When Does Top Management Team Diversity Matter in Large Organizations?

ABSTRACT Top management teams (TMTs) drive strategic leadership, but there is little clarity on when the composition of these upper echelons most impacts organization performance. Drawing from the categorization‐elaboration model, we study an 18‐year sample of approximately 4500 organizations and over 32 000 executives and find a positive relationship between TMT functional diversity and organization performance, but only for the smaller organizations. We tested how organization size (and correlates of age/complexity) negatively interacts with functional diversity. Testing for TMT integration proxies, top management tenure counteracted the negative impact of size, making functional diversity beneficial in large organizations as well. Additionally, CEO tenure modestly strengthens the impact of TMT functional diversity, while, surprisingly, CEO generalism may serve as a substitute for it. Our large‐sample study provides novel methodological guidance for performing substantial constructive replication, with competitive tests for both diversity and performance measures suggesting the best measures and time leads in testing the functional diversity‐financial performance relationship. Our findings support the importance of tailoring TMT management strategies to contingencies for the organizational context and informing CEO leadership strategies to characteristics across the CEO‐TMT interface. Most importantly, these implications are pressing in the face of rapidly growing organizations in the world economy.