Group Cohesion and Strategic Context On The Relationship Between Top Management Team Composition And Performance Of Family Firms: A Critical Review Of Literature

Abstract

According to the upper echelons theory, TMT composition impacts on organizational performance. However, empirical studies have found contradictory results with some replication studies being unable to duplicate any previous findings. These inconsistencies in empirical findings have led to the conclusion that the relationship between TMT composition and firm performance is not a direct and straightforward one as envisaged by the upper echelons theory. This has led to the search for the variables that mediate or moderate this relationship. This study focused on family firms and studied family firm specific variables of TMT composition namely family ratio, number of generations in the TMT and number of nuclear units within the TMT. This study established that the impact of TMT composition on firm performance in family firms is mediated by group cohesion. This is because the family firm is fraught with many dynamics among the family members some of which are not related to the business. Due to this, it was concluded that whether or not the TMT composition in the family firm impacted performance positively or not, was dependent upon the family’s ability to pull in the same direction that is how cohesive the family was. In addition, it was established that family firms pursuing complex strategies in terms of their products or markets were likely to benefit the most from TMT composition. This is because the strategic context triggered deliberations and information sharing which harnessed the diverse skills availed by the TMT composition. Thus the strategy context moderated the relationship between TMT composition and firm performance. It was also noted that a complex strategic context was capable of triggering conflict and disagreements thus negating the impact of TMT composition on firm performance. The study therefore concluded that the impact of strategic context needed to be reviewed in light of the group cohesiveness. Further it was noted that to fully understand the impact of TMT composition on family firm performance, the moderating effect of strategic context and the intervening effect of group cohesion needed to be considered. Due to the uniqueness of the characteristics of family firms and the convergence of ownership and management in family firms, the resource based view, stewardship and agency theories needed to be considered in addition to the upper echelons theory when explaining the impact of TMT composition on family firm performance. It was observed that the strategic management field had lagged behind in research on family firms despite the growing importance of family firms in modern day economies. In line with this it was suggested that policy makers needed to design policies and legal frameworks that are appropriate to family firms. The study encouraged families to get involved in the management of their firms and foster cohesiveness among TMTs in order to derive optimal results for their businesses.