Academic journal article International Journal of Management

Determinants of Top Management Team Tenure in Public Companies: An Empirical Study in the United States

Academic journal article International Journal of Management

Determinants of Top Management Team Tenure in Public Companies: An Empirical Study in the United States

Article excerpt

TMT tenure impacts organizational performance through its effects on R&D intensity, entrepreneurial orientation, a greater diversity of viewpoints, status quo commitment, and even illegal activity however its antecedents have not been explored. This paper examines the impact of CEO tenure, CEO duality, board tenure, inside and outside ownership, and inside and outside directors on TMT tenure. I examine a longitudinal sample of 290 firms in 4 fields covering a ten year period using fixed effects panel regression. CEO tenure, board tenure, and outside ownership significantly impact TMT tenure. Most intriguingly, duality was found to be negatively related to TMT tenure. These results demonstrate the pervasive inertial influence of CEO and board tenure and suggest that outside ownership counterbalances these influences to some degree.

Upper echelons theory posits the importance of various managerial characteristics of the top management team including organizational tenure (Hambrick, 1984). One such characteristic that has appeared frequently is top management team tenure. The impact of TMT tenure on various organizational outcomes has been studied extensively (Finkelstein & Hambrick, 1990). Surprisingly, antecedents to TMT tenure have not been examined.

In this study, I examine determinants of TMT tenure. I test hypotheses related to the impact of the board, shareholders, and the CEO on the tenure of the top management team. Following the suggestion of Hambrick (2007), the study is longitudinal, covering a ten year period.

This study makes several contributions. First, our understanding of TMT tenure is enhanced by examining its antecedents. Secondly, our understanding of upper echelons theory is enhanced since these antecedents are all related to CEO and board characteristics. Third, understanding the antecedents of TMT tenure helps researchers address the endogeneity issue. Endogeneity occurs when a variable predicts an independent variable but not the dependent variable. By understanding the predictors of TMT tenure, we can improve the quality of future research by reducing the statistical noise. Fourth, the use of a longitudinal sample creates a stronger case for causality because we can look at relationships that are cross sectional and longitudinal. Finally, the study samples 290 firms in 19 industries over a ten year period, enhancing the generalizability of the results.

Theory and Hypotheses

CEO tenure and top management team tenure

The CEO has a role in determining which managers are promoted to the top management team or alternately, which managers are hired from outside the firm. Many executives have been promoted in their current company and are thoroughly acculturated into their company's strategies. Further, the promotions they have received reinforce their strategic approach. The CEO will experience less conflict when the TMT is in agreement on the company's issues. However, when new managers are brought onto the team, they may have different viewpoints from the CEO.

CEOs may also become increasingly wedded to their strategic mental models as their tenure increases. This is an outcome of the CEOs commitment of time and resources to their strategic actions, the visibility of their decisions, and reinforcement from past success (Hambrick & Fukutomi, 1991). Hiring new top managers is a highly visible decision that may signal a desire to change strategic direction. However, the CEOs commitment to their mental models is in conflict with this change. In order to reduce conflict, CEOs should seek to retain current top management.

Hypotheses 1 : CEO tenure will be positively related to TMT tenure.

CEO duality and top management team tenure

CEO duality occurs when the chief executive officer is also the chairman of the board of directors. Many of the arguments from the previous section apply to CEO duality as well. The CEO who holds these dual offices is not only acculturated to the company but is likely responsible for much of the corporate culture. …

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