimately be impacted. The original UE perspective is characterized by a number of important features. First, as outlined by H&M, the underlying UE framework is a linear one -the situation is enacted by the TMT, enactment leads to strategic choices, and those choices affect performance. The linkages connecting the situation directly to UE characteristics and strategic choices are never explicitly addressed, though selected propositions include contingency predictions that implicitly incorporate these two latter arrows. Second, the study gave rise to both a theoretical perspective and a methodology. Again, the three central tenets of the UE perspective are that (1) strategic choices made in firms are reflections of the values and cognitive bases of powerful actors, (2) the values and cognitive bases of such actors are a function of their observable characteristics like education or work experience, and as a result (3) significant organizational outcomes will be associated with the observable characteristics of those actors. These three central tenets frame the UE proposition that an organization and its Carpenter, Geletkanycz & Sanders, Upper Echelons Research Revisited Forthcoming in Journal of Management 4 performance will be a reflection of its top managers and provide a basis for studying underlying team dynamics by demographic proxy. Finally, the stated spirit of H&M was to serve as an anchor for continued theory building. Thus, the TMT characteristics, strategic choices, performance outcomes, and later propositions articulated were not meant to be exhaustive. Rather, as the authors stated, “They are illustrative and appear to be some of the most supportable and interesting” (1984: 168). In that vein, new directions and extensions were expected to emerge. Despite the widespread impact of H&M’s research, it is surprising that the only comprehensive reviews of the UE literature are Jackson (1992) and a chapter on the group bases of action in Finkelstein and Hambrick (1996). A consequence of the proliferation of UE studies, combined with the lack of methodological review articles, has resulted in a large body of literature that lacks integration. Moreover, some scholars have suggested that empirical results have been rather ambiguous, leading to conclusions that more questions remain or have been created by UE research than have been answered (Priem, Lyon, & Dess, 1999; West & Schwenk, 1996). It is against this backdrop that we undertake the current review, synthesis, and discussion of contemporary work. Our aim is to identify the major inroads that have been made not only in testing, but also in building upon the original UE framework, and to identify fruitful avenues for continued inquiry. The hope is that this effort will, to paraphrase Ketchen (2002: 586), help to close the gap between what “we know” and what “we need to know” about the upper echelon and the role of the UE perspective in organizations theory and research. Scope of the Review The proliferation of executive leadership studies and research that use managerial demographic characteristics made it necessary to develop specific criteria to limit the scope of our review. To begin, in cases where a relatively large number of studies share a common theme we Carpenter, Geletkanycz & Sanders, Upper Echelons Research Revisited Forthcoming in Journal of Management 5 have included those that are indicative of the overall thrust and its general conclusions. Beyond this, four additional criteria guided the scope of our review: First, we focus on empirical articles that, through citation or invocation of underlying tenets, have a fairly clear relationship with the upper echelons perspective. This constraint helped us to keep the review to a manageable set of studies that are centrally focused on upper echelons, a focus that would not have been possible if we expanded the criteria to include all studies that employ managerial demographic characteristics or address the topic of executive leadership. Second, we directed our attention to studies concerned with top executives, not lower-level managers, the broader workforce, or other individuals not holding a senior management office (e.g., outside board members, consultants). This decision rule does not imply that the perspective is not valuable in other domains; it is simply a basis for again making the review somewhat manageable. Hambrick and Mason (196-197) were careful to specify the TMT as their unit of analysis, thus advocating a focus on teams and officers holding top management positions. We strived to remain true to their focus in our review. That said, selected studies of CEO leadership are called upon in instances where they buttress what we have learned from studies focusing on the broader TMT or, alternatively, where they directly challenge the arguments and conclusions presented in H&M. Third, since both Jackson (1992) and Finkelstein and Hambrick (1996) do a comprehensive job of cataloging most prior UE studies up to the time of their publication, we simply note selected earlier works that are indicative of an idea or concept and then direct our attention to studies published after 1995. Finally, the breadth of influence of the UE perspective spans not only the globe but diverse academic fields as well. Yet not all of the journals across the globe and across academic disciplines have the same currency for management scholars. Thus we attempted to exhaustively review articles publis