Top team deterioration as part of the downward spiral of large corporate bankruptcies

Top team deterioration as part of the downward spiral of large corporate bankruptcies

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Article ID: iaor1993915
Country: United States
Volume: 38
Issue: 10
Start Page Number: 1445
End Page Number: 1466
Publication Date: Oct 1992
Journal: Management Science
Authors: ,
Keywords: commerce
Abstract:

This exploratory study of 57 large bankruptcies and 57 matched survivors examined the top management team (TMT) characteristics associated with major corporate failure. Prior research was used to guide selection of specific team characteristics for study. Not only did the failing firms show significant annual, or cross-sectional, divergence from survivors on several indicators of TMT composition, but also those divergences became more pronounced, even accelerating, over the last five years of the bankrupts’ lives. The results thus suggest that deterioration of the top management team is a central element of the downward spiral of large corporate failures. Based upon a limited test of causality, the authors propose that a two-way process is at work: (1) team deficiencies bring about or aggravate corporate deterioration, either through strategic errors or stakeholder uneasiness with the flawed team: and (2) corporate deterioration brings about team deterioration, through a combination of voluntary departures, scapegoating, and limited resources for attracting new executive talent.

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