Isolated islands in the upper apex of organisations: In search of interaction between the board of directors and the top management team

Abstract

This paper reports on the interaction of compositional effects of boards of directors (BoD) and top management teams (TMTs) on firms' financial performance. Composition of both groups is investigated for cultural, age, tenure and gender diversity. We explore effects of demographic diversity in the two power groups on performance in interaction with each other by bringing in the similarity-attraction paradigm to argue for the relationship. Study data are from consolidated financial statements in annual reports of listed Swedish corporations. Our findings suggest that while differences in gender, age and tenure diversities have no effect on firm performance, close alignment of cultural diversities of the BoD and TMT does have a positive effect of firm performance.