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 organizationalperformance. However, empirical studies have found contradictory results with somereplication studies being unable to duplicate any previous findings. Theseinconsistencies in empirical findings have led to the conclusion that the relationshipbetween TMT composition and firm performance is not a direct and straightforwardone as envisaged by the upper echelons theory. This has led to the search for thevariables that mediate or moderate this relationship. This study focused on family firmsand 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. Thisstudy established that the impact of TMT composition on firm performance in familyfirms is mediated by group cohesion. This is because the family firm is fraught withmany dynamics among the family members some of which are not related to thebusiness. Due to this, it was concluded that whether or not the TMT composition in thefamily firm impacted performance positively or not, was dependent upon the family’sability to pull in the same direction that is how cohesive the family was. In addition, itwas established that family firms pursuing complex strategies in terms of their productsor markets were likely to benefit the most from TMT composition. This is because thestrategic context triggered deliberations and information sharing which harnessed thediverse skills availed by the TMT composition. Thus the strategy context moderated therelationship between TMT composition and firm performance. It was also noted that acomplex strategic context was capable of triggering conflict and disagreements thusnegating the impact of TMT composition on firm performance. The study thereforeconcluded that the impact of strategic context needed to be reviewed in light of thegroup cohesiveness. Further it was noted that to fully understand the impact of TMTcomposition on family firm performance, the moderating effect of strategic context andthe intervening effect of group cohesion needed to be considered. Due to the uniquenessof the characteristics of family firms and the convergence of ownership andmanagement in family firms, the resource based view, stewardship and agency theoriesneeded to be considered in addition to the upper echelons theory when explaining theimpact of TMT composition on family firm performance. It was observed that thestrategic management field had lagged behind in research on family firms despite thegrowing importance of family firms in modern day economies. In line with this it wassuggested that policy makers needed to design policies and legal frameworks that areappropriate to family firms. The study encouraged families to get involved in themanagement of their firms and foster cohesiveness among TMTs in order to deriveoptimal results for their businesses.