Organisational choices partly reflect the experience, values and cognitive biases of senior executives, so who is at the top is a predictor of what the organisation does.
Hambrick and Mason argued in 1984 that executives face situations too complex to analyse fully, so they act on a filtered construal shaped by their own background. The theory has generated a large empirical literature, most of it using observable characteristics as proxies for the unobservable filtering the theory actually posits.
In practice
- A firm whose chief executive came from finance makes different acquisitions from one whose chief executive came from engineering, on the same numbers.
- A board that replaces one member changes what gets discussed before it changes anything that gets decided.
- Possible explanations
- The explanation is bounded rationality: executives face situations too complex to analyse fully, so they act on a filtered construal shaped by their experience and values.
- In its favour
- It generated a large body of testable research, and studies do find associations between executive characteristics and firm strategy and risk-taking.
- Against it
- The cognition it postulates is usually measured by demographic proxies such as age, tenure and education, which critics of the literature describe as a weak substitute, and executive selection is itself shaped by the firm's strategy.
- Standing
- Frequently tested with demographic proxies such as age, tenure and education standing in for cognition, which critics of the literature describe as a weak substitute.
- Subject
- Organizations & Bureaucracy
- Essay
- Why organisations learn, harden and decline