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EDITOR’S FORUM

UPPER ECHELONS THEORY: AN UPDATE

DONALD C. HAMBRICK
The Pennsylvania State University

The central premise of upper echelons theory is that executives’ experiences, values,
and personalities greatly influence their interpretations of the situations they face
and, in turn, affect their choices. At the invitation of the editor, I recap the AMR article
in which the theory was originally presented (Hambrick & Mason, 1984), discuss
subsequent refinements of the theory, and lay out several promising avenues for
future upper echelons research.

What a wonderful honor to have our 1984 ar-
ticle (Hambrick & Mason, 1984) acknowledged in
this way by the editorial board of AMR. AMR has
published a number of highly influential works
over the years, so it is surprising—and hum-
bling—to learn that our contribution is seen as
somehow worthy within such a lustrous league.
In this update on upper echelons theory, I fol-
low the suggestion of AMR’s editor, tracing the
evolution and refinements of the upper echelons
approach and articulating some of the chal-
lenges that still need to be explored.1 I hasten to
add that the editor asked me “to educate the
field a bit concerning . . . [my] ongoing research
agenda in this area”; otherwise, this piece
would run the risk of seeming shabbily self-
promotional. Since I’m currently engaged in re-
search on narcissism in CEOs, I am keenly at-
tuned to the obnoxiousness of first-person
boosterism. In this case, though, I’m just follow-
ing directions.
RECAP OF THE INITIAL ARTICLE
The central idea in our original paper, and the
core of upper echelons theory, has two intercon-
nected parts: (1) executives act on the basis of
their personalized interpretations of the strate-
This article is dedicated to Phyllis Mason, who died in
March 2006.
1
I do not attempt to provide a comprehensive review of
upper echelons theory and research. For that, see Finkel-
stein and Hambrick (1996), Carpenter, Geletkanycz, and
Sanders (2004), Hambrick (2005), and Finkelstein, Hambrick,
and Cannella (in press).
334
gic situations they face, and (2) these personal-
ized construals are a function of the executives’
experiences, values, and personalities. As such,
the theory is built on the premise of bounded
rationality (Cyert & March, 1963; March & Simon,
1958)—the idea that informationally complex,
uncertain situations are not objectively
“knowable” but, rather, are merely interpret-
able (Mischel, 1977). If we want to understand
why organizations do the things they do, or why
they perform the way they do, we must consider
the biases and dispositions of their most power-
ful actors—their top executives.
The paper also introduced two subordinate
ideas, each of which seems to have stimulated
major streams of research. The first of these was
that a focus on the characteristics of the top
management team (TMT) will yield stronger ex-
planations of organizational outcomes than will
the customary focus on the individual top exec-
utive (e.g., CEO) alone. Leadership of a complex
organization is a shared activity, and the collec-
tive cognitions, capabilities, and interactions of
the entire TMT enter into strategic behaviors. In
this vein, many subsequent studies have veri-
fied that organizational outcomes depend, at
least in part, on TMT composition (e.g., Bantel &
Jackson, 1989; Carpenter & Fredrickson, 2001)
and processes (Eisenhardt & Bourgeois, 1988; Si-
mons, Pelled, & Smith, 1999). The upper echelons
perspective does not require a focus on TMTs
(and a number of significant contributions have
examined CEOs or other individual leaders), but
attention to executive groups, rather than to in-
dividuals, often yields better explanations of or-
ganizational outcomes.
2007 Hambrick
The second subordinate idea is that the demo-
graphic characteristics of executives can be
used as valid, albeit incomplete and imprecise,
proxies of executives’ cognitive frames. Given
the great difficulty obtaining conventional psy-
chometric data on top executives (especially
those who head major firms), researchers can
reliably use information on executives’ func-
tional backgrounds, industry and firm tenures,
educational credentials, and affiliations to de-
velop predictions of strategic actions. Granted,
the use of demographic indicators leaves us at a
loss as to the real psychological and social pro-
cesses that are driving executive behavior,
which is the well-known “black box problem”
(Lawrence, 1997). Nonetheless, researchers have
generated substantial evidence that demo-
graphic profiles of executives (both individual
executives and TMTs) are highly related to strat-
egy and performance outcomes (Boeker, 1997;
D’Aveni, 1990; Eisenhardt & Schoonhoven, 1990).
And some researchers have ventured to peer
inside the black box, examining the psycholog-
ical and social processes that mediate between
executives’ demography on the one hand and
their behaviors on the other (e.g., Smith, Smith,
Olian, Sims, O’Bannon, & Scully, 1994; Simons et
al., 1999).
LATER REFINEMENTS OF THE THEORY
Although the original articulation of upper
echelons theory, in the 1984 AMR article, engen-
dered a sizable and enduring stream of empiri-
cal investigations, there have also been several
enhancements of the theory itself. Among the
most notable refinements have been the intro-
duction of two important moderators—manage-
rial discretion and executive job demands—
which affect the theory’s predictive strength.
Two Moderators of Upper Echelons Predictions
Sydney Finkelstein and I introduced the con-
cept of managerial discretion (Hambrick &
Finkelstein, 1987) as a way to reconcile two then-
opposing views about the effects of top execu-
tives on organizational outcomes. One view,
coming out of the prevailing tradition of strate-
gic management, was that top executives
greatly influence what happens to their organi-
zations. The competing view, coming out of pop-
ulation ecology (e.g., Hannan & Freeman, 1977)
335
and new institutional theory (e.g., DiMaggio &
Powell, 1983), was that executives have little
effect because organizations are exceedingly in-
ertial, swept along by external forces, and con-
strained by a host of conventions and norms.
Finkelstein and I argued that both of these
views are conditionally valid, depending on
how much managerial discretion— or latitude of
action— exists. Discretion exists when there is
an absence of constraint and when there is a
great deal of means-ends ambiguity—that is,
when there are multiple plausible alternatives.
Discretion, we proposed, emanates from envi-
ronmental conditions (e.g., industry growth),
from organizational factors (e.g., a weak board),
and from the executive himself or herself (e.g.,
tolerance for ambiguity).
The implications of managerial discretion for
upper echelons theory are straightforward—
and profound: upper echelons theory offers good
predictions of organizational outcomes in direct
proportion to how much managerial discretion
exists. If a great deal of discretion is present,
then managerial characteristics will become re-
flected in strategy and performance. If, however,
discretion is lacking, executive characteristics
do not much matter. Several studies have shown
that managerial discretion is a pivotal modera-
tor of upper echelons predictions (e.g., Cross-
land & Hambrick, in press; Finkelstein & Ham-
brick, 1990).
More recently, Finkelstein, Mooney, and I
(Hambrick, Finkelstein, & Mooney, 2005) intro-
duced another moderator of upper echelons pre-
dictions: executive job demands. Although the
prevailing image is of CEOs carrying very
heavy loads and operating under great pres-
sure, the reality is that executives’ (including
CEOs’) jobs differ widely in how difficult they
are. For example, some CEOs operate in munif-
icent environments, with well-fortified strategic
positions, and have very capable subordinates,
whereas others have none of these cushions. We
argue that executive job demands stem from
three sets of factors: task challenges (e.g., diffi-
cult strategic conditions), performance chal-
lenges (e.g., demanding owners or board), and
executive aspirations (e.g., strong personal de-
sire to deliver maximum performance).
As with managerial discretion, we envision
executive job demands as a potentially impor-
tant moderator of the basic predictive strength
336 Academy of Management Review
of upper echelons theory.2 Executives who are
under heavy job demands will be forced to take
mental shortcuts and fall back on what they
have tried or seen work in the past; thus, their
choices will reflect their backgrounds and dis-
positions. Conversely, executives who face min-
imal job demands can afford to be more compre-
hensive in their analyses and decision making;
thus, their choices will more greatly match the
objective conditions they confront.
Empirical work on executive job demands has
not yet commenced, and we anticipate that mea-
surement will be difficult. Still, it may be possi-
ble to identify conditions of objectively light de-
mands (e.g., monopolies or cartels) and heavy
demands, or to examine abrupt increases in job
demands (e.g., deregulation), or even to use lab
designs to manipulate job loads. These methods
could be used to explore a host of phenomena,
including this central proposition: the greater
the executive job demands, the stronger the re-
lationship between executive characteristics
and strategic choices.
Additional Refinements
Beyond identifying managerial discretion and
executive job demands as basic moderators of
the upper echelons logic, refinements of the the-
ory have extended in other directions as well.
Among these, two elaborations on the basic con-
cept of the TMT stand out: intra-TMT power dis-
tributions and TMT behavioral integration.
Finkelstein (1992) took the lead in demonstrat-
ing that TMT characteristics yield stronger pre-
dictions of strategic behavior when the differing
amounts of power of TMT members are ac-
counted for. For instance, he found that the
greater the proportion of TMT members with fi-
nance backgrounds, the more acquisitions com-
panies would make. But when he added weights
for how much power the finance-oriented exec-
utives had within their TMTs, the results be-
came even stronger. Finkelstein’s methodology
for measuring executive power was comprehen-
2
Executive job demands and managerial discretion are
distinct constructs. Although an executive who has many
options (high discretion) might be thought of as having
heavy job demands, not every discretion-enhancing condi-
tion adds to job demands—and some might even lead to job
ease. For example, a passive board confers discretion but
makes the CEO’s job easier.
April
sive and well-validated. As important, however,
his work reminds us that some executives have
much more say than others, and their biases
should accordingly be given more weight when
trying to predict TMT actions.
I introduced the concept of “behavioral inte-
gration” when, in my field research and consult-
ing, I came to realize that many TMTs have few
“team” properties (Hambrick, 1994, 1995). In-
stead, they often consist of semiautonomous
“barons,” each engaging in bilateral relations
with the CEO but having little to do with each
other and hardly constituting a team. Behavioral
integration, then, is the degree to which a TMT
engages in mutual and collective interaction. A
behaviorally integrated TMT shares informa-
tion, resources, and decisions.
Behavioral integration has been shown to
have direct positive effects on organizational
performance (Hambrick, 1998; Li & Hambrick,
2005; Lubatkin, Simsek, Ling, & Veiga, 2006).
But its most important implications for upper
echelons theory concern how it affects the ba-
sic relevance of the TMT as a meaningful unit
of analysis. Namely, if top executives do not
collectively engage in information processing
or decision making, then what is the point in
trying to use their collective characteristics
(demographic or otherwise) to predict company
strategy or performance? It would be far more
sensible, as Jackson (1992) once proposed, to
identify the subgroups who are primarily re-
sponsible for certain types of decisions (or spe-
cific domains of action) and then to use just their
characteristics to predict actions. For example,
if we were trying to predict the propensity of a
company to increase its investment in R&D, we
might consider the relevant decision body to
consist of the CEO, CFO, VP of R&D, and VP of
marketing, but we would exclude consideration
of other executives, such as the VP of human
resources and the general counsel. Obviously,
such an approach either requires firsthand data
about the involvement of various executives in
specified decision domains or some relatively
coarse judgments (perhaps aided by expert pan-
els) about the selective involvement of execu-
tives in different types of decisions.
Despite such analytic challenges, attention to
the varying involvement of different executives
in different decision domains could be one of the
next research frontiers for upper echelons schol-
ars. Not only might the focus on “subteams”
2007 Hambrick
improve the predictive strength of upper eche-
lons theory, but an examination of subteams—
who is on the subteams, whether they are ex-
plicitly or implicitly designated, and how the
subteams interact or overlap— could be a fertile
new research topic in its own right. I have long
thought that there needs to be much more atten-
tion paid to the “structure” of TMTs, to comple-
ment—and improve— our understanding of TMT
composition and processes.
WHAT’S NEEDED NOW
There is no sign that interest in upper eche-
lons theory is waning or that the theory has
been tapped out. Indeed, each year brings more
new insights and fresh evidence of the effects of
top executives on organizational strategy and
performance. Naturally, I have some ideas
about promising next steps.
Inside the Black Box—A Proposed Methodology
Our original 1984 AMR paper proposed that
executives’ characteristics serve to filter and
distort information in a three-step process: exec-
utives’ experiences, values, and personalities
affect their (1) field of vision (the directions they
look and listen), (2) selective perception (what
they actually see and hear), and (3) interpreta-
tion (how they attach meaning to what they see
and hear). In very few studies, however, have
researchers attempted to confirm whether exec-
utive characteristics affect information process-
ing in this way. As a result, the psychological
and social processes by which executive pro-
files are converted into strategic choices still
remain largely a mystery—the proverbial black
box.
Our desire— our need—to open up the black
box is not just a matter of scholarly curiosity; it
is essential for ultimately improving the in-
sights we can provide executives regarding how
they might surmount or overcome the biases
associated with their experiences and disposi-
tions. We know, for instance, that long-tenured
CEOs tend to grow “stale in the saddle,” ceasing
to make adaptive changes (Hambrick & Fuku-
tomi, 1991; Henderson, Miller, & Hambrick, 2006;
Miller, 1991), but we do not really know why. Do
long-tenured executives engage in more re-
stricted environmental scanning than newer ex-
ecutives? Do they require more evidence (more
337
and clearer data points) in order to detect a new
trend? Or do they fully comprehend new trends
but fail to grasp their significance for their busi-
nesses? By exploring the actual information-
processing behaviors of managers, we could im-
prove both our theories and our practical
insights.
There are two interrelated reasons why re-
searchers have not studied the actual psycho-
logical and social processes that serve to trans-
form executive characteristics into strategic
action. First, there are relatively few researchers
who have an interest in and facility with both
microprocesses and macro-organizational phe-
nomena. Such a dual skill set, however, is re-
quired to do this research; therefore, the ideal
solution may be for micro- and macro-organiza-
tional scholars to team up. Second, this black
box research has not been done because it is
exceedingly difficult. It requires very intrusive
access to large numbers of executives and
TMTs, who are notoriously unwilling to submit
themselves to scholarly poking and probing.
Even though some of us have done such re-
search (e.g., Li & Hambrick, 2005; Miller & Droge,
1986; Simons et al., 1999; Westphal & Khanna,
2003), and more of it can and will be done, I am
not optimistic about relying on this pathway
alone.
I want to propose an alternative methodology,
which would require a very large up-front in-
vestment but could then yield a ceaseless cor-
nucopia of superb data. The method involves the
design and administration of a new type of
strategy simulation game—a bounded ratio-
nality game. Unlike existing strategy simula-
tions, this one would present participants with
more information than they could possibly han-
dle. Some of the information would be quantita-
tive and some qualitative; some would be pre-
cise and some vague; some would pertain to
market trends, some to manufacturing technol-
ogy trends, some to employee morale, and some
to customer satisfaction; and so on. Participants
might be given a menu of all the available in-
formation, along with indications of the source,
format, and cost of each item. It would be a
multiround game, with participants accessing,
weighing, and interpreting information and
making decisions in each round. The game
would be computer based, which would allow
researchers to know precisely which informa-
tion is accessed in what sequence, how long the
338 Academy of Management Review
player spends with each piece of information,
and so forth.
The simulation could be used with MBAs, ex-
ecutive MBAs, or senior executive program par-
ticipants. Players could be individuals or
groups, and data on relevant player character-
istics (e.g., functional experiences, cognitive
style, personality, group heterogeneity) could
easily be obtained. The parameters of the game
could be manipulated so that participants might
be observed under conditions of varying envi-
ronmental dynamism, job demands, discretion,
and so on. Of course, the multiround nature of
the simulation could also be put to use to ob-
serve patterns of learning, inertia, escalating
commitment, and the ebbs and flows of group
dynamics. If the game were well-designed, we
would not hesitate to submit our students to it,
for it could yield a host of educational insights.
As important, however, data collected from this
bounded rationality simulation could open up
whole new vantages for the study of strategic
decision making.
To be honest, I’ve been hoarding this idea for
years, thinking that I would eventually get to it.
But I’ve been intimidated by the technical chal-
lenges of designing the simulation. So now I just
hope to excite others about the great potential
this methodology holds for answering ques-
tions, and raising new ones, about the human
element in informationally complex decision
making.
Sorting out Reverse Causality and
Endogeneity
The basic logic of upper echelons theory is
that executives make choices on the basis of
their personalized construals of the situations
they face. But at least two reverse logics are also
at play. First, it is certainly the case that exec-
utives are drawn to, and advance within, set-
tings that suit their profiles. So, while upper
echelons theory might predict that TMTs pos-
sessing an abundance of technology expertise
will tend to invest a great deal in R&D, we can
also expect that such executives will be drawn
to R&D-intensive companies. Regrettably, a
number of upper echelons studies have been
strictly cross-sectional in their design and, thus,
have failed to empirically distinguish between
these two opposing causal mechanisms. The
April
best studies incorporate temporal lags and con-
trol for prior states of both the independent and
dependent variables; this form of analysis
should become the norm.
The second type of reverse causality is a bit
more complex—the problem of endogeneity.
Here, the executives indeed take actions that
mirror their profiles, but it’s not because of their
biased information processing (as upper eche-
lons theory posits). Instead, the causal chain is
propelled because the board (or other hiring
body) believes that these executives have pre-
cisely the right characteristics needed for the
conditions at hand. In turn, the executives’ ac-
tions are due more to their mandate than to any
unwittingly biased information processing on
their part. For example, if we observe that new
outsider CEOs tend to make major strategic
changes, it may not be due to their own open-
mindedness but, rather, because they are sim-
ply executing the board’s desire for change.
The conventional way to deal with endogene-
ity is to include an instrumental variable that
measures the likelihood (or expected value) of
the independent variable of interest. In our ex-
ample, we would use a set of antecedent vari-
ables to predict the likelihood that a new out-
sider CEO would be appointed, and we would
then include that likelihood score in our main
regression analyses. I should emphasize that
controlling for endogeneity is not a technical
nicety but, instead, is essential for gaining a grasp
of the causal mechanisms that lie behind empiri-
cal associations. Here again, I’m proposing a new
analytic norm for upper echelons researchers.
More generally, however, there is a need to
turn upper echelons theory on its head by con-
sidering executive characteristics as conse-
quences rather than as causes. Can we improve
our predictions of who will win CEO succession
contests? Why do top management teams look
the way they do? What are the factors that cause
the profiles of TMTs to change? By treating ex-
ecutive characteristics as dependent variables,
we will not only open up new avenues for think-
ing about organizational adaptation and intraor-
ganizational power struggles but will almost
certainly gain insights that will eventually help
sharpen our predictions of how and why execu-
tives’ characteristics become manifested in or-
ganizational outcomes.
2007 Hambrick
Executive Effects Under Different National
Systems
Upper echelons theory presumes that execu-
tives vary and that the strategic alternatives
available to them vary as well. These presump-
tions may be far more valid in some societies, or
national systems, than in others. If a society has
a single, uniform track for grooming top execu-
tives, then there will be no variance to study.
Similarly, if a society places extreme restric-
tions on executive actions (either explicitly or
implicitly), then executive effects on company
outcomes will be muted.
The overwhelming majority of empirical up-
per echelons studies have used samples of
American firms. In this regard, researchers may
have stacked the deck in favor of significant
results. Despite the occasional cries that Amer-
ican CEOs are strikingly homogeneous, they
are, in fact, arguably more diverse than CEO
populations in almost any other country—at
least in terms of age, educational background,
socioeconomic background, and functional ex-
perience. And there is some evidence that Amer-
ican CEOs have become more diverse over the
last thirty years (Hambrick, Finkelstein, Cho, &
Jackson, 2005). In contrast, some countries—
France comes to mind (Kadushin, 1995)— have
very regimented processes for grooming CEOs.
To become a top executive of a major firm in
such a country, one must have attended a cer-
tain type of university, be from a certain socio-
economic group, be of a certain age, and have
one’s ticket punched in various other highly
specified ways. It would be intriguing to study
how countries differ in terms of the homogeneity
of their corporate elites, as well as what hap-
pens when a society’s filtering process changes
—particularly when it starts allowing more va-
riety in its executive ranks.
There is another reason American samples
are more likely to generate results in support of
upper echelons theory: CEOs in the United
States have more discretion than do their coun-
terparts in most other advanced economies.
With strong national values of individualism
and tolerance for uncertainty (e.g., Hofstede,
2001), the United States has numerous formal
institutions that allow and encourage CEOs of
publicly held corporations to take whatever ac-
tions they deem appropriate—including very
bold actions. In most cases (80 percent), CEOs
339
are also chairs of their boards; they have a ma-
jor say as to who is on their boards; labor’s
involvement in governance is minimal; owner-
ship is typically widely dispersed, thus damp-
ening investor oversight; and, perhaps most im-
portant, owners tend to have highly diversified
investment portfolios and therefore favor risk
taking and extreme behaviors by CEOs (Lorsch,
1989; Useem, 1996; Ward, 1997). Compared to
CEOs in other countries, where formal institu-
tions derive from strong values of collectivism
and uncertainty avoidance, American CEOs
simply have greater potential to put their dis-
tinctive marks on their firms—for good or for ill.
In a recent study, Craig Crossland and I
(Crossland & Hambrick, in press) studied the
statistical impact of CEOs on company perfor-
mance (measured in several ways), in fifteen-
year matched samples of American, German,
and Japanese companies. Using a variance par-
titioning methodology, we found that CEOs of
American firms had a significantly greater ef-
fect on company performance (i.e., explained
more variance) than did CEOs in the other two
countries. At the other extreme, the CEOs of Jap-
anese companies had barely any statistical ef-
fect on performance, suggesting that CEOs in
Japan are essentially interchangeable— either
because they are homogeneous in their mind-
sets and outlooks or because they are greatly
constrained (explicitly or implicitly) in the ac-
tions they can take. Craig is continuing with this
interest in executive effects in different national
systems, and I heartily encourage others to join
in advancing our understanding of how upper
echelons theory might take on very different
complexions, depending on the macrosocial
context.
Interactive Effects of Executive Characteristics
and Compensation Systems
My remaining suggestion calls for theory and
research considering the combined effects of ex-
ecutive characteristics and compensation sys-
tems. Research in the upper echelons vein indi-
cates that executive characteristics influence
strategic outcomes. A separate body of literature
demonstrates that executive rewards systems
affect company behaviors (Milgrom & Roberts,
1992; Sanders, 2001). But almost no literature ex-
amines executive characteristics and compen-
340 Academy of Management Review
sation in tandem, or their interactive effects in
shaping company outcomes.
At the most basic level, we should be inter-
ested in the relative amounts and “zones” of
influence of these two drivers of strategic be-
havior. For example, if we wanted to predict
changes in risk-taking behaviors of TMTs, how
much variance would be explained by examin-
ing changes in TMT composition compared to
changes in TMT compensation arrangements?
How would the relative influence of these two
broad constructs differ in explaining other
strategic outcome variables? There is a need
to advance our understanding of just how
much behavioral change can be elicited from
compensation arrangements and when the ex-
ecutives themselves must be changed.
At another level, we need to consider the in-
teractive effects of executive characteristics and
compensation. For example, what are the effects
of an aggressive long-term incentive plan on the
behavior of a 45-year-old CEO compared to a
65-year-old CEO? Or how do executives from
modest socioeconomic backgrounds behave in
the face of large incentive prospects compared
to executives from wealthier backgrounds? The
literature on executive compensation, steeped
in a classic economics logic, has little to say
about how executives might differ in their reac-
tions to incentive arrangements; we can expect,
however, that such differences exist and are
consequential.
Executive compensation theorists have long
argued that pay programs must align with other
elements of the organizational context (Balkin &
Gomez-Mejia, 1990; Lawler, 1990). Surprisingly,
however, the idea that pay programs need to
take into account the characteristics of the ex-
ecutives themselves has rarely been considered
(McLaughlin, 1991, is an exception). We can
readily envision various mismatches between
TMT composition and compensation. For exam-
ple, if a company changes its pay in an effort to
alter executive behavior, but the executives—
because of their experiences, talents, or values
—are unable to engage in the new behaviors,
then the new pay program cannot possibly have
its intended effect. Conversely, if a company
radically changes the profile of the TMT, per-
haps in an effort to bring in talents needed to
cope with new contingencies, but then fails to
adequately adjust the executive compensation
April
system to encourage the new behaviors, the new
talents will not be fully tapped.
I have become energized about this line of
thought because of a recent study I conducted
with Theresa Cho (Cho & Hambrick, 2006). In our
investigation of strategic adaptation following
deregulation of the U.S. airline industry, we
found that those airlines that changed their TMT
composition the most (toward shorter industry
tenures, more marketing/sales backgrounds,
and greater heterogeneity) subsequently
changed their strategies the most; similarly,
there was an association between changes in
executive compensation (toward pay-for-perfor-
mance) and changes in strategies. But we addi-
tionally found an interactive effect between
changes in TMT composition and compensation
on changes in strategy. Namely, when the
makeup of the TMT changed to reflect the new
requirements of the industry and there was a
corresponding increase in performance-based
pay, the resulting strategy shift was far greater
than that occurring through the additive effects
of changed composition and compensation
alone. This study barely scratches the surface of
the important topic of how (mis)alignment of
TMT composition and compensation can affect
organizational outcomes.
In describing these promising areas for future
research, I have touched on only a few of my
currently favorite ideas. Many other thrusts are
possible. Indeed, I am aware of a number of
exciting projects others have under way right
now in the upper echelons domain, reinforcing
the point that the theory is expansive and still
ripe for generating new insights.
RESPONSES TO PHILOSOPHICAL
SKEPTICISMS ABOUT THE THEORY
I now address two interrelated questions that
skeptics sometimes raise about upper echelons
theory. Do top executives really matter as much
to company outcomes as the theory seems to
presume? And doesn’t the study of top execu-
tives amount to a glorification of elites?
As for the question of whether managers mat-
ter very much, I’ve already discussed (above) the
role of managerial discretion in moderating the
strength of executive effects. But beyond that,
let’s now do a thought experiment. Let’s say you
want to lose some weight. From many sources—
your mom, your doctor, your friends, the press,
2007 Hambrick
and your own life experiences—you realize that
losing weight depends on two things: eating
less and exercising more. But what if I told you
that exercising doesn’t matter very much? That’s
right. From meta-analyses, researchers have de-
termined that—after controlling for such funda-
mental factors as a person’s sex, age, height,
and caloric intake— exercise explains under 10
percent of variance in adult weight levels (Gar-
row & Summerbell, 1995; Miller, Koceja, & Ham-
ilton, 1997). If you hate exercising, you might be
thrilled by this news. But as a smart, sensible
person, you’d say, “Wait, I need to know how
much exercise will matter to me, given that I’m a
six-foot-tall, 45-year-old male who’s capable of a
moderate but not extreme diet.” Namely, you
would insist on controlling for— or essentially
setting aside—the obvious, or the fundamental
“givens” that largely determine a person’s
weight. And now the answer becomes—as you
guessed all along—that exercise will make a
big difference for you.
This is the way to view the various studies
that have reported that executives (CEOs, spe-
cifically) explain “only” 5 to 20 percent of vari-
ance in company profitability (Lieberson &
O’Connor, 1972, and others reviewed in Cross-
land & Hambrick, in press). All of these studies
correctly control for contextual conditions (in-
cluding the year, the industry, and the company)
that logically supersede any CEO effects. After
all, we can’t reasonably expect that a CEO who
comes into a chronically poorly performing com-
pany in an unhealthy industry during a reces-
sion will magically deliver huge profits; if he or
she delivers even a small profit, it will be an
extraordinary accomplishment. The question—
just as with the effect of exercise on body weight
—is how much relative, or incremental, effect
the CEO has after controlling for obvious con-
textual factors. The answer, from the same stud-
ies, is that CEOs (in the United States, at least)
account for a considerable portion of the vari-
ance in firm profitability that remains unex-
plained by contextual conditions. Just as exer-
cise matters greatly to how much you—a
specific individual—weigh, evidence indicates
that top executives have considerable influence
over the form and fate of their specific compa-
nies. Granted, executives have more discretion
in some settings than in others (Hambrick &
Finkelstein, 1987), but, in general, we can con-
clude that CEOs affect organizational outcomes.
341
And, as we proposed in our initial 1984 AMR
article, we anticipate that TMTs matter even
more.
As for the criticism that upper echelons theory
somehow glorifies elites, nothing could be far-
ther from the truth. The upper echelons perspec-
tive is entirely based on the premise that exec-
utives are humanly finite—susceptible to
fatigue, boredom, jealousy, cognitive biases, so-
cial preening, and selfishness—just like the rest
of us. In fact, upper echelons theory pokes holes
in the myth, prevalent among many manage-
ment scholars (especially those in strategic
management), that executives are capable of,
and committed to, technoeconomic optimization.
Let me put it this way: when I speak to executive
audiences about upper echelons studies on such
topics as experience traps, seasons of a CEO’s
tenure, hubris, impression management, or nar-
cissism—well, they don’t react as though they’ve
been glorified.
So, when upper echelons researchers assert
that executives matter, we don’t mean that they
only matter positively. They matter for good and
for ill. They sometimes do smart things and
sometimes do dumb things. They sometimes de-
serve our applause and sometimes deserve our
scorn. Executives make decisions and engage in
behaviors that affect the health, wealth, and
welfare of others— but they do so as flawed hu-
man beings.
SUMMARY
I’ve tried here to provide a brief glimpse of the
trajectory of upper echelons theory, as well as
some ideas about promising next steps. When
Phyllis Mason and I wrote our 1984 AMR article,
I certainly didn’t anticipate that it would provide
me twenty-plus years of intellectual stimulation
and reward. I want to thank all my colleagues
and collaborators— direct and indirect, near and
far—for their superb contributions and encour-
agement. And it’s not over yet. We still have
much to learn about the effects— both positive
and negative— of top executives on organiza-
tions.
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Donald C. Hambrick (dch14@psu.edu) is the Smeal Chaired Professor of Management,

Smeal College of Business Administration, The Pennsylvania State University. He is
also Samuel Bronfman Professor Emeritus of Columbia University’s Graduate School
of Business. He holds an MBA from Harvard University and a Ph.D. from The Penn-
sylvania State University. His research focuses primarily on the study of top execu-
tives and their effects on strategy and performance. An active consultant and execu-
tive education instructor, he also served as president of the Academy of Management.