Knowing Your Top Management Team - A Sustainability Success Factor?

University essay from Handelshögskolan i Stockholm/Institutionen för företagande och ledning

Abstract: Today, there is increasing pressure on companies to conduct sustainable business if they want to survive long-term. To understand why certain companies report higher levels of sustainability performance than others, it is of interest to explore the potential role that the composition of top management teams (TMTs) plays in this matter. The purpose of this research is thus to investigate the relationships between certain TMT characteristics and the sustainability performance in companies. This will hopefully contribute to management research by indicating what factors that may be important to consider in the composition of TMTs with regards to sustainability performance, and whether certain characteristics are of greater importance in this sense. By looking into demographic characteristics (gender, age, educational background, and functional background) of TMTs in Swedish listed companies within six different industries (materials, consumer discretionaries, consumer staples, capital goods, banks, and investment companies), this study aims to answer the following research question: What is the relationship between demographic characteristics of top management teams and the sustainability performance of companies? To provide an answer to this question, a quantitative study is conducted where the Upper Echelon Theory is used to analyze the statistical results. The data on sustainability performance is collected from a study presented by Ekonomihögskolan of Lund University where companies are ranked on various sustainability aspects. The final sample used in this study includes 113 companies, and for each company's top management team, data on demographic characteristics are collected through structured observations of corporate secondary and publicly available data. A hierarchical regression is then completed to investigate relationships within the data. The study finds significant support for positive relationships between sustainability performance and each of the variables mean age, age diversity, and educational level. Meanwhile, the study finds no significant relationships between sustainability performance and the variables gender, educational diversity, previous experience of executive management positions, previous experience inside the current company, and previous experience outside the current company but within the same industry. There are also implications that other factors than demographic characteristics of TMTs should be considered when attempting to predict sustainability performance. The results imply that some aspects seem more important to consider than others when composing a TMT if the company aspires to focus on sustainability. Also, these results contribute to extending the Upper Echelon Theory as they provide an understanding for what factors that are of relevance when attempting to predict organizational outcome. However, further research would be of interest to truly understand these relationships.

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