Int. Journal of Business Science and Applied Management, Volume 3, Issue 3, 2008

Turnover and heterogeneity in top management networks -

A demographic analysis of two Swedish business groups

Sven-Olof Collin

School of Business and Engineering, Halmstad University

Box 823, SE-301 18 Halmstad, Sweden

Tel: + 46 35 167859

Fax: +46 35 167564

E-mail: sven-olof.collin@hh.se

Timurs Umans

Centre for Business Studies, School of Health and Society

Kristianstad University College, 291 88 Kristianstad, Sweden

Tel: +46 44203137

Fax: +46 44203103

E-mail: timurs.umans@hkr.se

Abstract

A theory based on the demography of top management teams is used to explain membership turnover

in two Swedish business groups, network analysis being used to define group membership. The results

suggest these business groups possess a combination of financial and industrial experience as a group

resource and the socialising strategy of control as a force counteracting the conflict-producing force of

heterogeneity. An organisational demographic perspective focusing on opposing forces of

heterogeneity and homogeneity is developed. It is shown that the perspective can be applied both to

formal organisations and to informal ones such as networks.

Keywords: top management networks, turnover, heterogeneity, business groups

Acknowledgements: The order of authors reflects their contributions. The work this paper represents

was funded by The Swedish Council for Research in Humanities and Social Sciences, and The Bank of

Sweden Tercentenary Foundation. Lars Bengtsson and Michael Lubatkin provided helpful comments.

Robert Goldsmith provided language editing.

Sven-Olof Collin and Timurs Umans

1 INTRODUCTION

Organisational demography (Pfeffer, 1983) involves measuring the individual characteristics of

persons belonging to an organisation, using these to describe the organisation and explain

organisational outcomes. A common issue involved is that of explaining turnover, i.e., the exit of

members of an organisation, especially members of top management teams (TMT), on the basis of such

heterogeneity-related variables as differences in age, culture, tenure, education and functional

experience (Daily and Dalton, 1995; Elron, 1997; Hambrick and D‟Aveni, 1992; Keck and Tushman,

1988; Keck and Tushman, 1993; Kirkman & Shapiro, 2001; McCain, O‟Reilly III and Pfeffer, 1983;

O‟Reilly III, Caldwell and Barnett, 1989; Pelled, 1996; Wagner, Pfeffer and O‟Reilly III, 1984;

Wiersema and Bantel, 1993, and Wiersema and Bird, 1993). A basic hypothesis concerns the

„similarity-attraction paradigm‟ (Tsui and O‟Reilly, 1989) stating that persons prefer individuals who

are similar to themselves, or more specifically that high heterogeneity triggers turnover.

A demographic perspective alone however, does not indicate which individual dimensions trigger

turnover. While in some situations heterogeneity of branch, for example, can trigger turnover (Jackson,

Brett, Sessa, Cooper, Julin and Peyronnin, 1991), it can, however, be expected to be negatively related

to turnover in the case of business groups, as will be argued in this paper. There is thus the need for

considering the context of the organisation when predicting the dimensions that are important in

triggering turnover, as indeed has been argued by Alexander, Nuchols, Bloom and Lee (1995) and

Milliken and Martins (1996). Additionally, the heterogeneity of even highly relevant dimensions does

not necessarily influence turnover appreciably, since it is conceivable that countervailing forces of an

integrative character may reduce the turnover effects of heterogeneity (Hambrick, 1994).

A demographic perspective has often been used to explain TMT processes and outcomes in formal

organisations, and it has expanded to include boards of directors (Knippenberg et al., 2004; Schippers

et al., 2003; Zajac and Westphal, 1996) and the relationships between the board and the TMT (Golden

and Zajac, 2001; Daily and Schwenk, 1996; Kor, 2006). While Hambrick (1994), in an extensive

review of the literature argues for studies focusing one level below the organisational edge, i.e., the

business unit level, we contend that the level above the single organisation, when it exists, is as

important to study as the other levels. Indeed, there are informal organisations such as business groups

(Collin, 1998; cf. Gerlach, 1992) consisting of separate corporations linked by flows of ownership,

management, board members, board directors, capital, and the like. It is, therefor, likely that some

teams are based within more than one formal organisation. These groups take on the form of

conglomerates or spheres of influence (Levine, 1972) for example, in the US, of konzerns and bank

groups in Germany, of Keiretsus in Japan (Aoki, 1990), of industrial groups in France (Encaoua and

Jacquemin, 1982) and of financial groups in Sweden (Collin, 1990). Business groups seem to consist of

elite individuals, quite similar to „the inner circle‟ in UK (Useem, 1984) and „upper echelons‟ in US

(Hambrick and Mason, 1984). They can be seen as basically equivalent to the TMTs of formal

organisations. Thus, the paper extends the notion of TMT turnover to include top management teams

other than formal ones.

However, lacking formal status, the TMTs of business groups cannot be identified through

methods such as those of letting the position in the formal hierarchy determine whether a manager

belongs to the TMT of the corporation or not. The present paper proposes that a TMT can better be

identified through network analysis in which such criteria as possibilities for interaction and frequency

of interaction are used to identify those managers who belong to the TMT.

The paper‟s aim is to predict turnover in networks of elite individuals identified on the basis of

interlocking directorship data (this study is based on the data from 1975, 1980 and 1986) from the two

largest business groups in Sweden (the Wallenberg group and the Handelsbank group). The theory put

forward to explain turnover here states that the TMT of a business group possesses a combination of

financial and industrial experience, that this branch heterogeneity represents a resource, and that a

socialising strategy of control serves to counteract the potential conflicts which this heterogeneity tends

to produce. The major contributions of the paper are the idea of countervailing forces affecting

turnover, the application of turnover to elite networks and use of an operational definition of the TMT

based on explicit group considerations.

The paper is divided into five sections. The first section describes the demographic perspective

and deals with questions of turnover, heterogeneity and the definition of TMT that the paper is

addressing. The second section examines turnover in Swedish business groups, first introducing the

two largest Swedish business groups, and then developing a theory to explain TMT turnover in these

business groups. The third section takes up the method by which the members of the TMTs of the

business groups were identified, the data that were obtained and the measures that were employed. The

fourth section presents the results of the analysis. The last section concludes the paper and considers

Int. Journal of Business Science and Applied Management / Business-and-Management.org

possible implications for research and offers a simple rule of thumb for management when composing

a TMT.

2 THE PERSPECTIVE OF ORGANISATIONAL DEMOGRAPHY AND ITS APPLICATION

TO TMT TURNOVER

A study of TMT composition using the perspective of demography has to be based on certain

arguments concerning issues of both ontology and methodology. This section is devoted to the

arguments a) that organisational demography should retain its objective character, b) that the study of

TMT and its composition, i.e., turnover, is important since TMTs and the composition those have affect

the organisation and can be regarded as a strategic resource for the organisation, c) that it is partly a

substantive theoretical problem to determine which demographic dimensions that are relevant in

predicting turnover, and finally d) that the operational definition of a TMT should be based on team

characteristics, making it possible to study elite‟s in non-formal organisations such as networks and the

forces behind their compositional characteristics.

The objective character of demography

Ever since the time of Malthus, researchers in economics have been interested in demographic

variables. It was Pfeffer (1983) that has introduced demographic considerations into organisation

theory as a perspective of its own after considering demographic variables in a number of empirical

studies (McCain, O‟Reilly and Pfeffer, 1983; Pfeffer and Leblebici, 1973; Pfeffer and Moore, 1980).

Since Pfeffer‟s (1983) classical work, demography of organisations became a rapidly expanding field

that an organisational perspective focused on culture and organisational economics has been.

The rapid expansion of demographic studies in organisational science not only can be attributed to

the long-established tradition, but also to the possible use of quantitative and objective measures well

suited to statistical analysis, as well as to employable data with few problems of access (cf. Stewman,

1988). All this have fitted with the Anglo-American research tradition of explanation and prediction

based on use of statistics and statistical techniques, finding strengths in the use of such clearly objective

variables as tenure, age and gender. Pfeffer (1983, p. 301) indicates that, whereas organisation theory

often employs variables that in a methodological sense are subjective - specifically such conceptual

constructs as norms and roles - demographic variables are facts which it is therefore possible to

observe. However, the shortcoming of the demographic perspective is a conception of the individual

through the prism of the demographic characteristics the perspective takes into account, moreover the

intervening variables - such as communication, social integration and conflict- the subjective ones are

still concealed in the darkness of the black box (cf. Bacharach and Bamberger, 1992; Lawrence, 1997;

Pettigrew, 1992; Priem, Lyon and Dess, 1999).

However, recent research has been concerned with opening up this black box through the study of

the intervening processes, measuring both direct effects and indirect effects of a group‟s demography

(Ancona and Caldwell, 1992; Ancona, 1990; Kirkman and Shapiro, 2001; O‟Reilly, Caldwell and

Barnett, 1989; Pelled, 1996; Simons, 1995; Smith et al, 1994; Umans, 2008). Pfeffer‟s (1983)

contention that the variance explained by the intervening process variables should be small has

received mixed support, Smith et al (1994) obtaining negative support and Ancona and Caldwell

(1992) positive. Yet the main objection that Pfeffer (1983) has against focusing on the process is both

epistemological, involving the difficulties associated with observing subjective variables, and

methodological, concerning the problem of accessibility. In the research referred to above, arguments

for the possibility of observing intervening variables such as social integration (Smith et al, 1994),

debate (Simons, 1995) and relative cohesiveness of groups (O‟Reilly, Caldwell and Barnett, 1989) have

largely been lacking. Despite this, the epistemological objection only casts doubt on the possibility of

measuring the intervening variables, not on the impact these can have. In fact, it is impossible to

comprehend the impact of demographics without theorising about the processes in which demographics

are an input and turnover, for example, is an outcome. The present paper accepts the Pfeffer arguments

for the strong rule of organisational demographics. The paper theorises about intervening variables

generally and examines empirically the effect of demographic variables.

The importance of TMT and its composition

In the attempt to explain various organisational outcomes, organisational demographics could well

concern itself with the demographic composition of the entire organisation. However, most of the

efforts to explain organisational performance are focused on the top management team (Daily and

Dalton, 1995; Elron, 1997; Ely and Thomas, 2001; Hambrick and Mason, 1984; Hambrick and

Sven-Olof Collin and Timurs Umans

D‟Aveni, 1992; Heijltjes, Olie and Glunk, 2003; Murray, 1989; Norburn and Birley, 1988; Priem,

1990; Smith, et al, 1994; Wagner, Pfeffer and O‟Reilly, 1984), on strategic change (Keck and

Tushman, 1988; Wiersema and Bantel, 1992), on innovation (Ancona and Caldwell, 1992; Bantel and

Jackson, 1989) and on board composition (Westpal and Zajac, 1995; Zajac and Westphal, 1996). The

rational behind such a focus is that the TMT and its composition influence the organisation. At this

stage of research, the idea that top management makes a difference is becoming less an assumption

(Meindl, Ehrlich and Dukerich, 1985) than an empirical conclusion, one that a variety of empirical

studies have supported (e.g., Kosnik, 1990; Norburn and Birley, 1988; Smith, Carson and Alexander,

1984; cf. Furtado and Karan, 1990), especially from a strategic choice perspective (Eisenhardt, 1989;

Wiersema and Bantel, 1992). Such intriguing conclusions as the following have been drawn: “...it

would appear that environmental determinism and strategic choice are not ends of a continuum but,

rather, separate dimensions.” (Eisenhardt and Schoonhoven, 1990, p. 525). In these terms, there are

certain degrees of freedom that a TMT can access, making the quality of the TMT an important

variable for the organisation.

Recognising the importance of the TMT to the outcome of an organisation makes it possible to

treat the top management team as a definite resource for the firm involved. The composition of such a

team in terms of age, tenure, social background, experience, network connections, education, and the

like can be considered as a quality of the TMT as a whole. Not only the individual members, but also

the overall composition of the TMT can thus be regarded as a valuable and scarce resource that would

be hard for competitors to imitate (Barney, 1986, 1991; Castanias and Helfat, 1991). Consequently, the

composition of a TMT can be considered a strategic variable.

However, treating the composition of a TMT as a strategic variable assumes a causal link between

strategy and the composition of the TMT, a matter which can be questioned (cf. Mittman, 1992). For

example, the strategy and structure of an organisation, together with the composition of its external and

internal labour pools (Haveman, 1995), determine the organisation‟s demographic composition. The

demographic composition of an organisation can in turn influence strategy and structure of the

organisation. Thus, determining causality can be a definite problem present in demographic studies.

Bantel and Jackson (1989), for example, found innovation and top management team composition, just

as Keck and Tushman (1988) found strategic reorientation and top executive team composition, to be

correlated. Is it this team composition, then, that determines innovation and reorientation, or is it the

other way around? Or is it perhaps, as Michel and Hambrick (1992) assert, a reinforcing spiral? Keck

and Tushman‟s (1993) findings can be interpreted as supporting the latter view, although they primarily

concern the influence of reorientation upon changes in TMT. To make the argument short, a TMT and

its composition - despite certain causality problems - can be considered as a strategic variable for the

organisation, thus merit scientific concern.

Demographic heterogeneity and turnover

The composition of a TMT can be influenced by the TMT itself. Westphal and Zajac (1995), and

Zajac and Westphal (1996), showed that powerful CEOs tend to influence the composition of the board

through promoting directors that are demographical similar to them. This result is consistent with the

hypothesis, which Tsui and O‟Reilly (1989) call „the similarity-attraction paradigm,‟ that persons

prefer individuals who are similar to themselves. One can suppose that human groups generally have a

tendency to become homogeneous and to regard heterogeneity as disturbing (Jackson et al, 1991). One

explanation of this general tendency of similarity-attraction is contained in self-categorisation theory

(Turner, 1987), which Tsui, Egan and O‟Reilly (1992) and Westphal and Zajac (1995) have applied to

demographic studies, arguing that individuals shape their self-identity through categorisation and that

in the pursuit of high self-esteem they prefer individuals who are similar to them in terms of these

categorises. Another explanation of similarity-attraction is that individuals minimise their transaction

costs in relationships through interacting with similar individuals, thus reducing the efforts necessary

for gaining understanding. This is expressed by Kanter (1977, p. 58) for example as follows: “Social

certainty, at least, could compensate for some of the other sources of uncertainty in the tasks of

management.”

A central hypothesis in demographic studies of organisations is that homogeneity, i.e., sameness

with respect to certain dimensions, creates stability and ease of communication (Priem, 1990; Smith et

al., 1994; Zenger and Lawrence, 1989) due to individuals‟ involved sharing similar experiences (Blau,

1977). Heterogeneity, in contrast, appears to readily create conflicts, reducing the ability to interact

(Kirchmeyer and Cohen, 1992; Kosnik, 1990; Sutcliffe, 1994), although at the same time it is often

associated too with such forms of change as innovation (Bantel and Jackson, 1989; cf. Watson, Kumar

and Michaelsen, 1993), strategic change (Keck and Tushman, 1988; Wiersema and Bantel, 1992) and

turnover (Wagner et al., 1984).

Int. Journal of Business Science and Applied Management / Business-and-Management.org

According to „the similarity-attraction paradigm‟, as well, both strategic change and innovation

are associated with heterogeneity. Keck and Tushman (1988) found support for the hypothesis that

reorientation, representing a change in both strategy and structure, increases heterogeneity. The

causality involved does not have to apply to both aspects of reorientation, however, since heterogeneity

could well be caused, for example, by a change in the internal labour pool brought on by structural

change. Such causality supports in any case there being a relationship between heterogeneity and

change. In like manner, Bantel and Jackson (1989) obtained support for the hypothesis that

innovativeness and functional heterogeneity are correlated. Their conclusion is as follows:

“On the one hand, heterogeneity has a positive effect on innovative and creative decision-

making. On the other hand, heterogeneous (and thus, innovative) groups are subject to higher

turnover, presumably because members find the increased conflict and decreased communication

to be stressful.”(1989, p. 118)

Turnover and heterogeneity have been hypothesised to be correlated as well, studies such as those

of Godthelp and Glunk, 2003, McCain, O‟Reilly and P-feffer (1983), Wagner et al. (1984) and

Wiersema and Bird (1993) being confirmative of this, whereas Wiersema and Bantel‟s (1993) study,

for example, is disconfirmative. However, an important theoretical question concerns individual

characteristics that tend to trigger turnover. Wagner et al. (1984) found that similarity in date of entry

and age correlated positively with turnover, which has also been supported by the findings of Godthelp

and Glink (2003). This is a cohort aspect of turnover that could be thought to apply to any type of

organisation. As already indicated, a TMT composition characterised by heterogeneity, for example

functional heterogeneity (Bantel and Jackson, 1989) or heterogeneity in years of education (Smith, et

al, 1994), can be a valuable resource for a firm, partly due to the cognitive conflicts it produce

(Amason, 1996). Countervailing forces of integration, i.e., of homogenisation, might likewise be found

within the organisation. These could prevent the heterogeneity from triggering turnover and allow

heterogeneity to be retained as a resource.

The homogeneity which groups tend to show have been suggested by Murray (1989) and Michel

and Hambrick (1992) to be a phenomenon similar to that of the Ouchi‟an clan. The broad and strong

interaction within a clan and the long tenure of its members point towards group homogeneity, making

homogeneity and clan membership, therefore, appear similar. Although such similarity can be

considered to be basically valid, it can only be assumed to be found on those dimensions that constitute

the clan. Obviously, clan members cannot be alike on all dimensions conceivable. The overriding

problem is to identify those dimensions that are relevant when cohort similarity creates cohesion.

Murray (1989) appears to conclude that it is not homogeneity per se, but functional homogeneity in

particular, that explains the performance results obtained in his sample of oil companies. In another

working group, in which functional heterogeneity was an imperative from the start, Murnighan and

Conlon (1991) found for British String Quartets that homogeneity on dimensions such as age, sex and

school background were positively correlated with success. Contrary to their prediction Alexander et al

(1995) found a downward curvilinear relationship between heterogeneity in employment status and

turnover in a sample of US nursing staffs, concluding “...that demographic heterogeneity does not

operate similarly across all demographic attributes.” (p.1477) This indicate one possible explanation to

the reported (West and Schwenk, 1996) nonfindings between an aggregate measure of 12 variables

measuring demographic homogeneity and performance. Demographic variables probably need to be

treated with more care than summed up into one single measurement. Thus, it can be asserted that a

theory predicting a certain relationship between heterogeneity and turnover has to consider the

organisation in question, i.e., it is partly a substantive theoretical problem to determine which

dimensions that are relevant in predicting turnover.

To summarise, human groups have a tendency towards homogeneity due to the shaping of self-

identity and ease of understanding, thus creating groups characterised by stability. As an opposite,

heterogeneity creates conflict and stimulate turnover but tends to be correlated with innovation due to

the diversity of perspectives in the group. However, we argue that the general tendency of

heterogeneity triggering turnover has to consider the specific group and its context. It is conceivable

that there exists groups such as TMTs were heterogeneity is a valuable resource that can be retained

through countervailing forces of integration, i.e., of homogenisation, thus preventing heterogeneity

from triggering turnover.

Sven-Olof Collin and Timurs Umans

Operationalisations of TMTs

Finally, turning to a methodological problem with ontological implications in TMT studies, one

can note that studies of the team demographics of top management have concentrated largely on formal

organisational aspects (Pettigrew, 1992), with the consequence that non-formal organisations have been

neglected and TMTs have in large been only formally defined. Since it is difficult to verify the

existence of a team in the true sense in any organisation (Hambrick, 1994), it generally is assumed that

top management represents a team. Empirically, three different methods have been used to identify

teams. One has been to define the TMT in terms of members‟ formal titles, such as those of vice

president or higher (Wagner, Pfeffer and O‟Reilly, 1984), as well as secretary and treasurer (Keck and

Tushman, 1993). Defining teams in this way is quite arbitrary, however. Eisenhardt and Schoonhoven

(1990) adopted a more qualitative approach, defining as a founding team those persons who were

founders or were working full-time as executives at the time of founding. Such a method has the

weakness of neglecting the importance of informal organisations (Hambrick 1994). A second method

of identifying the TMT is to simply transfer the problem from the researcher to the CEO, letting the

latter identify the TMT given either more thorough instructions (Bantel and Jackson, 1989; Boeker,

1997) or more general ones (Amason, 1996; West and Schwenk, 1996; Amason and Sapienza, 1995;

Smith et al, 1994). This method has the disadvantages of a person who is not trained scientifically

making the observations, and of its being impossible to measure the reliability of the observations since

independent observers are lacking. A third method, used by Weirsema and Bird (1993) and partly by

Jackson et al (1991) and Umans (2008), considers the frequency of meeting in executive committees to

document the existence of a TMT. This method can be regarded as superior since group membership is

determined by a dimension, i.e., frequency that is relevant in defining groups. It has the additional

advantage of being consistent with the assumption of interaction that the similarity-attraction paradigm

makes.

The focus on formal organisations has withheld attention from organisations that are not formal in

character but have an elite group equivalent to a TMT, as exemplified by certain kinds of networks. In

a pioneering paper, Pfeffer and Leblebici (1973) analysed the moving of executives to a new role or

location as one form of interorganisational communication and coordination. Thus considered, there

might appear to be no major ontological or methodological differences between analysing formal

organisations and analysing informal organisations such as networks of organisations or persons. As

Useem (1984), for example, has shown a network of organisations can be governed by an elite group of

individuals, just as a formal organisation can be. To be sure, the top management that constitutes a

team is as much a matter to be examined empirically as is a network of individuals that constitutes a

team of a larger network. In examining non-formal organisations such as networks, however, the

researcher cannot rely on formal positions or even on CEO opinions, but is forced to define a TMT

theoretically.

In summary, based on the self-attraction paradigm, one of the relevant factors in identifying TMTs

is frequency of interaction, which has the additional advantage of being possible to apply to non-formal

organisations governed by an elite group equivalent to TMTs.

Concluding this section, we have argued for a demographic perspective using objective variables

predicting turnover in TMTs on the general notion of heterogeneity, but with a consideration of the

existence of countervailing forces in specific groups, such as elite groups of networks, and with the

operational definition of a TMT being based on team characteristics. In the following, a specific type of

network organisation that of business groups, is examined in this way.

3 TURNOVER IN SWEDISH BUSINESS GROUPS

In contrast to the UK and the US, Sweden has constellations of corporations, quite similar in

certain respects to the Keiretsus of Japan, in which several corporations are connected through relations

of ownership, interlocking directorates and financial service. The individuals who interlock and

connect the boards of the various corporations in the group represent the group‟s elite; an elite that can

be regarded as equivalent to the TMT of a single corporation, and in a similar vein represents a

valuable resource for the group. The composition of this elite group can thus be assumed to be of

importance of the group. The aim in this section is to formulate predictions concerning turnover based

on the assumption that business groups possess as a group resource a combination of financial and

industrial experience and, as a force counteracting the conflict-producing force of this branch

heterogeneity, a socialising strategy aimed at control. The section starts with a brief account of Swedish

business groups, since the reader may not be acquainted with them. It concludes with the deducting of

Int. Journal of Business Science and Applied Management / Business-and-Management.org

various hypotheses based on a demographic perspective, hypotheses predicting member turnover in the

elite of the business groups involved.

A Digest on Swedish Business Groups

The Swedish industrial economy is dominated by some few business groups, each consisting of

industrial and/or financial corporations connected through relations of ownership, interlocking

directorates and financial service. Two groups of this sort, the Wallenberg-group (W-group) and the

Svenska Handelsbank-group (SHB-group), are of special importance in Sweden since they in some

sense controlled corporations that represented roughly 50 per cent of the stock value of all the

corporations listed on the Stockholm stock exchange in the 90‟ies and still dominate the Swedish

economy.

Both groups are very old, having been created during the depressed years in the 1920s and 1930s

(Sjögren, 1991). Their evolution has been viewed as a corporate response to financial problems and to

problems of ownership (Berglöv, 1994; Collin, 1998). The groups have been centred around two large

banks, Stockholms Enskilda Bank (the W-group) and Svenska Handelsbanken (the SHB-group).

Although Swedish banks, as opposed to their German counterparts, have never been allowed to possess

shares in industrial corporations, much of the early history of the two Swedish business groups is

similar to that of their German counterparts (Chandler, 1990). Typically the groups contain

multinational corporations, exploiting raw materials from Sweden, such as iron and wood, and utilising

technical innovations. For example, in the year of 1986 (appendix 1.), the groups contained two similar

corporations, Stora (belonging to the W-group) and SCA (belonging to the SHB-group), which utilised

raw material from the large forests in the northern and central parts of Sweden. Others utilised

technical innovations, for example Aga (gas, belonging to the SHB-group) and Astra (pharmaceuticals,

belonging to the W-group). The corporations tend to be highly internationalised. For the year 1990, the

non-domestic sales of the 20 largest corporations in the two groups were found to be 78 percent

(median: 82) and their non-domestic employees to represent 48 percent (median: 57) of their working

force.

The strong ties the member companies once had to the two banks have in large part been replaced

by strong ties to two investment corporations: Investor (W-group) and Industrivärden (SHB-group).

The W-group has been managed through control of “Investor” by the family heads of the Wallenberg

clan, who until the 80‟s were Jacob and Marcus Wallenberg, then being governed by the new family

head, Peter Wallenberg, son of Marcus Wallenberg, and recently a fourth generation assumed the

power. The SHB-group has no such ultimate capitalists as the clan Wallenberg. Rather, it is much more

nebulously based, cross ownership and historical relations playing a major role. In both groups

interlocking directorates form a closely knit network linking all the corporations involved. The

members of the boards are generally not employed by the corporation in question, the distinction

between insider and outsider, so important in UK and US, being a non-issue in these groups, and in

Sweden at large. The two business groups are very distinct, being clearly separated. There has only

been one corporation, namely Ericsson, that has been shared by the two groups, each of which has an

equal share of the votes and an equal number of directors on the board of that company. Each of the

other corporations in the two groups belongs to either the one group or the other but not to both. In a

manner similar to the inclusion of the member corporations within a single group, those persons linking

the corporations of the one business group through interlocking directorships do not have extensive

relations with persons or corporations belonging to the other group. Thus, the two business groups are

quite distinct from each other, with very few overlaps. As opposed to the Japanese Keiretsu, the

intercorporate trade is very slight.

The groups have been very stable in their structure during the whole 1900 and they appear rather

similar today (cf. Collin, 2007), having the characteristics of highly international corporations

controlled by a financial centre, utilising interlocks and ownership as control devices. The changes over

the years consist mainly in some corporations being divested and some being added to the structure.

In sum, the two business groups, although lacking legal identity, build strongly on ownership ties

and interlocking directorates, the investment corporations serving as centres. They divide a

considerable part of the Swedish industrial economy into two separate camps. The elite of the

interlocking directorates of these two groups can be regarded as conceptually closely comparable to the

top management teams (TMTs) of formal organisations, making it only confusing to invent a new term

for them, such as e.g., Top Directors Team (TDT). Both can be seen as being subjected to the same

forces of inclusion and exclusion in connection with demographic composition.

Sven-Olof Collin and Timurs Umans

A Demographic Explanation of Membership Turnover in Business Groups

In terms of the „similarity-attraction paradigm‟, turnover can be explained on the basis of

heterogeneity, and is treated as an attribute of the TMT (McCain, O‟Reilly and Pfeffer, 1983). The

heterogeneity possibly found in the original or the earlier composition of a group tends to decline

through members who are dissimilar to the majority being separated from the group. Nevertheless,

those dimensions with heterogeneity that trigger separation, i.e., the turnover of group members, should

be identified. In this section, identification of the dimensions triggering turnover in the TMTs of the

two Swedish business groups is dealt with, eight hypotheses being considered.

An obvious cause of turnover in elite networks is that of individuals‟ leaving the TMT due to

retirement. The general tendency of elderly employees to have lower voluntary turnover compared to

younger ones is thus not applicable on elite networks since they can be assumed to consist of rather old

people. Additionally, younger members of the elite network presumably have no incentive to leave

since there are no real alternatives to the group due to the fact that they are on the edge of the society.

Accordingly, considering the specific group in question, the first hypothesis expresses the expectation

that an increase in age will increase a person‟s probability of leaving the team.

: Age is positively related to turnover.

The second hypothesis is the general cohort argument that the individuals belonging to a given

generation tend to share similar norms and similar perceptions of reality (Wiersema and Bantel, 1992;

Wiersama and Bird, 1993), this fostering cooperation. Differences in age imply difficulties in

communication and understanding, leading to turnover of individuals who are dissimilar.

: Age heterogeneity is positively related to turnover.

However, as previously argued, one has to consider the specific organisation. For one of the two

Swedish business groups, the Wallenberg group, the fact that a capitalist family is the controlling

principal creates a dynastic pattern which could be expected to result in a heterogeneity of age. Indeed,

the age distribution in the sample that is to be analysed is skewed, the heterogeneity of age being

greater for the W-group than for the Handelsbank group.

If the most deviant values on the age variable

for the Wallenberg group are deleted, the difference in heterogeneity between the groups disappears

almost entirely. This can be attributed to the Wallenberg group‟s being a family group in which one or

two family members are installed early and leave late. In 1975 the third and fourth generations of the

Wallenberg family belonged to the group. In 1980 the oldest brother in the third generation had died,

and in 1986 the entire third generation was deceased. The first individuals from the fifth generation

were recruited after the death of those in the third generation. Such patterns are presumably common in

dynastic groups. One obvious explanation of this dynastic pattern is the family‟s need to educate the

coming generations for the possible role of assuming the function of family head. Another explanation,

based on the „similarity-attraction paradigm‟ and analogous to the socialising strategy of control

through rotation (Edström and Galbraith, 1977), is that an early recruitment to the group has the

function of bridging the generation gap. Generational identity, just as is the case of cultural identity in

international organisations, needs to be replaced by an organisational one, i.e., by family identity that

fosters cooperation and control of the group. This serves to explain why one person tends to stay so

long in the position of being family head. This reflects not only his being the pater of the family, which

seems the most obvious explanation, but also the need of socialising younger generations so as to

reduce generational discrepancies. The skewed age pattern makes it unwise to consider only persons

below the age of 65, as Wiersema and Bantel (1992, 1993) did, for example, since here it excludes

several of the most important persons in one of the groups. Thus, we expect that family membership

resists turnover.

: Family membership is negatively related to turnover.

Heterogeneity at the organisational level was measured by the coefficient of variation (standard

deviation divided by the mean). There appears to be consensus that at the organisational level the

heterogeneity of continuous variables should be measured in this way (Allison, 1978; Hambrick and

D'Aveni, 1992; Keck and Tushman, 1988; Murray, 1989; Wagner, et al., 1984, Wiersema and Bantel,

1992). A t-test on the individual age data showed a significant difference (<.05) between the two

groups on the age-variable. No significant differences on any other variables were found.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Returning to demographic aspects, the fourth hypothesis relates to differences in professional

outlooks. Similar to the turnover effect of functional heterogeneity (Bantel and Jackson, 1989),

experiences from different branches can be assumed to create different attitudes, norms and

perspectives (Jackson et al, 1991). Since individuals according to the similarity-attraction paradigm can

be expected to recruit similar individuals and to expel dissimilar, one could readily hypothesise that

turnover would be triggered by heterogeneity in branch experience. In terms of strategy, there are

definite arguments for there being an effect of this sort. The origin and survival of Swedish business

groups have been viewed as being partly based on the success of such groups in finding solutions to

corporate problems of credit supply and ownership control which would call for particular

communality in matters of financial strategy. The organisational structure of the two groups considered

is indeed more similar (see appendix 1.) to that of the financial holding company form (H-form),

consisting of loosely coupled corporations whose major inter-transactions are the transfer of capital and

of top management, than to that of the industrial functional form (F-form) or of the multi-divisional

form (M-form), which both involve operations as a whole being more closely linked. Through

particular emphasis being placed on the financial experience of their members, the selection of

members of the TMT in Swedish business groups could, according to this line of reasoning, be

expected to reflect a desire for a branch homogeneity directed towards the financial part of the

economy, i.e., banks and investment corporations. The dominance of financial experience in the TMT

that the branch homogeneity creates would in turn enforce the group‟s financial strategy.

However, there is a rather different logic that might be expected to apply to business groups, thus

emphasising the need of considering the organisation in question when deducing predictions on

demography. Ever since Hilferding (1910) wrote of the growing enterprises in Germany in which

banks and industrial corporations were intertwined, the finance capital to which he referred has been

regarded as a form of cooperation between industrial and financial corporations, something much

resembling what is found in the two groups under consideration. If, as already indicated, these business

groups represent a solution not only to financial problems but also to corporate governance problems,

then it can be regarded as rational for industrial and financial experience to be mixed.

The TMT of a business group can be expected to represent the whole group, both internally and

externally, and has therefore to reflect the cooperative trait between industrial and financial

corporations. Due to this symbolic consequence of diversity (Hambrick, 1994; Ely, 1995; Milliken and

Martins, 1996) heterogeneity in branch experience cannot be expected to trigger turnover. On the

contrary, a decrease in heterogeneity in branch experience would insipid the symbolic impression of

cooperation, and would therefore be avoided through selection and turnover.

Another consideration suggesting that branch heterogeneity does not trigger turnover involves the

dynamics that heterogeneity creates. The business groups and their corporations, having been in

business for at least 60 years, could be expected to have brought competitive advantage to the

corporations of which they are comprised. According to studies of the relation between heterogeneity

and performance, heterogeneity is related to innovation, high performance, high turnover (Murray,

1989) and growth (Eisenhardt and Schoonhoven, 1990). In the business groups in question, branch

heterogeneity might therefore be expected not only to reflect the composition of financial and industrial

capital, but also to be a competitive resource providing a balance between a financial and an industrial

orientation to corporate governance. Thus, branch heterogeneity might best be seen as a coveted quality

of the group and not something that would trigger turnover. In fact, if branch heterogeneity is indeed

that which is desired, one would expect that a person with a similar branch experience as others who

were in the group would be avoided as a member or be considered for replacement. In these terms,

branch heterogeneity would be expected to have a negative triggering effect on turnover.

: Branch heterogeneity is negatively related to turnover.

Functional heterogeneity has been shown to readily lead to conflict (Kosnik, 1990), reducing

possibilities for communicating and interacting (Sutcliffe, 1994). The business groups can be thought

to possess a centripetal force in the sense of homogenisation occurring in the sense of socialisation

counteracting and thus reducing the conflicting and centrifugal force of branch heterogeneity.

Accordingly, the fifth hypothesis concerns tenure, operationally defined as the proportion of one‟s

career spent within the group. An integrating mechanism within a business group is the learning and

transmission over time of norms and values, i.e., the indoctrination of ideology. One way of

operationalising such a concept is by the use of the variable „Tenure‟, measuring the length of exposure

(Wiersema and Bird, 1993). However, such an operationalisation cannot separate age and

indoctrination. Two persons, each with 10 years of tenure, but one of them with 20 years of additional

experience from another organisation, and the other with the 10 years of experience in the group and

Sven-Olof Collin and Timurs Umans

nothing more, differ in their degree of involvement in the organisation. It could be expected that the

one with experience only from the current corporation would be more aligned to the corporate norms

than the one having only one third of the corporate experience gained in the corporation under

consideration. Thus, the transmission of norms and values is not simply a matter of length of service,

but also of the proportion of the individual‟s career spent in the group. Focusing on socialisation thus

rules out the alternative explanation, offered by Jackson et al (1991), that the members of the group are

highly paid for performance and therefore are induced to tolerate conflict. The heterogeneity argument

states here that individuals with a similar socialisation history in terms of having spent a similar

proportion of their career within the group, tend to stay.

: Heterogeneity in the proportion of one‟s career spent in the group is positively related to

turnover.

Turning to those individual characteristics of earlier origin, one might well expect such factors as

class origin and education to influence turnover. Differences in the social origin of an individual lead

not only to different experiences a person has had but also in different behaviour and manner of

communicating. Thus, one might well expect a higher turnover for those most dissimilar in origin.

: Heterogeneity in class origin is positively related to turnover.

In Japan, education measured in terms of the prestige of the university attended has been shown to

have impact on turnover (Wiersema and Bird, 1993). One might well have similar expectations for

Sweden. Persons who have been educated at the same university tend to have had similar experiences

and constitute according to self-categorisation theory an easily knowledgeable category in which

people can be classified. Sweden also does have one prestigious private business school and one

prestigious institute of technology, former students there presumably easily feeling an affiliation with

the elite of Swedish society. Educational level could have a similar influence, making those educated at

the university level dissimilar in experience and attitudes to those of lower educational level.

: Having attended a prestigious business school or institute of technology is negatively related

to turnover.

: Heterogeneity in educational level is positively related to turnover.

Turnover in what amounts to the top management team in both of the Swedish business groups is

thus predicted here to be influenced by the general factors of demography such as age, heterogeneity of

age, the heterogeneity in the proportion of one‟s career spent in the group, and heterogeneity in social

origin and educational characteristics. Turnover was also predicted to be influenced by organisational

specific factors such as family membership and branch heterogeneity.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Figure 1: Eight hypothesis on turnover

Age

Heterogeneity in the

Branch heterogeneity

Turnover

(+)

proportion of one's career

spent in the group

Age heterogeneity

Family membership(+)

(-)

Heterogeneity of

educational level

Attending a

prestigous school

Heterogeneity of

class origin (+)

(-)

(+)

General

factors of

demography

Organization specific

factors of

demography

(+)

(-)

affecting turnover affecting turnover

4 METHOD

The TMT-equivalent for a Swedish business group can be constructed by the use of network

analysis. The method section begins with a discussion of this and ends with an account of how the

variables were constructed and how the data were collected.

The construction of a ‘network’ TMT

The two business groups in question, although frequently referred to in the Swedish press, do not

exist as formally established entities. Before a business group and the equivalent to a TMT within it

could be analysed, they had to first be identified. An initial step to doing this empirically was to select,

from Sundqvist‟s (1986) systematic account of ownership links between corporations in Sweden, a

total of 38 corporations listed on the Stockholm stock exchange that appeared on the basis of having

large voting shares

to belong to one or the other of the two groups.

Data on the persons elected as board members at the annual meetings of shareholders of the

corporations selected was obtained for the years 1975, 1980 and 1986. There are other persons on

Swedish boards of directors, but they are excluded in this data set since they are elected by the white

and blue collar unions or the government, thus not being representatives for the owners. The reason for

selection to the board being used as a criterion for identifying TMT members is that the board of

directors is considered to be one of the most important arenas for influencing a corporation (Tricker,

1993). Other important arenas, in particular industry-wide organisations and other pressure group

providing political representation, would have been inferior alternatives due to the strategic importance

that boards of directors have (cf. Stockman, Ziegler, and Scott, 1985; Useem, 1984). A rather long time

interval between the measurement points was selected since the groups and their members seem rather

stable. The networks were originally constructed to show the stability of the two business groups (as

reported in Collin, 1990). The differing periods of time between the successive measurement points, 5

Sweden has had and still has different voting rights attached to shares. Old corporations, such as

Ericsson, had as great voting differences as 1 - 1/1000 vote per share. The largest single owner in 1986,

Industrivärden, had an equity share of 3.1 per cent but 22.3 per cent of the votes, whereas 48.1 per cent

of the equity was owned by non-Swedes, who however had only 0.5 per cent of the votes. Thus, the

voting shares, not the share of equity, is a relevant measure of influence.

Sven-Olof Collin and Timurs Umans

years and 6, can be assumed to not have had an appreciable impact on the results.

Since neither the

network analysis nor the descriptive statistics indicate any radical change in the groups over time, this

difference appears to have had no disruptive effect.

From the sample of individuals who for the years 1975, 1980 and 1986 were on the boards of

directors of the 38 corporations selected (n=237, 224, 205 respectively), the set of those persons who

had positions on two or more boards was drawn (n=56, 73, 71) so as to provide a means of examining

the interconnections between the corporations. A network analysis (not reported here, but available

upon request), with hierarchical clustering using lamda sets (Borgatti, Everett and Freeman, 1992),

confirmed there being clusters of two distinct sets of individuals, taken to represent the upper-echelon

individuals of the two business groups.

Identification of the equivalent of a top management team in each was carried out using two

criteria so as to construct a core set of persons from the sample of interlocking directors of the 38

corporations. The first criterion was that these company board members were all to have connections

with each other, such that each of them met with each of the others on at least one board. Formally, it

meant that the network had a density of one (1). The second criterion was that, under the restriction of

density = 1, the frequency of connections inside the core network was to be maximised. The rationale

for use of these two criteria was that a TMT was assumed to be a closely knit network of high density

in which there were as many opportunities as possible for interaction. Other clustering techniques that

were possible were unable to produce networks with high frequency of member contact under the

restriction of the density equalling one (cf. Borgatti, Everett and Shirey, 1990). The density criterion

was crucial since it is hard to imagine a genuine team in which some of the members never meet. The

frequency criterion was based on the assumption that the team identity of the individuals depends to a

large extent on the number of interactions (cf. Weirsema and Bird, 1993). This clustering procedure,

reported in Collin (1990), created networks consisting of 4, 8, and 11 individuals for the Wallenberg

group, and 6, 11 and 13 individuals for the Svenska Handelsbank group for the years 1975, 1980 and

1986, respectively. These two groups of individuals are distinct and separate from each other. Only a

few members of the respective groups met with members of the other group. There were some few

corporate boards where this could occur, for example on the board of Ericsson, the ownership of which

is divided equally between the two business groups.

Data and Measurements

The dependent variable „Turnover‟ was registered in 1980 and in 1986 as having either occurred

or not occurred. In the present context, turnover signifies that an individual, even if excluded on the

basis of the two criteria employed, may nevertheless have been present in the network of interlocking

directors and be a member of one or several of the boards. Turnover thus represents not absence from

the network but absence from frequent interaction with those members who are characterised by a high

frequency of interaction, i.e., with those members belonging to the core network that constitutes the

business group‟s TMT. This is a less rigorous indication of turnover than that which applies to a formal

organisation in which absence means that the individual has left some formal position, even though one

may still be present within the organisation. Yet, as Tsui, Egan and O‟Reilly (1992) argue, turnover is a

radical change in an individual‟s attachment to the organisation, psychological disattachment being less

dramatic. Thus, turnover in an elite network falls in between these two extremes.

However, a more important point is that within the network the criteria of turnover are relational,

exclusion of an individual from the TMT changing the network characteristics of all the individuals

still included, as well as the possibilities for additional individuals being included. This means that

turnover in terms of exclusion from the network is an empirical representation of there being lesser

possibilities of interacting with the closely knit members of the top management team. An alternative to

this dichotomous approach is to use the concept of team involvement, as measured for example by

distance from the network centre. Although it is tempting to avoid the difficulties connected with

dichotomous variables through use of continuous variables, the conceptual gain is small. Both logically

and methodologically, team involvement requires the concept of a centre to which the individual‟s

involvement can be related. The creation of a centre of this sort requires somewhat different

The selection of 1986 as the last year was due to its being the first year for which extended

ownership data was available, making selection of the corporations to be studied a better informed one

than it would otherwise have been. It would have been wise to take five-year steps backwards.

However, the magic of the decade seems to have been the reason for selecting the years 1975 and 1980.

A rational argument is that my data and results were easier to relate to other investigations of the

Swedish economy since they too are restricted to the “decade magic”.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

assumptions and calls for clustering techniques, of which the one described below represents one

possibility.

Demographic data on the individuals was collected from the annual reports of the corporations and

from a Swedish publication „Who Is That?‟ (Vem är det?, 1981; Vem är det?, 1985).

The data

concerns those individuals present in the business groups in 1975 and in 1980, respectively. Since some

of the individuals were present both in 1975 and in 1980, the population tested (N=29) is larger than

the sum of the individuals involved (S=23).

Branch experience was divided into financial, industrial and other experience. The category „Other

experience‟ consisted of governmental service in different forms, research appointments and working

in private organisations supporting trade and industry such as the Swedish Employers‟ Confederation.

Functional heterogeneity, being the equivalent to branch heterogeneity, is seldom defined theoretically

but arbitrary divided into traditional functions such as marketing, production, etc. The distinction

between financial and industrial experience is conform to the theory and sufficient for the purpose of

the theory of financial capital (Hilferding, 1910). It implies that financial experience is gained in

financial organisations and industrial in industrial corporations. A person working in a financial

department of an industrial corporation is considered as gaining industrial experience, whereas a person

working in an investment corporation, mainly on the board of directors some one of the corporations it

owns, is considered as gaining financial experience. Although such a categorisation is becoming less

and less adequate due to increasing separation between the financial and the industrial operations of

large corporations, e.g., through the creation of internal banks, it was still a feasible categorisation in

the 70s. Since nearly all the persons in the sample gained the major part of their experience prior to the

80s, this categorisation was regarded as relevant. As a proxy for branch heterogeneity, financial

experience measured as Financial experience/(Financial + Industrial + Other experience), that is, as the

proportion of working-life experience gained in financial corporations, was selected. One could equally

well have taken „Industrial‟ experience in place of „Financial‟ experience in the above ratio since

industrial and financial are almost mutually exclusive, the category „other‟, representing basically

governmental or scientific service, being only a small category.

Tenure was measured by the variable „Years Spent in the Group‟ (YSG), defined as the number of

years the individual had been employed by one or more of the corporations belonging to the business

group. In both groups the individuals in question had been in the group for some 20-25 years. As

already indicated, such a measure has a serious deficiency in its reflecting both group indoctrination

and age (the Pearson coefficient being 0.66, p <.000 for „Age‟ and YSG). One way of removing the age

component is to divide YSG by the variable „Years of Working Life‟, defined as the difference

between the present age and the age at first employment. This procedure creates the variable

„Proportion of one‟s Career Spent in the Group‟ (PCL), measuring the proportion of the individual‟s

working life spent in corporations belonging to the business group (where the Pearson coefficient for

„Age‟ and PCL is 0.02, p=0.902).

Heterogeneity on the individual level was assessed by a network-equivalent measure of similarity,

involving each individual‟s distance to the others in the network, a measure proposed by Wagner et al.

(1984). The following expression defines the i-individual‟s distance:

 

min

j S

x xi j



















where i and j belongs to a subgroup S, defined as all subsets with a largest integer size of (n+1)/2.

An advantage of this measure is that it considers the structure of the whole group. As an example in the

Wagner et al article indicates, a five-person group with years of entry of 1, 1, 3, 5, and 5 involves a

lesser distance for the first and the second person than if they had been in a group with 1, 1, 5, 5, and 5

years of entry. The first-year-entry persons have a distance of 1.155 in the first group and one of 2.309

in the other.

Due to the Wallenberg-group having a dynastic pattern involving family members, a dummy was

created with 1 for individuals with close kinship, i.e., related by blood, and 0 for those not belonging to

the family or only related by marriage.

Class origin classified according to the father‟s occupation was the variable expressing class

position. The classificatory scheme was a socioeconomic classification (Socioekonomisk indelning)

used quite commonly in Sweden, defined by a governmental bureau with responsibility for statistics

The recording of data on individuals was permitted through a governmental license.

Sven-Olof Collin and Timurs Umans

made available to public authorities (SCB, 1982). The prestigious-school variable was coded 1 if the

individual had more than a year of education at the Stockholm School of Economics or at the Royal

Institute of Technology, both schools without doubt the most prestigious in Sweden. Educational level

was divided into four levels, the first three of these corresponding roughly to the North American

levels: university level, senior high school, grade school, and a fourth level for those with only six

years school, as was once possible.

It has been argued (Pelled, 1996) that the visibility of a demographic dimension influences the

triggering effect of the dimension, clearly visible dimensions such as gender, race and age being most

conflicting and thus stronger predictor of turnover. Gender and ethnical origin are highly visible

dimensions and could be expected to be of some importance since, concerning gender, women have a

high involvement in the wage labour force of Sweden and, concerning ethnical origin, most of the

corporations in the business groups are highly internationalised in terms of sales and production.

However, none of these variables was included due to lack of variance. All members in the business

groups were simply Swedish men.

Results

Table 1 summarise the descriptive statistics. During the 16 years, 10 persons were subject to

turnover, whereas 19 persons were still in the TMT of the group in question, suggesting Swedish

business groups to be fairly stable. Turnover is strongly correlated with age and age heterogeneity, and

is only slightly correlated with distance in proportion of one‟s career spent in the group (p=.15). The

age variable indicates these persons to be relatively old, varying between 43 years and 83 years of age.

The two distance measures, concerning heterogeneity of financial experience and proportion of the

career spent in group, are comparable in the sense of the variable underlying each having a range of 0

to 1. On the average, distance is larger for financial experience than for proportion of one‟s career spent

in the group. The same is true for the variation involved. Heterogeneity seems to be less for the

proportion of one‟s career spent in the group than for financial experience, providing support for our

proposed theory that branch heterogeneity is a coveted resource. However, one should observe that

some of the individuals are ones who show low branch heterogeneity and high heterogeneity in the

proportion of their career spent in the group and who thus, according to the theory presented, could be

strongly expected to experience turnover.

Since the other measures of distance differ from these and from another in the range of the

underlying variables, no direct comparisons between them are possible. However, one can note the

small differences found in educational level, reflecting the fact that the majority of the individuals have

university or business school education. Almost half of them attended the two highly prestigious

schools, but as can be seen in the correlation matrix, attendance is not correlated with turnover, which

is in accordance with the expectations here.

Table 1: Mean Standard Deviation and Correlation Coefficients for Dependent and Independent

Variables (N=29)

1. Turnover

0.34

0.48

.51*

.39*

-.14

.27

.05

-.14

.24

.02

2. Age of individual

58.7

10.1

.30

.02

-.14

.46*

-.21

.21

.11

3. Distance in age

4.63

2.71

.19

.10

.30

-.35

†

.04

.06

4. Distance in the proportion of

financial experience

16.1

18.5

-.08

.29

.20

-.23

-.29

5. Distance in the proportion of

one‟s career spent in the group

11.8

11.6

-.45*

.10

.11

-.19

6. Family membership

0.17

0.38

-.44*

-.15

.11

7. Distance in class

.31

.33

-.07

-.22

8. Distance in educational level

.09

.27

-.33

†

9. Prestigious school attendance

.48

.51

†

p<.1;

p<.05;

p<.01;

***

p<.001

Int. Journal of Business Science and Applied Management / Business-and-Management.org

Table 2 presents the logistic regression equation in which the eight hypotheses are tested.

The

model is significant at the 0.01-level and correctly classifies 86% of the cases, or 25 out of the 29. The

age effect, as expected, is highly significant in predicting turnover, and contributes most to the model,

as the R-statistics in the right-hand column of the table indicate. These R-measures, which range from -

1 and +1, and are based on the Wald statistics, can be interpreted as the partial contribution of the

variable in question to the model. Three other variables contribute to the model at a significance level

of between .05 and .1. One of these is heterogeneity of age, a slight cohort influence on turnover being

evident. Another is heterogeneity in the proportion of one‟s career spent in the group, likewise found to

affect the probability of turnover. In addition, family relationship can be seen to have a negative

influence on the probability of turnover, as predicted.

Table 2: Result of logit regression analysis (N=29)

Turnover

Stand Errors

2. Age of individual

.41*

.19

.28

3. Distance in age

.73

†

.38

.21

4. Distance in the proportion of financial experience

-.12

.07

-.12

5. Distance in the proportion of one‟s career spent in

the group

.15

†

.08

.19

6. Family membership

-8.2

†

4.74

-.16

7. Distance in class

-.45

3.18

8. Distance in educational level

-.68

3.66

9. Prestigious school attendance

.69

2.03

Constant

-28.3

11.8

Model chi-square

20,88

Percent correct predicted

86.21

†

p<.1;

p<.05;

p<.01;

***

p<.001

Branch heterogeneity, measured as distance in terms of financial experience, has the expected sign

but is not even significant at a .1-level. However, the support for hypothesis here concerning the impact

of branch heterogeneity upon turnover can be regarded as slightly stronger than the test involved

indicates. In the regression presented here, heterogeneity of financial experience is used as a proxy for

branch experience. A slightly different result would appear if one used industrial experience as the

proxy for branch experience. Remember that three categories of branch experience were distinguished:

„financial‟, „industrial‟ and „others‟. Accordingly, correlation between financial and industrial

heterogeneity is extremely high (.87) but not equal to one, since there is a third category, „others‟. With

the use of industrial experience as the measure of branch heterogeneity, the results are similar, the same

number of cases being correctly classified and the chi-square of the model improving to 24.7, with an

accompanying lowering of the significance level to .002. The significance levels and relative impact of

the variables other than branch heterogeneity are not changed, branch heterogeneity being significant at

a .1-level. Although there is only weak significance, the results can be interpreted as suggesting that

branch experience can influence turnover in such a way as heterogeneity decreases, the probability of

turnover becomes higher.

The social background variable and the educational variables had no significant impact on

turnover. This supports the contention that, although these variables can surely have an impact on a

person‟s possibility of starting the journey to the top, the social forces at the top within an organisation,

such as those relating to branch heterogeneity, commitment and heterogeneity of the proportion of

one‟s time spent within the group, and of age, are more narrow in time in the influence they have.

The regression of a qualitative variable represented by a dummy variable such as turn-over poses at least two

problems of estimation (Montgomery and Peck, 1982). First, the estimated probabilities can assume meaningless

values, specifically values tht are negative or greater than one. Secondly, the errors are not distributed normally. A

solution to both problems is to apply a logit model as estimated via a maximum likelihood technique, creating an

S-shape curve with asymptotes at 1 and 0 (Kennedy, 1984; Afifi and Clark, 1990), which Morita, Lee and Mowday

(1993) argue to be an appropriate technique for predicting turnover.

Sven-Olof Collin and Timurs Umans

It can be concluded that the theory of TMT turnover presented here, based on a demographic

perspective, received a slight support from the TMT constructed here through network analysis.

Although support for the model as a whole was found to be significant, the effects for most of the

variables were only found to be significant at the 0.1 level. The results should be treated with caution

since a logit regression requires larger sample size than n=29 in order for the findings to be considered

robust. However, one should note that demographic studies employ rough variables such as age and

functional heterogeneity in attempting to represent complicated social processes. As a result, such

studies typically have a low capacity to explain the variance of the dependent variable.

5 DISCUSSION AND CONCLUSION

A demographic perspective can reveal important aspects of the functioning of organisations,

aspects otherwise not easily detected, due partly to data access problems. This is true regardless of

whether the organisations are formal ones or networks. Here it has been demonstrated that network

organisations of a certain kind have counterbalancing forces. The business groups and their TMTs that

were investigated as constructed networks were branch heterogeneous and characterised by long

tenure. Age, heterogeneity of age and heterogeneity of group investment influenced turnover, whereas

family membership and branch heterogeneity had only a slight and uncertain influence, although in the

predicted direction of restraining turnover. These results can be interpreted as indicating that the

business groups possess a combination of financial and industrial experience as a group resource and

that the socialising strategy of control serves to counteract the conflict-producing influence of branch

heterogeneity.

The empirical results were weak and have therefore to be regarded as preliminary. Nevertheless

the result obtained imply the need for distinguishing theoretically between those dimensions

characterised by heterogeneity, which is presumed to be conducive to turnover, and those characterised

by homogeneity, which is seen as facilitating integration. Dimensions of these two opposing types may

both be active and yet counterbalance each other. In taking account of forces of both an integrative and

a separative type simultaneously, a demographic perspective can make a contribution to the science of

organisations, where the latter tends to focus on integrative forces alone (Perrow, 1986). However,

there is nothing in the demographic perspective itself that can distinguish which type of dimensions is

involved. In the contribution to organisational demography by Pelled (1996), it is argued that job-

relatedness and visibility relevant dimensions here, triggering conflicts and thus affecting turnover.

Since the only means of identifying job-relatedness that is available is to have a substantive theory

about the empirical phenomenon in question, a demographic perspective must rely on a theory that in

relation to the empirical object can predict what dimensions are relevant. The present paper has

emphasised this point by making a prediction of branch heterogeneity on the basis of a substantive

theory of business groups, a prediction that is in opposition to predictions of many demographic studies

using functional heterogeneity in a organisation as an equivalent. Heterogeneity was predicted to

hamper turnover instead of promoting it due to branch heterogeneity being a resource valuable to the

group. Accordingly, propositions in organisational demography has to consider the organisation in

question

The model was significant, but except for the age variable, the significance of the individual

variables was rather weak. There are at least two possible causes of this one could suggest: the small

sample size and inadequate determination of the TMT‟s. The sample size was indeed quite small

(N=29), making the influence of each of the observations on the results rather strong. Thus, outliers and

misinterpreted observations of even a rather small magnitude can clearly influence the results. This can

only be compensated for by increasing the sample size. Since Sweden only had, and still has two

business groups of any particular importance, no other groups than these could be included. The sample

size could be increased through use of the time trick as already used here, the size of the sample having

been extended in the present case through observations of turnover not in one but in two different time

periods (ending in 1980 and 1986, respectively). Thus, one method of enlarging the sample size would

be to include a greater number of time periods. Another method would be to include business groups

from other countries such as bank groups from Germany, Keiretsus from Japan and holding groups

from Belgium. This would be possible now since business groups have been given more attention in

research (cf. Yiu, Lu, Bruton & Hoskisson, 2007) thus making it possible to share data from different

countries. As will be argued below, the fear of a strong cultural influence distorting the results

appreciable when three or four countries that are culturally different are included is probably

unfounded.

The definition of a TMT employed here, i.e., density being equal to one and frequency being

maximised, might conceivably create a group lacking in empirical reality, making the correlation‟s

Int. Journal of Business Science and Applied Management / Business-and-Management.org

random and meaningless. However, the problem of defining the top group is present in every TMT

study. In fact, as the paper argues, a network definition of a TMT ought to be a superior method for

defining it since such a construction is based on such relevant group dimensions as density and

frequency, no attention being directed at comparatively inferior dimensions as formal positions in the

firm or CEO opinions. Despite the weak results, it can be concluded that the model offered has a

bearing for predicting turnover in business groups but that the empirical test could be improved through

increasing the sample size by including business groups from other countries.

The latter step would raise the question of whether the results obtained reflect primarily cultural

factors. Since Sweden is known to be a collectivist society (Triandis, 1995), forces towards conformity

should be strong, at least if one accept analogous arguments that Wiersema and Bird (1993) have put

forward concerning Japan. Although the present sample, to be sure, is very small and Sweden did not

have any other business groups similar to the ones studied, it does not appear that the results simply

reflect Swedish conformity. If there are strong forces towards conformity in Swedish society generally,

then forces of conformity that might be quite special for particular organisations such as those of group

investment would not be expected to influence turnover since conformity is created in and by society.

Put simply, there is no need of creating organisational conformity in a highly conforming society.

Indeed, one can argue as we do here that the dynamic power which extreme heterogeneity provides is

made possible by the countervailing force of homogeneity which the business groups endeavour to

achieve. The cultural traits which are relevant here may not be those of either heterogeneity or

homogeneity, but rather of other dimensions, the impact of each being a function of the cultural

context. Heterogeneity of class, for example, could be expected to have a rather different impact in a

more class-conscious society such as England. Similarly the prestige of a particular university could

well have a protracted effect in a less informal society such as that of Germany, of France or, as

Wiersema and Bird (1993) found, of Japan. In the Scandinavian countries, and possibly in other

informal countries such as the US, the impact of having attended a prestigious university or business

school can be expected to diminish quickly with age. Thus, the generalisability of results here is

probably not appreciably hampered by culture.

The generalisability of the results is limited, especially by the gender invariance that was present.

The sample consisted exclusively of men, making heterogeneity of gender a meaningless variable. This

seems to be quite common in demographic studies of TMTs. The exclusion of gender in TMT studies is

probably caused in part by the low variance of the gender variable. For example, Zenger and Lawrence

(1989) excluded gender since only 4.3% in the sample were women, and Tsui and O‟Reilly (1989)

reported that in a group higher than middle management only 4% were women. The effect of the

gender variable having been excluded due to low variance is that most results cannot be generalised to

TMTs in general, but to the most frequent type of TMT, that consisting of males only. It is quite

conceivable that groups in general and TMTs in particular could display other outcomes if faced with

high heterogeneity of gender or if populated only by females. In fact, Tsui, Egan and O‟Reilly (1992)

found that men‟s attachment to an organisation diminished to a great extent when a mixed-gender

group was involved than women‟s did. An interesting question is whether the hypothesised causal link

between heterogeneity and turnover is as valid in female as in male groups. Even in Sweden, where the

say of women is particular strong, e.g., with roughly 50% women in the parliament, such an

investigation of TMT groups must await the advent of a greater number of women on the scene, recent

data on the TMTs of the listed Swedish corporations having shown that only 18% were women (Berg,

2003).

One of the major contributions by this paper would appear to be the determination of a TMT

through network analysis, allowing it to be defined on the basis of such team characteristics as

frequency of contacts and density, instead of formal positions. Demography appears to be a viable

concept for explaining outcomes and processes not only in formal positions and in formal

organisations, but also in certain non-formal organisations such as the business groups considered here.

The latter are elite groups basically similar to the TMTs of formal organisations. Not only can the

network approach to assessing membership taken here be applied to formal organisations as well, but

there are also phenomena somewhat similar to what was studied here which could be examined in a

similar way, such as the cooperation, for example, between companies in science parks. The latter

represent the assembling of different research organisations at a given geographical site, where service,

support and other types of resources are exchanged. An interesting question is whether interactions of

this type are based primarily on functional, personal or demographical considerations. Considering

networks highlights certain problems concerned with the makeup of teams. Whereas one can

reasonably assume that there are persons in the upper echelons of formal organisations who constitute a

TMT, its being an empirical question who these persons are, the same assumption cannot be made for

non-formal organisations without the help of empirical data. Data on cooperation and team-like

Sven-Olof Collin and Timurs Umans

characteristics is indeed found in the case of Swedish business groups. For science parks, no such data

has as yet to our knowledge been assembled. This emphasises the importance of regarding membership

in a TMT as an empirical question that only can be answered after the analysis of patterns of

interaction.

A limitation of the present study, that of its particular focus on networks, should be noted. An

important difference between a formal organisation such as a corporation and an informal organisation

such as a business group is that in the latter case the environmental forces influencing turnover are

much more difficult to comprehend. This is particularly apparent when one considers performance, an

important variable in TMT research (Keck and Tushman, 1993; Priem, 1990; Dess and Priem, 1995;

West and Schwenk, 1996). Whereas the performance of a corporation can indeed be measured, certain

difficulties notwithstanding (Murray, 1989), it is extremely difficult or even impossible to measure the

performance of an informal organisation. The present paper has focused on group factors that influence

turnover there. This leaves to further research the intriguing question of the effects of environmental

forces on networks and on their upper echelons.

TMT demographics focuses on the composition of the TMT but generally considering only one of

two compositional events, the turnover (Daily and Dalton, 1995; Hambrick and D‟Aveni, 1992; Keck

and Tushman, 1988; Keck and Tushman, 1993; McCain, O‟Reilly III and Pfeffer, 1983; O‟Reilly III,

Caldwell and Barnett, 1989; Pelled, 1996; Wagner, Pfeffer and O‟Reilly III, 1984; Wiersema and

Bantel, 1993, and Wiersema and Bird, 1993). The other event which influences the composition of a

TMT is the inclusion of a new member. Whereas decisions of hiring are often scrutinised in social

psychological studies (Westpahal and Zajac, 1995), selection processes in the internal managerial labor

market that create a pool of would-be TMT-members are an almost virgin area for demographic

research. Few studies have concentrated on the inclusion of new members in TMTs it has been

empirically researched by those concerned with board composition (e.g. Furtado and Karan, 1990;

Westphal and Zajac, 1995) and have been highlighted by the innovative paper by Pfeffer and Leblebici

(1973). Thus, although turnover is a rather well covered aspect of TMT composition, it is time to focus

on the „turn-in‟ or selection of TMT-members.

The balancing of integrative forces of homogenisation that create stability and of the separative

forces of heterogenisation that create change is of genuine managerial concern. The functioning of a

group, for example its capacity to process information (Thomas and McDaniel, 1990) and its

performance in an ultimate sense, depends not only on the competencies of the individuals involved,

but also on the group‟s composition. It is highly tempting to consider the possibility, however trivial it

may appear, of recruiting for such business groups as the Swedish ones examined, a greater number of

financially oriented individuals at times when the companies involved are under financial stress. The

present results emphasise the importance of considering the total effects of recruitment and dismissal.

The manager and the researcher face the same basic difficulty of distinguishing those dimensions for

which heterogeneity has a noticeable effect on the group or company from those for which it has little

or no effect. One possible rule of thumb could be one based on the idea of countervailing forces

considered in this paper, i.e., the idea that in stable environments TMTs can be functionally and branch

homogeneous without much effort needing to be spent on socialising the members, whereas in complex

and turbulent environments diversity in branch experience and functional heterogeneity creates the

need of homogenising through socialisation the individuals involved. Simply put, playing golf and

holding dinners for the TMT are a necessary investment in homogenisation for corporations in

medicine, for example, but a waste of money for corporations in the oil business.

Int. Journal of Business Science and Applied Management / Business-and-Management.org

APPENDIX

1 The Wallenberg group and the Handelsbank group in 1986

Only the largest corporations are included. The arrows indicate share ownership. Similarities

between the groups are stressed at the expense of such dissimilarities as the fact that the Wallenberg

group depends ultimately on non-contestable control of a few, large foundations, while the

Handelsbank group has smaller foundations making the group slightly more vulnerable for control

contests.

Sven-Olof Collin and Timurs Umans

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