How Much Do TMTs Matter in Founder-led Firms?

Abstract

As firms mature, their founders are often replaced with seasoned executives. When founders are retained, the surrounding TMT members are viewed as critical resources in helping compensate for the founder’s managerial deficiencies. Surprisingly, however, little is known about how TMT members affect a founder-led firm’s performance later in a firm’s life. Using novel methods and a sample of over 2,000 firms, we address this gap. We find that although team structure has a significant impact on the performance of non-founder-led firms (consistent with past literature), it has little to no effect on the operating performance of founder-led firms, suggesting that founder CEOs may exert too much control. Thus, the irony is that founders are retained to propel progress but their very retention may prevent progress. Taken together, our findings add to the entrepreneurship, team, and research methods literatures.

Keywords: Founders, Top Management Teams, Upper Echelons, Corporate Governance, Entropy Balancing

JEL Classification: L2, M1