Chief executive leadership style, consensus decision making, and top management team effectiveness

EUROPEAN JOURNAL OF CEO WORK LEADERSHIP AND ORGANIZATIONAL STYLE AND TEAM PSYCHOLOGY, EFFECTIVENESS 2000, 9 (3), 401 420 401 Chief executive leadership style, consensus decision making, and top management team effectiveness Patrick C. Flood College of Business, University of Limerick, Ireland Eithne Hannan Institute of Work Psychology, University of Sheffield, UK Ken G. Smith R.H. Smith School of Business, University of Maryland at College Park, USA Thomas Turner Department of Personnel and Employment Relations, University of Limerick, Ireland Michael A. West and Jeremy Dawson Aston Business School, University of Aston, Birmingham, UK and Centre for Economic Performance, London School of Economics, UK Using data from 79 high technology firms in the US and Ireland this study concludes that leadership style has both direct and indirect relationships with consensus decision making and with the reported effectiveness of top management teams. It focuses on what effective leaders do rather than the individual traits they possess and distinguishes between four styles of leadership: authoritarian (characterized by the use of instruction and non-contingent reprimand), transactional (influence via exchange of valued rewards for services/behaviours), transformational (inspiring followers to do more than originally expected), and laissez faire (avoiding decision making and supervisory responsibility). The transformational style of leadership was significantly and positively related, and the laissez faire style was significantly negatively related to reported team Requests for reprints should be addressed to P.C. Flood, College of Business, University of Limerick, Plassey Technological Park, Limerick, Ireland. Email: patrick.flood@ul.ie The authors wish to acknowledge the contribution of Ken A. Smith, Sarah Moore, Mike Morley, Judy Olian, Phillip O Regan, Judy Scully, and Henry P. Sims in the design and execution of this study. Funding for this study was kindly provided by the Dingman Centre for Entrepreneurship at the R.H. Smith School of Business, University of Maryland at College Park and the University of Limerick Foundation through the office of Dr Noel Whelan. 2000 Psychology Press Ltd http://www.tandf.co.uk/journals/pp/1359432x.html

402 FLOOD ET AL. effectiveness. Authoritarian and transformational leadership also predicted consensus decision making in the top management groups, the former negatively and the latter positively. Finally, consensus decision making emerged as a significant predictor of perceived team effectiveness. Directions for future research and the practical implications of the findings are discussed. Most research on the effects of top management groups on organizational characteristics has focused on group composition, with relatively little work focusing on how other aspects of the group such as leadership affect the rest of the organization (Finkelstein & Hambrick, 1996; Flood, MacCurtain, & West, 2000). Yet the CEO is a central member of the top management group who has a disproportionate impact on team characteristics and outcomes (Finkelstein, 1992). Although some researchers have argued that leaders and top management teams have little impact on organizational outcomes (Aldrich, 1979; Ashley & Van de Ven, 1983; Lieberson & O Connor, 1972), the emerging view from more recent research suggests otherwise (Finkelstein & Hambrick, 1990; Flood et al., 1997; Hambrick & Mason, 1984; Romanelli & Tushman, 1986). According to Hambrick and Mason s (1984) upper echelons theory, higher level managers have an important impact on organizational outcomes because of the decisions they are empowered to make. The top management group (TMG) refers to the relatively small group of most influential executives at the apex of the organization that group of top executives with overall responsibility for the organization (Mintzberg, 1979). The primary focus of the majority of studies of such groups has argued that characteristics of the TMG influence the strategic decision-making process and resultant organizational outcomes of strategy and performance. Hambrick (1994) argues that this emphasis on the team aspect of the dominant coalition leads researchers on top management teams to ignore the role of the CEO. The movement towards executive-level teams raises major questions about the role and management style of this central figure. There has been a tendency to simply include the CEO as a member of the group, averaging in his/her characteristics in establishing overall group characteristics (Jackson, 1992), yet everyday observation and a wealth of related literature indicates that the top group leader has a disproportionate, sometimes dominating influence, on the group s various characteristics and outputs (Finkelstein, 1992). This shift in focus is unfortunate as clearly the CEO occupies a position of unique influence in the firm (Pfeffer, 1992; Roth, 1995; Vance, 1983) and the extent of this influence is still not fully understood (Finkelstein & Hambrick, 1996). There is some though limited research evidence that leaders affect team effectiveness (West, Borrill, & Unsworth, 1998). The purpose of this article is to investigate the extent to which the leadership style of the CEO is associated with the decision-making process within the top management group and to assess in turn the relationship of CEO leadership with team effectiveness.

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 403 TEAM LEADERSHIP AND TEAM EFFECTIVENESS Leadership theory (Conger & Kanungo, 1987; Day & Lord, 1988; Gioia & Sims, 1985; House, Spangler, & Woycke, 1991; Howell & Avolio, 1993; Manz & Sims, 1991; Scully, Sims, Olian, Schnell, & Smith, 1994; Waldman, Bass, & Yammarino, 1990) suggests that leadership behaviour has profound effects on subordinates, including how they relate both to the leader as well as to each other (Bass, 1990). The leadership styles studied here are based on this behavioural perspective. Bass (1990) described four main styles of leadership as transactional, transformational, empowering, and directive (authoritarian), where the first three are egalitarian in nature. Egalitarian leadership behaviour has been associated with teamwork (French, Morrison, & Leoinger, 1960) and empowerment, as well as having effects on communication patterns within the team (Kirmeyer & Lin, 1987). Authoritarian leadership. Hambrick and D Aveni (1992) found that the presence of an autocratic CEO impairs the quality of information processed, since other team members tend not to assert their positions. Exchange of information is hampered by the social distance between the CEO and the rest of the team, as well as by the penalties for reporting information or ideas that run counter to those preferred by the autocrat (Miller & Friesen, 1977). Hambrick and D Aveni found that possibly the most widely observed characteristic of failing top management teams was the presence of dominant CEOs or autocrats. Argenti (1976), Miller and Friesen (1977), and Ross and Kami (1973) all found evidence of strong-willed, dominating chief executives at the helms of unsuccessful firms (Hambrick & D Aveni, 1992). Transactional leadership. Burns (1978) describes the transactional leader as one who influences others by appealing to their self-interest primarily through the exchange of valued rewards for services or other desired behaviours. The relationship between the leader and the follower is seen as a series of rational exchanges that enable each to reach their goals (Bass, 1990). Transactional leaders use rewards as their primary source of power. Followers comply with the leader when the exchange (i.e., the reward) meets the followers needs. The relationship continues as long as the reward is desirable to the follower, and both the leader and the follower perceive the transaction as a means of progressing towards their personal goal (Bass, 1990). Transformational leadership. Whereas the transactional leader motivates subordinates to perform as expected, the transformational leader typically inspires followers to do more than originally expected (Den Hartog, Van Muijen, & Koopman, 1997). Authentic transformational leaders motivate followers to

404 FLOOD ET AL. work for goals that go beyond immediate self-interests, where what is right and good to do becomes important (Bass, 1997). Transformational leaders motivate followers and other constituencies to do more than they originally expected to do as they strive for higher order outcomes (Burns, 1978). Laissez faire leadership. Both transformational and transactional leaders are active leaders. When researching these two active forms of leadership, they are often contrasted with the extremely passive laissez faire leadership. The laissez faire leader avoids decision making and supervisory responsibility (Den Hartog, Van Muijen, & Koopman, 1997). LEADERSHIP, CONSENSUS DECISION MAKING, AND TEAM EFFECTIVENESS Most studies of group dynamics are based on the premise that group behaviours intervene between group composition and group outcomes (Shaw, 1981; Stogdill, 1959). Smith et al. (1994) proposed that TMG composition influences organizational outcomes primarily through TMG processes and that these processes directly impact organizational outcomes. This is consistent with the framework proposed by Gist, Locke, and Taylor (1987) that group composition influences processes that ultimately impact on organizational outcomes. Where consensus decision making is utilized team members will feel that they are part of the decision-making process (West, Borrill, & Unsworth, 1998). This in turn will encourage co-operation in the implementation of such decisions. Top management groups make strategic decisions, the quality of which influences organizational performance. As consensus among team members facilitates the implementation of those decisions, consensus also influences organizational performance (Amason, 1996). Thus, decision processes promoting consensus among team members are more likely to enhance organizational performance than decision processes that do not promote consensus (Amason, 1996; Bourgeois, 1980; Dess, 1987; Dess & Origer, 1987; Guth & MacMillan, 1986). Consensus decision-making processes have been defined as those processes that encourage and facilitate participation by, and agreement among, group members (Knight et al., 1999). Studies comparing the results of consensual decision making with other decision processes have consistently shown that groups employing consensual decision making generally have greater levels of agreement (i.e., consensus) and member satisfaction than those groups using other decision-making techniques, such as dialectical enquiry or devil s advocacy (Knight et al., 1999). According to Finkelstein and Hambrick (1996), CEO dominance reduces the degree of consensus achieved in reaching strategic decision. Eisenhardt and Bourgeois (1988) found that where CEOs were less dominant, there was greater sharing of information, the team maintained a collaborative viewpoint, co-operative

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 405 behaviour focused on group rather than individual goals and the decision process was described as consensus style (Eisenhardt & Bourgeois, 1988). Conversely, power centralization was associated with a high degree of political activity within TMGs in Eisenhardt and Bourgeois (1988) study. They found that dominant CEOs transformed a collaborative situation into a competitive one, and politics emerged as people competed for the time and attention of the CEO (Eisenhardt & Bourgeois, 1988). The study described here is concerned with investigating whether CEO leadership styles influence consensus decision making within the TMG together with the consequent impact on reported team effectiveness. DETERMINANTS OF TEAM EFFECTIVENESS: THREE MODELS COMPARED Guzzo and Shea (1992) believe that the dominant way of thinking about group performance reflects an input process output model. They include in inputs the things group members bring to the group, including expertise, status, personality attributes, abilities, experience, and demographic attributes. In the model outlined below, the main input variable is leadership style. Process, according to Guzzo and Shea (1992) includes the interaction among group members, typically including social exchange of information, influence attempts, and expressions of approval or disapproval of fellow group members. In our model we focus on the consensus decision-making process. Output includes the products yielded by groups, in this case measured as reported perceptions of team effectiveness. Three possible explanations of the factors associated with team effectiveness are depicted in Figure 1. Firstly, leadership style is predicted to have a direct impact on reported team effectiveness. Drawing on the extant literature we would expect the authoritarian and laissez faire style of leadership to have a negative effect on team members perceptions of team effectiveness. Laissez faire leaders give so little sense of Figure 1. Hypothesized relationships between leadership style, consensus decision making and team effectiveness.

406 FLOOD ET AL. coherent direction and strategic focus that team members are unlikely to perceive team functioning in a positive light. An authoritarian style is unlikely to be suitable to the fast-paced environment faced by the teams under consideration in this article who work in a high velocity environment. Additionally, team members are unlikely to cohere well under an authoritarian leader. We could expect more positive effects for leaders displaying transactional or transformational leadership styles. Transactional leadership might, through the process of social exchange, produce a cohesive team. In turn the associated improvement in team climate might produce positive perceptions of team effectiveness. Transformational leaders through their continuous activity in uniting team members around a team vision can be expected to promote team effectiveness. Secondly, consensus decision making is posited to have a direct impact on perceptions of team effectiveness. When acceptability is enhanced through consensus decision making it is likely to improve implementation, which is a key criterion of perceived effectiveness of the team. Thirdly, it is predicted that leadership style will impact on perceptions of team effectiveness via the group process of consensus decision making. The effect of leadership style on team effectiveness will be mediated by decision-making processes. In summary, we propose that leadership style impacts directly upon the way in which leaders choose to influence team decisions. One powerful indicator of a leader s style is how frequently they consult with fellow top team members to generate consensus in strategic decision making. Method The sample for this study consisted of the TMTs of 83 high technology firms located in the mid-atlantic region of the US and a group of subsidiaries of US multi-national firms operating in Ireland. Data were derived from CEO interviews and questionnaire surveys of members of the top management team at each company. The companies included in the sample were involved in a variety of technology-related businesses including information technology, research (biotechnology and aerospace), hazardous waste management, and defence. The US sample contained 56 companies from 114 originally contacted. An almanac profiling high-tech or technology-intensive firms that were part of a technology and research and development consortium was the original source used to identify the firms. Forty-seven firms were dropped from the sample after initial contacts for a variety of reasons, including unwillingness to participate, mistaken identification (e.g., were low technology), mergers, diversification, or because the firm had gone out of business. Interviews were conducted with the CEOs of the remaining 67 firms (an initial response rate of 59%).

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 407 The personal interviews served two purposes. First, it allowed the researcher to explain more fully the goals of the study and to obtain the CEO s approval and endorsement of the study. The study design called for the CEO to identify each of the team members and for each team member to complete a questionnaire. Second, as part of the interview, the CEO was asked to send a memo to each top management team member, requesting participation in the study and endorsing the study, increasing the likelihood of participation. Usable responses were received from 79% of the CEOs interviewed in the final population (47% of those originally selected). The size of companies in the sample, measured in gross sales, ranged from $200 thousand to $162 million. Mean sales were $29 million, with a standard deviation of $32.5 million and a median of $17.8 million. The mean size of firms in number of employees was 357, with a standard deviation of 395, while the median number of employees was 225. The companies that did not participate in the study were involved in similar kinds of businesses as the firms included in the final sample. A one-way analysis of variance on gross sales indicated that responding firms were not significantly different from non-responding firms in terms of size, F = 1.85, p <.18, N = 114. To closely approximate Cyert and March s (1963) notion of the dominant coalition, we asked each CEO to identify the members of his or her real top management team. Of those identified, 78% were also officers of the corporation. All members of the top management team, including the CEO, were asked to complete questionnaires. From the questionnaires requested from team members, a total of 353 usable responses were returned. Eighty per cent of the team members who were asked to complete the questionnaire did so, and the average number of questionnaires returned per firm was 4.5. Some 12% of respondents were female and the mean age of respondents was 44 years (SD = 9.54). In the Irish sample, 60% of the companies contacted agreed to participate, yielding a final sample of 26 companies. From these 26 companies, 98 usable questionnaires were returned (approximately 3.77 per firm). Combining the samples resulted in an overall response rate of 45% across both subsamples including 83 companies, 79 of which provided complete data. Hypotheses In this paper we test the following three hypothesized relationships: Hypothesis 1. Leadership style is predicted to have a direct impact on reported team effectiveness. Hypothesis 2. Consensus decision making is posited to have a direct impact on perceptions of team effectiveness.

408 FLOOD ET AL. Hypothesis 3. Leadership style will impact on perceptions of team effectiveness via the group process of consensus decision making. Authoritarian, laissez faire and transactional leadership are hypothesized to have a negative effect on consensus decision making and on reported team effectiveness. Transformational leadership is proposed to have a positive relationship with consensus decision making and on reported team effectiveness. Consensus decision making is hypothesized to have a positive relationship with perceived effectiveness of the team. Measures Leadership variables. Leadership style was measured on four dimensions (authoritarian, laissez faire, transactional, and transformational) using Likerttype questionnaire items (5-point scale). In developing our leadership scales we drew heavily on the work of Scully et al. (1994). Direct-report subordinates of the CEO (i.e., members of the TMT as designated by the CEO) completed the leader measures of leadership style. The Appendix shows the items and reliabilities of all the leadership-style scales; all reliabilities are well over the acceptable level, ranging from.82 to.97). To address convergence of team perceptions of their leader s behaviours, one-way analyses of variance (ANOVAs) were conducted, with company as the independent variable and each of the leadership styles as dependent variables. A significant F-value indicates that between-firm variance is greater than within-firm variance. These analyses yielded significant F-ratios for all but one leadership style, laissez faire, F = 1.247, p = 0.11. In addition, we computed the rwg(j) coefficient for inter-rater reliability for the leadership variables (James, Demaree, & Wolfe, 1984). The rwg(j) represents within-group agreement. The rwg(j) values were as follows: authoritarian leadership = 0.73, laissez faire = 0.71, transformational leadership = 0.74. All rwg(j) scores are above 0.70, which is commonly accepted as a satisfactory level of agreement. As a check on the factor structure of the measures, confirmatory factor analysis was used to compare a four-factor model with a one-factor model. A one-factor model produced a chi-squared value of 4925.8, with 779 degrees of freedom. The four-factor model produced a chi-squared value of 2993.7, with 773 degrees of freedom. Root mean square error of approximation was 0.104, and the comparative fit index was 0.733. This is not an excellent fit but clearly indicates the superiority of the four-over the one-factor model. Group process variables. Consensus decision making has been identified as an important factor in top management team functioning (Knight et al., 1999) and is the principal group process measure assessed in this research. Consensus decision making was measured using a four-item, Likert-type scale (see Appendix). A score was calculated for each team by averaging across individual

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 409 team members scores, where higher scores indicate greater consensus. This construct measured the amount of effort that members of the TMT invested in trying to reach an agreement. Cronbach s alpha was 0.77. Again, a one-way ANOVA was performed on the consensus decision-making index to determine if there was greater variability in the ratings between organizations than within organizations (Winer, 1971). The F-ratio was significant, F = 2.726, p <.001 and the rwg(j) for consensus decision making was 0.8. Team effectiveness. Team effectiveness was measured by seven Likert-type questionnaire items on a 5-point scale, completed by each team member (see Appendix). These seven items were averaged to form a composite team effectiveness index. Cronbach s alpha for this scale was 0.92. Again, a one-way ANOVA was performed on this index to determine if there was greater variability in the ratings between organizations than within organizations (Winer, 1971). The F-ratio was significant, F = 3.196, p <.001, and the rwg(j) value was 0.84. The average inter-rater agreement across the independent and dependent variables is 0.76, i.e., all above 0.7, which is generally accepted as a satisfactory level of agreement. Furthermore, 45 of the 83 groups have at least this level of agreement level on all scales and a further 16 reach this level of agreement on all but one scale. Control variables. We introduced a number of variables into the multivariate analysis in order to ensure that the effects of exogenous variables were minimized. Three variables identified by Smith et al. (1994) were utilized in each of the hierarchical regressions as controls. Firm size was included because of its relationship to team size, which previous studies have shown to have an important impact on team functioning. Past performance (ROIt-1) was included to control for the possible effects of prior firm performance that might lead to changes in perceptions of consensus decision making and in perceptions of team effectiveness. The industry-level controls are included to remove potential industry effects on firm performance. Also included was industry growth rate to account for the impact of general product demand on perceptions of team effectiveness. A major problem in a study that relies entirely on self-report data is that results sharing significant associations could be explained as a result of common methods or feel good or halo effects. Accordingly we selected a variable with high affective content and that was highly correlated with the other variables as a control variable perceptions of team member social integration. This measure was chosen on both theoretical grounds and empirical grounds. It is likely to reflect members generally positive or negative feelings about their team. It also correlated highly with the measure of consensus decision making. By controlling for social integration we were likely to assess the relationship of such decision making to other variables such as perceptions of leadership and team effectiveness rather than an underlying affective reaction to the team as a

410 FLOOD ET AL. whole. By incorporating this as a control variable we were able to considerably reduce, although probably not eliminate, likely effects due to common methods or halo effects. This is similar to the approach recommended by De Vries, Roe, and Taillieu (1998). The measure of social integration was originally developed by Smith et al. (1994) and has a Cronbach s alpha coefficient in this study of 0.85. The items used in this scale are listed in the Appendix. Before combining the Irish and US team data we carried out a series of t-tests to identify any significant differences between the samples on the leadership style, consensus decision making, or team effectiveness variable. No significant differences emerged and the data set was accordingly pooled for the purpose of our analyses. Results This study was concerned with investigating the effect of CEO leadership style on group processes and team effectiveness. CEO leadership style was hypothesized to both directly and indirectly (via consensus decision making) influence the reported level of overall team effectiveness. Authoritarian, laissez faire, and transactional leadership are hypothesized to have a negative effect on consensus decision making and on reported team effectiveness. Transformational leadership is proposed to have a positive relationship with consensus decision making and on reported team effectiveness. Consensus decision making is hypothesized to have a positive relationship with perceived effectiveness of the team. Table 1 contains means, standard deviations, and the inter-correlation matrix of the study variables. Most of the correlations were in the moderate range as would be expected among related behavioural dimensions. To test our model outlined above a series of regression analyses were performed. These were used to assess: (a) the direct effect of leadership style on team effectiveness, (b) the effect of consensus decision making on team effectiveness, (c) the effect of leadership style on consensus decision making, and (d) the effect of leadership style on team effectiveness after the effects of consensus decision making have been controlled for. Regression (a) represents the direct model; regressions (b) and (c) represent the process model, and regression (d), together with the results from (a) and (c), tests for mediation. The results of these regressions are shown in Table 2. The first question is whether measures of leadership style are significantly related to perceptions of team effectiveness. It can be seen from regression (a) in Table 2 that there is a significant amount of variance (26.0%) in effectiveness explained by leadership style, supporting this hypothesis. In particular, the coefficients of laissez faire and transformational leadership are significant, suggesting that these types of leadership in particular are related (laissez faire leadership negatively; transformational leadership positively) with perceptions of team effectiveness.

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 411 TABLE 1 Means, standard deviations, and correlations of study variables M SD 1 2 3 4 5 6 7 8 9 1. Team effectiveness 3.58 0.55 2. Return on investment (1990) 19.03 79.92 0.05 3. No. of employees 276.46 346.33 0.16 0.02 4. Growth rate 10.71 13.42 0.12 0.15 0.02 5. Authoritarian leadership 2.25 0.56 0.35** 0.03 0.01 0.02 6. Laissez faire leadership 1.45 0.38 0.51*** 0.13 0.04 0.02 0.37*** 7. Transactional leadership 3.41 0.37 0.32** 0.02 0.02 0.14 0.02 0.44*** 8. Transformational leadership 3.37 0.60 0.54*** 0.03 0.02 0.13 0.27* 0.55*** 0.58*** 9. Consensus decision making 3.38 0.52 0.67*** 0.08 0.12 0.08 0.44*** 0.31** 0.09 0.23 10. Social integration 3.57 0.48 0.46*** 0.06 0.15 0.09 0.29** 0.23* 0.04 0.19 0.44*** * p <.05; ** p <.01; *** p <.001. 411

412 FLOOD ET AL. TABLE 2 The determinants of team effectiveness Regression a b c d Dependent variable Team Team Consensus Team effectiveness effectiveness decision-making effectiveness Step l control variables Return on investment (1990) 0.05 0.09 0.06 0.08 No. of employees 0.12 0.06 0.07 0.08 Growth rate 0.10 0.08 0.14 0.02 Social integration 0.30** 0.21 0.28* 0.16* R 2 (adjusted R 2 ) 0.247 (0.206)*** 0.247 (0.208)*** 0.194 (0.150)** 0.247 (0.206)*** Step 2 process variables Consensus decision making 0.57*** 0.53*** Change in R 2 due to step (change in adjusted R 2 ) 0.261 (0.268)*** 0.262 (0.268)*** Step 3 leadership variables Authoritarian leadership 0.12 0.25* 0.02 Laissez faire leadership 0.22* 0.22 0.12 Transactional leadership 0.01 0.29* 0.16 Transformational leadership 0.32** 0.14 0.24* Change in R 2 due to step 3 (change in adjusted R 2 ) 0.260 (0.244)*** 0.158 (0.128)** 0.182 (0.175)*** Final R 2 (adjusted R 2 ) 0.506 (0.450)*** 0.508 (0.474)*** 0.352 (0.278)*** 0.690 (0.649)*** * p <.05; ** p <.01; *** p <.001. n = 79 in all regressions. 412

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 413 The second question is whether there is a direct relationship between consensus decision making and team effectiveness. Regression (b) clearly supports the hypothesis that there is, with 26.1% of the variance in effectiveness explained by consensus decision making. The relationship, as expected, is in the positive direction. The third question is whether leadership style is related to consensus decision making. Regression (c) shows that 15.8% of the variance in consensus decision making is accounted for by leadership style this, too, represents a significant amount. In particular, authoritarian and transactional leadership styles both have significant coefficients, with both styles being negatively related to consensus decision making. The fourth, and final, question is whether the relationship between leadership style and team effectiveness is mediated by consensus decision making. It is necessary to compare the significance of a direct regression of team effectiveness on leadership style with the same regression controlling for consensus decision making (regression d). Table 2 shows that the latter explains only 18.2% of the variance, compared with 26.0% in the former, and the significance of the individual coefficients is greatly reduced (laissez faire leadership is no longer significant, and transformational leadership now has p >.01). These are the requirements given by Baron and Kenny (1986) for partial mediation. Since the final step still explains 18.2% of the variance in team effectiveness, it is some way off complete mediation, but there is certainly part of the relationship between leadership style and team effectiveness that is due to consensus decision making. In summary, the results support all three hypothesized relationships models discussed earlier: there is a direct relationship between consensus decision making and team effectiveness; a direct relationship between leadership style and team effectiveness; and this relationship is partially mediated by the group process of consensus decision making. Discussion Leadership was shown in our study to have had a significant influence on consensus decision making within the top management groups. 1 Although these findings do not establish causality due to the cross-sectional nature of the study, 1 A criticism of this point is that social integration has an apparently stronger influence on consensus decision making than the leadership variables. However, it should be pointed out that leadership style only has a smaller effect on consensus decision making when social integration has been entered first. If leadership style was entered first it would have a much greater effect. Social integration is expected to be very similar to consensus decision making, and since the data comes from the same source, is likely to share common method variance. This is why it is used as a control variable. The fact that leadership style still has a significant effect after this suggests that there really is a relationship between leadership and consensus decision making, and the result is not due to common method variance.

414 FLOOD ET AL. they do shed light on important interaction patterns between CEOs leadership styles and their relationship to the perceptions of members of the TMG. Authoritarian leadership was found to be negatively and significantly related to consensus decision making. This confirms previous theory and research suggesting that CEO dominance may reduce the degree of consensus achieved in reaching strategic decisions (Finkelstein & Hambrick, 1996). Eisenhardt and Bourgeois (1988) found that where CEOs were less dominant, the team maintained a collaborative viewpoint, where co-operative behaviour focused on group goals and the decision process was described as consensus style. They also found that the presence of a powerful CEO could influence conflict levels by forcing team members to resort to covert coalition building to accomplish their purposes. Transactional leadership was also negatively and significantly related to consensus decision making as hypothesized. Transactional leadership has been described as an exchange process. People jockey for positions in a transactional group (Bass, 1997), which may create competition between team members, reducing their willingness to engage in co-operative behaviour, where each may be more focused on their own individual goals rather than the group s goals. Among the individual leadership styles, transformational leadership is the only leadership style that is significant and positively related to reported team effectiveness. A number of studies have suggested that transformational leadership has a positive, significant relationship with work group performance (Bass, 1997; Bass, Waldman, Avolio, & Bebb, 1987). Kahai, Sosik, and Avolio (1997) evaluated the effects of high and low levels of transformational leadership style on student work groups and found that groups working under high transformational leadership reported higher levels of perceived performance, extra effort, and satisfaction with the leader. As Bass (1997) reported, transformational leaders move followers to transcend their own self-interests for the good of the group as they motivate followers to work for goals that go beyond immediate self-interests. The results of this study demonstrate that CEO leadership styles have a moderately strong relationship with reported top management group effectiveness and illustrate the importance of paying attention to the role of the CEO. Our results demonstrate that the leadership style of CEOs, in particular transformational leadership, does have a substantial influence on both the consensus decision-making process and upon reported team effectiveness in fast-paced high technology firms. The study design does not allow us to assume causality because it is cross sectional. The study also suffers from the weakness of being based entirely on self-report data, so that associations could be due to shared variance based on common methods. However by controlling for both prior company performance and team members perceptions of social integration we have reduced the blanket

CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 415 effects of a feel good factor associated with company performance and with the general social climate in the team. The results suggest that that leadership style, specifically transformational leadership, is associated with members perceptions of team effectiveness, partly but not entirely mediated by group processes specifically consensus decision making. CEO leadership style, we suppose, influences consensus decision making where the leader inspires and motivates team members to rise above their individual interests to embrace a shared vision of their work. In such a situation, members are more likely to practise consensus decision making. This in turn may lead team members to perceive team effectiveness in positive ways, which is likely to increase their commitment to the team and the organization. Future research should seek to more precisely measure the variables we have examined here, such as leadership style. In addition to measuring leadership style via questionnaire survey, researchers might also observe and rate CEO style in team meetings to provide independent validation of team member reports. Consensus decision-making could also be rated in team meetings perhaps by using video and audio tapes of meetings. Finally team effectiveness is best measured by third-party reports or independent outcome data. Company performance data, stakeholder ratings, and employee ratings of TMG effectiveness are some of the ways in which team effectiveness might be measured. Future research might also adopt a longitudinal perspective, ideally studying newly created teams or the effect of new CEOs leadership styles on TMG decision making and performance. The practical implications of our research are important for CEOs operating in highly volatile environments (which probably means most CEOs, given the increasingly competitive environment and global marketplace in which firms operate). A transformational leadership style that involves attracting TMG members to embrace the CEO s appealing vision, rather than transactional, authoritarian, and laissez faire leadership styles, appears most effective. This implies companies should seek and appoint leaders with these styles and develop existing leaders so that they learn to adopt these styles. The data also imply that facilitating the involvement of the TMG in decision making rather that directing their decision making bolsters their confidence in the TMG s effectiveness. Such approaches should also therefore be encouraged in the TMG s decision making. In the 21st century there is increasing evidence that those companies that can ride the waves of change will have at their helms leaders that inspire others with their sense of direction, their values, motives, and beliefs. It is such leaders that engage their fellow executives within the company and who draw in an open and constructive way on their knowledge, skills, and abilities to promote both team and organizational effectiveness. This research adds to the evidence for this trend and suggests the strategic importance for work and organizational psychology of a continued focus on leadership in the top management team.

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Q54 Q56 Q66 CEO LEADERSHIP STYLE AND TEAM EFFECTIVENESS 419 The CEO establishes the goals for my work. The CEO determines my compensation based on my performance. The CEO establishes my goals for me. Cronbach s alpha coefficient: 0.84 IV. Transformational leadership Q6 Q12 Q13 Q15 Q17 Q20 Q21 Q23 Q24 Q25 Q35 Q39 Q40 Q42 Q44 Q50 Q51 Q60 Q61 Q65 Q82 The CEO encourages me to think I can do very well in my work. The CEO increases my optimism for the future. The CEO provides me with reasons to change the way I think about problems. The CEO inspires me to get a lot more done than I could have if the CEO was not around. The CEO provides a vision to our organization. The CEO arouses in me the effort to work harder and better. The CEO provides me with new ways of looking at things which used to be a puzzle. I am ready to trust the CEO to overcome any obstacle. The CEO motivates me to do more than I originally expected I would do. The CEO provides a clear vision of who and what we are. The CEO encourages me to expect high performance from myself. The CEO makes me enthusiastic about assignments. The CEO provides a clear vision of where we are going. Because of the CEO, I do more than expected I could do. The CEO enables me to think about old problems in new ways. There is no doubt that the CEO is very visionary. The CEO s ideas have forced me to rethink some of my own ideas which I had never questioned before. The CEO makes me feel good to be around him/her. The CEO stimulates my efforts to excel. The CEO heightens my motivation to succeed. The CEO provides his/her vision of our organization to me. Cronbach s alpha coefficient: 0.96 Consensus decision making Q25 Q30 Q32 Q45 TMG decisions are not final until all the members agree that the decision is acceptable to them. Everyone s input is incorporated into most important company decisions. The TMG believes that taking more time to reach consensus on a strategic decision is generally worth it. When making decisions, the TMG works hard to reach an agreement. Cronbach s alpha coefficient: 0.77 Team effectiveness Q21 Q26 Q29 Q36 Q38 Q41 Q46 The members of the TMG share a common vision of what this company is and what it should become. Our company goals are clear in the minds of every member of the TMG. Our TMG is very successful in its efforts. The TMG is very effective at getting things done. All members of the TMG are committed to achieving the company s goals. The TMG does not perform well as a group (reverse scoring). Our TMG is very good at achieving its goals. Cronbach s alpha coefficient: 0.91