Recent research has illustrated that demographic diversity influences the outcomes of public sector organizations. Most studies have focused on workforce diversity; by comparison, little is known about how managerial diversity affects organizational outcomes. This article focuses on gender diversity in the top management teams of public organizations and its relationship to financial performance. Theory suggests that management diversity can be a positive asset for organizations, allowing for the use of more diverse knowledge and human skill sets. Results of this study, however, suggest that organizations may only be able to leverage these advantages if they have a supporting management structure. In a longitudinal study of top management teams in Danish municipalities, the authors find that gender diversity in top management teams is associated with higher financial performance, but only in municipalities with a management structure that supports cross-functional team work. These results are interpreted in light of existing theory, and implications are suggested.

Practitioner Points

· Little is known about how the composition of the top management team in public organizations matters for organizational outcomes.

· Greater gender diversity has the potential to lead to superior organizational outcomes but does not automatically do so.

· To reap the benefits of diverse top management teams, the organizational structure must facilitate behavioral integration between members of the top management team.

· Gender diversity in the top management team is related to better financial outcomes when organizational structures promote integration and discretion of the top management team.

· Gender diversity in top management positions has no effect in traditional hierarchical organizations.

Recent research has explored how characteristics such as tenure (Juenke 2005 ), race (Pitts 2005 ), experience (Villadsen 2012 ), and gender (Meier, O'Toole Jr, and Goerdel 2006 ) influence the actions of public managers. This research, however, generally fails to allow for the fact that management is rarely an individual endeavor; while a single person may top the hierarchy and serve as the public face of an organization, actual top management is often better described as a team effort (Finkelstein and Hambrick 1990 ). In this article, we move the focus from the individual manager to the top management team and examine how its composition affects organizational outcomes.

A considerable amount of research has investigated how various management practices affect public organizations. These practices include leadership (Fernandez 2005 ; Van Wart 2013 ), managerial networking (Meier and O'Toole 2003 ), organizational strategies (Andrews, Boyne, and Walker 2006 ), contracting (Hefetz and Warner 2004 , 2012 ), and performance-information use (Moynihan and Ingraham 2004 ; Moynihan and Pandey 2010 ). This substantial line of research has provided valuable insights about how managers can affect the outcomes of public organizations. Much less research has been devoted to the composition of management teams and the dynamics among individuals occupying managerial roles in organizations. This is a critical gap in our understanding of public management. Top management is composed of individuals who apply their knowledge, perspectives, and worldviews to contribute to decision making as well as the overall direction of organizations (Hambrick, Cho, and Chen 1996 ).

In this article, we explore how gender diversity in top management teams (TMTs) affects financial performance in public organizations. Research focusing on private firms indicates that managerial gender diversity is related to positive performance outcomes (Auh and Menguc 2006 ; Carter, Simkins, and Simpson 2003 ; Dwyer, Richard, and Chadwick 2003 ; Erhardt, Werbel, and Shrader 2003 ). However, little research has yet explored the outcomes of TMT gender composition in public sector organizations (Pitts and Wise 2010 ), and to our knowledge, no studies have focused on how diversity may affect financial performance. We respond to an increasing interest in diversity in public organizations (Park 2013 ; Pitts 2005 ; Pitts and Wise 2010 ) and draw on recent theories about team diversity (for reviews, see Jackson, Joshi, and Erhardt 2003 ; Van Knippenberg and Schippers 2007 ) in order to explore how the gender composition of TMTs affects financial outcomes in public organizations.

In this article, we argue that TMT gender diversity is a positive asset for public sector organizations, for three reasons. First, drawing on the theory of representative bureaucracy, gender diversity is likely to generate a better understanding of the organization's environment because a collective of diverse team members can relate to many different aspects of increasingly heterogeneous organizational surroundings (Keiser et al. 2002 ; Park 2013 ). Second, diversity may inspire more creative and innovative output because it enables organizations to draw on a wider range of social and human capital as well as different cognitive templates (Østergaard, Timmermans, and Kristinsson 2011 ). Finally, diversity may provide more effective problem solving because diverse teams evaluate more alternatives and explore more potential consequences (Carter, Simkins, and Simpson 2003 ). Further, we draw on theories of group decision-making processes to suggest that male-dominated TMTs may be excessively risk seeking compared with those with a more even gender balance. Based on this, we predict that financial performance is likely to be better in organizations with a gender-integrated TMT.

We propose that the benefits of diversity are contingent on organizational factors. Gender diversity in the top management team is likely to be related to superior performance specifically when management structures facilitate behavioral integration and cross-gender TMT work. We suggest that the mixed results of previous research were caused by disregarding the role of organizational structure as an important mediating factor. This is consistent with research pointing to the importance of the structural context for achieving active representation (Keiser et al. 2002 ).

Gender diversity in the top management team is likely to be related to superior performance specifically when management structures facilitate behavioral integration and cross-gender TMT work.

Previous studies of the outcomes of diversity and representation in public organizations have predominantly taken education as their point of departure, relying on various measures of student performance (Pitts and Wise 2010 ). In this article, we focus on the financial performance of multipurpose public organizations. Of course, we recognize that “making money” is not the prime objective of public sector organizations. However, sound financial management is a fundamental prerequisite for effective service delivery, particularly in the post–New Public Management period, when many organizations, agencies, and units have gained greater financial autonomy. The ability to control finances effectively is an important factor underlying the work public organizations carry out. Deficits and budget overruns may impede the effective steering of public spending (Serritzlew 2005 ; Wildavsky and Caiden 2004 ).

More specifically, we study the relationship between TMT gender diversity and financial performance in a longitudinal analysis of 91 Danish municipalities. Our results indicate the importance of organizational structure for accruing the benefits of TMT diversity. Only in municipalities where the management team is organized according to an executive board model do higher levels of gender diversity correlate with better financial results (measured in terms of operational results and outperforming the budget in the course of the year). No such effect is found for municipalities using a traditional specialized organization of management.

With this study, we make three important contributions. First, we expand the very small number of studies that call attention to the differences between male and female public managers. While the Weberian public manager is a genderless bureaucrat, in the real world, men and women bring different backgrounds, experiences, and expectations to the executive floors of ministries, agencies, and city halls. This study points clearly to the importance of increasing our understanding of how gender diversity affects top management decision making and outcomes. Second, we address a call for more research exploring the importance of diversity for organizational outcome (Pitts and Wise 2010 ). Most diversity research in public organizations has studied workforce diversity using the theory of representative bureaucracy (Kingsley 1944 ; Park 2013 ; Roch and Pitts 2012 ). We add to this knowledge by showing that top management diversity can have a predictable, significant impact on financial performance. Third, we shed light on one of the mechanisms that connects gender diversity to positive outcomes. We suggest that in order to accrue the benefits of diversity, structures must be put in place to facilitate behavioral integration of the team. In this way, our study helps clarify one of the reasons why previous research on diversity yielded mixed results.

Next, we lay out our arguments for a positive relationship between TMT gender diversity and financial performance and set forth our hypotheses. Following this, we describe the research setting and methods used. After reporting the results of our analyses, we discuss our results with regard to existing research and managerial relevance.

Gender Diversity in Top Management Teams

A top management team is the “dominant coalition” responsible for setting an organization's direction (Cyert and March 1963 ). The TMT is charged with identifying opportunities and problems, gathering and interpreting information, and making decisions that propel the organization forward (Mintzberg 1979 ). In this process, TMT members must draw on individual as well as collective human and social capital. Each individual brings a different background and perspectives to the table. However, decisions are also shaped in cooperation. While there is a relatively limited number of studies on management team composition and functioning in the public sector, a substantial line of research has investigated TMT and board composition in the private sector and its relationship to organizational performance (Finkelstein and Hambrick 1990 ; Miller and Triana 2009 ; Zahra and Pearce 1989 ). Pitts argues that diversity is a strength when “[t]he ‘whole’ of the group's effort will be greater than the sum of the parts” ( 2005 , 618).

Given that management may be stereotypically thought of as a male task, an important challenge for research has been to investigate how the gender composition of top management matters for the outcomes of organizations. In a comprehensive review of private sector research on diversity, Jackson, Joshi, and Erhardt ( 2003 ) find gender to be the most widely studied dimension of diversity, ahead of age and functional background. Research has long been interested in gender segregation in public administration as well (Guy and Newman 2004 ; Stivers 1995 ). However, in a systematic review of studies of workforce diversity in 12 core public administration journals, Pitts and Wise ( 2010 ) find that only a few studies have explored the outcomes of diversity. Of these, even fewer have focused on gender. This is a critical gap in our understanding of public management.

The central premise underlying the hypothesis that gender diversity matters to top management teams is that male and female managers differ, not only in general but specifically in terms of the way they perform in their (management) jobs. Research has provided numerous studies of how leadership styles differ between men and women. Generally, studies find that women engage in leadership behavior that is more participatory, collaborative, and democratic than men's (Dezsö and Ross 2012 ; Eagly and Carli 2003 ). While there are, to our knowledge, no studies focusing on diversity in the top management teams of public sector organizations, a small amount of research has illuminated the consequences of gender differences among public managers. In a study of Texas school districts, Meier, O'Toole, and Goerdel ( 2006 ) find gender differences in the performance effects of managerial networking. Johansen's ( 2007 ) study of the same empirical setting suggests that prospector strategies may be especially effective when carried out by women managers. In a study of state agency heads in the United States, Jacobsen, Palus, and Bowling ( 2010 ) find that women managers devote less time to internal management and engage in less external networking behavior than their male counterparts.

Top Management Gender Diversity and Financial Performance

Building on the assumption that male and female managers exhibit distinct characteristics, there are further reasons to believe that gender diversity is related to organizational outcomes. Next we develop the relationship between TMT gender diversity and financial outcomes by drawing on the general diversity literature as well as dedicated financial literature.

Krishnan and Park ( 2005 ), drawing on social identity theory, highlight three arguments why TMTs may benefit from gender integration after a history of favoring men. First, women are more likely than men to be perceived as leaders in environments that involve a significant degree of social interaction. Public sector organizations exist in highly diverse and complex environments, which may make female leaders an asset (Kent and Moss 1994 ). Second, women in top management are likely to be highly skilled, as they typically have to overcome significant challenges to break the glass ceiling and get promoted to higher ranks. (This point is particularly salient in the context of the present study, as only around 20 percent of municipality top managers in Denmark are women.) This means that not only are women who attain TMT positions likely to be skilled and knowledgeable, but also they are adept at working the politics of the organization. Third, compared with men, women's cognitive style tends to emphasize harmony (Krishnan and Park 2005 ). This gender difference may lead to superior team dynamics when men and women are brought together in continuous interaction, where the distinct strengths of each gender can be leveraged. Further, it can be argued that the degree of gender diversity in top management constitutes a signal to lower hierarchical levels. Female middle managers become more motivated if they see women in the TMT and, consequently, see a viable promotion path (Dezsö and Ross 2012 ), and female employees in general are likely to feel more accepted and to feel that different gender roles are accepted in the organization (Guy and Newman 2004 ).

Women are more likely than men to be perceived as leaders in environments that involve a significant degree of social interaction.

The foregoing arguments suggest that there may be positive effects of gender-diverse TMTs. This has generally been supported in studies of private sector firms (for a review, see Jackson, Joshi, and Erhardt 2003 ). Krishnan and Park ( 2005 ) find that TMT gender diversity has a positive effect on organizational performance in a study of Fortune 1000 companies. In a study of 127 large U.S. companies, Erhardt, Werbel, and Shrader ( 2003 ) report a positive association between board diversity and financial performance indicators. As mentioned, relatively few studies have explored outcomes of diversity in public organizations (Pitts and Wise 2010 ). Still, representative bureaucracy theory would predict that a representative TMT will be more attuned to the demands and needs of citizens and, consequently, likely to make better financial decisions (Park 2013 ).

In this article, we focus specifically on how TMT gender diversity is related to the financial performance of public sector organizations. Assessing the performance of public sector organizations is notoriously difficult because such organizations often serve multiple objectives and must balance the interests of multiple stakeholders. Unlike research on private sector performance, where financial indicators are the sine qua non, research in public management has tended to focus on service-related performance measures such as student test scores (Andersen and Serritzlew 2007 ; Meier and O'Toole 2001 ), composite measures (Andrews, Boyne, and Walker 2006 ), or self-reported assessments. Diversity research is no exception: as already mentioned, relatively little diversity research is outcome focused, and the few studies that do exist have largely focused on the educational sector and student outcomes (e.g., Johansen 2007 ; Pitts 2005 ).

To further understand how TMT dynamics may affect financial outcomes, it is worth considering how group composition may affect risky behavior in groups. Research in economic psychology indicates differences in men's and women's financial decision making. Using experimental methods, Powell and Ansic ( 1997 ) find that women are less risk seeking than men and that they adopt different strategies in their financial decision making. A similar point is made by Francis et al. ( 2009 ) in a study of chief financial officers (CFOs) showing that female CFOs are more conservative than male CFOs. These individual-level gender differences aggregate through group composition to create systematic differences in organizational-level outcomes. Group behaviors conform to the assumptions, values, and norms that are shared by the majority of the group's members (Cartwright and Zander 1960 ). This means that if the prevailing view held by the majority favors a more risky decision, the minority group members are likely to conform. Stoner ( 1968 ), for instance, finds that groups give more weight to risk-related attitudes shared by more members. If men and women tend to hold different attitudes toward risk, this research suggests that TMT gender segregation may lead to financial decisions that are either too risky or too safe depending on the majority gender of the group. A gender-balanced team is less susceptible to the weaknesses of such groupthink. In public organizations looking to find the right balance between being financially progressive and conservative, a balance of male and female TMT members is likely to be positive.

A gender-balanced team is less susceptible to the weaknesses of such groupthink.

In total, we base our hypothesis on two lines of argument: first, on general research claiming that gender diversity is positively related to organizational outcomes, and second, on specific research pointing to gender differences in financial decision making.

Hypothesis 1: Higher TMT gender diversity is positively related to financial performance.

The Moderating Role of Management Structure

The arguments outlined earlier imply that for a group to obtain the positive outcomes of diversity, its members must be able to interact productively and constructively and feed off each other's strengths. Previous research has pointed out how structures can facilitate positive outcomes from representation (Meier and Bohte 2001 ). The expectation expressed in hypothesis 1 may therefore be contingent on the organization of the top management team. To release positive TMT dynamics, the TMT must work in a way that facilitates such interaction. Specifically, we propose that team integration and team discretion positively moderate the relationship between gender diversity and financial performance.

Upper-echelon theory has argued that the outcome of a TMT's work depends on its organization and internal dynamics. Hambrick points out that TMTs “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” ( 2007 , 336). In light of this, he argues that TMTs with more behavioral integration are likely to perform better. Behavioral integration describes the extent of a team's collaboration, knowledge exchange, and emphasis on joint decision making (Hambrick 1994 ). TMTs that are more behaviorally integrated have been shown to be able to embrace ambidexterity to a larger degree and also exhibit higher performance (Lubatkin et al. 2006 ). Another study finds higher TMT behavioral integration to be positively related to decision quality (Carmeli and Schaubroeck 2006 ). For diversity to affect organizational outcomes, TMTs must have a structure allowing integration, which, in turn, can facilitate interaction and cultivate mutual exchange of knowledge and opinions. We expect that organizations will be better able to reap the benefits of gender diversity when they adopt an organizing approach that allows for higher degrees of integration. Conversely, if a TMT's responsibilities are disintegrated and distributed across sectorial areas, diversity will be much less important, if at all. The benefit of bringing together members from different groups (in this case, different genders) will simply not be realized because managers will maintain a strong focus on their distinct area of responsibility with little benefit accrued from cooperation.

Besides integration, team discretion may also affect the outcomes of diversity. If the management structure is hierarchical, with a dominating top executive, gender integration is likely to matter less than if the management structure emphasizes teamwork and shared responsibilities. In the latter situation, in which management discretion resides at the TMT level rather than the individual level, group dynamics matter more for decision quality and outcomes. Management discretion has been shown to positively affect organizational efficiency in local governments (Garrone, Grilli, and Rousseau 2013 ).

This reasoning can also been interpreted in light of representative bureaucracy research. Studies have distinguished between passive and active forms of representation (Park 2013 ; Wilkins and Keiser 2006 ). Passive representation may increase the legitimacy of public agencies (Riccucci, Van Ryzin, and Lavena 2014 ), but active representation may create more substantial outcomes. Such more active representation, however, may depend on structural conditions of the organization. As argued by Keiser and colleagues, “Within the organization, a […] necessary condition for representative bureaucracy is that the bureaucrats in question have discretion to influence outcomes” ( 2002 , 558). With regard to overall financial outcomes, discretion is greater when management structures promote real team work and shared responsibilities.

We predict that the organization of management may significantly affect the organizational outcomes of TMT gender diversity. When management is structured around team integration and team discretion, the benefit is likely to be higher.

Hypothesis 2: The positive relationship between TMT gender diversity and financial performance is moderated by management structure, such that the relationship is stronger when TMT integration and discretion are higher.

Research Setting

Danish municipalities (local governments) provide an excellent setting for studying the impact of gender diversity in top management teams. The 98 municipalities are highly comparable, semiautonomous units having the same tasks and subject to the same regulations (Christensen 1998 ; Greve 2006 ). Local government is responsible for the larger part of public service, including primary schooling, child care, elder care, local infrastructure, and social security benefits. The municipalities levy their own taxes and have considerable autonomy in service provision. 1 Government rests with the elected municipal council, and executive power is shared among a compulsory financial committee, various standing committees, and the mayor. The mayor chairs the council and the financial committee meetings and is formally the “daily leader of the municipal administration” (Mouritzen and Svara 2002 ). Most mayors come from one of the two biggest political parties, the Social Democrats or the Liberals (Berg and Kjær 2005 ). The other members of the council are “part-time politicians” who usually also hold a day job.

While municipal councilors are formally in charge of providing direction and overall decision making, actual operations are left to the administrative organization. Top management consists of career bureaucrats who are promoted from the ranks of civil servants. In practice, municipal administrative top management teams consist of a chief executive officer (CEO or kommunaldirektøren) and a number of managing directors. The formal hierarchical relationship within the TMT is somewhat ambiguous because of the sharing of executive power among the financial committee, the standing committees, and the mayor (Ejersbo, Hansen, and Mouritzen 1998 , 109). However, the CEO is usually regarded as the person in charge of the administrative part of the municipal organization (Bækgaard 2011 , 1066).

Two basic yet distinct forms of organization of the top management are used in Danish municipalities (Bækgaard 2011 ). Traditionally, most Danish municipalities have organized their administration according to a sector-based model, in which the municipality's tasks are divided among a number of administrative departments, each responsible for a defined service area (which typically mirrors the responsibilities of a specific standing committee). Each department has a department head. However, since the beginning of the 1990s, many municipalities have reorganized (Villadsen 2012 ). Emphasizing the need for coordination at the municipal apex and drawing inspiration from private firms, some municipalities have organized the top management as executive boards with cross-departmental responsibilities. The main differences between the two types of models lie in the roles and the focus of the managing directors. In the sector-based model, the department heads’ primary responsibility is the running of their department. This type of organizing is based on traditional bureaucratic thinking, in which each top manager is responsible and accountable for a particular line of work. The top managers of each department together form a top management group, but responsibilities are relatively clearly divided. Consequently, little TMT integration is needed, and overall managerial discretion is likely to rest with the top executive.

In the executive board model, the managing directors attend to intraorganizational coordination, strategic decision making, and the economic steering of the municipality. While TMTs organized in this way have a CEO who is ultimately in charge, they are a collective in which decision making is a shared task across the various functional areas of the organization. This type of organizing is more time-consuming, but it allows the team to benefit from members’ collective human and social capital and provides a higher degree of functional integration among different lines of work. TMTs organized this way will be more integrated and have more team-based discretion.

Some municipalities apply a mixed model, with an executive and one or more of the managing directors also being department heads. However, the full effect of an executive board is presumably only apparent in the pure version of the executive board model, in which the managing directors are formally totally independent of sector interests (Bækgaard 2011 , 1068). We explore these differences in the organization of management to assess whether the effect of management diversity is contingent on the structure of management.

Methods

Data and Analysis

To investigate the impact of gender diversity on financial performance in the TMTs of Danish municipalities, we analyze yearly data for the period 2008 to 2012. The starting point for the analysis is given by a major structural reform ( Strukturreformen) implemented in 2007, which reduced the number of municipalities from 271 to 98 and changed their responsibilities and financing (see Vrangbæk 2010 ). 2

The data are compiled from register data and official statistics. The composition of municipality top management teams and the municipalities’ administrative structure are coded based on the official local government handbook ( Mostrup Kommunal Håndbog), which is issued annually and contains, among other information, the names of the local government CEOs and the other managing directors in each of the 98 municipalities. According to this handbook, the size of the municipality TMTs varied between 1 and 12 members in the analyzed period. In order to make a measure of diversity meaningful, we only include observations with more than two registered municipal managers, eliminating seven municipalities. Therefore, only 91 municipalities feature in the analysis. Data on financial performance is obtained from statements made by the Danish Evaluation Institute for Local Government. 3 Furthermore, a number of control variables are integrated from “the yearly municipal key indicators” ( De Kommunale Nøgletal) published by the Ministry of Economy and the Interior. 4

In our analysis, we apply generalized least squares (GLS) regression in order to deal with the potential problems of heteroscedasticity attributable to the longitudinal data design (Frees 2004 ). Furthermore, because each municipality appears multiple times in the analysis, observations may not be independent. Therefore, we cluster the analysis on the observations (municipalities) and calculate robust standard errors. When analyzing panel data, there is always a choice between random- and fixed-effects specifications. Various reasons justify using a random-effects specification for this study. First, there is relatively little variation in our independent variable across the years, as changes only happen when there is a replacement in the TMT, rendering within-observation variation modest and fixed effects unfeasible. Further, we conducted a Hausman test, which clearly rejected fixed effects as superior to random effects ( p < .43). Therefore, we use random-effects estimations in all models.

To ensure that multicollinearity is not problematic, we calculated variance inflation factors (VIFs), which did not reach any levels of concern. The mean VIF score is 1.67, and the highest value is 2.45.

To assess whether results are sensitive to autocorrelation, we ran additional models with an AR1 autocorrelation structure. We obtained substantially very similar results (available from the authors upon request).

Measurement

Dependent variables

We operationalize financial performance using two measures to account for the fact that “good financial performance” may mean different things in different organizations. First, we use accounted operating result because it reflects the organization's ability to generate sufficient income and control expenditures. Second, we use budget overrun because it reflects an organization's ability to follow a financial plan laid out by elected politicians. Each of these variables is further specified next.

The first dependent variable is the accounted operating result in the given year. This is a widely used indicator of the financial performance of Danish municipalities (Hansen, Houlberg, and Pedersen 2014 ). The operating result is measured as the municipality's accounted operating revenues (tax revenue and block grants from the national government) per citizen minus its accounted operating expenses and net interest payments per citizen—all in thousands of Danish kroner. As stated earlier, these figures are obtained from yearly statements made by the Danish Evaluation Institute for Local Government. Between 2008 and 2012, the average accounted operating result of the municipalities that we analyzed was a 1,527 Danish kroner surplus per citizen (approximately US$284). However, there were major variations between “municipality years”; the standard deviation is 1,406 Danish kroner per citizen, reflecting that both deficits and surpluses are common.

The second dependent variable, a municipality's budget overrun, measures the difference between the accounted operating result and the budgeted operating result in a given year, both per citizen in thousands of Danish kroner. It is calculated according to the following formula for municipality m in year t:

Positive values indicate that a municipality has failed to reach its budgeted financial results (i.e., an overrun). Negative values indicate that the realized result is better than budgeted (i.e., a budget “underrun”). Such a measure has previously been used to examine Danish municipalities’ financial performance (Serritslew 2005 ). Again, these figures are obtained from the yearly statements made by the Danish Evaluation Institute for Local Government. In the period under analysis, the municipalities’ average budget overrun was a modest negative 84 Danish kroner per citizen, reflecting that, on average, municipalities did a little better than budgeted. The standard deviation is 1,117 Danish kroner per citizen, indicating that the modest average overrun covers substantial variation across municipalities. Some did far better than the budget; others did far worse.

It can be argued that budget overrun is not symmetrical around zero, as doing better than budgeted is not necessarily positive and may imply that inadequate service levels were provided. To address this, we conducted an alternative analysis with only budget overruns (i.e., realized results worse than budgeted). We found substantially similar results.

Independent variable

On the basis of the listings in the local government handbook, we registered the names of all CEOs and managing directors in each of the 98 municipalities for each year of the analysis. From this, we then coded the gender composition of each municipality's TMT for each year. Next, we used the Blau index of dissimilarity to create the variable gender diversity. The Blau index is calculated by the formula 1 – ∑ pi2, where p equals the proportion of each group of interest (i.e., male and female) and i represents the number of groups (in this case, two). For gender diversity, the index ranges from 0 to 0.5. A value of 0 represents complete homogeneity (thus, a TMT consisting of either all male or all female directors); a value of 0.5 represents maximum gender diversity (an equal number of men and woman in the TMT). Both of these extreme values are present in our data set. In the period under analysis, the municipalities’ average index score was 0.257, with a standard deviation of 0.196. In order to better reflect the TMT's impact on the municipality's financial performance, the independent variable is lagged by one year.

Moderating variable

The municipalities’ administrative structure in the given year is determined based on information from the local government handbook. Inspired by Bækgaard ( 2011 ), we distinguish between sector-based models, mixed models, and executive board models. A municipality is coded as having a sector-based model when the local government handbook lists a number of administrative departments with defined service areas (e.g., Department of Children and Youth, Department of Elderly and Disabled, etc.). When managing directors are presented as heading a defined service area but no administrative departments are listed explicitly, the municipality is registered as having a mixed model. Finally, when managing directors are presented without any associated area of responsibility and no administrative departments are listed, the municipality is coded as using an executive board model. This is a crude measure that does not necessarily capture the actual daily functioning of each TMT, but it does reflect how the municipalities choose to present themselves in the annual local government handbook.

Because we are particularly interested in the use of executive board models, we create a dummy variable where executive board models are coded as 1 and the other two board types are coded as 0. Next, we create an interaction term between the measure of TMT gender diversity and the dummy variable for executive board models in order to test its moderating effect. In the analyzed period, 17.4 percent of the municipalities were registered as using an executive board model. By comparison, Bækgaard ( 2011 , 1069–70) finds, based on short interviews with the CEOs, that 16.0 percent used an executive board model in 2008.

Control variables

In order to better isolate the impact of gender diversity in top management teams on the municipalities’ financial performance, we include a number of control variables in the analysis. First, it is likely that structural characteristics both influence the tendency to employ woman in top management positions and impact the financial performance of the municipality. To account for this, we control for the municipalities’ population size, proportion of inhabitants living in an urban area (urbanization), tax base (a measure of municipal wealth), socioeconomic conditions (using an indicator calculated by the Ministry of the Interior), and long-term debts. All variables are time varying and lagged by a year to better reflect causality. Second, we include a dummy variable indicating whether the municipality resulted from the 2007 structural reform, which led to an “oversupply” of managing directors in the newly merged municipalities, potentially affecting the composition of the TMT. Moreover, being merged has also been found to affect the municipalities’ financial management (Hansen, Houlberg, and Pedersen 2014 ). Third, we control for political factors by including a dummy variable for the party of the mayor. Liberal mayors are used as the reference category in relation to Social Democratic mayors and mayors from other parties. We also control for potential effects of municipal council elections by including a dummy variable for the year 2009. Furthermore, we include a measure for the gender diversity on the council. We also control for the extent to which the municipality uses private contractors for service delivery. Finally, we control for the size of the TMT.

Results

Table 1 reports the descriptive statistics and correlations among variables. The impact of top management team gender diversity on the municipalities’ operational results is presented in table 2 . Three models are reported: in the first model, only the control variables are entered; in model 2, the variable measuring TMT gender diversity is added; and in the third model, the interaction term between TMT gender diversity and the use of an executive board model is included.

Table 1. Correlations and Descriptive Statistics

	Mean	SD	1	2	3	4	5	6	7	8	9	10	11	12	13	14	15	16
Operating result a	1.48	1.47	1
Budget overrun a	−0.10	1.14	−0.71	1
TMT gender diversity	0.26	0.19	0.10	−0.05	1
Population	53,565	56,911	0.13	−0.04	0.05	1
Population density	551	1,347	0.17	−0.07	0.12	0.39	1
Tax base	152,595	28,536	0.18	−0.19	0.21	−0.03	0.34	1
Socioeconomic index	0.94	0.25	0.13	0.01	0.07	0.19	0.20	−0.34	1
Debt	15,622	9,200	0.11	−0.06	0.06	−0.17	−0.01	0.06	0.03	1
Contracting	24.00	4.07	0.08	−0.17	0.14	0.01	0.07	0.21	0.04	0.14	1
Reformed	0.66	0.46	0.13	−0.13	0.15	0.09	0.55	0.38	0.30	−0.18	0.19	1
Social Democrat mayor	0.47	0.49	0.06	0.03	−0.02	0.14	0.04	−0.20	0.32	0.01	−0.12	0.09	1
“Other” mayor	0.19	0.39	0.01	−0.01	0.13	0.16	0.19	0.19	−0.13	0.05	0.05	0.19	−0.46	1
Elected board gender diversity	0.40	0.08	0.18	−0.22	0.21	−0.04	0.29	0.45	−0.04	−0.01	0.17	0.31	0.04	0.13	1
TMT size	4.88	1.82	−0.06	0.15	0.09	0.29	0.09	−0.09	0.10	−0.04	−0.27	−0.16	0.17	−0.05	−0.07	1
Executive board	0.17	0.38	−0.06	−0.10	−0.09	−0.13	−0.11	0.05	−0.11	−0.08	0.10	0.04	−0.07	−0.01	−0.01	0.40	1
Election year	0.20	0.40	0.02	−0.14	0.01	0.00	−0.00	−0.03	−0.00	−0.01	0.01	0.01	−0.01	−0.01	0.09	0.03	0.00	1

· a In thousands of Danish kroner.

· Note: All correlations > |0.1| are significant with p < .05.

Table 2. GLS Regressions: Dependent Variable, Operating Result

	Model 1	Model 2	Model 3
Population	0.00 ***	0.00 ***	0.00 ***
	(0.00)	(0.00)	(0.00)
Population density	0.00	0.00	0.00
	(0.00)	(0.00)	(0.00)
Tax base	0.00	0.00	0.00
	(0.00)	(0.00)	(0.00)
Socioeconomic index	0.95 *	0.93 *	1.04 *
	(0.40)	(0.40)	(0.41)
Debt	0.00 *	0.00	0.00 *
	(0.00)	(0.00)	(0.00)
Contracting	0.03	0.02	0.02
	(0.02)	(0.02)	(0.02)
Merged	−0.01	−0.05	−0.07
	(0.30)	(0.31)	(0.30)
Social Democrat mayor	0.17	0.17	0.17
	(0.19)	(0.19)	(0.19)
“Other” mayor	−0.15	−0.17	−0.19
	(0.25)	(0.25)	(0.25)
Elected board gender diversity	2.53	2.42	2.29
	(1.43)	(1.46)	(1.46)
TMT size	−0.23 **	−0.23 **	−0.24 ***
	(0.07)	(0.07)	(0.07)
Executive board	−0.81 ***	−0.76 **	−1.27 ***
	(0.25)	(0.24)	(0.32)
Election year	−0.06	−0.06	−0.05
	(0.12)	(0.12)	(0.12)
TMT gender diversity		0.52	0.01
		(0.44)	(0.46)
TMT gender diversity * Executive board			2.61 *
			(1.08)
Constant	−2.08	−2.00	−1.58
	(1.21)	(1.22)	(1.21)
Number of groups	91	91	91
Number of observations	442	442	442
Wald chi-square	128.15 ***	136.45 ***	143.76 ***
R2	0.14	0.14	0.15

· Note: Robust standard errors in parentheses.

· *** p < .001

· ** p < .01

· * p < .05; two-sided tests.

Hypothesis 1 proposed that higher TMT gender diversity is related to better financial performance. This hypothesis is not supported with regard to the municipalities’ operating results. Model 2 indicates no significant relationship between TMT gender diversity and operating results. However, the degree of diversity of the TMT is found to have a positive impact on operating results when the municipality's top management is organized as an executive board. In model 3, the interaction term between TMT gender diversity and the use of an executive board model has a significant positive coefficient. This lends support to hypothesis 2, which proposed that the relationship between TMT gender diversity and financial performance is moderated by the organization's administrative structure.

In table 3 , the impact of TMT gender diversity on the municipality's budget overrun is presented. Following the same steps as earlier, three models are reported. Model 2 indicates no significant relationships between TMT gender diversity and the size of municipal budget overrun. Thus, hypothesis 1 is not supported in this regard either.

Table 3. GLS Regressions: Dependent Variable, Budget Overrun

	Model 1	Model 2	Model 3
Population	0.00	0.00	−0.00 *
	(0.00)	(0.00)	(0.00)
Population density	0.00	0.00	0.00
	(0.00)	(0.00)	(0.00)
Tax base	−0.00 *	−0.00 *	0.00
	(0.00)	(0.00)	(0.00)
Socioeconomic index	−0.27	−0.27	−0.37
	(0.30)	(0.30)	(0.31)
Debt	0.00	0.00	0.00
	(0.00)	(0.00)	(0.00)
Contracting	−0.03	−0.03	−0.03
	(0.02)	(0.02)	(0.02)
Merged	0.00	0.01	0.04
	(0.20)	(0.20)	(0.19)
Social Democrat mayor	0.09	0.09	0.1
	(0.16)	(0.16)	(0.16)
“Other” mayor	0.30	0.30	0.32
	(0.23)	(0.23)	(0.22)
Elected board gender diversity	−3.17 **	−3.16 **	−2.92 *
	(1.21)	(1.22)	(1.24)
TMT size	0.12 *	0.12 *	0.13 *
	(0.05)	(0.05)	(0.05)
Executive board	0.38	0.38	0.85 ***
	(0.21)	(0.20)	(0.25)
Election year	0.14	0.14	0.13
	(0.11)	(0.11)	(0.11)
TMT gender diversity		−0.08	0.37
		(0.39)	(0.40)
TMT gender diversity * Executive board			−2.45 **
			(0.78)
Constant	2.55 ***	2.56 ***	2.11 **
	(0.74)	(0.77)	(0.81)
Number of groups	91	91	91
Number of observations	442	442	442
Wald chi-square	72.08 ***	72.54 ***	78.64 ***
R2	0.09	0.09	0.12

· Note: Robust standard errors in parentheses.

· *** p < .001

· ** p < .01

· * p < .05; two-sided tests.

As earlier, the municipality's administrative structure is found to moderate the relationship between TMT gender diversity and financial performance, lending further support to hypothesis 2. In municipalities applying an executive board model, more diverse TMTs produce smaller budget overruns (or even budget underruns, where the result is better than budgeted). In model 3, the interaction term between TMT gender diversity and the executive board model has a significant negative coefficient.

Figure 1 provides a graphical depiction of the impact of gender diversity on financial performance. The graphs show marginal effects for different values of diversity. One line depicts municipalities with an executive board model and the other municipalities without such a management structure. In panel 1, we see how the effect of TMT diversity on the operational result is contingent on management structure. Overall, municipalities applying an executive board model produce poorer operational results compared with municipalities with other administrative structures (cf. models 1 and 2). For low levels of diversity, the traditional management model has a higher effect on operational result than the board of director model. However, a more gender-diverse TMT makes the latter municipalities “catch up” with the former ones as the effect of diversity increases for municipalities with the executive board model when diversity is higher. For high levels of diversity, the two models have a similar effect on operating results.

Figure 1

Open in figure viewer PowerPoint

Interaction between TMT Gender Diversity and Organization Structure

In figure 1 , panel 2, we offer a visual presentation of the marginal effects of the results investigating budget overrun. The effect of diversity on overrun is near constant for municipalities using traditional administrative structures for all levels of diversity indicated by an almost flat line. Turning to municipalities using an executive board model, we see that the line is decreasing indicating that diversity's effect on budget overrun decreases as diversity increases. Together, the graphs in figure 1 underline how the effects of diversity are contingent on management structure. In both panels, the effect of diversity does not affect financial performance when traditional structures are used, as illustrated by the almost flat lines in panels 1 and 2.

To further scrutinize the importance of gender diversity for different management structures and assess the substantial effect sizes, in table 4 , the interactions are further illustrated. Based on our regressions we have calculated the predicted differences in operating results and budget overruns for municipalities with high versus low levels of TMT gender diversity.

Table 4. Predicted Differences in Operating Result and Budget Overrun between Municipalities with High/Low Values of Gender Diversity

	Operating Result in DKK per Citizen: Difference between “High” Diversity and “Low” Diversity	Budget Overrun in DKK per Citizen: Difference between “High” Diversity and “Low” Diversity
Executive board model	1,050 **	−830 **
Other model	10	150

· Notes: High diversity is defined as mean +1 standard deviation; low diversity is defined as mean −1 standard deviation.

· ** p < .01.

Turning first to the operating results, we observe a difference of 1,050 Danish kroner per citizen between those municipalities with a high level of executive board diversity and those with a low level (the effect illustrated by the rising line in figure 1 , panel 1). This is a substantial result. The average municipality size is around 57,000 citizens. This indicates that with an executive board management structure gender diversity is a distinct asset. When other management models are used, we observe no significant difference in operating results between municipalities with high and low levels of TMT diversity (as indicated by the flat line in figure 1 , panel 1).

Focusing next on budget overruns, we see a similar picture. When the executive board model is in use, there is a difference of −830 Danish kroner between high- and low-diversity municipalities. The negative number indicates that low-diversity municipalities run larger budget overruns. Again, no significant difference is found when other management models are in place. Together, the parts of the table clearly indicate the relationship between TMT gender diversity and financial results. For both operating results and budget overrun, the relationship is contingent on the management model. When the executive board model is in use, significant and substantial differences exist between high and low levels of gender diversity.

When the executive board model is in use, significant and substantial differences exist between high and low levels of gender diversity.

In the next section, we discuss the results and their implications. While the control variables are not of explicit interest here, they do yield two relevant results. First, it should be noted that greater gender diversity among elected politicians is negatively related to budget overruns. It is beyond the scope of the present article to speculate about the relationship between the political and administrative systems, but this provides further support for the general relevance of gender to financial decision making. The data do not show a positive impact of elected board diversity on financial performance with regard to operating results, however. An explanation for this could be that elected politicians are more attentive to the budget than the actual financial accounts. The second notable result is that TMT size is negatively related to the municipalities’ financial performance; larger TMTs, on average, produce poorer operational results and bigger budget overruns. These results could suggest that behavioral integration is impeded when the number of TMT members increases. Although we were not explicitly interested in TMT size, to further control for a possible moderating effect of TMT size on the hypothesized relationship between TMT gender diversity and financial performance, we included an interaction term for TMT gender diversity and TMT size to the analysis. However, the original effects remained unchanged, and no additional effects of TMT size for either the municipalities’ operational results or budget overruns were found (results not reported).

Discussion

Top management team gender diversity presents a paradox for organizations. On the one hand, it may spark creativity and the development and use of diverse knowledge and perspectives on new ideas. On the other hand, diversity is likely to hamper effective team work because of potential between-group differences in values, perceptions, and cognitive styles. This study has advanced the understanding of TMT diversity into the domain of public sector organizations. It provides evidence that not only individual managerial attributes but also the constellation of a management team affect core organizational outcomes. Focusing on gender, this study has suggested that organizations are likely to accrue positive outcomes from gender diversity in management, but only if the management structure facilitates the effective use of individual differences. The results of our analysis of the TMTs of more than 90 Danish municipalities indicate that municipalities with gender-diverse management groups obtain better financial performance—but only if they use the executive board management model, in which the top management group shares responsibilities broadly. Conversely, our results indicate that the impact of gender diversity is neutral when top managers are specialized and have clearly divided task responsibilities. These results shed light on the mixed results of previous research into team diversity, highlighting how different structures may, to varying degrees, facilitate the productive use of diverse human resources. The present analysis only deals with gender diversity, but whether the management structure facilitates behavioral integration is potentially important for how TMT diversity along various dimensions affects organizational outcomes.

As pointed out by Pitts and Wise ( 2010 ), we urgently need more knowledge about the outcomes of diversity. This study has contributed to this agenda with an explicit focus on management. Gender has previously been established as one relevant dimension of diversity, with research finding notable differences between male and female public managers. The results of this study further establish the relevance of gender, showing that given the right structure, a gender-integrated management team can outperform a gender-homogenous TMT.

As with any other study, there are limitations that should be noted. Focusing on gender diversity is, as argued earlier, an important task for research. However, it may be that other management characteristics amplify or dampen the effects of gender. Data limitations inhibited the inclusion of other relevant dimensions in the present study. Future studies should look into the effects of other characteristics and how different dimensions of diversity interact. For instance, research on private sector organizations has suggested that diversity in education, experience, and age are all relevant for understanding the operational dynamics in top management teams (e.g., Knight et al. 1999 ; Kochan et al. 2003 ; Van Knippenberg and Schippers 2007 ).

This study has focused on the association between TMT diversity and financial performance. While the analyses have allowed us to speculate about diversity's impact on group processes, future studies should investigate underlying mechanisms in finer detail. This would ideally involve laboratory of field experiments that can identify causal dynamics. Such studies could follow the work of TMTs in detail and outline why and how human diversity affects organizational outcomes.

Further, in this study, we explored team dynamics but with the organization as the effective unit of analysis. We urge future research to consider teams as units of analysis. While there is a long tradition of team-based research in the general organizational behavior literature (Van Knippenberg and Schippers 2007 ), this type of research is rare in public administration. Consequently, we know too little about team dynamics in public sector organizations. Exploring team diversity would be a well-suited starting point for such research.

Finally, an avenue for future research relates not to the outcome of TMT diversity but to antecedents. With the demographic characteristics of managers being important for organizational outcomes, we should increase our understanding of the rationales organizations use in hiring managers with diverse characteristics. Factors such as current TMT composition, administrative structure and strategy, and environmental demands could be expected to relate to the degree of TMT diversity pursued by public organizations.

Gender diversity has the potential to lead to superior organizational outcomes, but it does not automatically do so. The present analysis implies that to reap the benefits of diverse top management teams, the management structure must facilitate behavioral integration between TMT members. However, more knowledge of other contingencies and pitfalls is needed.

Notes

 1 Besides their tax revenue, municipalities are subsidized by block grants from the national government (Greve 2006 ).

 2 The basis of the current system of local government in Denmark was created in the 1970 municipal reform ( Kommunalreformen), in which 1,388 so-called parish municipals ( sognekommuner) and market towns ( købstæder) were organized into 275 municipalities. This structure existed until 2007, when a new structural reform ( Strukturreformen) reduced the number of municipalities to 98. Thirty-three of the existing municipalities continued unchanged, whereas the remaining 65 were new entities based on (more or less) voluntary amalgamations. The five municipalities on the island of Bornholm “jumped the gun” on the structural reform and merged into one municipality in 2003 (Blom-Hansen et al. 2012 ).

 3 See http://krevi.dk/noegletal [in Danish]. Since June 1, 2012, the Danish Evaluation Institute for Local Government has been a part of the National Institute for Local and Regional Analysis and Research, an independent institution under the Ministry of Economy and the Interior.

 4 See http://www.noegletal.dk/ [in Danish].

Biographies

· Niels Opstrup is assistant professor in the Department of Political Science and Public Management at the University of Southern Denmark. His research focuses on the management and organization of public organizations and, specifically, on the governance of universities and management of academics. He has also investigated developments in the backgrounds and career paths of top civil servants. E-mail: [email protected]

· Anders R. Villadsen is associate professor at Aarhus University, Denmark. His research interests include public management and diversity in public organizations. He has published in journals such as Journal of Public Administrative Research and Theory, Public Administrative Review, and International Public Management Journal. E-mail: [email protected]

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· Zahra, Shaker A., and John A. Pearce. 1989. Boards of Directors and Corporate Financial Performance: A Review and Integrative Model. Journal of Management 15(2): 291– 334.

Crossref Web of Science® Google Scholar Get It at Liberty

Citing Literature

Volume75, Issue2

March/April 2015

Pages 291-301

Figures

References

G. James Lemoine , Terry C. Blum

Personnel Psychology

· Personality And Leadership Composition in Top Management Teams: Implications For Organizational Effectiveness

Amy E. Colbert , Murray R. Barrick , Bret H. Bradley

Personnel Psychology