1 Does heterogeneity between Chief Supply Chain Officer-CEO personal experience affect company

1 Does heterogeneity between Chief Supply Chain Officer-CEO personal experience affect company

performance?

Master thesis

MSc Supply chain management University of Groningen Faculty of Economics and Business

July 9, 2020

Nick Ekamper Student number S3841391 E-mail n.ekamper@student.rug.nl

First supervisor: Dr. X. Tong

Second assessor: Dr. T. Bortolotti

Word count: 10726

2 Does heterogeneity between Chief supply chain officer-CEO personal experience affect company

performance?

Nick Ekamper

MSC Supply chain management, University of Groningen, The Netherlands

Abstract With the increasing amount of chief supply chain officers (CSCO) active in different firms and the increasing complexity of the supply chain, the close cooperation between CSCO and CEO becomes even more important. The upper echelons theory argues about different characteristics that can influence a firm’s performance. Additionally, heterogeneity between these characteristics may have a positive influence on the firm’s performance. In this paper, I focus on the personal characteristics of CSCO-CEO which exists out of the (international) working experience and the level of education.

Literature argues that heterogeneity in these characteristics can have a positive or negative effect on the performance of the team and so on the firm’s performance. This raises the interest in how heterogeneity in different characteristics between CSCO and CEO influences a firm's performance. Therefore, the research question which will be answered in this paper is; ‘Does heterogeneity in CSCO-CEO personal experience affect a company’s performance?’ This question is answered with secondary data obtained from the BoardEx and Execucomp databases. On this data, I performed a regression analysis. The results show that heterogeneity in the (international) working experience between CSCO-CEO does not influence a firm’s return on assets. Additionally, one control variable, heterogeneity in financial experience between CSCO-CEO was significant in each model and could influence a firm’s performance, however, further research is needed.

Keywords Chief supply chain officer, CSCO, Chief executive officer, CEO, heterogeneity, firm

performance, Working experience, international working experience, level of education.

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Table of contents

1. Introduction ... 4

2. Literature review & hypothesis development ... 7

2.1 Chief supply chain officer ... 7

2.2 Upper echelons theory ... 8

2.3 Heterogeneity within a top management team ... 9

2.4 International firm experience ... 10

2.5 Working experience among different companies ... 12

2.6 Level of education ... 14

2.7 Theoretical framework ... 15

3. Methods ... 16

3.1 Sample ... 16

3.2 Data collection ... 16

3.3 Measurement ... 17

4. Results ... 20

5. Discussion ... 24

5.1 International firm experience ... 24

5.2 Working experience ... 25

5.3 Level of education ... 26

5.4 Financial experience ... 27

5.5 Personal experience ... 27

6. Conclusion ... 29

7. Limitations and future research... 30

References ... 31

4

1. Introduction

Twenty years ago, top management teams usually did not have a supply chain position (Groysberg, Kelly, & MacDonald, 2011). Currently, every year more companies appoint a Chief Supply Chain Officer (CSCO) to their top management team (Hendricks, Hora, & Singhal, 2015). The reason for this is that firms expand their operations to other countries, which increases the complexity of the supply chain. The CSCO is the highest executive responsible for the management of the supply chain (Wagner

& Kemmerling, 2014). Within an organization, the CSCO and CEO are closely cooperating. The CEO links the outside of an organization to the inside (Lafley, 2009). This makes the roles of the CSCO-CEO closely related, and additionally makes cooperation necessary to deal with the increasing complexity in the supply chain. Overall, the role of a CSCO and the cooperation between CSCO-CEO is getting more important within organizations, and therefore the interest of academic research on this topic raises.

Hambrick and Mason (1984) discuss the upper echelon theory in which the personal characteristics of executives of the top management team are partial predictors for organizational outcomes. This means that if a company knows the personal characteristics of the executive they want to hire, they could partially determine the effect on the firm’s performance. The increasing complexity of the supply chain increases the need for better and more management of the supply chain. Companies have to do this to stay competitive, if they are not able to manage the supply chain this could potentially harm the firm’s performance (Bozarth, Warsing, Flynn, & Flynn, 2009; Van Der Vorst & Beulens, 2002). With the increasing need for supply chain management, the CSCO and CEO need to cooperate well because their interests are closely linked, and cooperation is needed because the linkage between the inside and outside (supply chain) of the organization need to be made. Therefore, the CSCO and CEO need to make strategic choices related to the supply chain. This increases the need for understanding of the personal characteristics of CSCO-CEO and how these affect a firm’s performance. Knowledge about the influence on a firm’s performance can help in practice to appoint a CSCO/CEO with certain characteristics, which optimizes the performance of the firm. This research can contribute to a theory about the optimal composition of the top management team. If researchers know what the influence of heterogeneity is on the personal characteristics between CSCO-CEO, the best characteristic match for these roles can be chosen to enhance firm performance and help to form a theory about the optimal composition of the top management team.

When firms appoint a CSCO-CEO, they have the choice to let the characteristics of the CSCO-CEO differ to have more heterogeneity in the management team. Having heterogeneity within a team can have both positive and negative consequences on the functioning of the team (van Knippenberg &

Schippers, 2007). Within literature, there are two streams with different perspectives on heterogeneity.

The first point of view suggests that heterogeneity is a source of conflicts that can decrease a firm’s

performance (Greening & Johnson, 1997; van Knippenberg & Schippers, 2007). The other point of view

5 sees heterogeneity as a source of innovation and complementarity, which can increase a firm’s performance (An, Chen, Wu, & Zhang, 2019; Cannella, Park, & Lee, 2008). This research focuses on the heterogeneity between the personal characteristics of CSCO-CEO. Because currently, there are two streams in literature, and to the best of our knowledge the effect of heterogeneity on the personal characteristics of CSCO-CEO is unknown. For researchers, it is beneficial to know if the influence of heterogeneity in the personal characteristics between CSCO-CEO has a negative or positive influence on a firm’s performance. For practice, this can help in giving guidance if companies should aim for heterogeneity when appointing a CSCO-CEO.

The focus of this research lies in the heterogeneity in the personal experience between CSCO-CEO.

International working experience, general work experience, and the level of education comprises the personal experience of an executive. The focus lies on personal experience because Hambrick & Mason (1984) suggest in the upper echelons theory that work-related experience and the level of education of an executive can influence the strategic choices and firm performance. When an executive is selected their (international) working experience is one of the main points of selection (Guthrie & Datta, 1997).

Companies aim for international experience because this can increase the international diversification of the company and with international diversification new markets can be entered or current markets can be expanded (Sambharya, 1996). Additionally, companies aim for working experience in different companies because executives can refer to their experience when making decisions. The level of education is added because literature suggests that heterogeneity in the level of education can increase the creation of new knowledge and improves the innovations within a company (Gottesman & Morey, 2011) and so positively affect the firm’s performance.

Distinctions in personal experience should be made because these types of experience and the heterogeneity between them have different effects on the CSCO-CEO performance, a firm’s performance, and the firm’s supply chain. Heterogeneity between CSCO-CEO in the international firm experience matters because it can balance the international diversification of the company. The executive with more international experience focuses on the firm’s international involvement. Whereas the executive with less international experience primarily focuses on the domestic market. This can evenly spread the focus of the company and so the firm can achieve the best performance (Hashai &

Delios, 2012). Heterogeneity in working experience among different companies can be beneficial for the firm’s performance because executives who worked in many different companies are for example better in better information sharing (Bunderson & Sutcliffe, 2002). The executives know from their experience which information they have to share with other functions. This can be important to know for the CSCO-CEO because, if this also holds for the CSCO-CEO it could be better for firm performance to have heterogeneity between CSCO-CEO in the working experience among different companies.

Lastly, heterogeneity in the level of education can influence the strategic decision-making and outcomes

of an executive, which could also affect a firm’s performance (Hitt & Tyler, 1991; Kim & Rasheed,

6 2014). CSCO and CEO have to do strategic decision-making. So, if heterogeneity in the level of education is also good for the CSCO-CEO this can help to enhance the firm’s performance by searching for the right level of heterogeneity in the level of education to make better strategic decisions.

Altogether, it has benefits to understand how heterogeneity in these three characteristics between CSCO- CEO affects a firm’s performance. If this is known, the firm’s performance can be more accurately predicted which in turn can help in practice where firms have to perform as well as possible. All of the above leads to the following research question: Does heterogeneity in CSCO-CEO personal experience affect company performance (Return on assets)?

To answer the research question, a regression analysis will be performed on a sample gathered from 1500 S&P firms’ origin from North America. From the total amount of 1500 firms, 175 firms had a CSCO appointed to their top management teams during 1992-2018. The data about the individual characteristics gathered is about the CSCO and CEO of their corresponding top management team. The data about the individual characteristics are obtained from the WRDS - BoardEx database and the financial data is obtained from the Compustat database.

This study is organized as follows. Within the second chapter, the theoretical framework will be

discussed, and the hypothesis will also be developed in this chapter. In the third chapter, the

methodology is discussed. After the methodology, I elaborate on the results. In chapter five the

discussion of the results take place, followed by the conclusion. I will end with the limitations of the

study and suggestions for further research.

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2. Literature review & hypothesis development

First, I will elaborate on the role of a CSCO, because this role is relatively new within the top management team. Additionally, the possible influence of the upper echelons on the CSCO-CEO performance will be a point of attention. Heterogeneity within a top management team will also be discussed because this can indicate the influence of the characteristics on a firm's performance. To add to this, the characteristics of the upper echelons theory used within this research will be discussed to get an understanding of their possible influence on the heterogeneity between CSCO-CEO, related to a firm's performance. After each of the characteristics, I will develop a hypothesis related to the reviewed characteristic. To finish this chapter, the theoretical framework of the research will be discussed.

2.1 Chief supply chain officer

More and more companies do appoint a CSCO within their top management team (Hendricks et al., 2015). Manuj & Mentzer (2008) define a CSCO as a manager with the responsibility for processes that are broader than the focal firm related to the services and goods needed (suppliers) and provided (customers) by the company. Roh et al. (2016) combined this definition with the definition of Wagner

& Kemmerling (2014) and came to the following definition for their research;

“We view CSCO as a TMT-level executive who is explicitly responsible for enterprise-wide supply chain management activities. Although these executives can be known by multiple titles, our analysis of executive role descriptions, exploratory interviews with CSCOs, and the existing literature reveal that CSCOs have three core responsibilities: leading the supply chain management organization, developing strategic partnerships with business units, and serving as an active member of the TMT”(Roh et al., 2016:50).

The definition provided by Roh et al. (2016) will be used as the main definition for the CSCO because it covers all the elements of the CSCO function compared to other definitions that lack some of the elements.

Within a firm, the CSCO has several responsibilities. The CSCO thinks critically about what is important for all parts of the organization and what this means for the supply chain (Roh et al., 2016). A CSCO is there to manage the firms’ internal supply chain activities like sourcing and delivery (Turkulainen &

Swink, 2017). By managing these activities in the right way, a CSCO can increase a firm's performance.

A CSCO optimizes logistic activities to reduce cost or gains competitive advantages with for example

same-day delivery. Additionally, the CSCO is a boundary-spanning leader who helps to achieve

collaboration across all different divisions and levels of the organization to achieve overall targets (Roh

et al., 2016). Lastly, the CSCO has to actively participate within the top management team, to contribute

to the firms' decision-making by the knowledge the CSCO has about the firms' internal and external

strengths and weaknesses and possible opportunities within the supply chain. With the collaboration, a

8 CSCO brings into the organization, together with a CSCO’s influences on a firm's strategic decision- making, makes the role of a CSCO important for a firm's performance by increasing the collaboration within the supply chain.

The CSCO directly reports to the CEO (Kelly & Macdonald, 2011), the CEO is the main corporate decision-maker (Cannella, Finkelstein, & Hambrick, 2009). To achieve boundary-spanning within the top management team the CSCO and CEO have to closely cooperate. The CEO’s unique work is linking the outside of an organization to the inside. With this, the CEO makes sure that the whole firm can react in the right way to achieve the targeted goals. This job has to be performed by the CEO because other members of the organization are focusing on just one part of the organization (Lafley, 2009). With the description of Lafley (2009) the interest of a CSCO and CEO becomes closely linked, work performed by the CSCO is also crucial for CEO and vice versa. This raises the interest in the CSCO-CEO relationship.

2.2 Upper echelons theory

The upper echelons theory has an interesting view on the predictability of the organizational outcomes.

This theory argues that organizational outcomes are influenced by the managerial background and characteristics of the top management team (Hambrick & Mason, 1984). According to the upper echelons theory, each executive of the top management team possesses unique characteristics and interpretation capabilities. These help executives with making decisions, taking actions, and defining the company strategy. The way executives interpret is influenced by the personality, values, and experiences the executives possess, this also affects decision-making which can affect a firm’s performance. Several characteristics are discussed in this theory; age, educational background, career variety, and nationality are the observable characteristic whereas the cognitive base and values are the non-observable ones (Hambrick, 2007). Additionally, the characteristics of the complete top management team explain more of the influence on the organizational outcome compared to only one of the executives. This can be explained by the suggestion that leadership is an activity that has to be performed jointly (Hambrick 1996). The way other executives interpret information and make decisions influence the overall performance of the company. The upper echelon theory could also apply to the CSCO-CEO relationship. If CSCO-CEO interprets information in other ways because of certain characteristics they can affect firm performance in different ways and so improve or decrease overall firm performance.

In this research, the focus is on the personal experience of the CSCO-CEO. This exists out of the

(international) working experience and the level of education. Which are also characteristics discussed

in the upper echelon theory. The (international) working experience is chosen because this is one of the

main points when companies select an executive (Guthrie & Datta, 1997). So, executives are selected

on their (international) working experience, but how heterogeneity in the (international) working

9 experience affects the CSCO-CEO relationship and the firm's performance remains unknown.

Additionally, the level of education of CSCO-CEO will also be a variable. Literature discusses the impact of the level of education on the performance of an executive (Gottesman & Morey, 2011).

Gottesman & Morey (2011) performed research about the level of education of a CEO and firm performance. They found that there is no significant difference in performance for companies with a CEO who has an MBA degree compared to a CEO who has no degree. However, if heterogeneity in the level of education also affects the CSCO-CEO performance remains unclear. Hitt & Tyler, (1991) suggest that strategic decisions are influenced by age, educational degree, amount, and type of work experience. Strategic decisions affect a firm’s performance. So, the (international) working experience and level of education are likely to have an influence on the functioning of the CSCO-CEO and so on a firm’s performance but a clear influence is still unknown.

2.3 Heterogeneity within a top management team

Several studies show that the composition of the top management team influences different performance aspects of companies. In general, there are two streams in literature. One suggests that heterogeneity in the composition of the top management team can decrease a firm’s performance. The second stream suggests the opposite, heterogeneity within a top management team can increase a firm’s performance.

Hambrick et al. (1996) suggest that the overall effect of heterogeneity within a top management team is positively related to market share and profits made, which is in line with Tulung & Ramdani (2015) who also found a positive relationship between a difference in characteristics and firm performance.

Additionally, a moderate level of heterogeneity can lead to an increase in collaboration across the top

management team and so affect firm performance (Greening & Johnson, 1997). The other stream in

literature suggests for example that heterogeneity is only good for job-related characteristics. job-related

characteristics are for example functional background and the level of education (Naranjo-Gil,

Hartmann, & Maas, 2008). Hambrick et al. (1996) also suggested that the effect of heterogeneity is

different depending on the task that has to be performed. There is even literature that suggests both a

positive and negative influence on firm performance is possible. Van Knippenberg & Schippers (2007)

argue about the positive and negative influence on performance, they propose a curvilinear relationship,

where performance goes down if there is too little or too much heterogeneity and can increase

performance when heterogeneity is moderated. Overall, heterogeneity can improve a firm’s performance

and if this holds for the top management team, this may also hold for the CSCO-CEO relationship

because they are part of the top management team.

10 2.4 International firm experience

International work experience is recognized as an important asset and has gained increasing significance within companies (Carpenter, Sanders, & Gregersen, 2001). International firm experience can increase the international diversification of a company. International diversification brings different positive contributions to a firm, an example of this is the stabilization of returns, business is done international, so revenue is made in more places (Caves, 1982). Another example is market opportunities, different markets can become accessible when a company puts effort into international diversification (Buhner, 1987). Sambharya (1996) found in their study that a top management team with a high level of international experience and heterogeneity in international experience is more likely to drive a firm's international involvement. More international involvement can lead to more international diversification within a company and impact the firm’s performance as mentioned in the examples above (Reuber &

Fischer, 1997; Tihanyi, Ellstrand, Daily, & Dalton, 2000). Several researchers have linked international experience to a firm’s international involvement and its supply chain (Athanassiou & Nigh, 2002;

Reuber & Fischer, 1997; Tihanyi, et al., 2000). This is because international working experience can lead to more international diversification, and in turn, new markets can be accessed. This potentially increases the globalization of the company which comes with an increase in supply chain complexity.

This increase in supply chain complexity needs to be managed by the CSCO.

Prior research of Daily, Certo, & Dalton (2000) and Fitzsimmons & Callan (2016) suggests that international experience has a positive influence on several abilities of executives. Daily & Schwenk, (1996) and Ricks, Toyne, & Martinez, (1990) suggest that the international experience provide executives with strategic leadership capabilities and management skills that can be used globally. They develop these capabilities and skills because they need to deal with different languages, institutional environments, and value systems when working internationally.

Carpenter (2002) found in his research that there is a small significant relationship between heterogeneity in the international experience in the top management team and the return on assets of a firm. Additionally, Carpenter & Fredrickson (2001) reported a link between heterogeneity in the international experience, the level of education, and a firm’s global strategic posture, which can enhance a firm's performance. However, I do not look into the complete top management team but only at CSCO- CEO. Still, this can indicate what effect heterogeneity of international experience could have for CSCO- CEO because they are part of the top management team.

Overall, literature suggests that international experience is good for executives to have because it can positively influence several abilities of executives (Daily et al., 2000; Fitzsimmons & Callan, 2016).

However, literature also argues that heterogeneity in international experience is good within a top

management team and can increase a firm's performance (Carpenter, 2002). This indicates that it can be

good for CSCO-CEO to possess international experience. Additionally, heterogeneity in this

11 international experience could also positively influence the functioning of the CSCO-CEO and so positively affect a firm’s performance. Heterogeneity in the international firm experience between CSCO-CEO matters for the firm's performance because this could lead to more balance in international diversification. The right balance between international diversification and the domestic presence of the firm can positively affect the firm’s performance. If a firm focuses too much on international presence, this goes at the expense of domestic presence and vice versa (Hashai & Delios, 2012). Heterogeneity in this case can be good because CSCO-CEO needs to pay enough attention to both international and domestic markets to maintain revenue. Heterogeneity can help with this by hiring one executive with international experience who focusses more on the international market and another executive who focusses on domestic markets. Additionally, if CSCO or CEO has international experience, the CSCO or CEO likely has a more developed international network. However, a CSCO or CEO with less international experience may have a more developed network in the domestic market. If both these networks would be available because there is heterogeneity in the international working experience between CSCO-CEO, opportunities for the firm could arise which otherwise would not have been available. These opportunities can help to increase the firm’s performance by for example getting access to a new local or international supplier or new customers.

There is also literature that discusses negative implications for heterogeneity and experience. Reuber (1997) argues that experience has a “shelf life”, which means that skills and abilities obtained can fade away when they are not reinforced. However, CSCO and CEO need these skills and abilities on a daily basis to make decisions. For this reason, the experience will be reinforced and not fade away. Literature about heterogeneity also argues that heterogeneity can cause conflicts and reduces a firm's performance (Greening & Johnson, 1997; van Knippenberg & Schippers, 2007). This could also hold for international experience where for example conflicts can arise if a CSCO with more international experience wants more international involvement of the firm. Compared to the CEO who possesses less international experience and therefore, does not want more international involvement of the company, and wants to focus on the domestic market. However, even if this choice may imply conflicts, this choice needs to made to find the optimal balance in international diversification (Hashai & Delios, 2012). When both roles just would agree with for example less international diversification opportunities for the firm would not be utilized and firm performance would not be at the level it could have been. If it would be the other way around and both roles aim for more international diversification they may lose market share in the domestic market because they are too focused on the international markets.

As discussed, there are two streams concerning heterogeneity within literature. Hambrick et al. (1996)

& Naranjo-Gil et al. (2008) argue that for job-related characteristics, heterogeneity will have a positive

effect on performance. International working experience is a job-related characteristic and so

heterogeneity in this characteristic can have a positive influence on a firm's performance. Additionally,

researchers suggest a positive relationship between international experience and the firm’s performance

12 for the complete management team (Carpenter, 2002; Carpenter & Fredrickson, 2001). This indicates that heterogeneity can increase performance so this may also hold for the heterogeneity in international experience between CSCO and CEO. Overall, there are several positive influences of heterogeneity between CSCO-CEO in their international experience. Therefore, I predict that if there is heterogeneity in the international firm experience between CSCO-CEO this would improve a firm’s performance.

This leads to the following hypothesis;

• H1; Heterogeneity in the international firm experience of CSCO-CEO improves a firm’s performance (Return on assets).

2.5 Working experience among different companies

Working experience among different companies can bring an important source of expertise among executives (Bunderson & Sutcliffe, 2002). The more working experience both CSCO-CEO have the higher heterogeneity in their experience because they worked in different companies and industries so their experiences differ more. Bromme & Tillema (1995) suggest that more working experience in different firm’s shapes the vision and way of thinking of the executive. Top management teams with a higher amount of working experience can have more skills, different perspectives, and more non- overlapping knowledge compared to executives with less working experience (Simons, Pelled, & Smith, 1999). Additionally, heterogeneity in working experience is related to an increase in market share and profits made (Tulung & Ramdani., 2015). Ndofor, Sirmon, & He (2015) are suggesting the same, heterogeneity in working experience within the complete top management team can be better for a firm's performance. However, I do not look into the full top management team, but this could indicate a positive influence of heterogeneity in working experience between CSCO-CEO on the performance of the firm.

Crossland et al. (2014) suggest that more working experience can result in a broader and more diverse

professional network. When the heterogeneity between CSCO-CEO is high because both worked in

many companies, they both likely developed a broader and more diverse professional network. Here,

the network of the CEO can help the CSCO with developing strategic relationships for the firm which

is one of the main tasks of the CSCO (Wagner and Kemmerling, 2014). Coff (2002) states that job-

related experience within different companies helps an individual to develop certain capabilities,

expertise, and knowledge. According to Alnachef & Alhajjar (2017) and Oehmichen, Schrapp, & Wolff

(2017) these capabilities, expertise, and knowledge can help the executive in all different kinds of

situations. In the end, they lead to better functioning of the CSCO-CEO which can affect decision-

making and increase firm performance (Crook, Todd, Combs, Woehr, & Ketchen, 2011). Additionally,

when executives are more experienced because they worked in various functional areas, this may lead

to a higher level of information sharing (Bunderson & Sutcliffe, 2002). Better information sharing makes

13 sure that the right information is in the right place within the organization and so if CSCO and CEO possess the right kind of information they can make better decisions to increase the firm’s performance.

As also elaborated on for the international firm experience of the CSCO-CEO, Hambrick et al. (1996)

& Naranjo-Gil et al., (2008) argue that heterogeneity will have a positive effect on performance for job- related characteristics. Working experience in different companies is also part of the job-related characteristics, so this means that heterogeneity in working experience in different companies should have a positive effect on the performance of CSCO-CEO and therefore affect the firm’s performance by better collaborative decision-making and making a better linkage between the outside of the organization to the inside of the organization.

On the individual level, heterogeneity in the working experience among different companies matters for CSCO-CEO and firm performance. An example of this is enhanced information sharing suggested by Bunderson & Sutcliffe (2002). In this situation, the CSCO and CEO together but also individually can make better decisions because they possess the information they need to make informed decisions.

Additionally, the higher the level of heterogeneity the more individual expertise and skills the CSCO and CEO possess. With this expertise and skills, both roles can enhance their individual and team performance (Bunderson & Sutcliffe, 2002; Simons et al., 1999).

Several researchers argue that experience does not matter. As already discussed, experience can have a

“shelf life”, there is argued that abilities knowledge and skills obtained are beginning to fade away when not reinforced (Reuber, 1997). However, executives with much experience develop tacit knowledge by dealing with unpredictable situations (Collins, 2013). Tacit knowledge can help executives by making balanced and better decisions. Even if these experiences may not last forever, the most important experiences will get reinforced by the daily decision-making process where the CSCO and CEO have to deal with. Additionally, some researchers did not find any significant effect between heterogeneity related to experience in different previous functions within a top management team and a firm’s return on assets (Cannella, Park, & Lee, 2008). However, I do not research differences in previous functions but differences in overall working experience in different companies, I do not take into account which functions the executives fulfilled during their previous jobs as this is outside the scope of this research.

Overall, there are several positive influences of working experience in different companies, which can help to improve the performance of the CSCO-CEO and so could positively affect a firm’s performance.

Therefore, I propose a relationship where heterogeneity between CSCO-CEO in the working experience among different companies improves the firm's performance. With this the following hypothesis can be developed for the heterogeneity between CSCO-CEO in their working experience among different firms related to a firm’s performance;

• H2; Heterogeneity between CSCO-CEO in the working experience among different firms

improve a firm’s performance (Return on assets).

14 2.6 Level of education

The level of education goes into a person's cognitive abilities and skills. A higher level of these abilities and skills are related to higher performance in information processing and increase the capability to make a difference between the different impulses from an environment. This makes it that more intelligent individuals can process information faster and also can process more information (Gottesman

& Morey, 2011). Hitt & Tyler (1991) suggest that the level of education is of influence on the strategic decision-making and outcomes of an executive. Wiersema & Bantel (1992) argue that companies that are more likely to make changes within their corporate strategy exist out of management teams with higher educational level and specialization. So, if a company needs to adapt to new incentives from its environment or supply chain a top management team with higher educated executives may be good to adapt the corporate strategy. However, decision-making is not directly related to performance, still, it can affect a firm’s performance.

Literature also argues that heterogeneity in the level of education within a firm's top management team can lead to an increase in innovative input (An et al., 2019). In addition, Carpenter (2002) found a relationship between top management team heterogeneity in demographic factors including education and firms' return on assets. Other research even focused on the level of education related to performance and found that heterogeneity in the educational background of the top management team was indeed related to a firm’s performance (Norburn & Birley, 1988). Heterogeneity in education between CSCO- CEO leads to a variety in their knowledge base. Variety in different sources of knowledge is needed to gain new knowledge. New knowledge can help by improving or developing new products. This can lead to technology newness and market newness, which both can increase the overall firm’s performance (Talke, Salomo, & Kock, 2011). Additionally, Kim & Rasheed (2014) suggest that heterogeneity in knowledge can potentially help to increase the firm’s performance. Therefore, it could be good for a company to have a CSCO and CEO with a variety of knowledge so that they together can form new knowledge which can help to increase the firm’s performance.

The literature discussed above is mostly looking into the top management team. I am researching the

CSCO-CEO relationship and not the complete management team. However, these positive effects of

heterogeneity in the level of education could also influence the CSCO-CEO relationship because they

are a part of the top management team. The literature arguing that experience has a ‘’shelf life’ is less

appropriate for the level of education, because the level of education indicates how good someone can

process information and make a distinction between different impulses from the environment

(Gottesman & Morey, 2011). Additionally, higher educated executives can make necessary changes

quicker (Wiersema & Bantel, 1992). This can be useful for the CSCO-CEO because they have to make

important decisions on a daily basis.

15 On the individual level heterogeneity in the level of education matters for CSCO-CEO and firm performance, because when both levels of education differ, they possess a different kind of knowledge where they can accomplish each other and create new knowledge (Talke et al., 2011). Additionally, if their knowledge differs they can learn from each other’s different perspectives (Simons et al., 1999) and so develop themselves and make better-substantiated decisions that help to increase a firm’s performance.

Overall, heterogeneity in the level of education can have different consequences for a company.

Heterogeneity in the level of education can give a different view on choices the top management team has to make (Hitt & Tyler, 1991). Higher educated executives can overall process information quicker and better (Gottesman & Morey, 2011). However, Heterogeneity in education can increase productivity and lead to more different skills possessed by executives which can increase a firm’s performance.

Additionally, Kim & Rasheed (2014) suggest that heterogeneity in knowledge can potentially help to increase the firm’s performance. Therefore, I propose a positive relationship between heterogeneity in the level of education and a firm’s performance.

• H3;Heterogeneity between CSCO-CEO in the level of education can increase a firm's performance (Return on assets)

2.7 Theoretical framework

Within the theoretical framework, the effect of all different elements on the dependent construct is shown. Within this research, the dependent construct is a firm’s performance measured in the return on assets. The main independent construct is the heterogeneity between CSCO-CEO personal experience.

With this independent construct, three other independent constructs are part of the personal experience of an executive, these three independent constructs are; international firm experience, working experience in different companies, and the level of education. These three independent constructs all have a hypothesis developed for them with the possible effect they could have on the dependent construct. An overview of the theoretical framework is shown in figure 2.1.

Figure 2.1

Theoretical framework

16

3. Methods

3.1 Sample

This research is deductive, and it consists of secondary data. This data will be analyzed with the use of econometric analyses. The secondary data consist of 1500 S&P firms, 175 of those firms had a CSCO appointed during 1992-2018, this data was collected from the Execucomp database. The personal - and firm information about the CEO’s are gathered from the BoardEx database. The choice is made to focus on the S&P1500 firms from North America because these firms are required to report the names together with the function of their executives. This leads to reliable secondary data, which makes this data suitable for econometric analyses. The data collection for the CEO is performed within a team of six researchers who each were responsible for 105 firm years which lead to a total sample of 629 firm years.

After the data collection, another researcher assessed the data. This assessment is performed to secure the correctness of the data. The information about the CSCO was gathered by our supervisor and his co- author who obtained the data from the BoardEx and Execucomp database in the same way this research team did.

3.2 Data collection

Within the research, the Execucomp database was used by the supervisors to gather information about the presence of a CSCO within the top management team. In addition, I used BoardEx to collect data about the individual characteristics of the CEO which was also used by my supervisor to gather data about the individual characteristics of the CSCO. To start with, the supervisors collected the data about the presence of the CSCO within the top management team using the Execucomp database. This was done using the search criteria of Roh et al. (2016) as the leitmotifs within the data collection.

Additionally, I collected the individual characteristics of the CEO from BoardEx. This is done in the same way as my supervisor did with the CSCO data, which I will now elaborate on. On BoardEx, North America is selected because of the focus lies on North American firms only. Next, I go to individual profile and to profile employment. For each company, the company code needs to be known. Within the BoardEx database, there is a possibility to look up this code by searching on the company name. This was done for each company. When the company code is known, I am able to put the code into BoardEx and find all data about the executives of the company. Here I search for the CEO and look for the period when also a CSCO was active within the company. Then I take the CEO’s director id and I can search on BoardEx again for this director's id code and find his personal, educational and working experience data and process all this data in the database used.

BoardEx and Execucomp are two different databases so the data from the two databases need to be matched. This was done with the common identifier CUSIP. CUSIP helped to match the same firms from the two databases. Next, the individual data were matched by using the fuzzy-matching technique.

With this technique, individuals from the same firm can be matched by their names.

17 When the data collection from the BoardEx database was completed, I sent the outcome to another researcher in this project who randomly checked ten lines on any errors. Every researcher performed this process, to guarantee the correctness of the data.

3.3 Measurement

Independent variables

• Heterogeneity in the international firm experience between CSCO-CEO. I am interested in the difference between the number of foreign firms CSCO-CEO worked at and if it influences the performance of the firm. The number of foreign firms a CSCO-CEO worked at is obtained from the BoardEx database. These numbers will be distracted from each other and used as the measure to see if heterogeneity in international firm experience between CSCO-CEO affects a firm's performance. So, if the CEO worked in five international firms’ and the CSCO worked in two international firm’s the difference is three.

• Heterogeneity between CSCO-CEO in the working experience among different companies. This variable is closely linked with variable one but now the variable of interest goes into the total amount of firms CSCO-CEO worked at. The number of firms the CSCO-CEO worked at can be counted from the BoardEx database. The number of firms the CSCO-CEO worked at will be subtracted from each other and the difference between them will be used as a measure for the heterogeneity in working experience among different firms. This is done in the same way as for the international firms’ experience. So, if the CEO worked for six firms and CSCO for four firms the difference is two.

• Heterogeneity in the level of education of CSCO-CEO. Here the point of attention is about the

difference in the level of education and if heterogeneity in the level of education influences a

firm's performance. To measure the heterogeneity in the level of education a number is given to

a certain degree which increases the higher the level of the degree. This includes the bachelor's

degree which is a 1, Master degree which is a 2, MBA & EMBA which are a 3 and PhD & JD

which are a 4. The difference is obtained by subtracting the scores from each other. An example

is if the CEO has a PhD degree and the CSCO has a Master's degree, I subtract the scores from

each other so four minus two gives a difference of two. With the difference obtained, the impact

of the heterogeneity in the level of education between CSCO-CEO can be measured.

18 Dependent variable

• Firm's performance. This variable will be measured in the return on assets of the company to compare if higher heterogeneity between CSCO-CEO on one of the other variables impacts the return on assets of the company. The return on assets exits out of the operating income after depreciation divided by the book value of the firm’s assets (Hendricks et al., 2014; Swink and Schoenherr, 2015). This value will be obtained from the Compustat database. The return on assets is measured as the profits of the firms divided by the total assets. Additionally, to avoid skewness in the results I will take the natural log of the return on assets. I also take the lagged return on assets. This is the return on assets one year later, so the effect of the CSCO-CEO relationship had enough time to impact the firm's performance.

Control variables

Within the upper echelons theory, more characteristics could influence the top management team's performance (Hambrick, 1994). Data is also available for the age and financial experience of the CSCO- CEO and these variables could potentially influence a firm's performance. Heterogeneity in age within a top management team could according to Richard & Shelor (2002) be an important demographic variable that is negatively related to a firm’s return on assets. The age will be measured by using the date of birth of CSCO-CEO. The day of birth can also be obtained from the BoardEx database. Both dates will be subtracted from each other, which gives the difference in age between these two members.

Hambrick & Mason (1984) argue that other career experiences can also influence the performance of a top management team. Within the data, the financial experience of the CSCO-CEO was obtained, and this will be used to measure the effect of other career experiences. The financial experience of a CSCO- CEO will be measured by a binary variable, if the CSCO or CEO has financial experience it is 1 if they do not have any financial experience it is 0. To measure the heterogeneity, the score of the CEO and CSCO will be subtracted from each other. For example, if the CEO has financial experience and the CSCO does not, I subtract zero of 1 which is 1. So, if the end score is one there is heterogeneity when it is zero there is no heterogeneity.

Additionally, I added another control variable, the size of the top management team. I added this variable because larger top management teams are more likely to have the CSCO role within their top management team. So, this could also impact the influence of the team on the firm's return on assets.

The size of the top management team is calculated as all the current executives' roles within the top

management team. So, for example, if a company only has a CEO, CFO and COO the total number will

be 3.

19 The tenure within the top management team is also added to the model as a control variable. Top management teams who have a longer tenure are less likely to make structural changes and so are less likely to accept the introduction of the CSCO within their team (Wiersema & Bantel, 1992). The tenure of the top management team is measured as follows; it is measured as the mean in years that all top management team members are in their current executive function. For example, if the CEO is 5 years in his function, the CFO 2 years and the COO 3 years the mean in years is 3,33.

I also take the presence of the Chief operating officer (COO) into account. This role controls the internal processes of the company. According to Roh et al. (2016), it is less likely that a company adopts a CSCO if they already hired a COO. Hiring only a CSCO or both CSCO and COO may influence performance because the appointment of a COO can influence the effectiveness of the CSCO. I measured the presence of the COO as a dichotomous indicator. Where 0 means that there is no COO present and a 1 means that the COO position is present within the top management team. To guarantee the correctness of the relationship suggested within each hypothesis the age and financial experience, top management team size, tenure within the top management team, and the presence of COO will be used as control variables during the regression analysis.

In the end, the sample exists of 175 firms who had a CSCO appointed to their top management team

between 1992 and 2018. This corresponds with 629 firm years wherein a CSCO was appointed to a

firm's top management team. The data will be analyzed with the help of a regression analysis using

SPSS software. This is the most suited method because with a regression analysis the influence of the

independent variable on the dependent variable can be measured (Barbur, Montgomery, & Peck, 1994)

20

4. Results

To start, the assumptions for a regression analysis should be tested. The results of these tests were acceptable, so a regression analysis could be performed on this data. Overall, there is a wide distribution to the right and a smaller distribution to the left within the data. Additionally, a check on the VIF values needs to be done. Table 4.1 shows the VIF values in the last column. The VIF values are all around 1 which indicates that the contributions from all variables to the model can be accurately assessed.

Table 4.1 VIF values

Independent variable VIF

Heterogeneity in working experience among different companies

1,105 Heterogeneity in international firm experience 1,091 Heterogeneity in the level of education 1,045

Heterogeneity in age 1,059

Heterogeneity in financial experience 1,074

Presence of COO 1,020

Tenure within the top management team 1,050 Size of the top management team 1,082

Now I will show the results of the linear regression analysis for hypothesis one. In table 4.2 the results are shown in the column of model 2. The results of the Anova test are shown in table 4.3 model 2. For each variable, the t value and significance are shown. Model 2 shows that for a p-value of 0,05, the heterogeneity in the international experience a CSCO-CEO has does not have a significant effect (p = 0,900) on a firm’s return on assets. For this reason Hypothesis 1 can be rejected.

For the second hypothesis, the results are shown in Table 4.2 model 3 and table 4.3 model 3. This shows that working experience in different firms is not significant (p = 0,871) within model 3. For this reason, hypothesis 2 can also be rejected. Heterogeneity between CSCO-CEO in working experience among different companies does not have a significant influence on the return on assets of a company.

In hypothesis 3 I investigate if heterogeneity in the level of education between CSCO-CEO influences a firm’s return on assets. The results of this regression analysis are shown in Table 4.2 model 4 and the results of the Anova test are shown in table 4.3 model 2. Overall, I have to reject hypothesis 3 because the effect of heterogeneity in the level of education between CSCO-CEO does not have a significant effect (p = 0,297) on the return on assets of a company.

Additionally, I performed a regression analysis on all the control variables and independent variables

which form a CSCO/CEO personal experience on the dependent variable. The results of this test are

shown in the column named full model. Overall, the variables are not significant except for one control

variable. If one looks into the results of this test in table 4.2, it stands out that the control variable

21 heterogeneity in financial experience is significant (p < 0,01) in every model in this research. In table 4.4 all other coefficients for each model are shown.

Table 4.2 Results of each model

Variable Model

(Baseline/o nly

controls)

Model 2 (international firm

experience)

Model 3 (firm experience)

Model 4 (Level of education)

Full model

Control 1 –

Heterogeneity in Age between CSCO/CEO

t = -,587 Sig. = ,558

-,559 ,576

-,587 ,558

-,569 ,570

-,529 ,597 Control 2 –

Heterogeneity in financial experience between CSCO/CEO

-3,077***

,002

-3,019***

,003

-3,077***

,002

-3,554***

,000

-3,474***

,001 Control 3 – Presence

of a COO within the top management team

-,663 ,508

-,601 ,548

-,663 ,508

-,458 ,647

-,389 ,697 Control 4 – Tenure

within the top management team

,0837 ,403

,816 ,415

,837 ,403

,719 473

,698 ,486 Control 5 – Size of

the top management team

-,604 ,546

-,582 ,561

-,604 ,546

-,103 ,918

-,075 ,940 Independent

variable 1 – Heterogeneity in international firm experience between CSCO-CEO

-,126 ,900

-,309 ,758

Independent variable 2 – Heterogeneity between CSCO-CEO in working

experience among different companies

-,163 ,871

,073 ,942

Independent variable –

Heterogeneity in the level of education between CSCO-CEO

-1,043 ,297

-1,041 ,299

R squared ,023 ,023 ,023 ,030 ,030

22 Table 4.3

Results of the Anova test Model summary Model

(Baseline/only controls)

Model 2 (international firm

experience)

Model 3 (Working experience)

Model 4 (Level of education)

Full model

R ,153 ,152 ,153 ,174 ,174

R Square ,023 ,023 ,023 ,030 ,030

Adjusted R Square

,013 ,010 ,011 ,017 ,013

Std. Error of the Estimate

,7708291483 ,7730297020 ,7716478614 ,771658016 ,7738327159

Table 4.4

Other coefficients of each model

Variable Model

(Baseline/on ly controls)

Model 2 (international firm

experience)

Model 3 (Working experience)

Model 4 (Level of education)

Full model

Control 1 – Heterogeneity in Age between CSCO/CEO

Standardized coefficients Beta = -,028 Coefficients std. error

=,006 Unstandardiz ed B = -,004

-,026 ,006 -,004

-,028 ,007 -,004

-,027 ,007 -,004

-,026 ,007 -,004

Control 2 – Heterogeneity in financial

experience between CSCO/CEO

-,143 ,089 -,274

-,143 ,091 -,274

-,143 ,089 -,275

-,171 ,093 -,329

-,169 ,094 -,326 Control 3 –

Presence of a COO within the top management team

-,031 ,111 -,074

-,028 ,114 -,068

-,031 ,111 -,074

-,022 ,114 -,052

-,019 ,115 -,045 Control 4 – Tenure

within the top management team

,039 ,018 ,015

,039 ,018 ,015

,039 ,018 ,015

,035 ,019 ,013

,034

,019

,013

23 Control 5 – Size of

the top

management team

-,029 ,207 -,123

-,028 ,209 -,121

-,029 ,208 -,126

-,005 ,211 -,022

-,004 ,214 -,016 Independent

variable 1 – Heterogeneity in International firm experience between CSCO-CEO

-,006 ,040 -,005

-,015 ,042 -,013 Independent

variable 2 – Heterogeneity between CSCO- CEO in working experience among different companies

-,008 ,016 -,003

,004 ,017 ,001

Independent variable – Heterogeneity in the level of education between CSCO-CEO

-,050 ,037 -,039

-,050

,037

-,039

24

5. Discussion

This paper investigated if heterogeneity between CSCO-CEO in the personal experience of the CSCO- CEO can influence a company’s return on assets. Overall, the results show no significant relationship between heterogeneity in international firm experience, working experience in different companies, and the level of education. Within the next section, I will compare the results of this research to other literature and explain why there potentially is no relationship between the variables.

Van Knippenberg & Schippers (2007) suggested that heterogeneity can have a positive or negative influence. In this research, all hypotheses were formulated and suggested a positive influence of heterogeneity. Each hypothesis is rejected, however, the regression also did not show a negative relationship. Other research already showed that the composition of the top management team has an impact on the firm's performance. My findings show that there is no significant effect of heterogeneity in the personal experience between CSCO-CEO on the firm’s return on assets at all. Therefore, my findings do not support the findings of Van Knippenberg & Schippers (2007) suggesting heterogeneity has a positive or negative effect on performance. A possible reason can be that the role of CSCO is relatively new within the top management team. This could partly explain why there is no effect on the return on assets. The role of the CSCO within organizations has to grow and the relationship with the CEO has to develop to the level that the CEO and CSCO closely collaborate.

5.1 International firm experience

Within hypothesis 1, I proposed a positive effect of heterogeneity in international firm experience between CSCO and CEO and a firm’s return on assets. According to my finding’s heterogeneity in international firm experience between the CSCO and the CEO does not have a significant effect on the return on assets of a company. A possible reason for this could be that a CSCO is already focused on the international involvement of the company because the CSCO takes care of the company’s supply chain (Wagner & Kemmerling, 2014). Additionally, Daily et al. (2000) argue that the international experience of a CEO is positively related to a firm’s financial performance. This could mean that if CSCO does not have the international experience, a positive effect on the firm's financial performance can be realized. However, my results show that heterogeneity in this situation, where the CEO has international experience and CSCO does not have international experience, does not influence the return on assets of the firm. Therefore, my findings do not directly support the suggestion done by Daily et al.

(2000). However, there are many ways to measure the financial performance of a firm so it may affect

for example the operating cycle instead of the return on assets of a firm which I used to measure the

firm’s performance. Literature suggests that international firm experience within the top management

team can lead to more international involvement, and so to more international diversification within a

company that can affect the firm’s performance (Sambharya, 1996; Tihanyi, et al., 2000). However,

heterogeneity in the international firm experience between CSCO-CEO does not matter for the firm’s

25 performance measured in the return on assets. So, there is not a significant increase in international diversification which affects the firm's return on assets when there is heterogeneity between CSCO and CEO in their international firm experience. Van Knippenberg & Schippers (2007) did argue about the possible negative consequences of heterogeneity in international firm experience. However, my results do also not show a negative effect of heterogeneity in international experience on a firm’s return on assets. This does not mean that it is better to have similarities in international experience. Carpenter (2002) suggested a small significant relationship between heterogeneity in the international experience in the top management team and the return on assets of a firm. From the findings, I conclude that heterogeneity in the international working experience may be from less influence than initially expected.

If I take a rational point of view, a possible explanation for this is that companies have to deal with opportunities and challenges in different markets in their supply chain. For example, the introduction of new products or new competitors entering the market. Firms need to be aware of these challenges and opportunities to keep and extend their market share within the international markets. It becomes normal to pay attention to the global market and, therefore, previous international experience matters less. Even if the CEO or CSCO does not have international experience, they know that attention must be paid to international markets to identify potential competitors, or to introduce new products.

5.2 Working experience

Within hypothesis 2, I proposed that heterogeneity between CSCO-CEO in the working experience

among different companies improve a firm’s performance (Return on assets). However, the results show

that there is no link between the heterogeneity in working experience a CSCO-CEO has and the return

on assets of a company. This means for practice that companies do not have to look for heterogeneity in

the working experience of CSCO-CEO. In the development of hypothesis 2 I argued about the positive

effect of heterogeneity in working experience and the effect this could have on the information sharing

between CSCO-CEO. However, my results show no effect on the performance of the company. It could

be that it is good to have similarities as suggested by Edmondson, Roberto, & Watkins (2003). They

argue that similarities in the top management team can cause more interpersonal trust and psychological

safety which can be the stimulator for sharing unique information. This could also influence the CSCO-

CEO relationship because they have to work closely together and have to trust each other with all

information available. Cannella et al. (2008) found no significant relationship between heterogeneity in

working experience executives had from previous functions and the firm’s return on assets. The findings

of Cannella et al. (2008) focused on the complete top management team. However, the findings suggest

the same as my findings, heterogeneity in the working experience among different companies does not

influence a firm’s return on assets. If I link the heterogeneity in working experience in different

companies to the supply chain where the CSCO role is primarily about, the outcome of the hypothesis

can be partly explained. The outcome can be partly explained by the fact that the CSCO-CEO

relationship is focusing on the supply chain and optimizing the chain (Turkulainen & Swink, 2017).

26 Optimizing the chain costs time and money, and therefore it may not affect the return on assets of the company in the time frame I investigate. Reuber (1997) even suggests that experience do fade away and so have a “shelf life”. If a person wants to keep their abilities and knowledge gained from these experiences they need to be reinforced. This could explain why heterogeneity in firm experience does not matter because the experience CSCO and CEO got need to be reinforced before these experiences can even be useful for the firm. Within the development of hypothesis 2, I argued that the experience of CSCO-CEO gets reinforced by the daily decision-making and the use of their tacit knowledge they developed from their experience. However, it may be that the experience do not get reinforced and fade away and so there is no influence on the firm’s return on assets.

5.3 Level of education

The literature argues that a difference in knowledge can lead to the creation of new knowledge. This

new knowledge could lead to the development of new products, services, and strategies (Talke et al.,

2011). Heterogeneity in the level of education could provide this difference in knowledge. Therefore

hypothesis 3 was stated; Heterogeneity between CSCO-CEO in the level of education can increase a

firm's performance (Return on assets). However, my results show that heterogeneity in the level of

education between CSCO-CEO does not influence a firm’s performance. This can be explained by the

fact that if one wants to become CSCO or CEO, certain skills, capabilities, and experiences are required

in those functions. These skills, capabilities, and experiences cannot be obtained through education but

as suggested by Coff (2002) need to be developed through working experience. If one possesses these

capabilities the level of education may be of less interest than thought in advance. For practice, this

means that companies do not have to look for heterogeneity in the level of education when selecting the

CSCO and CEO because it will not influence the return on assets of the company. Tihanyi et al. (2000)

and Carpenter & Fredrickson, (2001) suggested that heterogeneity in the level of education of the

complete top management team does positively influence the GSP of a company. However, the GSP is

not the same as the return on assets of a company, and my study only aims at the CSCO-CEO

relationship while Tihanyi et al. (2000) and Carpenter & Fredrickson (2001) focused on the complete

top management team. This could explain why there is a positive effect on the GSP and why

heterogeneity between CSCO and CEO in the level of education does not influence a firm’s return on

assets. Overall, the findings suggest that it does not matter for a firm if they select a CSCO and CEO

with different levels of education, this will not directly influence the firm's return on assets.