Management Accounting Section Midyear Meeting

Functional Diversity in Megacorporations

• In Event: Team Dynamics

Abstract

The relationship between top management team (TMT) functional diversity (FD) and firm performance has spurred a long chain of research with mixed results. We investigate this relationship with large-sample data from 4,447 firms incorporating 26,029 firm years competitively testing three FD measures against four financial indicators. FD is positively related to firm performance, but significance is strongly contingent on smaller firm size, with complexity and age explaining some of size’s negative effects. We suggest TMT FD is either less important to the strategic decisions of these large firms, or alternatively, TMT FD is harder to successfully implement in these contexts. We then test whether collaborative experience in the TMT (TMT tenure and intrapersonal functional diversity) improves the effect of FD and find TMT tenure counteracts the impact of size on the FD-performance relationship, suggesting FD is still important, but harder to implement successfully. Intrapersonal functional diversity does not improve the effectiveness of FD, but does contribute to firm performance as firms increase in size. Our findings suggest that TMT social integration becomes more difficult for the largest firms and proactive measures are required to effectively deploy team processes. Overall, in an age of increasing firm size and consolidation, TMT composition requires identifying the collaboration obstacles that work against successfully deploying FD in large firms.

Authors

• Frances Fabian, The University of Memphis

• James M. Plecnik, Loyola Marymount University

• Shan Wang, Loyola Marymount University