Carpenter & Fredrickson, Academy of Management Journal, 44(3): 533-546

TOP MANAGEMENT TEAMS, GLOBAL STRATEGIC POSTURE,

AND THE MODERATING ROLE OF UNCERTAINTY

Mason A. Carpenter

Department of Management & Human ResourcesSchool of Business, University of Wisconsin-Madison

Grainger Hall, 975 University AvenueMadison, WI 53706-1323

(608) 262-9449, (608) 262-8773 FAXmcarpenter@bus.wisc.edu

James W. Fredrickson

Department of ManagementGraduate School of Business, CBA 4.202

University of Texas at AustinAustin, TX 78712-1174

(512) 471-5694, (512) 471-3937 FAX

_____________________________Special thanks to Syd Finkelstein, Don Hambrick, W. Gerry Sanders, and Jim Westphal for theirhelpful comments on earlier drafts of this manuscript

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TOP MANAGEMENT TEAMS, GLOBAL STRATEGIC POSTURE,

AND THE MODERATING ROLE OF UNCERTAINTY

Abstract

The complexity surrounding globalization makes it particularly germane to the study of top

management team (TMT) demographic effects, and such complexity also provides a unique

context for assessing the moderating role of uncertainty. In a sample of U.S.-based firms, TMT

international experience, educational heterogeneity, and tenure heterogeneity were positively

related to firms' global strategic posture (GSP), while functional heterogeneity exhibited a

negative association. However, when uncertainty was introduced as a moderator, the

relationships between TMT tenure heterogeneity and functional heterogeneity and GSP were

negative in conditions of high uncertainty, but positive in the face of low uncertainty.

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Contemporary firms are often encouraged to develop a commanding international

presence (Bartlett & Ghoshal, 1989; Zachary, 1996). However, while most large U.S. companies

are to some degree international, not all have been equally aggressive in responding to the

“global mandate” (Stopford, 1992). And despite assumptions to the contrary, the globalization of

U.S. firms significantly lags that of firms in other major industrialized countries (Makhija,

Kwangsoo & Williamson, 1997). Although research has emphasized a variety of factors as

determinants of globalization, with few exceptions (Lohrke & Bruton, 1997) it has typically

ignored the question of whether top management teams' (TMT) mix of backgrounds and

expertise are related to their firms' global strategic postures (GSP). Moreover, given the

increasing importance of globalization as a major and complex component of corporate strategy

(Prahalad, 1990), such a context may be particularly well-suited for observing TMT effects.

Therefore, the first purpose of this study was to examine the relationship between top

management team characteristics and GSP.

The influence of top executives on their organizations is often assumed to be a product of

their life experiences, as reflected in their demographic characteristics. But even though the

upper echelons research that considers relationships between TMT demographics and firm

outcomes is well developed (Finkelstein & Hambrick, 1996), an important condition for those

relationships has received little empirical attention. Specifically, TMT demographic effects are

likely to be strongest under conditions of high uncertainty (Finkelstein & Hambrick, 1996: 20;

Hambrick & Mason, 1984). However, upper echelons researchers have typically assumed that

uncertainty varies little across firms (i.e., it is typically "high"), and have thus ignored the

potential role of uncertainty as a critical moderator of TMT demographic effects. And just as the

complexity surrounding globalization makes it particularly germane to the study of TMT

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demographic effects, so too does such complexity provide a unique context for assessing the

moderating role of uncertainty. Indeed, paying explicit attention to uncertainty may help to

explain the inconsistent findings of prior upper echelons studies. For instance, it is not known

whether TMT diversity has an independent effect on group conflict and cognitive heterogeneity,

or must be considered in concert with environmental uncertainty to understand diversity's true

impact on organizational outcomes. Therefore, the second purpose of this research was to test

the moderating role of uncertainty on the relationship between TMT characteristics and global

strategic posture.

THEORY DEVELOPMENT

Based on their assertion that organizations are "reflections of the values and cognitive

bases of powerful actors,” Hambrick and Mason proposed that “organizational outcomes –

strategic choices and performance levels – are partially predicted by managerial background

characteristics” (1984: 193). Subsequent upper echelons research has drawn on a variety of

theories, and indicates that the demographic characteristics of firms' top executives are indeed

related to a range of important organizational outcomes (Bantel & Jackson, 1989; Wiersema &

Bantel, 1992). For instance, it has been argued that background diversity or heterogeneity is

indicative of TMTs' sociocognitive diversity, their skill sets, and the breadth of their social and

professional ties (Finkelstein & Hambrick, 1996). This heterogeneity of cognitions, skills, and

ties is said to provide top management teams with diverse inputs and helps them be more

responsive to environmental complexity and change (Bantel & Jackson, 1989; Jackson, 1992).

Such diversity may similarly help TMTs overcome the information overload, complexity, and

domestic myopia that typically hamper globalization efforts (Ohmae, 1989; Sanders & Carpenter,

1998).

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It should also be noted that some research has argued that demographic similarity or

homogeneity promotes behavioral integration among members of a team (O’Reilly, Snyder &

Boothe, 1993), while diversity is a likely source of conflict and a deterrent to productive group

functioning (O'Reilly et al, 1993; Wagner, Pfeffer & O'Reilly, 1984). However, others have

argued that the selection and socialization processes common among TMTs are likely to dampen

such conflict (Bantel & Jackson, 1989). Regardless of the valence of its impact, the upper

echelons perspective presumes that TMT heterogeneity will ultimately be reflected in firms'

actions. But it is unknown if such impact extends beyond the domestic operations of U.S. firms

to include decisions about global posture, or if top management effects are especially strong in

predicting this important organizational outcome. Moreover, a recent review of leading

management and international business journals concluded that top management teams were

"notably absent" from the literature on globalization (Lohrke & Bruton, 1997: 41). Therefore,

this study draws on the upper echelons perspective and attempts to extend that work by assessing

the relationship between top team diversity and GSP. As noted earlier, it also (re)introduces the

impact of environmental uncertainty into the upper echelons dialogue.

TMT Characteristics and Global Strategic Posture

Global strategic posture reflects the degree to which a firm depends on foreign markets

for customers and factors of production, along with the geographical dispersion of same. While

the literature on globalization typically stresses its potential benefits, it also highlights the

complexity inherent in going global. Despite such complexity, many management practitioners

and researchers maintain that companies' long-term success and survival are increasingly

dependent on their having a strong global presence (Bartlett & Ghoshal, 1989; Hitt, Hoskisson &

Kim, 1997; Maruca, 1994; Zachary, 1996). This is because an expansive GSP enables firms to

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leverage R&D costs across countries and respond to foreign competitors in their domestic market

strongholds (Bartlett & Ghoshal, 1989; Kim & Mauborgne, 1991). At the same time, such global

activities are likely to increase the range of cultures (Gomez-Mejia & Palich, 1997; Hofstede,

1980), customers, competitors, and regulations (Porter, 1986) that a firm and its TMT face.

Therefore, the intricate web of activities and institutions that creates opportunities for global

firms also produces tremendous managerial complexity (Prahalad, 1990; Sanders & Carpenter,

1998).

Although few studies have linked TMTs to GSP (Lohrke & Bruton, 1997), some recent

upper echelons research is instructive. For example, Sanders and Carpenter (1998) found that

large top teams often lead firms that had expansive GSPs; they argued that firms with larger

TMTs can benefit substantially from a division of labor. Those same authors also suggested that

a TMT's size reflects the diversity of its members' backgrounds and information sources, and

ultimately their collective capacity to process the complex information arising from

globalization. However, team size alone is generally a poor gauge of TMT diversity (Finkelstein

& Hambrick, 1996). Indeed, the upper echelons perspective suggests that it is differences among

executives' experiences, as signaled by their demographic heterogeneity, which broadens TMTs'

networks and increases the diversity of their skill sets and world views (Hambrick & Mason,

1984).

Top management team demographic heterogeneity is relevant here since the diversity of

TMT network ties has been shown to be positively related to GSP (Athanassiou & Nigh, 1999;

Kim & Mauborgne, 1991). Similarly, the diversity in skill sets and world views that typically

accompany TMT demographic heterogeneity may also have implications for the expansiveness

of a firm's GSP. TMTs whose members have diverse skills and orientations can be more creative

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and nimble in strategic problem solving (Dutton & Duncan, 1987), and perhaps more likely to

overcome their domestic myopia. Moreover, such diversity may build trust and perceptions of

procedural justice among a firms' product and geographic unit managers by signaling that the

TMT takes competing interests into account when allocating scarce resources around the globe

(Kim & Mauborgne, 1991). These heterogeneity effects can be related, in turn, to an expansive

GSP since such a strategy requires a firm to excel at interunit cooperation, to cross-subsidize

business and country units for overall corporate goals, and to swiftly coordinate actions globally

(Kim & Mauborgne, 1991; Gupta & Govindarajan, 1991). Finally, diversity in top teams has

also been argued to increase their level of sociocognitive complexity (Jackson, 1992; Wiersema

& Bantel, 1992). Therefore, TMTs that are sociocognitively complex may be better equipped to

make sense of changing international market opportunities, and "reconcile the conflicts and

paradoxes" presented by globalization (Murtha, Lenway, & Bagozzi, 1998: 112).

The arguments presented above suggest that firms are most likely to have expansive

global strategic postures when they are led by TMTs that have the diverse network ties, skills,

and world views that typically accompany demographic heterogeneity. Based on our interest in

(1) predicting the relationship between TMT demographic characteristics and GSP, and then (2)

considering the moderating effects of uncertainty on that relationship (discussed below), we

identified several TMT characteristics whose diversity seemed particularly pertinent to GSP, and

which represent variables of interest to upper echelons researchers (Bantel & Jackson, 1989;

Boeker, 1997; Hambrick & Mason, 1984; Roth, 1995; Wiersema & Bantel, 1992). Specifically,

this study investigates relationships between four TMT characteristics -- (a) breadth of

international work experience, (b) educational heterogeneity, (c) functional heterogeneity, and (d)

tenure heterogeneity -- and firms' global strategic posture.

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International experience is an obvious choice for anyone considering demographic effects

and globalization. Moreover, it is considered one of the most broadening elements of executives'

backgrounds since it typically complements and expands on the role played by other experiences

(Reuber & Fischer, 1997; Roth, 1995; Sambharya, 1996). Similarly, top management team

educational heterogeneity is pertinent to GSP because it provides an indicator of the diversity of

skills and cognitive processes, as well as basic knowledge, embedded in the TMT (Bantel &

Jackson, 1989; Boeker, 1997; Wiersema & Bantel, 1992). The third characteristic, functional

diversity, captures the breadth of skill-sets and network information sources available to TMTs

(Ancona & Caldwell, 1992). The final characteristic, firm tenure heterogeneity, is relevant to

GSP because differences in tenure have been shown to influence the degree to which TMT

members use their networks to provide advice on international markets (Athanassiou & Nigh,

1999). In combination, these four characteristics have been shown to indicate variation in TMT

networks, skills, and orientations, and may result in executives considering of a wider range of

strategy alternatives. Therefore, we hypothesize that such breadth and diversity may prompt

some TMTs to overcome their domestic myopia, and will be related to global strategic posture.

H1: There will be a positive relationship between top management team (a)international work experience, (b) educational heterogeneity, (c) functionalheterogeneity, and (d) firm tenure heterogeneity and the expansiveness of GSP.

Contrary to the assumption underlying the above argument, that TMT selection and

socialization processes are likely to mitigate the potentially negative effects of demographic

heterogeneity (Wiersema & Bantel, 1992), several recent studies have shown the relationship of

team member heterogeneity with organizational outcomes to be curvilinear or simply negative.

For instance, Greening and Johnson (1997) reported curvilinear relationships between TMT

functional heterogeneity, tenure heterogeneity, and firms' responses to organizational crisis.

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Also, O'Reilly and his colleagues (1993) found TMT tenure diversity to be negatively related to

strategic change in high technology firms. And, in the context of new high-technology product

teams and airline industry top teams, respectively, Ancona and Caldwell (1992) and Smith,

Smith, Olian, Sims, O'Bannon and Scully (1994) observed that aspects of demographic diversity

impeded team performance. Taken together, this research argues that while moderate levels of

team member heterogeneity may be beneficial because of the varied networks, skills, and world

views that diversity provides, excessive heterogeneity may lead to interpersonal conflict,

communication breakdowns, and thus detract from the TMT's overall level of behavioral

integration. Given the complexity characterizing high-GSP firms (Sanders & Carpenter, 1998),

and hence the need for high levels of teamwork in their TMTs (Kim & Mauborgne, 1991; Weick

& Van Orden, 1990), this evidence suggests that the relationship between TMT characteristics

and GSP might be curvilinear. Therefore, we offer the following hypothesis as an alternative to

the demographic relationships proposed by hypotheses H1a-d.

H2: There will be a curvilinear relationship between top management team (a)international work experience, (b) educational heterogeneity, (c) functionalheterogeneity, and (d) tenure heterogeneity and the expansiveness of GSP.

Environmental Uncertainty and TMT Demographic Effects

This section advances the proposition that if the relationship between TMT demographics

and GSP is contingent upon environmental uncertainty, then the level of such uncertainty will

moderate that relationship. Indeed, a notable aspect of the studies cited above that found a

negative or curvilinear relationship is that they were conducted in highly uncertain contexts (i.e.,

situations of crisis, or in industries otherwise characterized by high uncertainty). As discussed

earlier, the complexity surrounding globalization makes it particularly relevant to the study of

TMT demographic effects -- such complexity also provides a unique context for assessing the

10

moderating role of uncertainty. And while we recognize that there are other sources of

uncertainty (e.g., organizational), we emphasize environmental uncertainty here because of its

apparent centrality to the upper echelons perspective (Hambrick & Mason, 1984).

Uncertainty is a consequence of environmental factors that generally result in a lack of

information needed to assess means-ends relationships, make decisions, and confidently assign

probabilities to their outcomes (Duncan, 1972: 318). In developing their upper echelons

perspective, Hambrick and Mason (1984) made uncertainty a precondition for demographic

effects by anchoring it in the Carnegie School’s behavioral theory of the firm (e.g., March &

Simon, 1958). That theory, in turn, holds that decisions made under great uncertainty are more

likely to be “the outcome of behavioral factors rather than a mechanical quest for economic

optimization” (Hambrick & Mason, 1984: 194). The importance of uncertainty to the upper

echelons view is well articulated by the following observation:

"That top executives would act on the basis of their own predispositions is fully understandable.Senior managers are embedded in ambiguity, complexity, and information overload.….Thus, thetop executive faces the classic case of what the renowned psychologist Walter Mischel (1977)calls a 'weak situation,' that is, one in which the characteristics of the situation are not clear-cutenough to dictate a course of action. In such circumstances, the decision maker's personal frameof reference, not the objective characteristics of the situation, becomes the basis for action"(Finkelstein & Hambrick, 1996: 20).

Therefore, upper echelons predictions are contingent upon the view that top management

teams generally operate under highly uncertain conditions (i.e., conditions typically characterized

by ambiguity, complexity, and information overload). As a result, embedded in the upper

echelons perspective is an assumption that the more uncertain the decision making situation, the

more likely it is that TMT demographic characteristics will be manifest in organizational actions

and outcomes.

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Such an assumption, however, is untested and ignores a vast literature which shows that

firms and their top management teams vary significantly in the amount of uncertainty that

surrounds them (Aldrich, 1979; Bergh & Lawless, 1998; Dess & Beard, 1984; Duncan, 1972;

Keats & Hitt, 1988). Therefore, to the extent that TMT members rely on their prior experiences,

the effects of functional background and other management characteristics are also likely to vary

depending on the uncertainty they face. And such reliance increases the likelihood of

demographic effects. Ironically, it may also increase the likelihood of interpersonal conflict as

demographic differences are made more salient by uncertainty, and TMT members are afforded

greater discretion (Finkelstein & Hambrick, 1990). This tension is compounded by the fact that

globalization is sometimes portrayed as a strategy explicitly designed to spread risk (Kim,

Hwang & Burgers, 1993), and that executives may seek to manage environmental uncertainty

and increase their discretion through an expansive GSP. Consequently, there is reason to expect

that such uncertainty may systematically effect the relationship between TMT demographics and

global strategic posture. In the context of this study, it suggests the following hypothesis:

H3: Environmental uncertainty will moderate the previously proposed linearrelationships (i.e., H1a-d) between TMT (a) international work experience, (b)educational heterogeneity, (c) functional heterogeneity, and (d) tenureheterogeneity, and the expansiveness of GSP.

RESEARCH METHOD

Sample

A random, stratified sample of 300 U.S. firms was developed from the Standard & Poors

Industrials (first stratum) and Standard & Poors Mid-cap indices (second stratum). These

sources were selected because (1) they are representative of major U.S. industrial corporations,

(2) detailed demographic data are available on their TMTs, and (3) there is substantial variance

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in the expansiveness of their global strategic postures -- even when controlling for firm size and

industry. It is important to note that the sample was consciously restricted to U.S. firms for two

primary reasons: (1) they have been most often criticized for their domestic myopia (Hordes,

Clancy & Baddaley, 1995; Ohmae, 1989), and (2) reliable longitudinal data on the TMTs of

firms outside the U.S. are generally not available. As discussed in detail below, archival data

were collected on 207 firms from 1984 through 1996. A means test indicated that the excluded

firms were not statistically different from the sample firms in total assets, total sales, and

performance (return on assets, return on sales, return on equity, and stock market returns).

Analytical approach, variables, and measures

Analytical approach. Hypotheses were tested with two panels of lagged, cross-sectional

data; OLS regression with fixed-effects models was used to control for unobserved differences

between firms. While GLS random-effects regression has also been used in upper echelons

studies incorporating multiple panels of data (e.g., Finkelstein & Hambrick, 1990), the Hausman

specification test suggests that a fixed-effects model was more appropriate here than a random-

effects model (Greene, 1990). Moreover, the fixed-effects model is generally considered a more

conservative test, and generates an R2 that is interpretable, whereas that generated by the GLS

model is not (Greene, 1990).

Estimating a fixed-effects model is equivalent to adding a dummy variable for each firm

(Greene, 1990), and controls for all constant, unmeasured differences across firms that may

explain differences in the dependent variables. For instance, industry membership is considered

an essential control variable in organizational studies, and it clearly has implications for firm

globalization (Porter, 1986). However, since primary industry membership did not vary among

these firms during the time period studied, and because fixed-effects control for variance due to

13

time-invariant characteristics like industry membership, industry dummies are not necessary.

Hence, they are not included in the fixed-effects models.

Dependent variable. GSP was calculated using a variation of Sullivan's (1994)

composite measure of firm internationalization. The first dimension, foreign sales, was

calculated as a ratio of foreign sales to total sales. The second dimension, foreign production,

was gauged by foreign owned-assets taken as a percentage of total assets. The third dimension,

geographic diversity, was measured as the extent to which a firm had subsidiaries in any of the

ten cultural zones of the world identified by Ronen and Shenkar (1985); each zone was counted

as .10 (e.g., a firm's presence in three zones generated a score of .30). The first two dimensions,

sales and assets, address a firm’s dependence on foreign markets and foreign-placed resources

(Kim et al, 1993), respectively. The third dimension indicates the geographic and cultural variety

associated with the other two; Sullivan (1994) provides a detailed discussion of these three

dimensions.

Indicators of each of the dimensions discussed above (foreign sales, foreign production,

and geographic diversity) were summed to form a composite measure of GSP. The higher the

number, the more expansive the firm’s GSP. Summing is not a problem in this case because

each indicator has the same metric (i.e., gauged as a percentage), is normally distributed, and the

three are highly correlated. As reported later, analyses also showed that these three indicators

load on one factor with a high Eigenvalue and explained variance, and the alpha was acceptable

at .87 (Nunnally, 1978). Since each of the three components is a ratio variable ranging from 0.0

to 1.0, a firm's GSP can range from 0.0 (no GSP) to 3.0 (a very expansive GSP). In our sample,

global strategic posture averaged .81 (s.d. of .43), with a range of .02 to 2.05 (out of 3.0). To

reduce the effects of annual aberrations, GSP was averaged over 1990 and 1991, and 1995 and

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1996. Data on global strategic posture were gathered from PC-Compustat and Dun’s Directory

of American Corporate Families and International Affiliates.

Independent variables. Select TMT demographic characteristics comprised the set of

independent variables used to test hypotheses H1(a-d) through H3(a-d). Following other upper

echelons studies, the top management team was defined as the top two tiers of the organization’s

management (e.g., CEO, Chairman, COO, CFO and the next highest management tier, as used in

Wiersema & Bantel, 1992). Such a definition was expected to capture the dominant coalition for

all firms in the sample (Demb & Neubauer, 1992), and has been applied in other research

concerned with strategic actions (e.g., Finkelstein & Hambrick, 1990; Greening & Johnson,

1997; Wiersema & Bantel, 1992). This definition yielded teams of approximately six members.

To develop the panels of TMT demographic characteristics, teams were assessed in two

years -- 1988 and 1993 -- which themselves preceded the GSP observations by two years each

(averaged observations in 1990/91 and 1995/96, respectively). The two-year lag period (versus

longer or shorter periods) between the TMT and GSP observations reduced the possibility of

other factors confounding the relationship between demographics and GSP, and also allowed

enough time for potential top team effects to become apparent. Consistent with this expectation,

sensitivity analyses indicated that the relationships reported below were weaker with shorter (i.e.,

1 year) or longer (i.e., 3 years) lags. Data for TMT characteristics were obtained from the

executives’ career histories reported in Dun's Reference Book of Corporate Managements.

As noted by Michel and Hambrick, the coding of most TMT characteristics is “clear-cut

and objective” (1992: 21). The TMTs' international work experience was calculated as the

percentage of the TMT’s total years of experience accrued in international assignments (i.e.,

designated as international years). Educational background and functional background are

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categorical variables. Using Wiersema & Bantel's (1992) coding scheme, executives' educational

backgrounds were classified as being in the arts, sciences, engineering, business and economics,

or law. Absent any other indication of education specialty, TMT members with M.S. or B.S.

degrees were coded as science specialists (Wiersema & Bantel, 1992). Executives with Ph.D.

degrees in the sciences were also coded as science specialists. Following Bantel and Jackson

(1989), Michel and Hambrick (1992), and Wiersema and Bantel (1992), we coded team

member’s functional backgrounds as being predominantly marketing, distribution, sales, research

and development, production, engineering, finance and accounting, law, or general. The degree

of heterogeneity of each variable was calculated using Blau's (1977) index. This index is

calculated as 1-�(Pi)2, where Pi are the percentage of individuals in the ith category. Firm

tenure heterogeneity was calculated using the coefficient of variation of the TMT’s firm tenure

(standard deviation divided by the mean). Allison (1978) has noted that among inequality

measures, the coefficient of variation is preferable when interval-level data such as age or time

are used.

Moderator variable. Hypotheses H3(a-d) predict that uncertainty will moderate the

main-effect relationships hypothesized in H1(a-d). We gauged environmental uncertainty using

a variation of the environmental instability measure developed by Dess and Beard (1984). This

measure incorporates aspects of Aldrich's (1979) stability-instability and turbulence constructs by

capturing the volatility of a firm's net sales in each of its four-digit SIC industries (Aldrich, 1979;

Bergh & Lawless, 1998; Dess & Beard, 1984; Keats & Hitt, 1988). Following Bergh & Lawless

(1998: 91-92), uncertainty was calculated by regressing a variable for each year on a variable for

net industry sales (Keats & Hitt, 1988). Five years of data were used for each regression (e.g.,

net industry sales from 1984 through 1988 were used to predict volatility in 1989). Following

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the equation, yt = b0 + b1t + at, where y = industry sales, t = year, and a = residual, volatility was

the standard error of the regression slope coefficient divided by average sales. Greater

environmental uncertainty is indicated by larger values of volatility, and values were averaged for

the two-year period between the TMT and GSP measurements. Firms' four digit industries were

identified through PC-Compustat and Compaq Disclosure, and data for calculating the

regressions were collected from Compustat.

Control variables. It is often assumed that larger firms have more extensive

international activities which, in turn, would be reflected in higher GSPs. In addition, firm size

has been argued to affect the relationship between executive characteristics and organizational

outcomes (Miller, 1991; Miller & Toulouse, 1986). Therefore, organizational size was included

as a control and was measured as the log of total employees. Additionally, firm performance,

degree of diversification, and R&D intensity have been suggested as being related to a firm’s

level of globalization (Hitt et al, 1997; Sanders & Carpenter, 1998). Therefore, performance was

controlled by using the two-year (between the TMT and GSP observations) average of return on

assets (ROA), current ratio (the ratio of current assets to current liabilities), and free cash flow.

Diversification level was controlled using Palepu’s (1985) entropy measure, where

diversificationa = Σ Pia ln(1/Pia), and Pia, is the proportion of firm a’s sales in business segment

i. R&D intensity was controlled using the ratio of research and development expenses to total

revenues. Because measures of TMT diversity are size-dependent, and because GSP has been

associated with team size in prior studies (Sanders & Carpenter, 1998), TMT size was controlled

by using the total number of executives on the top team. Period effects were controlled (1 = first

panel) using a dummy variable for the two panels of data.

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Average tenure is a standard control variable when tenure heterogeneity is calculated

using the coefficient of variation. It is also a proxy for managerial power and discretion

(Finkelstein & Hambrick, 1990), which may otherwise influence GSP. Therefore, we also

controlled for TMT average tenure, using the average of team members' firm tenures. Finally,

because changes in the composition of the top team have the potential to change the team's

characteristics, TMT turnover was controlled for using the percentage of new executives on the

TMT for the intervening two-year period between the TMT and GSP measurements.

RESULTS

The means, standard deviations and bivariate correlations for all variables are presented

in Table 1. With regard to the demographic variables, the low intercorrelations among them

suggests that they can be included in one regression model (Finkelstein & Hambrick, 1990).

Moreover, variable inflation factor (VIF) scores for all the models were within acceptable

parameters; thus multicollinearity was not a problem (Chatterjee & Price, 1991).

* * * * * Insert Tables 1 and 2 About Here * * * * *

As mentioned above, the hypotheses were tested using fixed-effects models and OLS

regression. All regression results, for both main and moderated effects, are presented in Table 2.

Model 1 includes only the control variables while Model 2 adds the variables needed to test the

main effects. Hypotheses H1(a-d) predicted that select TMT characteristics would be related to

GSP; the control (Model 1) and full model (Model 2) were significant, as was the change in R2.

Moreover, as shown in model 2, the coefficients for international work experience, educational

heterogeneity, and firm tenure heterogeneity were significant and positive, and that for functional

heterogeneity was significant but negative (in supplemental analyses, effects similar to those for

firm tenure were found using industry tenure and tenure on the TMT). Thus, the linear main-

18

effect results provide general support for H1(a), H1(b) and H1(d), but contradict the direction of

the relationship predicted by H1(c) (i.e., functional heterogeneity).

Alternatively, hypotheses H2(a-d) predicted that the effects of TMT characteristics would

be curvilinear with respect to GSP. To test these hypotheses we added a squared-term for each

demographic characteristic to Model 2; however, as shown in Model 3, none of the squared-term

coefficients were significant and the main-effect results were unchanged from those reported in

Model 2. Similar results were obtained when we used the log value of the demographic variables

instead of using the linear and quadratic components (Wiersema & Bantel, 1992: 105). To

preserve space, these results are omitted from the table. Thus, contrary to some research but

similar to Wiersema & Bantel's findings, the curvilinear predictions did not hold.

The final hypotheses (H3a-d), suggested that the relationship between TMT

characteristics and GSP would be influenced by an interaction with environmental uncertainty.

Therefore, it was appropriate to analyze these hypotheses by estimating a regression equation

with a multiplicative interaction term (Roth, 1995), and including the moderator variable as a

control. The tests of the uncertainty interaction hypotheses are shown in Model 4. As noted

there, the interactions of uncertainty with tenure heterogeneity, educational heterogeneity, and

functional heterogeneity were significant, as was the full model’s increase in R2 over the main-

effects model; the regression coefficients for the interactions were unchanged when each variable

was run in separate models.

To better understand the nature of the moderated relationships, supplemental simple-

effects analyses were also conducted. To examine such simple-effects, we followed the

decomposition procedure outlined by Jaccard, Turrisi and Wan (1990: 27-28), and focused only

on those interaction relationships that were significant (i.e., education, functional, and tenure

19

heterogeneity). In the first of these, the slope of educational heterogeneity remained positive

over the entire range of environmental uncertainty. However, its slope was significantly more

positive (p < .05, adjusted Bonferoni procedure) at high uncertainty than at low levels of

uncertainty. Visual plots further confirmed the functional forms of these underlying

relationships, thus providing evidence that high uncertainty positively moderated TMT

demographic effects. In contrast, decomposition of functional and tenure heterogeneity revealed

their slopes to be non-monotonic with respect to environmental uncertainty. Specifically, while

the coefficients of both of these TMT characteristics were initially positive (at low moderator

levels), they became negative as the moderators passed their median levels (p < .05, adjusted

Bonferoni procedure).

DISCUSSION

The primary objective of this study was to bring top management teams firmly into the

literature on globalization. This was done by focusing on the relationship between the

characteristics of firms' TMTs and the expansiveness of their global strategic postures. In

support of our expectations, the results indicate that (1) TMT characteristics were related to the

degree to which firms were global and, and (2) such relationships were contingent upon the level

of environmental uncertainty confronting the top team. These findings have important

implications for work on both globalization and upper echelons. Moreover, as discussed below,

the results provide a clearer picture than was previously available of the conditions that affect the

complex relationship between executives' backgrounds and organizational outcomes.

Conclusions and implications from main-effects

The present study indicates that firms were most likely to be highly global when they had

diverse TMTs -- diverse in terms of the breadth of their international experience, and the

20

heterogeneity of their educational backgrounds and firm tenures. Moreover, the linear main

effects for these characteristics are consistent with the upper echelons view that the diverse

perspectives, skills, and information networks that are presumed to accompany international

experience and educational and tenure heterogeneity (Bantel & Jackson, 1989; Dutton & Duncan,

1987; Finkelstein & Hambrick, 1996: 125; Hambrick & Mason, 1984; Wiersema & Bantel,

1992), may equip firms to manage the complexity and high information processing demands

associated with expansive GSPs.

In contrast, and contrary to what might be predicted by an upper echelons view,

functional heterogeneity exhibited a negative linear relationship with GSP. However, such a

finding is consistent with arguments which suggest that demographic heterogeneity is likely to

detract from team cohesiveness, and promote disagreement about the organization and its goals

(Ancona & Caldwell, 1992; O'Reilly, Caldwell & Barnett, 1989; O'Reilly et al, 1993). Conflict

among top team members may, in turn, lead a firm to be more defensive and ethnocentric in its

strategic actions, and make it difficult to gain the commitment needed to expand beyond its

domestic position (Kogut, 1985; Ohmae, 1989). Team conflict may also decrease the TMT's

capacity to process information -- a likely outcome of Staw, Sandelands, and Dutton's (1981)

"threat-rigidity effect." Consequently, this result suggests that a firm's ability to realize an

expansive GSP may be stifled when its top team has executives with dramatically different

functional experiences.

Finally, while we found no support for curvilinear demographic effects (hypotheses H2a-

d), the negative relationship between TMT functional heterogeneity and GSP suggests a possible

reconciliation between the two competing perspectives on the valence of TMT demographic

heterogeneity. As noted earlier, studies reporting negative or curvilinear demographic effects

21

have been conducted in contexts characterized by high uncertainty such as environmental crises

(Greening & Johnson, 1997), teams in high technology firms (O'Reilly et al, 1993 and Ancona &

Caldwell, 1992), and the intensely competitive airline industry (Smith et al, 1994). Moreover,

since those studies held the level of uncertainty relatively constant (i.e., high uncertainty

contexts), they provided no way to disentangle the probable impact of environmental uncertainty

on TMT demographic effects. However, the present study does, and the implications of

uncertainty for upper echelons research are discussed below.

Conclusions and implications from the interactions

We argued that high uncertainty should moderate the relationship between TMT

demographics and GSP, and the results for hypotheses H3(b-d) support that view. Specifically,

the association between TMT educational heterogeneity and GSP was uniformly stronger in

highly uncertain environments. In contrast, while the relationships of TMT tenure and functional

heterogeneity with GSP were also consistent across the different contexts, they exhibited a

strikingly different functional form than those for education. In contexts characterized by low

uncertainty, TMT tenure and functional heterogeneity were positively related to GSP. Therefore,

the simple-effects underlying these uncertainty interactions are consistent with those of TMT

educational heterogeneity, and the broader body of upper echelons theory that argues for the

sociocognitive benefits of heterogeneity (Finkelstein & Hambrick, 1996; Jackson, 1992).

However, decomposition of the interactions revealed the simple-effects of TMT tenure

and functional heterogeneity on GSP to be negative in high uncertainty contexts. Such negative

simple-effects were exactly opposite those of our upper echelons predictions, and lend qualified

support (i.e., depending on the level of uncertainty) to the arguments of researchers who suggest

that the behavioral implications of top team heterogeneity may lead to conflict, and ultimately

22

hinder the team's ability to manage complexity (O’Reilly et al, 1993). As discussed earlier, some

past research has attempted to bridge these divergent positions by suggesting an inverted-U (i.e.,

curvilinear) relationship between demographic heterogeneity and organizational outcomes

(Jackson, 1992; Wiersema & Bantel, 1992). Nevertheless, we found no support for the

curvilinear predictions, and our results suggest instead a refinement to such theorizing.

Specifically, arguments about the non-monotonic effects of heterogeneity may hold true for some

demographic characteristics, but one must first take into account the level of uncertainty facing

the TMT, as well as the specific demographic characteristic being examined. Moreover, since

the main-effect relationship between functional heterogeneity and GSP was negative, its positive

simple-effect in the presence of low uncertainty would have been masked entirely had the

moderating role of environmental uncertainty been ignored; and absent our accounting for

uncertainty, the negative simple-effects of tenure heterogeneity would have been similarly

masked in high uncertainty environments. Therefore, these results emphasize that the complex

effects of some TMT characteristics may not be evident unless explicit attention is given to the

level of uncertainty confronting the top team.

As noted above, TMT educational heterogeneity demonstrated a persistently positive

relationship with GSP, while the effects of functional and tenure heterogeneity varied by level of

uncertainty. Such inconsistencies in our results across demographic characteristics may reflect

differences in the impact of work-related experiences on group processes (Pelled, 1996), versus

the effects of other experiences like education. For example, functional and tenure heterogeneity

are the outcome of workplace socialization processes -- in addition to the network ties, skill sets,

and orientations they represent. Consequently, it is in contexts with low levels of uncertainty that

heterogeneous top teams may be most likely to profit from their diversity of ties, skills, and

23

knowledge. Moreover, if uncertainty creates a basis for conflict among TMT members who are

diverse (Milliken & Martins, 1996; O'Reilly et al, 1993), then under low uncertainty they may

have time to resolve their work-related differences. In contrast, the time pressures accompanying

high uncertainty may prevent such resolution. And without it, TMTs' work-related differences

may become counter productive (Finkelstein & Hambrick, 1996), thus preventing a firm from

realizing an expansive GSP. Moreover, contrary to prior theorizing (Priem, 1990), our results

suggest that TMT member similarity can indeed be functional in the face of high uncertainty. To

the extent that executives' backgrounds reflect a complex amalgam of relationships, cognitions,

and socialization outcomes, the present results lend empirical support to arguments that each

demographic characteristic is likely to have unique implications for team members' behaviors

(Greening & Johnson, 1997; Milliken & Martins, 1996; Pelled, 1996). Therefore, TMT diversity

should not be viewed as an all-inclusive, generic concept.

Unanswered questions and future directions

Like all research, this study has left questions unanswered, which in turn suggest future

research opportunities. Four of these questions are particularly important. The first arises from

the fact that we did not actually measure top team behaviors, cognitions, or perceptions, but

instead inferred them from the characteristics of the top team. As a result, by following the

norms of upper echelons research, we have “black-boxed” important underlying processes and

causal mechanisms that may have been pertinent to our arguments. For example, studies of

cognitive complexity among executives (Calori, Johnson & Sarnin, 1994; Murtha et al, 1998), as

well as TMT "international advice networks" (Athanassiou & Nigh, 1999), have found that both

of these factors are related to firm globalization. What is missing, however, is research that

establishes a direct link between such factors and certain forms of top team heterogeneity.

24

Therefore, studies are needed that further illuminate the nature of the relationships between TMT

characteristics and the actual cognitions and behaviors of upper echelon executives (e.g., Boone,

de Brabander, & van Witteloostuijn, 1996; Pelled, Eisenhardt & Xin, 1999).

The second research direction is suggested by our sampling of only U.S. firms. As

mentioned earlier, this was done in part because their executives are most often criticized as

falling prey to domestic myopia (Makhija et al, 1997; Ohmae, 1989). Moreover, we quickly

discovered that reliable TMT demographic data, like those needed in this study and in other

upper echelons research, are not typically available for non-U.S. firms (even those in Western

Europe). Regardless, the question of whether our findings generalize to such firms has not been

addressed. Further, to the degree that executives from different countries vary in their tolerance

of uncertainty (e.g., Hofstede, 1980), there is reason to expect that demographic effects will also

vary. For example, Wiersema and Bird’s (1993) finding that TMT heterogeneity was more likely

to be related to turnover in Japanese TMTs (a low uncertainty-tolerance culture) than in U.S.

TMTs (a high uncertainty-tolerance culture), provides an indication that demographic effects do

indeed play out differently depending on attitudes toward uncertainty that are embedded in the

team's socio-cultural context. Obviously, tests with non-U.S. samples are needed.

The third question concerns causality. Indeed, while we used a data structure that allows

us to suggest causal relationships between TMT characteristics and GSP, we have not established

causality; nor have we been able to gauge firms' global intent. For example, it is possible that

global firms consciously recruit internationally-seasoned executives to manage and grow their

far-flung operations. If so, it could be that GSP is a predictor of TMT demographics rather than

the reverse. However, while no social science research can prove causality (Cook & Campbell,

1979), we have established that certain TMT characteristics preceded expansive GSPs, and have

25

identified and included those control variables most likely to provide alternative explanations if

omitted. However, it is still important to better understand whether some top management teams

(i.e., those with more international experience) are more likely to lead their firms to expansive

global strategic postures than are others.

Finally, the discussion of causality gives rise to a fourth question and research direction --

one that concerns the effects of TMTs on international strategy implementation and firm

performance. Specifically, global firms differ significantly in the degree to which their far-flung

operations are actually coordinated and integrated (Roth, 1995). Moreover, upper echelons

research suggests that the level of such interdependence influences the pattern of executive

characteristics that are ideal for top managers to contribute to firm performance (Michel &

Hambrick, 1992; Roth, 1995). In support of this contention, Roth (1995) found that CEOs'

backgrounds were predictive of differences in firms' global interdependence and integration. He

also noted that certain CEO characteristics helped performance in low interdependence contexts,

but hindered it in high interdependence contexts. Therefore, investigators should do the field

research that takes them inside firms to better understand the TMT’s role in global strategy

implementation and firm performance.

Concluding Remarks

This study attempts to contribute to the literatures on top management teams and firm

globalization by going beyond prior work on both. Specifically, it inserts TMTs into the

discussion of globalization, and suggests that top executives’ backgrounds play a significant role

in the degree to which U.S. firms go global. Moreover, we have tried to demonstrate how the

complexity surrounding globalization makes it particularly germane to the study of TMT

demographic effects, and that such complexity provides a unique context for assessing the

26

moderating role of uncertainty. In addition, the arguments presented here serve to remind

researchers that Hambrick and Mason’s (1984) assumption of environmental uncertainty is

fundamental to upper echelons research, and instrumental in studies that use TMT demographic

variables to predict organizational outcomes. Indeed, by exploring the notion that uncertainty

systematically moderates TMT demographic effects, we hope we have opened up a fruitful new

avenue for research on upper echelons. And while this work emphasizes that there are limits to

the impact and interpretation of executive demographic effects, it also suggests that such

demographics can continue to play an important role in research on top management teams.

27

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Table 1Descriptive Statistics*

Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 141 Organizational size 2.42 1.37

2 Return on assets .10 .09 .01

3 Current ratio .90 .51 .06 .06

4 Free cash flow 9.57 15.61 -.02 -.01 .01

5 Diversification level .26 .24 -.05 -.01 .03 .01

6 R&D Intensity .04 .04 .01 .30 .20 .01 -.02

7 TMT size 6.03 1.87 .05 .01 -.01 -.01 .11 .01

8 TMT average firm tenure 21.52 8.26 .01 -.01 -.08 .01 -.03 -.02 -.10

9 TMT turnover .09 .02 .08 -.01 .01 .01 -.08 .01 -.11 .04

10 TMT international experience .18 .33 -.02 .03 .01 -.03 -.08 -.01 .30 .05 .42

11 TMT educational heterogeneity .47 .21 -.01 -.03 -.05 -.04 .06 -.07 .36 -.06 -.04 -.16

12 TMT functional heterogeneity .61 .15 .07 -.01 .01 -.04 -.10 .03 .44 -.16 -.14 -.24 .29

13 TMT firm tenure heterogeneity .46 .26 -.03 .02 .02 -.03 .01 -.03 -.03 -.12 -.02 -.01 -.11 .01

14 Environmental Uncertainty 1.95 .25 -.09 .05 -.02 -.02 .11 .08 .08 -.08 -.05 .04 .06 .10 .07

15 Global strategic posture .81 .44 .01 -.02 -.16 -.02 -.13 .21 .11 .03 .08 .24 .05 .02 .05 .02

____ ____ __ __ __ __ __ __ __ __ __ __ __ __ __ __Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14

*n=414 (207 cases multiplied by two years), For bivariate correlations > .12, p < .05, two-tailed tests

32

Table 2Summary of OLS Fixed-Effects Regression Results with Standardized Coefficients:

Dependent Variable is GSP

Model 1 Model 2 Model 3 Model4(Controls) (Main Effects) (Quadratic) (Interactions)

Main EffectsTMT International Experience H1a .17 ** .17 ** .18 **TMT Educational Heterogeneity H1b .19 ** .18 ** .16 **TMT Functional Heterogeneity H1c -.10 * -.09 † -.07 †TMT Firm Tenure Heterogeneity H1d .13 ** .12 * .12 *

Curvilinear EffectsTMT International Exp. Squared H2a .01TMT Educational Het. Squared H2b -.03TMT Functional Het. Squared H2c -.05TMT Firm Tenure Het. Squared H2d -.05

Moderated EffectsEnvironmental Uncertainty X: TMT International Experience H3a .03 TMT Educational Heterogeneity H3b .29 * TMT Functional Heterogeneity H3c -.45 * TMT Firm Tenure Heterogeneity H3d -.19 *

ControlsOrganizational size .07 † .07 † .07 † .07 †Return on assets .06 .05 .05 .06Current ratio -.06 -.06 -.07 -.07Free cash flow .02 .03 .03 .03Diversification level -.05 -.09 † -.09 † -.10 †R&D Intensity .10 * .10 * .10 * .09 †TMT size .11 ** .14 ** .13 ** .11 **Period .09 † .09 † .08 † .05TMT average tenure .08 * .07 † .07 † .05TMT turnover .11 * .02 .02 .03Environmental uncertainty (H3) .11 †

Adjusted R2 .23 ** .29 ** .29 ** .33 **

Change in Adjusted R2 Over Prior Model .06 ** .00 .04 **n=414 (207 cases multiplied by two years), **p<.01, *p<.05, †p<.10