Pre-submission Final Oral Presentation: Irina Orbes Cervantes

Pre-Submission Final Oral Presentation by Irina Orbes Cervantes

Date and time: 3:00pm-5:00pm (Canberra time), Friday 7th July

Location: RSM Seminar Room 1106, Level 1, Copland Building 24

Chair of the Session: Associate Professor Patrick J.N. L'Espoir Decosta 

*Please note: This presentation will be run hybrid with two supervisory panel members joining us from abroad via Zoom.

Strategic Leadership, Search and Firm Performance

Abstract
Upper echelons theory (Hambrick, 2007; Hambrick & Mason, 1984) proposes that a firm is a reflection of its top managers (Lin & Lin, 2019; Richard et al., 2019). Specifically, executive leaders shape firm strategy and develop strategic responses to enhance search, knowledge acquisition, and performance (Hambrick, 2007). Building on this logic, I explored the roles of Chief Executive Officer (CEO) and Top Management Team (TMT) as strategic decision makers and the architects of the firm’s strategy (Calori et al., 1994). I sought to understand characteristics and attributes that influence their choices and decisions. These attributes likely influence their behavior, preferences, motivations and the lenses through which they assess information. In turn, these factors play an important role in predicting the firm’s overall strategic direction and performance consequences (Bromiley & Rau, 2016; Hambrick et al., 2015). I analyzed this complex decision making processes by studying two important executive attributes (i)CEO’s goal orientation, which concerns the types of goals that individuals set in achievement situations, their areas of focus and how these goals influence self-regulation (Dweck, 1986), and (ii)TMT functional diversity, which refers to the degree of different career experiences among TMT members (Carpenter et al., 2004). In this thesis CEO and TMT measures are used as proxies for firm level analysis. Thus:

Study 1 focuses on the development and validation of the measurement of CEO goal orientation. For this, I harnessed new methods in management – content analysis – that have profoundly influenced management scholarship. This approach has enabled scholars to innovate theoretical constructs and examine previously unmeasurable concepts (Aceves & Evans, 2023). The content analysis of shareholders' letters has emerged as an important tool for studying CEOs' individual attributes (Nadkarni & Barr, 2008; Nadkarni & Chen, 2014). To capture the strength of the CEO's goal orientation, we conducted a text analysis of shareholder letters for the period between 2006 and 2019. Consequently, Study 1 involves the development of the measurement of goal orientation, which encompasses two variables: learning goal orientation and performance orientation. I developed dictionaries to gauge these orientations based on the frequency of learning and performance-oriented words that CEOs used in the letters. I compiled lists of words associated with the motivations and attitudes inherent in each orientation. In each list, I included words that were used in survey items, had the highest theoretical alignment, and passed word fragment tests. Following recommended procedures for content validation (Gamache et al., 2020; Short et al., 2010, 2018), I carried out expert judgment, and convergent and discriminant analyses on two samples for the learning orientation and performance orientation lists. After conducting all these validations, I concluded that these dictionaries of words were strongly designed to predict learning and performance orientation.

Study 2 examined the role of CEO goal orientation on the relationship between performance shortfall – when performance falls below its desired goals – and firm search behavior. I particularly looked at what CEOs pay attention to and the lens by which they approach performance shortfall (Johnson et al., 2006). CEO goal orientation is key to unfolding the mixed theoretical arguments related to responding to performance feedback and engaging in search processes. I merged an achievement–based context with an achievement–oriented individual attribute. I theorized that the interaction between CEO goal orientation and aforementioned triggers influences search behavior in such a way that CEOs interpret and respond to opportunities and expectations inherent in the context based on their individual attributes. For instance, learning goal oriented CEOs are inspired by the presence and absence of particularly salient and motivating opportunities to learn and grow when experiencing performance shortfall, thereby focusing more attention on their own set of capabilities. On the contrary, performance goal oriented CEOs are motivated by positive social response from favorable comparison; their attention tend to prioritize social markers in performance shortfall, making them more sensitive to external comparison. According to these arguments, the findings showed that firms increase their search behavior when learning oriented CEOs face historical performance shortfall, and when performance oriented CEOs experience social performance shortfall. This study extends the Behavioral Theory of the Firm (BTOF) by demonstrating how individual motivations influence a leader's attention towards initiating search when experiencing performance shortfall. Specifically, it shed light on the complex processes behind CEOs decision making, how they interpret and analyze information and how that affects firms’ responses to performance shortfall. 

Moving forward, study 3 integrated CEO learning goal orientation and TMT functional diversity into the firms’ decision making processes. These two characteristics are interconnected, as functional diversity reflects non-overlapping knowledge, expertise, and problem-solving abilities (van Knippenberg et al., 2004) while goal orientation signals the interest and motivation to utilize that knowledge effectively (Vandewalle et al., 2019). Building on the knowledge–based view (Grant, 2006), this study examined the effects of knowledge acquisition strategies on firm performance, specifically considering both CEO learning goal orientation and TMT functional diversity. The study argues that the characteristics and attributes of the CEO and TMT play a role in the process of capturing and deploying knowledge by (i) formulating actions to leverage firm investments and (ii) redirecting the implementation of those actions to realize performance gains. CEOs with a higher learning orientation are more motivated to view the complex knowledge gains from knowledge acquisition strategies as opportunities for growth and leadership. Moreover, teams with functional diversity benefit from a broader range of perspectives and skills, granting them access to unique information. (Simons et al., 1999). This, in turn, fosters effective decision-making processes, ultimately enhancing the relationship between knowledge acquisition and firm performance (Buyl et al., 2011; Carmeli & Tishler, 2012). This study also integrated the effects of CEO learning orientation and TMT functional diversity into the model of knowledge acquisition. I proposed that the three-way interaction between knowledge acquisition strategy, CEO learning orientation, and TMT functional diversity would strengthen the relationship between knowledge acquisition and firm performance. In support of these arguments, the empirical tests suggested that both CEO learning orientation and TMT functional diversity independently strengthen the relationship between knowledge acquisition and firm performance. However, the empirical results for the three-way interaction revealed a negative effect: when either a CEO with higher learning orientation or a TMT with broader functional diversity is present, the relationship between knowledge acquisition and firm performance is strengthened. Interestingly, when both CEO learning orientation and TMT functional diversity are high, the strengthening effect is not as pronounced as when one of them are present. Conversely, when both CEO learning orientation and TMT functional diversity are low, the relationship between knowledge acquisition and firm performance weakens. This study contributes to the knowledge-based view by highlighting the intricate dynamics of CEO and TMT characteristics in effective utilization of knowledge acquisition strategies. It demonstrates that having a learning-oriented CEO facilitates the deployment of acquired knowledge by promoting its leverage as an asset, and that having a functionally diverse TMT broadens the spectrum, enabling a more comprehensive understanding of the acquired knowledge.

Overall, these studies significantly advance the upper echelons theory by simultaneously analyzing and integrating the CEO's psychological attributes and the firm task-context. This analysis thereby sheds light on how they collectively influence firm outcomes. Specifically, this thesis deepens our understanding of how a CEO's goal orientation shapes their focus of attention, salience and situational assessment in particular circumstances. This exploration contributes to unraveling the ‘black box’ of how CEOs' attributes mold the decision-making process (Iyer & Miller, 2008), consequently setting the strategic direction and scope of organizations. Furthemore, I posit that integrating psychological theories through the lens of CEO psychological attributes with sociological theories via TMT characteristics presents a promising approach to understanding the ambiguity of TMT diversity effects on organizational outcomes. This extends the upper echelon literature, enabling a more holistic assessment of CEO attitudes and leadership behaviors, TMT processes, and their collective impact on strategic outcomes.

The empirical setting for these studies was large publicly traded U.S. firms (S&P 500 firms) during the 2006 - 2019 period. I selected these firms because they are likely to engage in strategic decision making, reorientation and knowledge acquisition (Lant et al., 1992). The selected period is based on availability and consistency of the data from CEOs and TMTs. Shareholder letters were collected from annual reports, primarily obtained from the firms' websites and online report aggregators such as 'Annual reports' and the 'U.S. Security Exchange Commission' (SEC) online interfaces. From this, I gathered 5,140 letters from 703 sample firms. Subsequently, I collected annual firm and industry-level data (i.e., ROA, profits) from the Compustat and Osiris databases. Additionally, I collected information on 3,330 executives' work experience from the firms' websites and SEC online interfaces. Finally, data regarding executives' salaries, bonuses, and compensation were acquired from the ExecuComp database.

References

• Aceves, P., & Evans, J. A. (2023). Mobilizing Conceptual Spaces: How Word Embedding Models Can Inform Measurement and Theory Within Organization Science. Organization Science. https://doi.org/10.1287/orsc.2023.1686
• Bromiley, P., & Rau, D. (2016). Social, Behavioral, and Cognitive Influences on Upper Echelons During Strategy Process: A Literature Review. Journal of Management, 42(1), 174–202.
• Buyl, T., Boone, C., Hendriks, W., & Matthyssens, P. (2011). Top Management Team Functional Diversity and Firm Performance: The Moderating Role of CEO Characteristics. Journal of Management Studies, 48(1), 151–177.
• Calori, R., Johnson, G., & Sarnin, P. (1994). Ceos’ cognitive maps and the scope of the organization. Strategic Management Journal, 15(6), 437–457.
• Carmeli, A., & Tishler, A. (2012). CEO relational leadership and strategic decision quality in top management teams: The role of team trust and learning from failure. Strategic. https://journals.sagepub.com/doi/abs/10.1177/1476127011434797
• Carpenter, M. A., Geletkanycz, M. A., & Sanders, W. G. (2004). Upper Echelons Research Revisited: Antecedents, Elements, and Consequences of Top Management Team Composition. Journal of Management, 30(6), 749–778.
• Dweck, C. S. (1986). Motivational processes affecting learning. The American Psychologist, 41(10), 1040–1048.
• Gamache, D. L., Neville, F., Bundy, J., & Short, C. E. (2020). Serving differently: CEO regulatory focus and firm stakeholder strategy. Strategic Management Journal, 41(7), 1305–1335.
• Grant, R. M. (2006). The knowledge-based view of the firm. The Oxford Handbook of Strategy: A Strategy Overview and Competitive Strategy, 203–230.
• Hambrick, D. C. (2007). Upper Echelons Theory: An Update. AMRO, 32(2), 334–343.
• Hambrick, D. C., Humphrey, S. E., & Gupta, A. (2015). Structural interdependence within top management teams: A key moderator of upper echelons predictions. Strategic Management Journal, 36(3), 449–461.
• Hambrick, D. C., & Mason, P. A. (1984). Upper Echelons: The Organization as a Reflection of Its Top Managers. AMRO, 9(2), 193–206.
• Iyer, D. N., & Miller, K. D. (2008). Performance Feedback, Slack, and The Timing of Acquisitions. Academy of Management Journal, 51(4), 808–822.
• Johnson, R. E., Chang, C.-H., & Lord, R. G. (2006). Moving from cognition to behavior: What the research says. Psychological Bulletin, 132(3), 381–415.
• Lant, T. K., Milliken, F. J., & Batra, B. (1992). The role of managerial learning and interpretation in strategic persistence and reorientation: An empirical exploration. Strategic Management Journal, 13(8), 585–608.
• Lin, H.-C., & Lin, P.-C. (2019). The interplay between CEO-TMT exchange level and differentiation: Implications for firm competitive behaviors and performance. Journal of Business Research, 95, 171–181.
• Nadkarni, S., & Barr, P. S. (2008). Environmental context, managerial cognition, and strategic action: an integrated view. Strategic Management Journal, 29(13), 1395–1427.
• Nadkarni, S., & Chen, J. (2014). Bridging Yesterday, Today, and Tomorrow: CEO Temporal Focus, Environmental Dynamism, and Rate of New Product Introduction. Academy of Management Journal, 57(6), 1810–1833.
• Richard, O. C., Wu, J., & Markoczy, L. A. (2019). Top management team demographic‐faultline strength and strategic change: What role does environmental dynamism play? Strategic Management Journal. https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.3009?casa_token=RymUWjUTogYAAAAA:hCvpQfUsEiqHCs8WpV50DnpoANXo99qwHYE9ftXu8MQ1eKNtgRDGiOj_yjerKGV1oH2MR_TGGDjnscM
• Short, J. C., Broberg, J. C., & Cogliser, C. C. (2010). Construct validation using computer-aided text analysis (CATA) an illustration using entrepreneurial orientation. Organizational. https://journals.sagepub.com/doi/abs/10.1177/1094428109335949
• Short, McKenny, & Reid. (2018). More than words? Computer-aided text analysis in organizational behavior and psychology research. Annual Review of ... Antitrust Law Developments. https://www.researchgate.net/profile/Shane-Reid-5/publication/322646205_More_Than_Words_Computer-Aided_Text_Analysis_in_Organizational_Behavior_and_Psychology_Research/links/5b6d9a79299bf14c6d98ae1b/More-Than-Words-Computer-Aided-Text-Analysis-in-Organizational-Behavior-and-Psychology-Research.pdf
• Simons, T., Pelled, L. H., & Smith, K. A. (1999). Making Use of Difference: Diversity, Debate, and Decision Comprehensiveness in Top Management Teams. Academy of Management Journal, 42(6), 662–673.
• van Knippenberg, D., De Dreu, C. K. W., & Homan, A. C. (2004). Work group diversity and group performance: an integrative model and research agenda. The Journal of Applied Psychology, 89(6), 1008–1022.
• Vandewalle, D., Nerstad, C. G. L., & Dysvik, A. (2019). Goal orientation: A review of the miles traveled and the miles to go. Annual Review of Organizational Psychology and Organizational Behavior, 6, 115–144.

View Irina Orbes Cervantes' bio here.