Top Management Teams, Global Strategic Posture, and the Moderating Role of Uncertainty

Author(s): Mason A. Carpenter and James W. Fredrickson

Source: The Academy of Management Journal, Vol. 44, No. 3 (Jun., 2001), pp. 533-545
Published by: Academy of Management
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c Academy of Management Journal
2001, Vol. 44, No. 3, 533-545.

TOP MANAGEMENT TEAMS, GLOBAL STRATEGIC POSTURE, AND THE

MODERATING ROLE OF UNCERTAINTY

MASON A. CARPENTER
University of Wisconsin-Madison

JAMES W. FREDRICKSON
University of Texas at Austin

The complexity surrounding globalization offers a unique context in which to study the
moderating role of uncertainty on top management team (TMT) demographic effects.
In a sample of United States-based industrial firms, TMT international experience,
educational heterogeneity, and tenure heterogeneity were positively related to firms'
global strategic postures, and functional heterogeneity exhibited a negative associa-
tion. However, when the level of uncertainty facing TMTs was accounted for, these
associations were found to be nonlinear.

Firms are often encouraged to develop a command- override group and organizational norms (Misch
1977). However, upper echelons researchers (e.g
ing international presence (Bartlett & Ghoshal, 1989;
Hordes, Clancy, & Baddaley, 1995). However, al-Hambrick & Mason, 1984) have typically assume
though most large U.S. companies are to some degree that uncertainty varies little across firms (that is, tha
international, not all have been aggressive in re-it is typically high), and they have thus ignored th
sponding to the "global mandate" (Stopford, 1992). potential role of uncertainty as a critical moderator
TMT demographic effects. Because the complexi
And, despite assumptions to the contrary, the global-
ization of U.S. firms significantly lags behind thatsurrounding globalization makes it particularly ge
of firms in other major industrialized countries mane to the study of TMT demographic effects, i
(Makhija, Kwangsoo, & Williamson, 1997). Re- part because of the weak situation it likely fosters,
searchers have emphasized a variety of factors as too does such complexity provide a unique conte
determinants of globalization, but with few ex- for assessing the moderating role of uncertainty. I
ceptions (Lohrke & Bruton, 1997), they have ig- deed, paying explicit attention to uncertainty may
nored the question of whether the mix of back- help to explain the inconsistent findings of prior u
grounds and expertise represented on its top per echelons studies. Therefore, in this research w
management team (TMT) is related to a firm's also sought to test the moderating effect of uncer
global strategic posture. Moreover, the increasing tainty on the relationship between TMT character
importapce of globalization makes it particularly tics and global strategic posture.
timely to observe TMT effects in this context.
Therefore, the first purpose of this study was to
THEORY DEVELOPMENT
examine the relationship between top manage-
ment team characteristics and global strategic On the basis of their assertion that organ
posture. tions are "reflections of the values and cogn
The influence of top executives on their organi- bases of powerful actors," Hambrick and M
zations is often assumed to be a product of their life proposed that "organizational outcomes-str
experiences, as reflected in their demographic gic choices and performance levels-are par
characteristics. Moreover, TMT demographic ef- predicted by managerial background charac
fects are likely to be strongest under conditions of tics" (1984: 193). Subsequent upper echelons
high uncertainty (Hambrick & Mason, 1984). Social search has drawn on a variety of theories an
psychologists describe uncertain conditions as giv- indicated that the demographic characterist
ing rise to "weak situations," wherein the influ- firms' top executives are indeed related to a
ences of individual differences are most likely to of important organizational outcomes (Ban
Jackson, 1989; Wiersema & Bantel, 1992). For
instance, it has been argued that background
Special thanks to Syd Finkelstein, Don Hambrick, W. diversity or heterogeneity is indicative of TMT
Gerry Sanders, and Jim Westphal for their helpful com- members' sociocognitive diversity, their skill
ments.
sets, and the breadth of their social and profes-
533

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534 Academy of Management Journal June

sional ties (Finkelstein & Hambrick, 1996). This strategic postures enable firms to leverage R&D
heterogeneity of cognitions, skills, and ties is costs and knowledge across countries and re-
said to provide top management teams with di- spond to foreign competitors in their domestic
verse inputs and to help them be more responsive market strongholds (Bartlett & Ghoshal, 1989;
to environmental complexity and change (Bantel Kim & Mauborgne, 1991). At the same time, such
& Jackson, 1989; Jackson, 1992). Such diversity global activities are likely to increase the range of
may similarly help TMTs overcome the informa- cultures (Barkema & Vermeulen, 1997; Hofstede,
tion overload, complexity, and domestic myopia 1980), customers, and competitors (Porter, 1986)
that typically hamper globalization efforts that a firm and its TMT face. Therefore, the intri-
(Ohmae, 1989; Sanders & Carpenter, 1998). cate web of activities and institutions that creates
It should also be noted that some researchers opportunities for global firms also produces
have argued that moderate levels of demographic tremendous managerial complexity (Sanders &
similarity or homogeneity promote behavioral Carpenter,
in- 1998).
tegration among the members of a team but that Although few studies have linked TMTs to global
extensive diversity is a likely source of conflict strategic posture (Lohrke & Bruton, 1997), some
and a deterrent to productive group functioning recent upper echelons research is instructive. For
(O'Reilly, Snyder, & Boothe, 1993). However, still example, Sanders and Carpenter (1998) found that
others have argued that the selection and social- large top teams often led firms that had expansive
ization processes common among TMTs are global strategic postures; they argued that firms
likely to minimize such conflict (Bantel & Jack- with larger TMTs could benefit substantially from a
son, 1989). Regardless of the nature of its impact, division of labor. Those same authors also sug-
in the upper echelons perspective TMT hetero- gested that a top team's size reflects the diversity of
geneity is assumed to ultimately be reflected in its members' backgrounds and information sources
firms' actions. But it is unknown if such impact and, ultimately, their collective capacity to process
extends beyond the domestic operations of U.S. the complex information arising from globaliza-
firms to include decisions about global posture, tion. However, size alone is generally a poor gauge
or if top management effects are especially strong in of TMT diversity (Finkelstein & Hambrick, 1996).
predicting this important organizational outcome. Indeed, the upper echelons perspective suggests
Moreover, a recent review of leading management that it is differences among executives' experi-
and international business journals concluded that ences, as signaled by their demographic heteroge-
top management teams were "notably absent" from neity, that broaden TMTs' networks and increase
the literature on globalization (Lohrke & Bruton, the diversity of their skill sets and worldviews
1997: 41). Therefore, we drew here on the upper (Hambrick & Mason, 1984).
echelons perspective and attempted to extend Top management team demographic heterogene-
that work by assessing the relationship between ity is relevant here since the diversity of TMT net-
top team diversity and global strategic posture. work ties has been shown to be positively related to
As noted earlier, this study also (re)introduces global strategic posture (Athanassiou & Nigh, 1999;
the impact of environmental uncertainty into the Kim & Mauborgne, 1991). Similarly, the diversity
upper echelons dialogue. in skill sets and worldviews that typically accom-
panies TMT demographic heterogeneity may also
TMT Characteristics and Global have implications for the expansiveness of a firm's
global strategic posture. Top teams whose members
Strategic Posture have diverse skills and orientations can be more
Global strategic posture reflects the degree tocreative and nimble in strategic problem solvi
which a firm depends on foreign markets for cus-(Dutton & Duncan, 1987), less susceptible to
tomers and factors of production and the geo-"groupthink" (Bantel & Jackson, 1989; Jackson,
graphical dispersion of these markets and factors.1992), and perhaps more likely to overcome their
Although the literature on globalization typicallydomestic myopia (Barkema & Vermeulen, 1998).
Moreover, such diversity can build trust and per-
stresses globalization's potential benefits, it also
highlights the complexity inherent in going ceptions of procedural justice among a firm's prod-
global. Despite such complexity, many manage- uct and geographic unit managers by signaling that
ment practitioners and researchers maintain that a TMT takes competing interests into account when
companies' long-term success and survival in- allocating scarce resources around the globe (Kim &
creasingly depend on their having a strong global Mauborgne, 1991). These heterogeneity effects
presence (Barkema & Vermeulen, 1998; Bartlett may, & in turn, be related to an expansive GSP, since
Ghoshal, 1989). This is because expansive global such a strategy requires a firm to excel at interunit

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2001 Carpenter and Fredrickson 535

cooperation, to cross-subsidize business and coun-
try units in the interests of overall corporate goals,
and to swiftly coordinate actions globally (Gupta &
Govindarajan, 1991; Kim & Mauborgne, 1991).
Finally, diversity in top teams has also been argued to
increase their sociocognitive complexity (Jackson,
1992; Wiersema & Bantel, 1992). TMTs that are socio-
cognitively complex may be better equipped to make
sense of changing international market opportunities
and to "reconcile the conflicts and paradoxes" pre-
sented by globalization (Murtha, Lenway, & Bagozzi,
1998: 112).
The arguments presented above suggest that
firms are most likely to have expansive global stra-
tegic postures when they are led by top managers
who have the diverse network ties, skills, and
worldviews that typically accompany demographic
heterogeneity. Given our interest in (1) predicting
the relationship between TMT demographic char-
acteristics and global strategic posture and then (2)
considering the moderating effects of uncertainty
on that relationship (discussed below), we identi-
fied several TMT characteristics whose diversity
seems particularly pertinent to global strategic pos-
ture and that represent variables of interest to up-
per echelons researchers (Bantel & Jackson, 1989;
Boeker, 1997; Hambrick & Mason, 1984; Roth,
1995; Wiersema & Bantel, 1992). Specifically, this ness of its firm's global strategic posture.
study investigates the relationships between four
top management team characteristics-(1) breadth Contrary to the assumption underlying the above
of international work experience, (2) educational argument, that TMT selection and socialization pro-
heterogeneity, (3) functional heterogeneity, and (4)
tenure heterogeneity-and firms' global strategic effects of demographic heterogeneity (Wiersema &
postures.
International work experience is an obvious
choice for anyone considering demographic effects
and globalization. Moreover, it is considered one of
the most broadening elements of executives' back-
grounds, since it typically complements and ex-
pands on the role played by other experiences
(Reuber & Fischer, 1997; Roth, 1995; Sambharya,
1996). Similarly, top management team educa-
tional heterogeneity is pertinent to global strategic
posture because it provides an indicator of the di-
versity of skills and cognitive processes, as well as
the basic knowledge, embedded in a TMT (Bantel &
Jackson, 1989; Boeker, 1997; Wiersema & Bantel,
1992). The third characteristic, functional diver-
sity, captures the breadth of skill sets and network
resources available to TMTs (Ancona & Caldwell,
1992). Moreover, both education and work experi-
ence have been identified as important determi-
nants of executive global leadership skills and
overall global mind-sets (Hannerz, 1996; Hordes et
al., 1995). The final characteristic, firm tenure het-
erogeneity, is relevant to global strategic posture
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 combina-
tion, these four characteristics indicate variation in
TMT networks, skills, and orientations, and they
may result in executives considering a wider range
of strategy alternatives, including globalization.
Therefore, we hypothesized that such breadth and
diversity will be related to global strategic posture.
Hypothesis la. There will be a positive rela-
tionship between a top management team's in-
ternational work experience and the expan-
siveness of its firm's global strategic posture.
Hypothesis lb. There will be a positive rela-
tionship between a top management team's ed-
ucational heterogeneity and the expansiveness
of its firm's global strategic posture.
Hypothesis Ic. There will be a positive rela-
tionship between a top management team's
functional heterogeneity and the expansive-
ness of its firm's global strategic posture.
Hypothesis Id. There will be a positive rela-
tionship between a top management team's
firm tenure heterogeneity and the expansive-
cesses are likely to mitigate the potentially negative
Bantel, 1992), several recent studies have shown the
relationship of team member heterogeneity with or-
ganizational outcomes to be curvilinear or simply
negative. For instance, Greening and Johnson (1997)
reported curvilinear relationships between both TMT
functional heterogeneity and tenure heterogeneity,
and firms' responses to organizational crisis. Also,
O'Reilly and his colleagues (O'Reilly, Snyder, &
Booth, 1993) found TMT tenure diversity to be nega-
tively related to strategic change in high-technology
firms. And, studying new high-technology product
teams and airline industry top teams, respectively,
Ancona and Caldwell (1992) and Smith and coau-
thors (Smith, Smith, Olian, Sims, O'Bannon, &
Scully, 1994) observed that aspects of demographic
diversity impeded team performance. Taken together,
these studies argue that although moderate levels of
team member heterogeneity may be beneficial be-
cause of the varied networks, skills, and worldviews
that diversity provides, excessive heterogeneity may
lead to interpersonal conflict and communication
breakdowns and may thus detract from a TMT's over-
all behavioral integration. Moreover, as suggested in

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536 Academy of Management Journal
the development of the first set of hypotheses, ex-
tremely low levels of TMT heterogeneity may unduly
limit teams' sociocognitive capacity and breadth of
network ties and skill sets and may consequently
result in domestic myopia and groupthink. Given the
complexity characterizing firms with expansive
global positions and hence the need for both diversity
and high levels of teamwork in their top management
teams (Kim & Mauborgne, 1991; Weick & Van Orden,
1990), this evidence suggests that the relationship
between TMT characteristics and global strategic
posture might be curvilinear (an inverted U-shape).
Therefore, we offer the following hypotheses as alter-
natives to the linear relationships hypothesized
above:
Hypothesis 2a. There will be a curvilinear, in-
verted U-shaped relationship between a top
management team's international work experi-
ence and the expansiveness of its firm's global
strategic posture.
Hypothesis 2b. There will be a curvilinear, in-
verted U-shaped relationship between a top
management team's educational heterogeneity
and the expansiveness of its firm's global stra-
tegic posture.
Hypothesis 2c. There will be a curvilinear, in-
verted U-shaped relationship between a top
management team's functional heterogeneity
and the expansiveness of its firm's global stra-
tegic posture.
Hypothesis 2d. There will be a curvilinear, in-
verted U-shaped relationship between a top
management team's firm tenure heterogeneity
and the expansiveness of its firm's global stra-
tegic posture.
Environmental Uncertainty and TMT
Demographic Effects
This section advances the proposition that if the
relationship between top team demographics and
global strategic posture is contingent upon environ-
mental uncertainty, then the level of such uncer-
tainty will positively moderate that relationship.
Indeed, a notable aspect of the studies cited above
that showed a negative or curvilinear relationship
is that they were conducted in highly uncertain
contexts, in crisis situations or in industries other-
wise characterized by high uncertainty. As dis-
cussed earlier, the complexity surrounding global-
ization makes it particularly relevant to the study of
TMT demographic effects; such complexity also
provides a unique context for assessing the moder-
ating role of uncertainty. Although we recognize
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June
that there are other sources of uncertainty (for in-
stance, organizational), we emphasize environmen-
tal uncertainty here because of its apparent central-
ity to the upper echelons perspective (Hambrick &
Mason, 1984).
Uncertainty is a consequence of environmental
factors that generally result in a lack of the infor-
mation needed to assess means-ends relation-
ships, make decisions, and confidently ass
probabilities to their outcomes. In develop
their upper echelons perspective, Hambrick
Mason (1984) made uncertainty a precondit
for demographic effects by anchoring it in
Carnegie School's behavioral theory of the f
(e.g., March & Simon, 1958). According to that the
decisions made under great uncertainty are likely
be "the outcome of behavioral factors rather than a
mechanical quest for economic optimization" (Ham-
brick & Mason, 1984: 194). The importance of uncer-
tainty to the upper echelons view is well articulated
in the following:
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,
the top 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-cut
enough to dictate a course of action. In such cir-
cumstances, the decision maker's personal frame
of reference, not the objective characteristics of
the situation, becomes the basis for action.
(Finkelstein & Hambrick, 1996: 20)
Therefore, upper echelons predictions are con-
tingent upon the view that top management teams
generally operate under highly uncertain condi-
tions, conditions characterized by ambiguity, com-
plexity, and information overload. As a result, em-
bedded in the upper echelons perspective is the
proposition that the more uncertain the decision-
making situation, the more likely TMT demo-
graphic characteristics will be manifest in organi-
zational outcomes.
This proposition, however, is untested, and to
accept it ignores a vast literature showing 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). Indeed, there is already a broad liter-
ature examining the moderating role of the environ-
ment on the relationship between top teams and
firm strategy or conduct (see Bluedorn, Johnson,
Cartwright, and Barringer [1994] for a review).
Therefore, to the extent that top team members rely
on their prior experience, the effects of functional
2001 Carpenter and Fredrickson
background and other management characteristics
are also likely to increase with the level of environ-
mental uncertainty that they face. Such reliance in
turn increases the likelihood of demographic ef-
fects. Ironically, although uncertainty may also in-
crease the prospect of interpersonal conflict as de-
mographic differences become more salient, TMT
members are afforded greater discretion, which has
been shown to increase demographic effects
(Finkelstein & Hambrick, 1990). This tension is
compounded by the fact that globalization is some-
times portrayed as a strategy explicitly designed to
spread risk (Kim, Hwang, & Burgers, 1993) and that
executives may seek to manage environmental un-
certainty and increase their discretion through an
expansive global strategic posture. Consequently,
there is reason to expect that such uncertainty may
systematically and positively affect the relation-
ship between TMT demographics and global stra-
tegic posture. In the context of this study, it sug-
gests the following hypotheses:
Hypothesis 3a. Environmental uncertainty will
positively moderate the previously proposed
linear relationships between a top manage-
ment team's international work experience
and the expansiveness of its firm's global stra-
tegic posture.
Hypothesis 3b. Environmental uncertainty
will positively moderate the previously pro-
posed linear relationships between a top
management team's educational heterogene-
ity and the expansiveness of its firm's global
strategic posture.
Hypothesis 3c. Environmental uncertainty
will positively moderate the previously pro-
posed linear relationships between a top
management team's functional heterogeneity
and the expansiveness of its firm's global
strategic posture.
Hypothesis 3d. Environmental uncertainty
will positively moderate the previously pro-
posed linear relationships between a top
management team's firm tenure heterogene-
ity and the expansiveness of its firm's global
strategic posture.
METHODS
Sample
A random stratified sample of 300 U.S. firms was
developed from the Standard & Poor's Industrials
Index (first stratum) and the Standard & Poor's
MidCap Index (second stratum). This sample was
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537
selected because (1) the firms were representative
of major U.S. industrial corporations, (2) detailed
demographic data on their TMTs were available
and (3) there was substantial variance in the expan-
siveness of their global strategic postures, even
when firm size and industry were controlled. It is
important to note that we consciously restricted the
sample to U.S. industrial firms for two primary
reasons: (1) they have been the most often criticized
for their domestic myopia (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 col-
lected 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; or-
dinary least squares (OLS) regression analysis with
fixed-effects models was used to control for unob-
served differences between firms. Generalized least
squares (GLS) random-effects regression has also
been used in upper echelons studies incorporating
multiple panels of data (e.g., Finkelstein & Ham-
brick, 1990), but the Hausman specification test
suggested that a fixed-effects model was more ap-
propriate here than a random-effects model. The
fixed-effects model is also considered a more con-
servative test, and it generates a multiple squared
correlation coefficient (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 differ-
ences in the dependent variables. For instance, in-
dustry membership is considered an essential con-
trol variable in organizational studies, and it clearly
has implications for firm globalization (Porter,
1986). However, since primary industry member-
ship did not vary among these firms during the
time period studied, and because fixed-effects
models control for variance due to time-invariant
characteristics like industry membership, industry
dummies are not necessary. Hence, they are not
included in the fixed-effects models reported here.
Dependent variable. Global strategic posture
was calculated using a variation of Sullivan's
(1994) composite measure of firm internationaliza-
538 Academy of Management Journal June

tion. The first dimension, foreign sales, was calcu- Here, this definition yielded teams of approxi-
lated as the ratio of foreign sales to total sales. The mately six members.
second dimension, foreign production, was gauged To develop the panels of TMT demographic char-
by foreign-owned assets as a percentage of total acteristics, we assessed teams in two years, 1988
assets. The third dimension, geographic diversity, and 1993, which themselves preceded the global
was the extent to which a firm had subsidiaries in strategic posture observations by two years each
any of the ten cultural zones of the world identified (averaged observations in 1990-91 and 1995-96,
by Ronen and Shenkar (1985); each zone was respectively). Using a two-year lag (versus a longer
counted as .10 (for example, a firm's presence in or shorter one) between the top team and global
three zones generated a score of .30). The first two posture observations reduced the possibility of
dimensions, sales and assets, address a firm's de- other factors confounding the relationship between
pendence on foreign markets and foreign-placed demographics and global strategic posture, and it
resources (Kim et al., 1993), respectively. The third also allowed enough time for potential top team
dimension indicates the geographic and cultural effects to become apparent. Consistent with this
variety associated with the other two; Sullivan expectation, sensitivity analyses indicated that the
(1994) provides a detailed discussion of these three relationships reported below were weaker with a
dimensions. shorter (one year) or a longer (three years) lag. Data
We summed the indicators of each of the dimen- for TMT characteristics were obtained from the ex-
sions discussed above (foreign sales, foreign pro- ecutives' career histories reported in Dun & Brad-
duction, and geographic diversity) to form a com- street's Reference Book of Corporate Managements.
posite measure of global strategic posture. The As noted by Michel and Hambrick, the coding
higher the number, the more expansive the firm's of most TMT characteristics is "clear-cut and ob-
posture. Summing was not a problem in this case jective" (1992: 21). The top teams' international
because each indicator had the same metric (it was work experience was calculated as the percentage
gauged as a percentage) and was normally distrib- of team members' total years of experience ac-
uted, and the three were highly correlated. As re- crued in international assignments. Educational
ported later, analyses also showed that these three background and functional background were cat-
indicators loaded on one factor with a high eigen- egorical variables. Using Wiersema and Bantel's
value, high explained variance, and an acceptable (1992) coding scheme, we classified executives
alpha (.87; Nunnally, 1978). Since each of the three educational backgrounds as in the arts, the sciences,
components is a ratio variable ranging from 0.0 to engineering, business and economics, or law. Absent
1.0, a firm's global strategic posture can range from any other indication of education specialty, TMT
0.0 (no globalization) to 3.0 (very extensive global- members with M.S. or B.S. degrees were coded as
ization). In our sample, global strategic posture av- science specialists (Wiersema & Bantel, 1992). Exec-
eraged 0.81 (s.d. = 0.43), with a range of 0.02 to utives with Ph.D. degrees in the sciences were also
2.05. To reduce the effects of annual aberrations, coded as science specialists. Following Bantel and
Jackson (1989), Michel and Hambrick (1992), and
we averaged global strategic posture values over
1990 and 1991 and over 1995 and 1996. Data on Wiersema and Bantel (1992), we coded team mem-
bers' functional backgrounds as being predominantly
global strategic posture were gathered from PC-
COMPUSTAT and Dun & Bradstreet's Directory marketing,
of distribution, sales, research and develop-
American Corporate Families and International ment, production, engineering, finance and account-
Affiliates. ing, law, or general. The degree of heterogeneity of
Independent variables. Select TMT demo- each variable was calculated using Blau's (1977) in-
graphic characteristics comprised the set of inde- dex. This index is calculated as 1-S(Pi)2, where Pi is
pendent variables used to test all the hypotheses. the percentage of individuals in the ith category. Firm
Following other upper echelons studies, we de- tenure heterogeneity was calculated using the coeffi-
fined the top management team as the top two tiers cient of variation of a TMT's firm tenure (standard
of an organization's management. This might in- deviation divided by the mean). Allison (1978) noted
clude the CEO, chairman, chief operating officer that among inequality measures, the coefficient of
(COO), chief financial officer (CFO), and the next- variation is preferable when interval-level data such
highest management tier of a firm. Such a defini- as age or time are used.
tion, which was expected to capture the dominant Moderator variable. Hypotheses 3a-3d predict
coalition for all firms in the sample, has been ap- that uncertainty will moderate the "main effect"
plied in other research concerned with strategic relationships hypothesized in Hypotheses la-Id.
actions (e.g., Finkelstein & Hambrick, 1990; Green- We gauged environmental uncertainty using a vari-
ing & Johnson, 1997; Wiersema & Bantel, 1992). ation of the environmental instability measure de-

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2001 Carpenter and Fredrickson 539

veloped by Dess and Beard (1984). This measure mance, degree of diversification, and R&D intensity
incorporates aspects of Aldrich's (1979) stability/ have been suggested as being related to a firm'
instability and turbulence constructs by capturing level of globalization (Sanders & Carpenter, 1998
the volatility of a firm's net sales in each of its therefore, we controlled for the three variables. Per
four-digit Standard Industrial Classification (SIC) formance was measured as the two-year (for th
industries (Aldrich, 1979; Bergh & Lawless, 1998; years between the TMT and global strategic posture
Dess & Beard, 1984). Following Bergh and Lawless observations) average of return on assets (ROA), th
(1998: 91-92), we calculated uncertainty by re- current ratio (current assets to current liabilities),
gressing a variable for each year on a variable for and free cash flow. Diversification level was mea-
net industry sales. Five years of data were used for sured as Palepu's (1985) entropy measure, wher
each equation (for instance, net industry sales from diversificationa = Pi,a ln(lPi,) and Pi, is the pro
1984 through 1988 were used to predict volatility portion of firm's a's sales in business segment
in 1989). Following the equation Yt = bo + blt + at, R&D intensity was the ratio of research and devel-
where y is industry sales, t is year, and a is the opment expenses to total revenues. Because mea
residual, volatility was the standard error of the
sures of TMT diversity are size-dependent, and be-
regression slope coefficient divided by average
cause global strategic posture has been associate
sales. Greater environmental uncertainty is indi-
with team size in prior studies (Sanders & Carpen
cated by larger values of volatility, and values were
ter, 1998), we controlled TMT size by using th
averaged for the two-year period between the
total number of executives on a top team. Perio
TMT and global strategic posture measurements.
effects were controlled with dummy variables for
Firms' four-digit industries were identified
the two panels of data (1 = first panel).
through the PC-COMPUSTAT and Compact Disclo-
sure database, and data for calculating the regres- Average tenure is a standard control variable
sions were collected from COMPUSTAT. when tenure heterogeneity is calculated using th
Control variables. It is often assumed that largercoefficient of variation. It is also a proxy fo
firms have more extensive international activities, managerial power and discretion (Finkelstein &
which, in turn, will be reflected in higher values onHambrick, 1990), which might otherwise influ
measured global strategic posture. In addition, firmence global posture. Therefore, we also con-
size has been argued to affect the relationship be- trolled for TMT average firm tenure, using th
tween executive characteristics and organizational average of team members' firm tenures. Finally
outcomes (Miller, 1991). Therefore, organizational because changes in the composition of top team
size was included as a control and was measured as can change their characteristics, we controlled
the log of total employees. Other measures of size, for TMT turnover using the percentage of new
executives on a team for the two years betwee
such as total sales and total assets, yielded substan-
tively identical results. Additionally, firm perfor-the TMT and globalization measurements.

TABLE 1

Descriptive Statistics and Correlationsa

Variable Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12 13 14

1. Organizational size 2.42 1.37

2. Return on assets 0.10 0.09 .01
3. Current ratio 0.90 0.51 .06 .06
4. Free cash flow 9.57 15.61 -.02 -.01 .01
5. Diversification level 0.26 0.24 -.05 -.01 .03 .01
6. R&D intensity 0.04 0.04 .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 0.09 0.02 .08 -.01 .01 .01 -.08 .01 -.11 .04
10. TMT international experience 0.18 0.33 -.02 .03 .01 -.03 -.08 -.01 .30 .05 .42
11. TMT educational heterogeneity 0.47 0.21 -.01 -.03 -.05 -.04 .06 -.07 .36 -.06 -.04 -.16
12. TMT functional heterogeneity 0.61 0.15 .07 -.01 .01 -.04 -.10 .03 .44 -.16 -.14 -.24 .29
13. TMT firm tenure heterogeneity 0.46 0.26 -.03 .02 .02 -.03 .01 -.03 -.03 -.12 -.02 -.01 -.11 .01
14. Environmental uncertainty 1.95 0.25 -.09 .05 -.02 -.02 .11 .08 .08 -.08 -.05 .04 .06 .10 .07
15. Global strategic posture 0.81 0.44 .01 -.02 -.16 -.02 -.13 .21 .11 .03 .08 .24 .05 .02 .05 .02

a n = 414 (207 cases multiplied by two years). For bivariate correlations greater than .12, p < .05, two-t

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540 Academy of Management Journal June

RESULTS were significant, as was the change in R2. More-

The means, standard deviations, and bivariate
correlations for all variables are presented in Table
1. With regard to the demographic variables, the
low correlations among them suggested that they
could be included in one regression model (Finkel-
stein & Hambrick, 1990). Moreover, variable infla-
tion factor (VIF) scores for all the models were
within acceptable parameters; thus, multicollinear-
ity was not a problem (Chatterjee & Price, 1991).
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, and model 2 adds the
variables needed to test the "main" effects. Hypoth-
eses la-id predict that select TMT characteristics
will be related to global strategic posture; both the
control (model 1) and the full models (model 2)
over, as shown in model 2, the coefficients for
international work experience, educational hetero-
geneity, and firm tenure heterogeneity were signif-
icant and positive, and that for functional hetero-
geneity was significant but negative. (In sup-
plemental analyses, effects similar to those for firm
tenure were found using industry tenure and ten-
ure on the TMT.) Thus, the linear main effect re-
sults provide general support for Hypotheses la,
lb, and Id but contradict the direction of the rela-
tionship predicted by Hypothesis Ic (on functional
heterogeneity).
Alternatively, Hypotheses 2a-2d predict that the
effects of TMT characteristics will be curvilinear
with respect to global strategic posture. 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 coef-

TABLE 2

Summary of Results of OLS Fixed-Effects Regression Analyses for Global Strategic P

Variable Hypothesis Model 1 Model 2 Model 3 Model 4

Main effects
TMT international experience la .17** .17** .18 *
TMT educational heterogeneity lb .19** .18** .16 *
TMT functional heterogeneity lc -.10* -.09o -.07t
TMT firm tenure heterogeneity id .13** .12* .12*
Curvilinear effects
TMT international experience squared 2a .01
TMT educational heterogeneity squared 2b -.03
TMT functional heterogeneity squared 2c -.05
TMT firm tenure heterogeneity squared 2d -.05
Moderated effects
Environmental uncertainty x
TMT international experience 3a .03
TMT educational heterogeneity 3b .29*
TMT functional heterogeneity 3c -.45*
TMT firm tenure heterogeneity 3d -.19*
Controls
Organizational size .07t .07t .07t .07t
Return on assets .06 .05 .05 .06
Current ratio -.06 -.06 -.07 -.07
Free cash flow .02 .03 .03 .03
Diversification level -.05 -.09* -.09o -.10t
R&D intensity .10* .10* .10* .09
TMT size .11** .14** .13** .11**
Period .0O9 .09t .08t .05
TMT average tenure .08* .07t .07t .05
TMT turnover .11* .02 .02 .03
Environmental uncertainty .1lt
Adjusted R2 .23** .29** .29** .33**
Change in adjusted R2 .06** .00 .04 *

a n = 414 (207 cases multiplied by two years).

tp < .10
* p < .05
* p < .01

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2001 Carpenter and Fredrickson 541

globalization. We did this by focusing on t

ficients were significant, and the main effect results
were unchanged from those reported in model 2. tionship between the characteristics of top m
Similar results were obtained when we used the ment teams and the expansiveness of their
logarithmic values of the demographic variablesglobal strategic postures. In support of our
instead of using the linear and quadratic compo- tations, the results indicate that (1) a top
nents (Wiersema & Bantel, 1992: 105). To preserve characteristics were related to the degree to
space, we omit these results from the table. So, its firm was global and (2) that such relati
contrary to some research, but supporting were contingent upon the level of environ
Wiersema and Bantel, the curvilinear predictions uncertainty confronting the top team. Howev
did not hold. direction of the moderated relationships
The final set of hypotheses, 3a-3d, predicts that considerably, providing only mixed supp
the relationship between TMT characteristics and Hypotheses 3a-3d. These findings have im
global strategic posture will be positively influ- implications for work on both globalizati
enced by an interaction with uncertainty. There- upper echelons. Moreover, the results pr
fore, it was appropriate to analyze these hypotheses clearer picture than was previously available
by first estimating a regression equation with a conditions that affect the complex relations
multiplicative interaction term and then decom- tween executives' backgrounds and organi
posing the interactions into their simple effects. outcomes.

The tests of the uncertainty interaction hypotheses

are shown in model 4. The interactions of uncer-
Conclusions and Implications Drawn from t
tainty with tenure heterogeneity, educational het-Main Effects
erogeneity, and functional heterogeneity were sig-
nificant, as was the full model's increase in R2 over The present study indicates that firms were most
the main effects model; regression coefficients forlikely to be highly global when they had diverse
the interactions were unchanged when each vari- TMTs-diverse in terms of the breadth of their
able was run in separate models. international experience and the heterogeneity
To determine support for the direction of thetheir educational backgrounds and firm tenure
hypothesized relationships, we conducted supple- Moreover, the linear main effects for these charac-
mental simple-effects analyses. We followed the teristics are consistent with the upper echelon
decomposition procedure outlined by Jaccard, Tur-view that the diverse perspectives, skills, and in
risi, and Wan (1990: 27-28) and focused only onformation networks that are presumed to accom
those interaction relationships that were significant pany international experience and educational an
(that is, educational, functional, and tenure heter- tenure heterogeneity may equip firms to manag
the complexity and high information-processin
ogeneity). In the first of these analyses, the slope of
educational heterogeneity remained positive over demands associated with expansive global strateg
the entire range of environmental uncertainty. postures.
However, its slope was significantly more positive In contrast, and opposite to what an upper ech
(p < .05, adjusted Bonferoni procedure) at high elons view might imply, functional heterogenei
levels of uncertainty than at low levels. In contrast,
exhibited a negative linear relationship with globa
decomposition of functional and tenure heteroge- strategic posture. However, although it is contrary
neity revealed their slopes to be nonmonotonicto our first set of hypotheses, such a finding
with respect to environmental uncertainty. Specif-consistent with arguments that demographic hete
ically, although the coefficients of both of theseogeneity may detract from team cohesiveness an
TMT characteristics were initially positive (at low
promote disagreement about an organization an
moderator levels), they became negative as the its goals (Ancona & Caldwell, 1992; O'Reilly et a
moderators passed their median levels (p < .05, 1993). Conflict among top team members may,
adjusted Bonferoni procedure). Therefore, uncer- turn, lead a firm to be more defensive and ethno-
tainty significantly moderated three out of four of
centric in its strategic actions and may make
the TMT demographic variables, but the positivedifficult to gain the commitment needed to expan
direction predicted by the third set of hypothesesbeyond its domestic position (Ohmae, 1989). Tea
was only supported for educational heterogeneity. conflict can also decrease a TMT's capacity to pr
cess information. Consequently, this result sugges
DISCUSSION that a firm's ability to realize an expansive glob
strategic posture may be stifled when its top team
has
The primary objective of this study was to executives with dramatically different fun
bring
tional experiences.
top management teams firmly into the literature on

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542 Academy of Management Journal June

Conclusions and Implications Drawn from team as well as the specific demographic character-
the Interactions istic being examined. Since the main effect of func-
tional heterogeneity on global strategic posture was
We argued that high uncertainty should posi-
negative, its positive simple effect in the presence
tively moderate the relationship between TMT de-
of low uncertainty would have been masked had
mographics and global strategic posture (Hypothe-
ses 3a-3d). This view is consistent with the broader the moderating role of environmental uncertainty
literature suggesting that such relationships will been ignored; and, absent our accounting for uncer-
vary according to the organizational and environ-tainty, the negative simple effects of tenure hetero-
mental contexts confronting a top team (see Blue-geneity would have been similarly masked in high-
dorn and colleagues [1994] for a review; also see uncertainty environments. Therefore, these results
Finkelstein and Hambrick [1990], Miller [1991], emphasize that the complex effects of some TMT
and Murray [1989]). However, we found mixed characteristics may not be evident unless explicit
support for our specific prediction. Only the asso- attention is given to the level of uncertainty con-
ciation between top team educational heterogene- fronting the top team.
ity and global posture was uniformly stronger in As noted above, top management team educational
highly uncertain environments. In contrast, al- heterogeneity demonstrated a persistently positive
though the relationships of TMT tenure and func- relationship with global strategic posture, but the
tional heterogeneity with global strategic posture effects of functional and tenure heterogeneity varied
were also consistent across the different contexts, by level of uncertainty. Such inconsistencies in our
they exhibited a strikingly different functional form results across demographic characteristics may re-
than did those for education. In contexts character- flect differences between the impacts of work-related
ized by low uncertainty, TMT tenure and func- experiences on group processes (Pelled, 1996) and
tional heterogeneity were positively related to glob- the impacts of other types of experience, like educa-
alization. Therefore, the simple effects underlying tion. For example, functional and tenure heterogene-
these low-uncertainty interactions are consistent ity are the outcome of workplace socialization pro-
with those of TMT educational heterogeneity and cesses-in addition to representing network ties, skill
with the broader body of upper echelons arguments sets, and orientations. Consequently, it is in contexts
for the sociocognitive benefits of heterogeneity with low levels of uncertainty that heterogeneous top
(Finkelstein & Hambrick, 1996; Jackson, 1992). teams may be most likely to profit from their diversity
However, decomposition of the interactions re- of ties, skills, and knowledge. Moreover, if uncer-
vealed the simple effects of TMT tenure and func- tainty creates a basis for conflict among diverse top
tional heterogeneity on global strategic posture to managers (Milliken & Martins, 1996; O'Reilly et al.,
be negative in high-uncertainty contexts. These re- 1993), under low uncertainty they may have time to
sults contradict the third set of predictions. More- resolve their work-related differences. In contrast, the
over, these negative simple effects were exactly
time pressures accompanying high uncertainty may
opposite to those of our upper echelons predictions
prevent such resolution. Without resolution, work-
(the first set of hypotheses) and lend qualified sup-
related differences (in functional background and
port (depending on the level of uncertainty) to the
tenure) may become counterproductive (Finkelstein
arguments of researchers who suggest that the be-
& Hambrick, 1996), thus preventing a firm from real-
havioral implications of top team heterogeneity
izing an expansive global strategic posture.
may lead to conflict and must ultimately hinder a
Also contrary to prior theorizing, our results sug-
team's ability to manage complexity (O'Reilly et al.,
1993). As discussed earlier, some past research has gest that TMT member similarity can indeed be
functional in the face of high uncertainty. Murray
attempted to bridge these divergent positions by
(1989), for instance, reported that under conditions
suggesting an inverted-U or curvilinear relation-
ship between demographic heterogeneity and orga- of intense competition, homogeneous top teams
were more effective. To the extent that executives'
nizational outcomes (Jackson, 1992; Wiersema &
Bantel, 1992). Nevertheless, we found no support backgrounds reflect a complex amalgam of relation-
for the curvilinear predictions (the second set of ships, cognitions, and socialization outcomes, our
hypotheses), and our results suggest instead a re- results lend support to arguments that each demo-
finement to such theorizing. graphic characteristic is likely to have unique im-
Specifically, arguments about the nonmonotonic plications for team members' behaviors (Greening
effects of heterogeneity may hold true for some & Johnson, 1997; Pelled, 1996). Therefore, TMT
demographic characteristics, but one must first take diversity should not be viewed as an all-inclusive,
into account the level of uncertainty facing a top generic concept.

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2001 Carpenter and Fredrickson 543

Unanswered Questions and Future Directions teams are most likely to lead their firms to expan-
sive global strategic postures.
Like all research, this study has left questions
unanswered, questions that in turn suggest future
research opportunities. One question arises from Concluding Remarks
the fact that we did not actually measure top team
behaviors, cognitions, or perceptions, but instead This study is an attempt to contribute to the
inferred them from the characteristics of the top literatures on top management teams and firm glob-
alization by going beyond prior work on both. Spe-
teams of the sampled firms. Moreover, although
cifically, it inserts top management teams into the
there are numerous ways to gauge TMT character-
discussion of globalization and suggests that top
istics, we focused on those relevant to global stra-
executives' backgrounds play a significant role in
tegic posture and most prevalent in the upper ech-
the degree to which U.S. firms go global. Moreover,
elons literature (Finkelstein & Hambrick, 1996). As
we tried to demonstrate how the complexity sur-
a result, by following the norms of upper echelons
rounding globalization makes it particularly ger-
research we "black-boxed" important underlying
mane to the study of TMT demographic effects and
processes and causal mechanisms and ignored that such complexity provides a unique context for
other characteristics that may have been perti- assessing the moderating role of uncertainty. In
nent to our arguments. More U.S. research is addition, the arguments presented here should re-
needed to further illuminate the relationships be- mind researchers that Hambrick and Mason's
tween TMT characteristics and the actual cogni- (1984) assumption of environmental uncertainty
tions and behaviors of upper echelon executives fundamental to upper echelons research and is
(e.g., Boone, de Brabander, & van Witteloostuijn, strumental in studies that use TMT demograp
1996; Carpenter & Westphal, 2001). variables to predict organizational outcomes.
A second research direction is suggested by our deed, by exploring the notion that uncertainty
sampling of U.S. industrial firms. As mentioned tematically moderates TMT demographic effe
earlier, we used such a sample in part because U.S. we hope we have opened up a fruitful new ave
executives are the ones most often criticized as
for research on upper echelons. And while t
falling prey to domestic myopia (Ohmae, 1989). work emphasizes that there are limits to the im
Regardless, the question of whether our findings and interpretation of executive demographic
generalize to non-U.S. firms has not been ad- fects, it also suggests that such demographics
dressed. Further, if executives from different coun-continue to play an important role in research
tries vary in their tolerance for uncertainty top management teams.
(Barkema & Vermeulen, 1997; Hofstede, 1980), then
there is reason to expect that demographic effects
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Ronen, S., & Shenkar, 0. 1985. Clustering countries on Mason A. Carpenter is an assistant professor in the
attitudinal dimensions: A review and synthesis. School of Business and an associate of the Weinert
Academy of Management Review, 10: 435-454. Center for Entrepreneurship at the University of W
consin-Madison. He received his Ph.D. from the Uni-
Roth, K. 1995. Managing international interdependence:
CEO characteristics in a resource-based framework. versity of Texas at Austin. His research concerns co
Academy of Management Journal, 38: 200-231. porate governance, top management teams, the
strategic management of global firms, and global new
Sambharya, R. 1996. Foreign experience of top manage- ventures.
ment teams and international diversification strate-
gies of U.S. MNCs. Strategic Management Journal, James W. Fredrickson is a professor and a Chevron
17: 739-746. Foundation Fellow in the McCombs School of Business
at the University of Texas at Austin. His current research
Sanders, W., & Carpenter, M. 1998. Internationalization
interests include top management teams, executive com
and firm governance. The roles of CEO compensa-
tion, top team composition, and board structure.
pensation, and strategic decision making. He received hi
Academy of Management Journal, 41: 158-178.Ph.D. from the University of Washington.

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