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How much do top management teams matter in founder‐led firms?

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  • Bradley Hendricks
  • Travis Howell
  • Christopher Bingham

Abstract

Research Summary As firms mature, their founders are often replaced with seasoned executives. When founders are retained, the surrounding top management team (TMT) members are viewed as critical resources in helping compensate for the founder's managerial deficiencies. Surprisingly, however, little is known about how TMT members affect a founder‐led firm's performance later in a firm's life. Using novel methods and a sample of over 2,000 firms, we address this gap. We find that although team structure has a significant impact on the performance of nonfounder‐led firms (consistent with past literature), it has little to no effect on the operating performance of founder‐led firms, suggesting that founder chief executive officers (CEOs) may exert too much control. Thus, the irony is that founders are retained to propel progress but their very retention may prevent progress. Taken together, our findings add to the entrepreneurship, team, and research methods literatures. Managerial Summary Although founders have the entrepreneurial skills to successfully grow a startup, they generally lack the managerial skills required to lead a large, public firm. As a result, many founder CEOs are replaced before a firm goes public. When founders do stay as CEO, the prevailing belief is that they require a strong TMT to help compensate for the founder's managerial deficiencies. However, given founders' desire to retain control, there is a question of whether they will rely on that team, or if they will simply continue to follow their own intuition. We find evidence that founder CEOs are much less likely to listen to and benefit from their teams relative to nonfounder CEOs.

Suggested Citation

  • Bradley Hendricks & Travis Howell & Christopher Bingham, 2019. "How much do top management teams matter in founder‐led firms?," Strategic Management Journal, Wiley Blackwell, vol. 40(6), pages 959-986, June.
  • Handle: RePEc:bla:stratm:v:40:y:2019:i:6:p:959-986
    DOI: 10.1002/smj.3006
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    Cited by:

    1. Horner, Sam & Papageorgiadis, Nikolaos & Sofka, Wolfgang & Angelidou, Sofia, 2022. "Standing your ground: Examining the signaling effects of patent litigation in university technology licensing," Research Policy, Elsevier, vol. 51(10).
    2. Emil Velinov & Milan Maly & Yelena Petrenko & Igor Denisov & Vasko Vassilev, 2020. "The Role of Top Management Team Digitalization and Firm Internationalization for Sustainable Business," Sustainability, MDPI, vol. 12(22), pages 1-11, November.
    3. Hendrik Terbeck & Verena Rieger & Niels Van Quaquebeke & Andreas Engelen, 2022. "Once a Founder, Always a Founder? The Role of External Former Founders in Corporate Boards," Journal of Management Studies, Wiley Blackwell, vol. 59(5), pages 1284-1314, July.
    4. Katarzyna Burzynska & Gabriela Contreras, 2020. "Affirmative action programs and network benefits in the number of board positions," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-26, August.
    5. Da Teng & Chengchun Li & Sailesh Tanna, 2022. "Foreign ownership and productivity in Chinese newly listed firms: the moderating roles of founder’s human capital and social ties," Asia Pacific Journal of Management, Springer, vol. 39(3), pages 1125-1159, September.
    6. Anna Brattström, 2024. "Task Re-allocation in New Venture Teams: A Team Conflict Perspective," Entrepreneurship Theory and Practice, , vol. 48(1), pages 205-245, January.
    7. Bradley E. Hendricks & Mark Lang & Kenneth Merkley, 2022. "Through the eyes of the founder: CEO characteristics and firms’ regulatory filings," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(3-4), pages 383-422, March.
    8. Keivan Aghasi & Massimo G. Colombo & Cristina Rossi‐Lamastra, 2022. "Post‐Acquisition Retention of Target Founder‐CEOs: Looking Beneath the Surface," Journal of Management Studies, Wiley Blackwell, vol. 59(4), pages 958-997, June.
    9. Linan Lei & Xiaobo Wu, 2022. "Thinking like a specialist or a generalist? Evidence from hidden champions in China," Asian Business & Management, Palgrave Macmillan, vol. 21(1), pages 25-57, February.
    10. Bhussar, Manjot S. & Sexton, Jennifer C. & Zorn, Michelle L. & Song, Yue, 2022. "High-tech acquisitions: How acquisition pace, venture maturity, and founder retention influence firm innovation," Journal of Business Research, Elsevier, vol. 142(C), pages 620-635.
    11. Hao, Xiaoli & Wen, Shufang & Li, Ke & Wu, Junwei & Wu, Haitao & Hao, Yu, 2023. "Environmental governance, executive incentive, and enterprise performance: Evidence from Chinese mineral enterprises," Resources Policy, Elsevier, vol. 85(PA).
    12. Xie, Xiao-Yun & Feng, Wen & Hu, Qiongjing, 2020. "Does new venture team power hierarchy enhance or impair new venture performance? A contingency perspective," Journal of Business Venturing, Elsevier, vol. 35(6).
    13. Chatterjee, Bikram & Jia, Jing & Nguyen, Mai & Taylor, Grantley & Duong, Lien, 2023. "CEO remuneration, financial distress and firm life cycle," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).

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