The advantages of diversity in the boardroom and in top management teams is much touted. But as in any diverse group, cliques can form and these subgroups can undermine team unity and hamper the achievement of strategic goals.
Research from Peder Greve at Henley Business School and colleagues at St. Gallen University, highlights not only how diversity can cause damaging fault-lines at the top, but also how, a company that can manage the challenges of diversity will benefit from the creativity and innovation that such diverse knowledge and backgrounds brings. And that in the long run, such a company will perform better than any company that avoids diversity.
Diverse backgrounds in top management teams can lead to the creation of knowledge-based faultlines. These faultlines are the result of top managers clustering into subgroups based on shared knowledge and expertise. Some have argued that the subgroups allow better information processing, while others believe that they fragment the top management group’s knowledge.
This new research finds that companies can overcome the challenges of diversity if the management team can find productive common ground that benefits the organization. And that helping top managers find that productive common ground is a task best left to the overall leader of a top management team: the CEO.
Top managers with distinct knowledge bases may often struggle to achieve optimal performance outcomes, particularly if team members’ individual knowledge backgrounds are strongly entrenched. This knowledge-based faultlines may give rise to subgroup formation and indecisiveness that negatively impact performance. However, CEOs can mitigate and even reverse these potentially negative effects of knowledge diversity. To do so, CEOs need to possess the ability to build bridges. That ability, this research shows, depends on the ‘fit’ between the CEO and the rest of the top managers based on similarity, experience variety and shared experience. The research identify these three key characteristics of the integrative bridge-building CEO:
1/ Socio-demographic similarity. Socio-demographically resembling the other top managers in the company positions the CEO to better interpret and share the information from a top management team subgroup. In addition, by identifying with the CEO of the entire team, subgroups will have less of an us vs. them attitude toward the other subgroups.
2/ Career experience. Possession of career experience variety - the number of functions and the number of countries in which the CEO has worked. CEOs with wider career experience are less likely to favour one subgroup over another. They are also better equipped to handle the broader spectrum of information emerging from the different subgroups. They also benefit from a more varied personal network, which further helps them deal with the various subgroups.
3/ Overlapping tenure. A CEO who has had overlapping tenure with the majority of team members will understand who knows what in the group and will be able to allocate tasks accordingly, essentially managing the divisions in the group. Overlapping tenure with members of the group also gives CEOs time to build mutually supporting, trusting social relationships with the other managers, which will help the CEOs build bridges among the subgroups. The costs of fragmentation are also reduced; for example, during the time they have worked together, different members of the groups would have built efficient communication patterns.
Access the research paper: ‘Top management team faultlines and firm performance: Examining the CEO-TMT interface’; Dimitrios Georgakakis, Peder Greve, Winfried Ruigrok; The Leadership Quarterly, Vol. 28, Issue 6, December 2017, Pages 741-758.