Divided We Stand: Top Management Ideological Separation as an Impediment to Strategic Change in Turnaround Situations

Abstract

Integrating the diversity-as-separation perspective with the uncertainty-threat principle from the field of political psychology, we introduce the notion of ideological separation in top management teams (TMTs) and examine its effects on strategic change in an uncertainty-threat context that requires executives’ adaptive action (i.e. turnaround situations). We argue that, in turnaround situations, differences in values (i.e. political ideology) between executives activate ideological separation in the TMT, which causes decision paralysis in the executive group and lessens its ability to enact strategic change. Our research also considers the contingent role of two external environmental factors that may heighten uncertainty-threat for executives in turnaround situations and strengthen the hypothesized main effect – that is, shareholder unrest (i.e. the degree to which shareholders submit complaints against corporate leadership and proposals for remedy) and industry performance decline (i.e. the degree to which the turnaround firm's industry experiences declining performance). Data from S&P 1500 firms show that TMT ideological separation inhibits strategic change in turnaround situations. They also highlight the dark side of shareholder democracy, by showing that – in turnaround contexts – shareholder unrest intensifies this relationship. Implications for upper echelons, strategic management, TMT diversity, political ideology and turnaround research are discussed.