Two views from the bridge: how CFOs and SME leaders perceive top team dynamics

European Management Journal Vol. 18, No. 4, pp. 367–376, 2000 2000 Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/00 $20.00PII: S0263-2373(00)00026-8

Two Views from theBridge:How CFOs and SMELeaders Perceive TopTeam DynamicsNIGEL NICHOLSON, Centre for Organisational Research, London Business SchoolDAVID CANNON, Centre for Organisational Research, London Business School

The study compares the views of two kinds of UKbusiness leaders of the top teams in which theyplay a role: 72 CFOs from the UK’s largest and mostsuccessful companies, and 44 CEOs of Britain’smost successful independent companies, all ofwhich are small- to medium-sized. Results suggestthat the psychological diversity of these twogroups’ teams differs, as does their approach todecision-making. Results show that for bothgroups, modes of decision-making are highly issuedependent, and also that their self-rated effective-ness differs across domains. The large corporateentities of the CFO sample seem to have top teampsychological dynamics which favour risk controlat the expense of creativity, with a reverse patternin the more entrepreneurial companies of the CEOs. 2000 Elsevier Science Ltd. All rights reserved

Keywords: Business leaders, Top teams, CEOs,CFOs, Team dynamics

Introduction

It is becoming generally recognised that the compo-sition and functioning of top teams — the executivedirectors of a company — is the single mostimportant determinant of strategic focus and per-formance (Norburn and Birley, 1988). While theliterature on top teams reveals considerable debateabout how the formal properties of these teams, such

European Management Journal Vol 18 No 4 August 2000 367

as size and demographic composition, relate to per-formance, the results remain mixed (Smith et al.,1994). Surprisingly little attention has been paid tothe psychological properties of top teams, theircohesiveness and psychological diversity, and howthey make decisions. Here we report on two paralleldata sets which shed light on these issues. One isdrawn from the major corporate sector, Chief Finan-cial Officers (CFOs) of large corporations some ofwhich straddle several business sectors, and onefrom the leaders of highly successful medium-sizedenterprises focused on specific markets. These are thetwo economic players about which business scholar-ship has had the most to say and the kinds ofenterprise where management systems can beespecially relevant. Each data set provides a map ofthe psychological properties of top teams furnishingan opportunity to contrast them in order to gain abetter understanding of how they operate.

Method

The two studies from which data are drawn focus ondifferent sets of executives but ask a common core ofquestions regarding the composition and functioningof top teams. Both studies were conducted in 1995–6.

The CFO Study: Sponsored by Egon Zhender Inter-national, a UK based executive search consultancy,and targeting the Top 200 listed UK companies, the

TWO VIEWS FROM THE BRIDGE

aim of this study was to analyse the changing stra-tegic role of the Chief Financial Officer. Seventy twoCFOs agreed to take part in the research, a healthyresponse rate of 36 per cent for a cold call mail sur-vey.

The Leaders Study: The main focus of the Leadersstudy was CEO personality, measured using a stan-dardised inventory. The sample was taken from alisting of the UK’s top performing independent com-panies in 1993–4, published by The Independent (a UKnational newspaper) from a database maintained bymanagement consultants, Price Waterhouse. Forty-four CEOs from the top 116 listed companies agreedto participate — again an equally good response rateof 38 per cent for a survey of some length and com-plexity. In this study respondents were evenly dis-tributed across the performance range, i.e. evenlydrawn from the top middle and bottom of the list,suggesting little or no performance bias in the sam-pling.

The data reported here comes from biographical dataon individual respondents and a series of ratingsthey provided on their top teams — each CFO as akey member of the executive group, and the CEOs asthe leaders of theirs. Top Team characteristics weremeasured by means of a matrix where the rows rep-resented the members of the team (up to 10) with sixcolumns (6) for information about each member. Thesix columns elicited the following data:

1. Function/role (write in)2. Approximate age in years3. Influence: ‘How influential is this person over the

way you think about business decisions and prob-lems?’ — 5 point scale: very much, quite a lot,moderate, a little, very little

4. Styles: ‘How similar to you is this person in man-agement style (approach to people and tasks)?’ —5 point scale, as above

5. Attitudes: ‘How similar to you is this person inattitudes (interests, beliefs and values)?’ — 5 pointscale, as above

6. Skills: ‘How similar to you is this person inprofessional/functional background (skills andknowledge)’ — 5 point scale, as above

Team size and average scores for each team on thescaled ratings were computed.

Top Team Performance was measured in two ways.The first was a measure of how the team madedecisions. Respondents were offered five alternativemodels of decision-making and asked to say whichapplied to a list of five contrasting decisions. The fivedecision modes were:

d-mode 1 ‘the CEO would decide alone afterinformal consultation with various colleagues’

European Management Journal Vol 18 No 4 August 2000368

d-mode 2 ‘the CEO would decide alone after con-sulting with key Top Team colleagues’d-mode 3 ‘the decision would be made in a TopTeam meeting with the CEO playing a leadingrole’d-mode 4 ‘decision would be made collectively bythe Top Team seeking group consensus’d-mode 5 ‘the CEO would delegate the decision(to Top Team members or others)’

The five sample decisions to which these wereapplied were:

(a) purchase of new internal communications sys-tem (e.g. telephone infrastructure)(b) discontinue a non-core product/service(c) partial restructuring (e.g. reorganisation of afunctional area such as sales)(d) switch to new professional service supplier(e.g. new auditor) rapid promotion of a juniorstaff member to a position one level below yourown

A second measure asked respondents to rate the TopTeam’s effectiveness across a list of four activities ona five point scale: very effective, generally effective,moderately effective, generally ineffective, very inef-fective. The four activities were:

(a) creative tasks (producing novel ideas and sol-utions to problems)(b) strategic planning(c) risk decisions (e.g. investment decisions)(d) internal resource allocation decisions

In analysing these data it is important to note thatour focus is not on any objective reality of teamdecision-making. By its very nature, this cannot bedetermined, since each member of a Top Team mayhave different perceptions. Our focus is on how thesekey individuals view the teams of which they aremembers. Thus a key to the analysis lies in the twoways in which these samples differ. First is role. Onesample are executives responsible for business fin-ancial strategy. The other sample are Leaders, withoverall responsibility for the operation of the firm asa whole. Second is company type. There is zero over-lap in the size of their respective firms. The CFOsare all drawn from companies with more than 5000employees, many of them more than 30,000 strong.The Leaders, in contrast, were drawn from firms witha median size of 250 people. We shall be consideringhow each of these critical differences affectsresponses.

Results

Information on participant’s careers and how theycame to their present position reveal two distinct pat-terns (see Figures 1–3).


Figure 1 How Reached Present Position

Figure 2 Career Pattern

The Leader sample is clearly much more entrepren-eurial — most of the CEOs founded or co-foundedtheir businesses, none of the CFOs did (Figure 1).Chief Financial Officers are fairly evenly dividedbetween internal and external hires, while few Lead-ers were external hires. However, in terms of careerpatterns there is little to divide them in their func-tional route to the top. In each sample a few individ-uals came up to the top team through a single func-tion, though most CFO career histories were throughfunctions that were in some way finance related


(Figure 2). Members of the Leader group were rathermore likely to have moved through unrelated func-tions (e.g. production and sales). This tendency formore adventurous career progression can be seen inFigure 3, where many more Leaders report to haveexperienced ‘radical shifts’ in their careers.

This paper is not about the characteristics of theseindividuals but about the teams they belong to, but itis important to bear in mind how individual profilesmight influence perceptions in a study of this kind.


Figure 3 Number of Career Changes

When we look at the average age of the teams thereis a significant difference. From the Leadership sam-ple an average age of 40 was computed, for the CFOsit is a full ten years older at 50.1

The most objective fact people reported about theirtop teams is size (Figure 4. Interestingly, this coversa wide range within each sample but without dis-tinguishing between them. In both samples there isa preference for small teams of around five. An unex-pected result was that the Top Team in quite a sig-

Figure 4 Top Team Size


nificant number of companies in both groups consistsof just two people.

The more subjective data gathered about team com-position from the matrix format question concernteam structure and process. The three structure ques-tions are to do with how similar to the respondenteach other member was perceived to be in terms oftheir skills, attitudes/values, and their style. The pro-cess question was designed to find out how fluid andopen to mutual influence teams were, by asking the


respondent how much they felt influenced by eachperson on the team.

The results were significant difference between thegroups on all these measures, in summary, as fol-lows2:

CFOs LeadersSkill similarity High LowAttitude/value similarity Low HighStyle similarity High LowInfluence on self Low High

The results suggest two quite different models ofteam functioning. The CFOs see themselves as partof a group of people who are homogeneous in skillsand style but differing in attitudes, a combinationwhich seems to be linked with low influence. Theopposite model among the Leaders is one of diversepeople bound together by common values, a patternwhich appears to allow influence to flow more freelythrough the team. We cannot just explain the resultas due to the CFOs special expertise, since, on thewhole, other team members were rather more similarin professional backgrounds than was the case for theLeaders. What is more likely is that we are wit-nessing a classic feature of the small to medium-sizedentrepreneurial firm — where people with diversetalents but common goals are welded into a team.The Leader of such a team may be more inclined toopen himself to influence out of pragmatic consider-ations, given that others possess vital knowledge andtalents which he knows he does not possess himself.

A closer examination of the team dynamic is pro-vided by the questions asking about the role of theCEO in four different types of decisions. The results,shown in Figures 5–9, reveal a complex contrast of

Figure 5 Decision 1 — New Internal Communications System


decision modes by issue across our two types oftop teams.

Decision 1, the purchase of a new communicationssystem, is likely to be delegated (d-mode 5) more inthe CFOs larger corporations than the Leader’s smallfirms, where top team decision-making is preferred(d-modes 3 and 4). More similar decision modes areused by the two samples for decision 2, the decisionto discontinue a non-core product or service. In thiscase, CFO and Leader top teams make the decisionwith the leader in a dominant role (d-mode 3).

The biggest contrast is found for decision 3, the ques-tion of partial restructuring. Here the CFOs reportCEO-led team decision-making (d-mode 3) in mostcases of restructuring but a lot of delegation in othercases (d-mode 5). The Leader sample also prefersCEO-led decision-making, but running a closesecond is the most democratic decision mode: theteam working towards consensus (d-mode 4). In con-trast, this mode is most preferred by the CFO samplefor decision 4, a decision to switch to a new supplier,while here it is the Leader sample who are mostlikely to delegate. Finally, on decision 5, the pro-motion of a junior to a senior position, there is littleto divide the samples, with delegation the most com-mon mode for both types of top team.

What can we infer from this? First, it is most strikingthat across both samples in none of the decisions isit common for the CEO to be making the decisionwith only formal or informal consultation with col-leagues. Group decision-making or delegation arealways the preferred modes. This perhaps contradictssome common and popular misapprehensions aboutleaders of both large and small companies func-


Figure 6 Decision 2 — Discontinue a Non-Core Product/Service

Figure 7 Decision 3 — Partial Restructuring

tioning as aloof and independent decision-makers.These results show a high degree of dependenceupon others. Second, in both groups collective topteam decision-making is more common than del-egation for all decisions. Third, in total, the largerCFO firms practice rather more delegation overallthan the smaller Leader firms, as one might expect,given the larger size and more bureaucratic struc-tures of their businesses.

Should we take these results at face value? Clearlythese are perceptions, rather than objective reports.However, the patterns are differentiated across


issues, which suggests that respondents were makingmeaningful discriminations on the basis of theirexperience.

Finally we turn to examine how the effectiveness oftop teams was rated. Here again results show quitedifferent profiles for different areas of decision-mak-ing, as shown in Figures 10–13.

Perhaps not surprisingly, both samples rated them-selves as more effective than ineffective in all areas.It would be reasonable to suggest that some self-serv-ing bias is skewing these perceptions. What is of


Figure 8 Decision 4 — Switch to New Supplier

Figure 9 Decision 5 — Promotion of Junior to Level Below Own

greater interest is the differences; between thesamples, and across the activities. First, comparingthe samples, the Leader sample rate their teams sig-nificantly higher on creative tasks than does the CFOsample. In marked contrast the CFO sample rates itseffectiveness higher than the Leader sample on riskdecisions. There are no differences in effectivenessratings on the other activities. These two results sug-gest a link with the structure and process of teamswe saw earlier. The pattern of diversity and influencereported by the Leaders is exactly what the literatureon group decision-making would lead one toexpect — excellent for creative tasks, but rather less


so for risk-taking, where this mode of operation isoften associated with group polarisation or ‘riskyshift’ phenomenon (Moscovici and Doise, 1994). Incontrast the homogeneity of the CFO sample wouldbe expected to err much more towards cautious con-formity — an approach well suited to high riskdecisions but less beneficial on creative tasks.

Looking across the four activities, the results suggesta fair measure of agreement that the activities of stra-tegic planning (b) and internal resource allocation (d)are the most effective areas of the top teams. Creativetasks appear the least effective area for the CFO sam-


Figure 10 Activity A — Creative Tasks

Figure 11 Activity B — Strategic Planning

ple and risk decisions least effective for the Leadersample.

Discussion

The results are consistent with an emerging stream ofresearch shifting attention from leaders acting aloneaided by informal consultation to the central role ofthe top team (Hambrick and Mason, 1984). However,our results also suggest that there are a number ofquite distinctive models for CEOs to adopt in relation


to their teams, and that these are highly issue depen-dent. To date, research on top management teams haspaid negligible attention to the nature of thedecisions on which top teams focus, and how theirprocess and effectiveness may differ according to thenature of the challenge each issue represents.

Research tends to argue the benefits of socialcohesion in the top team in an undifferentiatedfashion (Michel and Hambrick, 1992). The presentstudy suggests that we need to decompose cohesioninto dimensions of similarity, some of which mayproduce greater synergistic functioning than others.


Figure 12 Activity C — Risk Decisions

Figure 13 Activity D — Internal Resource Allocation Decisions

Thus uniformity of outlook coupled with diversityof characteristics seems to be associated with quitedifferent patterns of social cohesion than the oppositepattern: diversity of outlook coupled with uniformityof characteristics. The former, the pattern predomin-ating in the small to medium-sized entrepreneurialfirms of this sample comparison, seems to be linkedwith more synergistic cohesion. The latter, predomin-ating in the large corporate entities of the CFO sam-ple, seems to suggest a more controlled and less cre-ative cohesion.

The literature on strategic change argues the need for


both innovation and risk-taking (Wiersema and Ban-tel, 1992). The results of this study suggest that thesequalities do not go hand in hand. Some top manage-ment teams, by virtue of their homogeneity and con-trolled process may manage risk better than creativ-ity. An opposite set of characteristics seem to be theprofile required for more entrepreneurial objectives.

Notes

1. t 5 7.30, P , 0.001. Further statistical details on this, andall subsequent analyses, are available from the authorson request.


2. t values for these four results were, respectively, 4.45,4.24,4.02 and 7.06; P for all , 0.001.

References

Hambrick, D.C. and Mason, P.A. (1984) Upper echelons: theorganization as a reflection of its top managers. Academyof Management Review 9, 193–206.

Michel, J.G. and Hambrick, D.C. (1992) Diversification postureand top management team characteristics. Academy ofManagement Journal 35, 9–37.

NIGEL NICHOLSON, DAVID CANNON, Lon-London Business School, don Business School,Regent’s Park, London Regent’s Park, LondonNW1 4SA, UK. E-mail: NW1 4SA, UK. E-mail:[email protected] [email protected]

Nigel Nicholson is Professor Dr David Cannon isof Organisational Behaviour Research Fellow at Londonat London Business School. Business School interestedHis major current research in why business leaders fail,interests are on personality and how they recover fromand leadership, risk and their setbacks. He works

decision-making among traders in the City of London, closely with a range of European and global companiesand the application of evolutionary psychology theory focusing on leader behaviour and impact, including theto management. A book on the latter topic — Execu- role of communication in leveraging corporate leader-tive Instinct — is due to be published Autumn 2000 ship.by Times Books of New York. He has held visitingappointments at European and North American uni-versities, and been honoured with an award from theAcademy of Management for his contribution to theory.


Moscovici, S. and Doise, W. (1994) Conflict and Consensus: AGeneral Theory of Collective Decisions. Sage, London.

Norburn, D. and Birley, S. (1988) The top management teamand corporate performance. Strategic Management Journal9, 225–237.

Smith, K.G., Smith, K.A., Olian, J.D., Sims, H.P., O’Bannon,D.P. and Scully, J.A. (1994) Top management teamdemography and process: the role of social integrationand communications. Administrative Science Quarterly 39,412–438.

Wiersema, M.F. and Bantel, K.A. (1992) Top managementteam demography and corporate strategic change. Acad-emy of Management Journal 35, 91–121.

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Two views from the bridge: how CFOs and SME leaders perceive top team dynamics

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