Management Faultlines and Management Forecasts*

Abstract

We examine whether management faultlines (i.e., dissimilar groupings among executives) are related to management forecast processes and outcomes. Management faultlines are formed based on the simultaneous alignment of senior executives' demographic characteristics (e.g., an MBA background, elite school education, gender, board experience, age, or tenure). We argue that management faultlines impede information sharing, create conflicts, and divert managerial attention away from common‐goal tasks. We hypothesize and find that management faultlines are associated with lower management forecast quality. Furthermore, the faultline effect is more pronounced when forecasting difficulty is high. In contrast, the faultline effect is mitigated when a firm nurtures a supportive and diverse workplace. In addition, we find that management forecast propensity and frequency are negatively associated with management faultlines. Overall, our findings suggest that management faultlines compromise management forecast processes and outcomes. In particular, since faultlines can arise as a company diversifies, boards should be aware of these unintended consequences and how they can be mitigated.

The more the better? Service transition for shaping sustainable development in manufacturing firms and the role of top management team attributes

“…In contrast to our hypotheses, this study finds that TMT faultlines have an insignificant effect on product‐related service transition but mitigate the negative impact of excessive product‐unrelated service transition on SP. The main reason for this result may be the lack of activation of faultlines, particularly in the case of product‐unrelated service transition (Liu & Van Peteghem, 2022 ). Notably, resource actions in this context can benefit from cognitive diversity and information advantages (Elmagrhi et al, 2019; Chen et al, 2022 ).…”

CEO‐TMT faultline and corporate green innovation: The contextual role of Confucian culture

“…Meanwhile, following Liu and Van Peteghem (2022), we adapt the seemingly unrelated regression (SUR) to compare the coefficient difference between the two subsamples. The coefficient comparison between the subsamples indicates a significant difference ( p = 0.021).…”

“…As shown, the coefficient on CEO‐TMT IFS is insignificant when Confucian culture is weak ( β = −0.0766, p > 0.1), whereas it is significant and positive when Confucian culture is strong ( β = 0.2275, p < 0.05). Meanwhile, following Liu and Van Peteghem (2022), we adapt the seemingly unrelated regression (SUR) to compare the coefficient difference between the two subsamples. The coefficient comparison between the subsamples indicates a significant difference ( p = 0.021).…”

“…Of note, the potential faultline does not necessarily divide members into subgroups in essence; it needs to be activated to be more effective (Jehn & Bezrukova, 2010; Lau & Murnighan, 1998). Contextual factors are essential for activating or deactivating faultlines (Chung et al, 2015; Jehn & Bezrukova, 2010; Lau & Murnighan, 1998; Liu et al, 2019; Liu & Van Peteghem, 2022). In this regard, we respond to the calls made in existing studies (Bezrukova et al, 2009; Jehn & Bezrukova, 2010; Thatcher & Patel, 2012) to explore specific contexts that may enhance or diminish the CEO‐TMT faultline effect.…”