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A longitudinal multilevel investigation of the influence of top management team, board of directors and CEO characteristics on firm strategy and performance of European MNCs

Final Report Summary - GOVMNC (A longitudinal multilevel investigation of the influence of top management team, board of directors and CEO characteristics on firm strategy and performance of European MNCs)

This project investigated the effects of top management team (TMT) and board composition, particularly in terms of diversity, on the strategy and performance of multinational corporations over time. A multi-country longitudinal inquiry into the effects of TMT and board characteristics showed the increasing significance of two timely and relevant upper echelons characteristics, namely, internationalization of top management teams and gender diversity in the boardroom.

The ongoing globalization process has dramatically changed the business landscape and the society in which we live. The enduring process of European integration and transnational mobility has lead to increasing internationalization of executive and non-executive labor markets. Top management teams and boards of directors become more diverse both within as well as across European countries and this project provides an in-depth investigation of the consequences of such diversity.

First, this project developed a multi-dimensional measure of top management team internationalization capturing the upper echelon’s ability to deal with the challenges of firm international operations. A longitudinal investigation showed that such internationalization leads to subsequent foreign market entry and ultimately improves corporate performance.

Second, by delving deeper into the impact of TMT cultural composition on the propensity and choice of location of foreign investments, the project results show that TMT nationality diversity increases the propensity to expand abroad via cross-border mergers and acquisitions (M&As) and international strategic alliances, while TMTs with high levels of international experience prefer full-control entry modes. In addition, the empirical results suggest that the uncertainty avoidance tendency of the TMT, as well as the distance between the TMT and the host country, significantly decrease the probability of expanding outside the home region.

Finally, this project’s findings demonstrate that TMT nationality diversity is one of the few aspects of TMT composition that is positively related to firm performance. An integrated multilevel framework explaining how its performance implications vary across contextual settings was supported by results showing that nationality diversity is positively related to performance; and this effect is stronger for longer tenured teams, highly internationalized firms, and firms operating in munificent environments.

More generally, this research demonstrates that the performance implications of TMT diversity depend on team, firm and industry conditions under which strategic decisions take place as well as on the specific attributes of TMT diversity.

In light of recent debates of introducing quotas on women directors in Europe, this project further aimed at explaining the consequences of such changes in board composition for companies over time and across national borders. The empirical results provide evidence that board diversity is a valuable resource in enhancing board task performance and demonstrate how team processes mediate the relationship between board job-related diversity and board effectiveness.

National context (cultural and legal context) was found to influence the extent to which effective board processes result in board effectiveness and firm level performance. In an investigation of the specific effects of board gender diversity, evidence was found that the positive effects of women directors on board strategic control are mediated through increased board development activities and through decreased level of conflict. In addition, the project’s results show that women directors influence board strategic involvement through their contribution to board decision-making, which in turn depends on women directors’ professional experiences and the different values they bring along. The survey data with board members further suggests that perception of women as unequal board members may limit their potential contribution to board decision-making.

In times of vivid debates about the role of women on corporate boards, this project provided important evidence of the contribution of women directors to board decision-making and strategic involvement.