Top Management Team Functional Diversity and Firm Performance: The Moderating Role of CEO Characteristics

Abstract

Past research indicates that the effect of TMT functional diversity on firm performance is equivocal. We address this issue by focusing on the integrative role of the CEO, postulating that the CEO's expertise and background characteristics affect the TMT functional diversity–firm performance relationship, because of their impact on the exchange and integration of distributed knowledge within the TMT. Using a dataset of 33 Dutch and Belgian Information Technology firms we investigate the moderating role of three sets of CEO characteristics (functional background, status as founder, and shared experience with the other TMT members) on the relationship between TMT functional diversity and firm performance. Our results reveal that CEO and TMT characteristics do interact in realizing the potential advantages of distributed TMT functional expertise.