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A Multi-Level Analysis of the


Upper-Echelons Model
ARTICLE in RESEARCH IN MULTI-LEVEL ISSUES AUGUST 2005
DOI: 10.1016/S1475-9144(05)04009-9

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A MULTI-LEVEL ANALYSIS OF
THE UPPER-ECHELONS MODEL
Albert A. Cannella, Jr. and Tim R. Holcomb
ABSTRACT
The upper-echelons model of Hambrick and Mason ((1984). Academy of
Management Review, 9, 193206) launched a new area of research and
provided the first overall theoretical framework for use in understanding
how the experiences, backgrounds, and values of senior executives in organizations can influence the decisions that they make. The model is
typically assumed to be what Rousseau ((1985). In: B. M. Staw, & L. L.
Cumming (Eds), Research in organizational behavior (Vol. 7, pp. 137).
Greenwich, CT: JAI Press) calls multi-level, as it describes how both
individuals and top management teams (TMTs) make decisions in line
with their preferences, biases, and values; the same model is applicable to
both individuals and groups. However, the levels issues in the model have
never been subjected to rigorous analysis. This chapter juxtaposes levels
concepts and theories on the upper-echelons model, in an effort to highlight its strengths as well as its weaknesses. While the majority of researchers use the model to describe team-level decision making, the
analysis presented here reveals that the model is inherently individuallevel in focus, and several important limitations must be overcome before
the model will provide a full explanation of team-level decision making.

Multi-Level Issues in Strategy and Methods


Research in Multi-Level Issues, Volume 4, 197237
Copyright r 2005 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 1475-9144/doi:10.1016/S1475-9144(05)04009-9

197

198

ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

INTRODUCTION
Since 1980, the study of strategic leadership and top management teams
(TMTs) has burgeoned (Boal & Hooijberg, 2001; Finkelstein & Hambrick,
1996). Much of this research draws from what is known as the upperechelons perspective, rst proposed by Hambrick and Mason (1984). In
this view, organizations are perceived to be importantly inuenced by the
values, preferences, and experiences of their top managers. In essence, senior
executives (the upper echelons) make decisions and take actions that are in
accord with their personal preferences and biases. Because of the decisions
they make and the strategies they develop, their organizations come to reect their personalities, values, and beliefs.
The upper-echelons approach builds on the premises of earlier strategic
choice literature (Child, 1972), suggesting that managers lead their organizations by making strategic choices. The preferences, biases, and personalities of top managers manifest themselves at several stages of the decision
process, from problem identication to alternative generation to alternative
selection. However, while much empirical research has been conducted in
support of upper-echelons theory (see Finkelstein & Hambrick, 1996), we
believe that the time has come for a careful analysis of the theory itself in
light of a growing body of literature examining levels issues in organizational research.
Organizations are rife with levels issues, and the explication of these issues
remains a source of ongoing debate in the literature (House, Rousseau, &
Thomas-Hunt, 1995; Klein, Dansereau, & Hall, 1994; Rousseau, 1985). Issues of level enter into the researchers choice of the unit of measurement
(e.g., individual, group, organization) and selection of analytical methodology. Theories that do not adequately consider the role of levels in organizational phenomena risk potential biases that may confound interpretation
of research results. Levels, in the context of multi-level theory and research,
reect the relations within and between organized systems; linkages between
levels may exist that will contribute to a better understanding in the specication of theory.
For example, the CEO of any organization is its gurehead and presumably its most powerful leader. The upper-echelons model, however, argues
that the TMT, under the leadership of the CEO, is where strategic decision
making occurs (Hambrick & Mason, 1984). Therefore, researchers are immediately confronted with how the independent decision-making aspects of
individual group members come together to form a unitary strategic decision. Once a decision is made, it must be implemented, in a process that

A Multi-Level Analysis of the Upper-Echelons Model

199

frequently involves large numbers of individuals at all hierarchical levels in


the organization (Hambrick & Cannella, 1989). If we wish to track a strategic decision through to its performance implications, we must specify how
a single decision leads to coordinated action among a relatively decentralized set of individuals, and then how those somewhat independent and
perhaps even disparate actions result in a singular organization-level outcome (Klein & House, 1995; Waldman, Ramirez, House, & Puranam, 2001).
In this chapter, we highlight theoretical issues arising from the misspecication of theory across levels and consider several models designed to
facilitate the study of levels-related phenomena in organizations. We believe
that the upper-echelons model may offer a robust platform for dealing with
levels issues in strategic decision making. At the same time, we suggest that
much previous research on the upper-echelons model has failed to realistically consider the inuence of levels issues, which are likely to affect strategic decision making. Another levels issue also should be considered with
respect to the upper-echelons model that of decision implementation but
we leave that issue to future study.
We begin with a brief overview of Hambrick and Masons (1984) upperechelons theory and discuss some of the contributions that other authors
have made since the original model was published. The intent here is not to
provide an exhaustive review of the literature, but rather to highlight some
basic assumptions that underlie the model and then note some commonalities in the ways the model has been formulated for testing. We then
overview levels theory and highlight its key constructs and models. Finally,
we juxtapose levels theory on the upper-echelons model to draw attention to
some possible shortcomings and provide fresh insights for researchers interested in how individuals inuence organization-level strategy and outcomes. Where possible, we provide suggestions for upper-echelons
researchers who desire to add levels issues to their studies and for others
who seek a more ne-grained approach than the upper-echelons model, in
its current conguration, provides.

THE UPPER-ECHELONS MODEL


The upper-echelons model is shown schematically in Fig. 1. This model
follows closely the original perspective introduced by Hambrick and Mason
(1984) and reviewed in detail by Finkelstein and Hambrick (1996). The
essence of the model is that a decision makers unique givens knowledge, values, biases, familiarities, and preferences importantly inuence

Organizational outcomes both strategies and performance (effectiveness) are viewed as reflections
of the values and cognitive bases of powerful actors in the organization.

Executive Orientation
Psychological
Factors
Values
Cognitive Model
Other Personality
Factors

Filtering Process

Limited
Field
of Vision

Selective
Perception

Strategic
Choices
and

Organizational
Performance

Interpretation
Executive
Behaviors

Observable
Experiences
Age or tenure
Formal education
Functional
Background
Other Factors

SOURCE: Adapted from Hambrick and Mason (1984) and Finkelstein and Hambrick (1996)

Fig. 1.

Classical Upper-Echelons Perspective: Strategic Choice Under Bounded Rationality. Source: Adapted from Hambrick and Mason (1984) and Finkelstein and Hambrick (1996).

ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

Construed
Reality

Strategic
Situation
(all potential
environmental
and
organizational
stimuli)

200

Classical UE Emphasis on either micro or macro research, i.e. the rational man or the dominant coalition
View
Current premise:

A Multi-Level Analysis of the Upper-Echelons Model

201

decision making. The model draws from the assumption of bounded rationality the notion that there are far too many complexities in most
strategic situations for complete rationality to exist, so decision makers must
work within the bounds of their own intellects. The model explains how
bounded rationality is manifested in decision situations and, therefore, how
different executives can examine the same strategic situation and come to
different conclusions about how to respond. Drawing from the Carnegie
School approach to decision theory (Cyert & March, 1963; March & Simon,
1958), the upper-echelons model assumes that behavioral factors, rather
than rational calculation, shape strategic decision making (see Fig. 1). In
this way, complex choices are strongly inuenced by the personal values and
biases of the decision maker.
The left side of Fig. 1 depicts the strategic situation, consisting of innumerable stimuli from both inside and outside the organization. The decision
maker confronts these stimuli in decision situations. The center of the gure
outlines the decision processes the ltering, interpretation, and construed
reality that lead ultimately to strategic choice. On the right-hand side of the
gure are the organizational outcomes that arise from the decisions made.
Decision-maker demographics such as age, tenure, educational background, and functional background gure prominently in the upper-echelons model. Note, however, that the model does not propose that
demographics cause decision outcomes or even that demographics are directly involved in any decision situation. Rather, demographics are used as
measures of unobservable constructs such as values, cognitive models, personality factors such as risk-taking propensity or attitudes toward change,
and other psychological factors that may inuence decision behavior (Hambrick & Mason, 1984).
The heart of the model begins with the ltering process, describing how
the decision makers psychological makeup directs attention toward particular stimuli and away from others. In effect, decision-maker givens (e.g.,
knowledge, preferences, values, biases) limit the eld of vision, making it
more likely that executives will notice issues in the strategic situation that
they personally care about, are familiar with, and have ready solutions for.
Conversely, they are less likely to notice those issues that they do not understand, are not familiar with, and have not noticed in the past. Because
decision makers are confronted with far too many stimuli to comprehend,
each decision makers focus of attention will be strongly inuenced by his or
her psychological makeup, functional conditioning, and social network
(Chattopadhyay, Glick, Miller, & Huber, 1999; Ocasio, 1997; Simon,
1945).

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ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

Of those stimuli that make it into the decision makers eld of vision, only
part will actually receive direct attention. This is commonly referred to as
selective perception, and is what Starbuck and Milliken (1988) call noticing. Finkelstein and Hambrick (1996) illustrate this concept with an
example of a written report, noting that different managers will notice different aspects of the reports information. Some of it will garner direct
attention, some of it will be noticed only unconsciously, and much of it will
not be noticed at all. Additionally, different managers will notice, pay attention to, and skip different parts of the report.
In the interpretation portion of the ltering process (illustrated in Fig. 1),
those factors that the decision maker has directly noticed are processed
further, and a meaning is assigned to them. This portion of the model has
received a significant amount of study. For example, Dutton and Jackson
(1987), drawing upon Staw, Sandelands, and Duttons (1981) threat-rigidity
hypothesis, argue that managers are likely to interpret stimuli as either
opportunities or threats; this classication of stimuli inuences both subsequent cognitive processing of the stimuli and responses to them.
The interpretations become part of the decision-makers sense-making
process (Starbuck & Milliken, 1988; Weick, 1995) and are absorbed into the
persons worldview (i.e., construed reality). In this way, decisions are
strongly inuenced by the prior experiences of the decision maker. Perhaps
the most widely cited experiment on this part of the upper-echelons model is
a study by Dearborn and Simon (1958) in which subjects (executives) were
exposed to a very long and complex business case and asked to identify the
key issues in the case. Executives interpretations of the issues tended to
follow their functional expertise, with manufacturing executives tending to
identify manufacturing problems, marketing executives tending to identify
marketing problems, and so forth. Much later work has raised important
questions about this study (e.g., Walsh, 1988, 1995), but the notion that a
persons psychological makeup will importantly inuence his or her perceptions and interpretations has not been successfully challenged with an
alternative theory.
Many strategic situations are what Mischel (1977) calls weak situations,
in that they are arguably open to a variety of interpretations. In these situations, the psychological makeup of decision makers can clearly be critical to
the ultimate choices made. Notably, the ability to frame a strategic decision
gives added importance to strategic leaders in the upper echelons of organizations (Fairhurst & Sarr, 1996; Hambrick & Cannella, 1989). Framing
means that leaders in the upper reaches of the organization have already
noticed, and made sense of, some issue in their eld of vision. They then direct

A Multi-Level Analysis of the Upper-Echelons Model

203

the attention of others (typically lower in the hierarchy) toward the issue, but
also strongly inuence (or perhaps even control) subsequent interpretations of
it. This framing process can also go the other way, with those lower in the
hierarchy framing some decisions of the topmost executives (Miller, 1991).
This possibility opens the upper-echelons view to a variety of issues from a
multi-level perspective, because control over the information that decision
makers (at any level) see and the ability to spin or pre-interpret that information may be very inuential in making the nal decision (Dutton, Frost,
Worline, Lilius, & Kanov, 2002; Dutton & Jackson, 1987).

MULTI-LEVEL THEORY BUILDING


Group phenomena inuencing upper-echelons activity within organizations
reect properties of dynamic systems, with critical antecedents, processes,
and outcomes conceptualized and measured at multiple levels of organizational analysis. Because researchers are beginning to realize that organizational phenomena are inherently multi-level, organizational studies are
increasingly adopting a multi-level approach. Over the past two decades,
several inuential frameworks for multi-level research have emerged from
the convergence of micro- and macro-level theories and from the formation
of levels typologies to explain relations between individuals, dyads, work
groups, and organizations (House et al., 1995; Klein et al., 1994; Rousseau,
1985; Sutton & Staw, 1995).
Several authors have noted the importance of specifying the level of
analysis at which constructs occur within a theoretical framework (Dansereau, Alutto, & Yammarino, 1984; Klein et al., 1994). For example, Rousseau (1985) noted how the issue of levels enters into the researchers choice of
the unit and level of measurement and analysis (e.g., the individual, the
dyad, the group, the department, or the organization). Consideration of
multiple levels of analysis in research methods acknowledges the inherent
predictive complexities of interactive inuences and of hierarchical relationships at work across levels within organizations. The level of theory, the
level of measurement, and the level of statistical analysis must all be congruent (Klein et al., 1994). Furthermore, the level of theory should effectively describe the target specifically, individuals, dyads, teams,
organizations, rms, or industry segments that a researcher intends the
theoretical framework to explain (Klein, Tosi, & Cannella, 1999). Thus, rst
and foremost, the researcher must choose and justify a level of analysis for
study.

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ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

Levels Issues in Theory Building


Levels issues are dened by the fact that the researcher must somehow
consolidate units of analysis at one level to reect a phenomenon at another
level. For example, strategic decisions are dened as those that affect the
entire organization, and that are made in an effort to protect and enhance
the health of the entire organization (Child, 1972). Reecting this definition,
the level of analysis for strategic decisions (under most approaches) is the
organization. The upper-echelons model does not pose levels issues for decision making as long as only one person (e.g., the CEO) is involved, and
that person has complete authority and responsibility for the decisions
made. When more than one person is involved, however, the researcher
must specify how these individuals come together to produce a single
(group-level) decision. Toward that end, we describe several characterizations of the individuals that make up groups and consider how levels issues
can arise in a TMT context.
Individuality implies that there is virtually no group-ness with respect to
the construct under consideration. With this characterization, the effect of
group membership is immaterial. Klein et al. (1994) specify this level of
theory as the independent level. Variation in the measurement of constructs
is conceptualized simply as between-individuals variation. Hambrick (1994),
for example, questions how well-integrated groups of top managers are and
suggests that some TMTs may have little team-ness to them. When the
individuals who constitute the group are characterized by individuality, the
group has little or no inuence on its members, and they are considered to
be more or less independent. Likewise, the distinction of within-group and
between-groups variation is also inconsequential (Dansereau et al.,
1984).
Homogeneity implies that group members are identical, or nearly identical, with respect to the construct examined. Under the assumption of homogeneity, levels issues are handled through averages or variances. Put
differently, the assumption of homogeneity leads to the conclusion that the
average of group member values on a particular measure is an accurate
characterization of the group level. Highly homogeneous teams, for example, might be assumed to act much like a single person would if that person
were characterized by the teams average of members values on a key set of
measures.
Heterogeneity implies that the individuals in the group differ in important
ways from one another, and especially relative to one another. A comparative process is at the center of individual-within-group constructs. Under

A Multi-Level Analysis of the Upper-Echelons Model

205

the heterogeneity assumption, individuals might make up subgroups that


are internally homogeneous, but heterogeneous with respect to the other
subgroups. For example, a vice president of marketing, who is a member of
the TMT, is also in charge of his or her own department and is involved with
direct reports and their subordinates. As a result, his or her views, values,
and beliefs are likely to be inuenced by participation in this subgroup (e.g.,
Waldman & Yammarino, 1999). In turn, these cognitive perceptions are
assimilated by the executive and ultimately carried back into interactions
with the TMT. Klein et al. (1994) describe this multi-level model as a crosslevel model, whereby causal relationships are formed between constructs at
different levels. This consequence of hierarchical structures is significant
because it can introduce tension and conict into within-group interactions
(Hambrick, 1994). Theories drawing on the heterogeneity assumption often
predict that the effects of an independent variable on a dependent variable
depend on the context (Klein et al., 1994). Heterogeneity could mean that
any characterization of the group must consider how each individual differs
from, or is similar to, every other member of the group. Although group
members are considered to vary with respect to the theorys construct, the
group itself is deemed to be a meaningful entity.
Mixed-effect models are theoretical models in which a single construct or
intervention typically has effects at different levels of analysis (Klein et al.,
1994). For example, Waldman and Yammarino (1999) present a model of
charismatic leadership by CEOs in organizations that highlights the effect of
social distance between leaders and groups within the organization on organizational cohesion, effort, and performance. In their model, they draw a
series of distinctions between close versus distant leadership, and they examine the effect of CEO leadership behavior on TMT cohesion and effort
and on intergroup cohesion and effort at lower hierarchical echelons within
the rm. Their framework provides further insights into the complexities of
these relationships and highlights the fact that the implications of the CEO
for those close at hand may differ importantly from implications for those
more distant.
Temporal effects are described by Dansereau, Yammarino, and Kohles
(1999). These authors describe how the fundamental characterizations of
individuals with the group (individuality, homogeneity, heterogeneity) can
change over time. It is well known that groups can shift from collections of
disparate individuals (when the group is rst formed) to highly
homogeneous teams after they have worked together for some time. We
will return to this notion in our application of levels theory to the upperechelons model, discussing both the seasons and cycles of a CEOs tenure

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ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

(Hambrick & Fukutomi, 1991), and the implications of CEO succession


processes for TMT functioning (Shen & Cannella, 2002a, b).

LEVELS ISSUES IN UPPER-ECHELONS THEORY


In the sections that follow, we consider levels issues related to the upperechelons model. This discussion is long and perhaps somewhat difcult to
follow, as some issues are relatively disjointed and complex. We have summarized the issues in Table 1, and reference to the table should help the
reader follow our overall logic.

What is the Appropriate Level?


First and foremost, when using a levels lens, the researcher must specify and
theoretically justify what level is appropriate. Strategic management is always ultimately about overall organizational performance (Schendel & Hofer, 1979), but the upper-echelons approach is fundamentally about the
decision-making behavior of executives, which is assumed to affect overall
performance. The level of analysis for the upper-echelons approach tends to
be either the CEO (e.g., Haveman, 1993; Miller & Toulouse, 1986; Yukl,
1989) or the TMT (e.g., Amason, 1996; Wiersema & Bantel, 1992), although
some exceptions exist (Cannella & Shen, 2001; Reutzel & Cannella, 2004).
Hambrick and Mason (1984) argue forcefully for the TMT as the key
level of analysis, as noted earlier. In fact, most upper-echelons researchers
agree with that conclusion (Hambrick, Finkelstein, & Mooney, 2003). Finkelstein and Hambrick (1996) offer four reasons why groups of top managers (i.e., the TMT) are likely to be a better level of analysis for study of
decision making than individual executives:
1. Organizations are aggregations of individuals, each of whom has particular (and unique) goals, values, objectives, and preferences; the goals of
individuals, even when they are part of a cohesive team, are frequently in
conict (Cyert & March, 1963; Weick, 1979).
2. Most descriptions of decision-making processes within organizations describe the activities of groups of individuals, not the activities of single
individuals (e.g., Mintzberg, Raisinghani, & Theoret, 1976; Pettigrew,
1973; Roberto, 2003).
3. Predictive ability is typically enhanced when studies use group-level approaches rather than individual-level approaches.

A Multi-Level Analysis of the Upper-Echelons Model

207

Table 1. A Summary of Levels Issues in Upper-Echelons Research.


Levels Issue

Appropriate level of
analysis

Applied to the Upper-Echelons


Model

Is the team or the individual


(the CEO) the appropriate
level of analysis?
Is the upper-echelons model Hambrick and Mason (1984)
a multi-level model?
approach the model as if it
were multi-level the same
processes at work at both
individual and group levels

Conclusions

Most authors perceive the team


to be the appropriate level,
but there may be exceptions
Careful consideration indicates
that the upper-echelons
model is inherently an
individual-level model.
Application to the group
level requires rethinking
some key issues in the model,
in most situations
The assumption of
Individuality would
The assumption of TMT
individuality among TMT
characterize situations in
member independence would
members
which TMT members do not
ordinarily not be tenable, but
constitute a team, but
in some situations the
instead act in relative
assumption may be
independence. Individuality
appropriate
also requires a situation
where the CEO is weak or
has no clear vision
The assumption of TMT
Homogeneity would
The assumption of
member homogeneity exists
homogeneity among TMT
characterize situations in
which TMT members
in contexts where the CEO is
members
very powerful and/or
(including the CEO) respond
autocratic, or has a very
in identical fashion to
strong vision coupled with
strategic stimuli
strong charismatic
relationships with TMT
members. It may also
characterize situations in
which all TMT members are
threatened or are otherwise
expected to respond in a
uniform way
When heterogeneity is assumed,
The assumption of
Widely assumed in upperit is critical to understand the
heterogeneity among
echelons research. Key
process through which
TMT members
questions are how
individual-level concerns are
heterogeneous and through
manifested at the group level
what processes are team
how the TMT makes
member heterogeneity
decisions
reected in team-level
outcomes

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ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

Table 1. (Continued )
Levels Issue

Applied to the Upper-Echelons


Model

TMT decision-making
processes

Requires specication of the


nature and frequency of
interactions among TMT
members

The concept of framing

Framing describes how one


persons interpretation of a
situation or phenomenon is
transmitted to others,
thereby inuencing (perhaps
controlling) the subsequent
interpretation and processing
of the issue

TMT heterogeneity: Who is The boundaries of the TMT


on the TMT?
and decision-making
processes are important to
specify in a levels framework

TMT heterogeneity:
Political models of
decision making

Political models of decision


making describe situations of
power and goal heterogeneity
among parties to a decision

Conclusions

At best, researchers assume


that TMT members meet
weekly to discuss topics of
concern. Regardless of the
nature and frequency of
meetings, it is unlikely that
the team jointly experiences
stimuli. More likely, stimuli
are noticed and interpreted
by individual TMT members,
and then framed by those
individuals for the remainder
of the group
Framing is likely to be a critical
part of the upper-echelons
model, and it has not
received much research
attention. Framing describes
how individual TMT
members usually those with
interests and expertise in the
issue area inuence the
thinking of other members
regarding a particular issue
Some authors (e.g., Roberto,
2003) argue that the TMT
consists of a stable core and a
dynamic periphery. In this
approach, decision making is
delegated to diverse groups
depending on the issue and
its ramications. Core TMT
members are represented on
most decision-making
groups.
Political models are important
to upper-echelons research,
but their use is limited to
situations where conicts of
interest exist among the
members of the TMT.
Political models pose further

A Multi-Level Analysis of the Upper-Echelons Model

209

Table 1. (Continued )
Levels Issue

TMT heterogeneity: The


role of the CEO

TMT temporal dynamics:


The seasons and cycles
model

TMT temporal dynamics:


CEO succession

Applied to the Upper-Echelons


Model

Conclusions

challenges to the traditional


upper-echelons model
TMTs are unlikely to be groups The CEOs vision is important
to reducing heterogeneity
of equals. The CEO exerts a
among TMT members.
disproportionate inuence
over the group and its
Without a strong vision,
heterogeneity among TMT
processing
members increases. CEOs are
also guardians of decision
processes for TMTs. If the
CEO encourages open
debate, heterogeneity among
TMT members is likely to be
healthy. If debate is
discouraged, homogeneity is
the likely result
Hambrick and Fukutomi
Each season has somewhat
(1991) propose that CEOs
different implications for the
move through several
level of TMT heterogeneity
predictable stages as they go
and interactions among
through their tenures
TMT members
Succession introduces tensions Early and late in a CEOs
among TMT members, as
tenure, the implications of
they jockey for position
the succession process are
either as the successor CEO
likely to be felt. Relay
or as members of the new
succession reduces these
TMT
tensions, leading to more
homogeneity among TMT
members

4. The interactions among group members are likely to be important to


decision structures and outcomes and, therefore, are of important interest
to researchers.
Interestingly, the rst of these reasons (highlighting the heterogeneity in
goals, values, and so forth, among TMT members) actually complicates the
upper-echelons model, because of the complexity it introduces and the fact
that the model says virtually nothing about this added complexity. Put
differently, the model does not address how a heterogeneous group of people comes together and builds consensus around strategic decisions.
Finkelstein and Hambricks (1996) reasoning suggests that heterogeneity

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ALBERT A. CANNELLA, JR. AND TIM R. HOLCOMB

might best characterize the TMT, and that what Rousseau (1985) calls a
multi-level model might best characterize strategic decision making. We
will return to this issue later.
The second and third reasons provided by Finkelstein and Hambrick
certainly appear to be correct, but do not provide a theoretical rationale for
selecting the TMT as the level of analysis. Only the fourth reason (referencing the importance of team member interactions and processes) moves us
toward an explicit levels focus. This reason ties closely to calls from levels
researchers reminding us that when we examine group-level outcomes (such
as TMT strategic decisions), we must specify the processes that generate
those outcomes (House et al., 1995). For our purposes, this statement means
that we must describe how the psychological and experiential proles of
individual group members become realized in TMT-level decisions. Toward
that end, we will apply an explicit levels lens to the upper-echelons model,
starting with some rather simple assumptions about group composition and
decision processes, and moving toward more complex assumptions after the
simple ones have been examined.

The Upper-Echelons Model in a Multi-Level Framework


Close examination of Fig. 1 indicates that the upper-echelons model itself
does not separate individual and group-level decision making. Indeed, it
applies the same orthodoxy to both, implying that the same or parallel
processes are at work for both levels. Rousseau (1985) describes the relationship pattern in which generalizations may be made from phenomena
observed at one level to those occurring at another level as a multi-level
model. That is, parallel processes are at work at both the individual level
and the TMT level. Put differently, the decision-making contexts for both
individual executives and TMTs represent functionally similar phenomena
that occur at different levels. While this notion is intuitively appealing in the
original Hambrick and Mason (1984) manuscript, careful consideration of it
raises important questions. As we move from left to right across the model
illustrated in Fig. 1, several multi-level issues become apparent.
First, teams will not experience decisions in exactly the same way that
individuals do. Different team members will also have somewhat different
executive orientations. The elds of vision of individual members will vary,
requiring us to specify how the variegated limited elds of vision of individual executives yield a similar construct at the team level. Selective perception will be different for different members, as will interpretation and

A Multi-Level Analysis of the Upper-Echelons Model

211

construed reality. Thus, the model seems considerably less intuitively appealing if the team is the level of analysis, at least until the researcher
species the processes through which the team makes decisions.
In some situations, a multi-level model does effectively describe strategic
decision making. For example, the single-person TMT, where the CEO is
extremely powerful, would render the TMT relatively impotent, shifting the
level of analysis back to the individual level. Founder CEOs sometimes t
this description (Haveman, 1993). Another case might be the highly autocratic leader who refuses to delegate decisions or to consider much input
from others in making decisions. A nal case might be the stale in the
saddle CEO (Miller, 1991), or the leader who has remained in charge for
too long. In this setting, organizational routines have become relatively
xed, and there is no impetus (or even tolerance) for change. Clearly, situations such as these exist, but they do not appear to describe the decisionmaking contexts of most organizations. Specifically, the large rms that are
the focus of most upper-echelons research are not often characterized in
these ways. Thus, we must move toward the use of what Rousseau (1985)
calls a composition model, which species how a group of individuals experiences a decision situation. We will characterize the upper-echelons
model by alternately applying each of Klein et al.s (1994) group member
characterizations: individuality, homogeneity, or heterogeneity.
Individuality among TMT Members
The concept of individuality in characterizing a TMT is not very appealing
on its face, because to be characterized in this way the members must be
quite independent of one another and not relate very much to one another.
Additionally, in a levels framework, individuality implies that group member inuence is equal (Klein et al., 1994). Put differently, no specific team
member has more inuence than any other group member. Hambrick (1994)
reminds researchers that some TMTs may experience little of the cohesion,
camaraderie, or give-and-take of a team. Some are not much more than a
collection of people with high-level positions in a single organization. However, true individuality would require that they not relate to or interact with
one another at all, or feel any relationship to one another. We nd the
extreme assumption to be untenable. Clearly, it is possible that a TMT may
exhibit little team-ness; when this is the case, the researcher should clearly
state this assumption and justify it for the sample under study (Klein et al.,
1994).
We can think of several instances in which this assumption might be appropriate, and therefore accurately describe TMT functioning. A corporation

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consisting of unrelated businesses brought together by a string of acquisitions


might be one example. A rm that runs on strict nancial controls as opposed
to strategic controls (Hill, Hitt, & Hoskisson, 1992) might operate similarly.
With a nancial control system, clear and objective goals are set for all subunit leaders, and compensation and other resources are allocated strictly
based on how well the goals are reached. Such a system reinforces individuality among the executive cadre, discourages cooperative behavior across
subunits, and inclines executives to make decisions by considering only the
context of their specific responsibilities, and nothing else (Hoskisson & Hitt,
1988; Varadarajan & Ramanujam, 1990). Of course, in this kind of situation,
the members of the TMT might perceive one another as competitors, which
would weaken significantly both the original intent of the upper-echelons
model and the assumption of individuality, as described by Klein et al. (1994).
Finally, TMTs whose members who are geographically separated and
seldom have the opportunity to interact directly may come to act like collections of individuals rather than teams. Park, Lee, and Cannella (2004),
for example, consider the physical proximity of TMT members in their
assessment of how strategic decisions are made. TMTs whose members are
not colocated might well be assumed to operate more independently than
those whose members are located in the same place.
Another setting in which the individuality assumption might be valid
would be that in which highly decentralized decision making takes place
within the TMT (Vancil, 1979). For example, a single executive may be put
in charge of an initiative and be given wide leeway to pursue whatever action
he or she deems appropriate. Sometimes, new product development in large
organizations is conducted in this way, with different champions protecting
and advocating a variety of new products until the products can demonstrate some potential in the marketplace (Hoffman & Hegarty, 1993; Howell
& Higgins, 1990; Schilling & Hill, 1998). Of course, to analytically track
such a model with a sample of organizations, the researcher must identify
who is responsible for what decisions a potentially nettlesome task. It
seems unlikely that a sizable proportion of the large rms to which the
upper-echelons model has been applied would fall into this category.
Finally, to truly t the assumption of individuality, the CEO must be
either removed from the decision or considered to be just another team
member. This situation would exist in settings where the CEO delegates
decision making to others. For example, there is little evidence that Jack
Welch of General Electric (GE) forced decisions on his executives (Tichy &
Charan, 1989). Instead, his approach seemed to be to assure that all
aspects of a decision were considered, leaving the nal choice to others. For

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many perhaps most decision situations, however, the CEO will exert a
disproportionate inuence on the nal choice.
Homogeneity among TMT Members
Clearly, TMTs are homogeneous on at least some dimensions. For example,
the overwhelming majority are white males (Daily, Certo, & Dalton, 1999).
If we take the homogeneity assumption to its logical extreme, the upperechelons model will work well as formulated. Staw (1981), for example, uses
this assumption to argue that groups respond to threats much as individuals
do. If all members of the decision-making group see the world in the same
way, the TMT will act like a single person. However, this assumption undercuts one of the key rationales put forth by Finkelstein and Hambrick
(1996) for selecting the TMT as the unit of analysis namely, that organizations are made up of diverse individuals. Most discussions of TMT
functioning assume some reexivity and a discussion of issues among TMT
members, which leads naturally to the assumption that TMT members are
not completely homogeneous.
Nonetheless, some decisions especially those characterized by Staw et al.
(1981) as significantly threatening to the entire group are likely to be
processed as if all team members are homogeneous. For example, a takeover
attempt (hostile or otherwise) broadly threatens the entire group of top
managers (Coffee, 1988; Davis & Stout, 1992; Hambrick & Cannella, 1993;
Jensen, 1986; Stein, 1988; Turk, 1992), and it is reasonable to assume a fairly
homogeneous response among all members of the upper echelons, at least
initially (Walkling & Long, 1984). In another example, Shen and Cannella
(2002a) describe how the threat of an outside succession brings together the
non-CEO members of TMTs, as all tend to be threatened by the entry of a
new CEO from outside the rm. A clear threat, which is consistently
threatening to all TMT members, is likely to result in a team that responds
as if the members were highly homogeneous.
A second example of a situation in which team members might be treated
as homogeneous might arise when considering a decision that has a strong
institutional history within the rm. For example, after a disastrous failure
of an earlier strategy, it will be quite difcult for executives in the rm to
conclude that they should reattempt some form of the earlier strategy. Their
negative shared experience will lead executives to a very consistent conclusion that some other strategy will be more appropriate. Harley-Davidson,
with its experience with small motorcycles (Teerlink, 2000), and Intel, with
its experience with the reduced instruction set computer chip (RISC)
(Afuah, 2001), are examples that come to mind. In both cases, a strong,

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knee-jerk negative reaction met any strategy perceived to be similar to one


that had been widely discredited within the rm.
As the preceding examples indicate, there are some prominent
situations wherein the assumption of homogeneity seems appropriate.
Additionally, when researchers have made the assumption of homogeneity,
they have usually been explicit about it and have argued persuasively for
its veracity. While the limited examples described here are illustrative
of homogeneity among TMT members and the consistency it brings, strategic decisions are not limited to responses to perceived threats or
revisitations of previous failed strategies. They also include decisions about
initiatives and opportunities, which would seem to be decision situations in
which the assumption of homogeneity would be much less tenable. Some
opportunities might be so obviously valuable in the eyes of all TMT
members that they would respond as a homogeneous group, but this situation seems to be relatively rare. In general, for most strategic decision
situations, and specifically for those in which several potential choices would
appear to be viable (Mischel, 1977), the assumption of homogeneity seems
unrealistic.
Heterogeneity among TMT Members
The assumption of team member heterogeneity clearly leads to the greatest
complexity in analyzing the process through which TMTs arrive at decisions, but it also appears to be the most realistic for mainstream strategic
decision-making settings. Furthermore, heterogeneity is the assumption that
seems overwhelmingly to be selected by TMT researchers (e.g., Amason,
1996; Bantel & Jackson, 1989; Carpenter, 2002; Finkelstein & Hambrick,
1996; Henderson & Fredrickson, 2001; Kilduff, Angelmar, & Mehra, 2000;
Simons, 1995; Wiersema & Bantel, 1992). As noted by Finkelstein and
Hambrick (1996) organizations are made up of diverse individuals, who
have diverse goals, preferences, values, and intentions. Additionally, it is
widely recognized that some TMT members are more powerful than others
(Finkelstein, 1992; Hambrick & Finkelstein, 1987). While the heterogeneity
assumption leads to more complexity, it would also seem to be the most
interesting and realistic approach. A careful reading of Hambrick and Mason (1984) indicates conclusively that they had this assumption in mind
when they argued that the upper-echelons model would be most effective
when applied to the TMT.
Members of the TMT are very likely to differ on a number of important
dimensions. For example, an executives functional background is likely to
inuence his or her beliefs primarily through exposure over time to different

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situations or stimuli (Chattopadhyay et al., 1999; Starbuck & Milliken,


1988). The greater the length of time spent by a member of the TMT in a
particular position or functional area, the more likely his or her beliefs and
actions will be consistent with that functional area. Thus, when the TMT
considers a strategic situation, different aspects of the situation are likely to
come to life for different executives (Dearborn & Simon, 1958; Walsh,
1988). This idea is a foundational assumption for the original upper-echelons model and its subsequent formulations. Note that this statement is not
meant as an endorsement of the use of demographic measures to assess
executive cognition, a practice that has been critiqued by several researchers
(Lawrence, 1988; Priem, Harrison, & Muir, 1995; Priem, Rasheed, &
Kotulic, 1995). The assumption of heterogeneity, however, leads naturally
to the questions of on what dimensions the heterogeneity is felt and how the
group comes together to make a decision. Next, we describe several potential models of TMT processes that seem viable.

TMT Decision-Making Processes


As a rst cut, we might assume that the TMT meets regularly, jointly
experiencing the stimuli described by the upper-echelons model, and
discussing openly what each perceives and what to do about it
(if anything). This seems to be the assumption that Hambrick and Mason
(1984) and many subsequent authors had in mind. However, this assumption raises significant questions, at least in its extreme form. For example,
it is not clear how the TMT would jointly experience the strategic situation,
stimuli, and so forth. TMT members have independent responsibilities, and
they do not spend all of their time together. More likely, they meet weekly
for a few hours and discuss issues that have already arisen. In other words,
they meet to discuss issues that one or more of the team members have already
noticed and considered to be of enough importance to raise in the group
meeting.
This is a very important context to consider for two reasons. First, it
likely represents a realistic view of TMT functioning (Kotter, 1982; Mintzberg, 1973; Roberto, 2003). Team meetings are likely to be planned forums
where either (1) an agenda is set and distributed ahead of time, thus
restricting the issues considered, or (2) concerns, ideas, and issues that each
member brings are raised and discussed openly. In either case, the entire left
side of the upper-echelons model depicted in Fig. 1 (executive orientation
and the ltering process) needs to be carefully reconsidered, because the

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team does not experience the strategic situation jointly, but rather considers
issues raised (i.e., issues already noticed) by one or more TMT members.
The challenges that individual-level sense making brings to the upperechelons model are that (1) the issues the team considers are likely to be
more important to the member raising the issue than to other members, and
(2) the remaining members elds of vision, selective perception, and interpretations are likely to be strongly inuenced by the framing of the member
who raises the issue.
Certainly, at regular meetings, the TMT will review regular reports, and
TMT members are likely to make regular reports to the group regarding areas
of their specific responsibility. Here again, the team member raising an issue
has already noticed it and made sense of it, and therefore that member has a
very large effect on the groups processing of the issue. This is a fundamental
assumption of the work on strategic issue diagnosis (Dutton & Ashford, 1993;
Dutton & Duncan, 1987; Dutton, Fahey, & Narayanan, 1983; Dutton &
Jackson, 1987). In that work, the CEO (an individual) is the focus of analysis.
The CEO notices or perceives issues and identies them as either threats or
opportunities, then takes the issues to others in the organization, framing
each issue as an opportunity or threat as it is communicated to others. Note
that this process raises challenges for the left side of the upper-echelons model
depicted in Fig. 1, as the team does not jointly experience and make sense of
the environment, but rather considers issues that have already been identied
and possibly researched deeply by others. Dutton and her colleagues believe
that this effect is sufciently strong to warrant selecting the individual (the
CEO) as their unit of analysis, assuming that the CEOs framing is so strong
that the other TMT members will simply accept it.
The assumption that only the CEOs perception matters could be relaxed
and the assumption of heterogeneity remains intact. It is likely that TMT
members have diverse responsibilities and, therefore, that they will notice,
study, and develop perspectives and frames of reference for issues before
bringing them to the TMT. Because issues raised would likely fall within
their own area of responsibility, their perceptions and perspectives are likely
to carry significant weight. To better understand how this process would
work, we turn to the concept of framing.

The Concept of Framing


It is worthwhile, at this point, to discuss the concept of framing, which is
dened as the categorization or classication of an issue. The framing

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process bounds (frames) the issue and limits potential responses to it. Decision framing has received a good deal of attention in the decision-making
literature (e.g., Fiol, 1994; Kogut & Kulatilaka, 2001; Nutt, 1993, 1998;
Sitkin & Weingart, 1995; Tversky & Kahneman, 1986; Wiseman & GomezMejia, 1998). Tversky and Kahneman (1981, p. 453) describe a frame as
the decision-makers conception of acts, outcomes, and contingencies associated with rational choice. They argue that the frame adopted is partly
inuenced by the decision makers interpretation of the situation and partly
by his or her functional conditioning and psychological characteristics.
Overwhelmingly, framing is considered by prior researchers to be an individual-level phenomenon.
Much of the ltering process of the upper-echelons model describes the
process of framing. Most research on framing considers framing to be the
categorization of issues as either opportunities or threats, following
Kahneman and Tverskys (1979) prospect theory. Prospect theory predicts
that the response to a situation will depend importantly on the decisions
context, or how the decision is framed by the decision makers. The categories of threats and opportunities are important, but seem too limited for
the strategic decision-making context. For example, Fairhurst and Sarr
(1996) describe framing as a key leadership task, and go well beyond identifying issues as simply threats or opportunities. It is through framing that
organizational leaders guide the thinking of their followers, helping them to
construct perceptions of reality. While the Fairhurst and Sarr book is not
deeply theoretical, it is important to note that such processes occur frequently in organizations and represent a key mechanism by which leaders
lead (Hambrick & Cannella, 1989; Kotter, 1982; Mintzberg, 1973; Waldman
& Yammarino, 1999).
Framing and the Upper-Echelons Model
The framing issue is important for many approaches to team-level decision
making because, as noted earlier, it is likely that issues come before the
TMT pre-framed. Again, this assumption would either skip the left side of
the upper-echelons model or offer a different starting point for the ltering
process for those members of the TMT who are hearing the framed issue for
the rst time. Playing this assumption out leads to the idea that many
strategic issues are brought to the attention of the TMT by a member who
has noticed them, made sense of them, and has a point of view about them
that he or she wishes to persuade the other TMT members to adopt. Furthermore, decision making may well be delegated to others based on the
framing that the issue receives. Issues framed as nancial, for example,

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are not only more likely to be noticed and raised by the CFO, but also more
likely to be delegated to the CFO. Additionally, the CFOs opinion on issues
framed as nancial is likely to carry disproportionate weight. Similarly,
issues framed as manufacturing are likely to be heavily inuenced by
manufacturing executives, and so forth.
Most formulations of the upper-echelons model suggest that more heterogeneous TMTs will lead to a broader consideration of decision issues and
factors (Finkelstein & Hambrick, 1996). The notion of framing and the
changes that we have outlined for the upper-echelons model seem to weaken
that assumption somewhat. The earlier in the decision process the framing
takes place, the more inuence that individual psychological makeup will
have. Once the decision is framed and some backup evidence presented, it
seems as if TMT heterogeneity would have a much weaker effect.
All is not lost, by any means, for existing theories of heterogeneity. More
heterogeneous teams are still more likely to identify more issues in the strategic situation, frame them, and bring them back to the group. The theoretical logic differs a bit from the upper-echelons model presented in Fig. 1,
but the end result might be the same: TMT heterogeneity leads to broader
consideration of the issues.
Additionally, at the construed reality and strategic choice stages, the heterogeneity of TMT members is likely to be manifested in ways that lead to a
more complex construed reality if the TMT meets regularly and has an open
discussion of the issues. The fact that team members are exposed to a broad
array of ideas and issues from a heterogeneous group of others should help to
widen their own horizons and experiences. In addition, other members of the
TMT will consider how the strategic issue, noticed and pre-framed by another, will affect their own area of responsibility. Decisions would appear to
be more thoroughly vetted by a heterogeneous team. These outcomes are
clearly in line with a multi-level interpretation of the upper-echelons model.
TMT Heterogeneity Considered in Depth
In this section, we carry forward the assumption of TMT heterogeneity. Our
discussion covers three issues:
 The specication of who is a TMT member, and the implications of that
choice (on the part of the researcher) for TMT processes and the upperechelons model.
 TMT processes and the level of heterogeneity among TMT members.
 The CEOs role in TMT functioning.

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TMT Heterogeneity: Who is on the TMT?


Roberto (2003) raises an important issue in the study of TMT functioning:
Most empirical formulations of TMTs involve the use of executive titles to
classify specific executives as TMT members or nonmembers. For example,
some studies consider all ofcers of the company to be TMT members (Shen
& Cannella, 2002b); some use all ofcers above the level of vice president
(Cannella, Fraser, & Lee, 1995; Hambrick & Cannella, 1993); and still others use all inside board members (Finkelstein, 1992; Finkelstein &
Hambrick, 1990). Roberto argues that the correct identication of TMT
members may be critical to successful understanding of TMT functioning as
well as understanding the decision outcomes that result.
Specifically, Roberto (2003) argues that TMTs are often not unitary
groups of executives, but rather consist of what he calls a stable core and
dynamic periphery. That is, there are a handful of key TMT members, at
least one of whom is involved in most strategic decisions of consequence.
Ultimately, the composition of remaining members of the decision-making
team depends on the decision to be made. Groups of executives with
particular expertise are assembled for particular decisions, and most groups
assembled for a particular decision will include senior executives plus at least
some representation from groups much lower in the hierarchy. For example,
an important manufacturing problem might involve one senior executive (a
member of the stable core TMT) and a group of other executives and/or
employees with expertise in manufacturing, or with some other expertise or
perspective relevant to that specific decision.
The upper-echelons model is not rendered obsolete with the assumption
of a stable core and dynamic periphery. Clearly, even in this formulation,
the selection of which issues need to be considered and who would be important to have involved in the decision process is made by the stable core of
executives (Roberto, 2003). Therefore, through framing and initial decision
making, the stable core of the TMT continues to exert a very strong inuence on the broad decision context, even though decisions are largely
delegated to others. Additionally, the inclusion of at least one member of the
stable core on all key decisions assures that the stable cores framing is
maintained throughout the decision process or, if there is strong logic for
changing that framing, the core member can relate the reframing back to the
core TMT. In this way, the core TMT can learn from those with specific
expertise in the rm, and those lower in the rms hierarchy can learn the
perspectives, mindsets, and overall intentions of the core TMT members.
Note that this process involves a two-way ow of information and perspectives across levels. The approach also suggests an important bridge

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between close and distant leadership on the part of the CEO (Waldman &
Yammarino, 1999).
The central challenge raised by Roberto (2003) is the fact that the demographic makeup of a presumed unitary TMT is used by researchers to
make predictions about the decisions and performance implications that
result. If no unitary TMT is actually responsible for all decisions, this approach would seem to present a large problem. Nevertheless, as noted earlier, if the key members of the TMT are accurately identied, much of the
logic developed here would still apply because the core TMT framing takes
place, and because the core TMT members are likely to be the most senior
and therefore the most inuential leaders in the rm. Decisions would
likely reinforce the CEOs vision (Waldman & Yammarino, 1999), because
of the great power wielded by the core TMT and the fact that at least one
core member is involved in all key decisions. Additionally, the close contact
between the core TMT and others of lower hierarchical rank would seem to
provide numerous opportunities for leadership and vision selling through
framing (Fairhurst & Sarr, 1996). Put differently, the TMT inuence on
decision making should be very strong; hence, if the team members are
accurately identied, many of the outcomes predicted by the upper-echelons
model would likely be observed.

TMT Heterogeneity: Political Models of Decision Making


Another important question to be resolved in upper-echelons research, given
the assumption of heterogeneity, is the level and nature of the heterogeneity
that accurately characterizes TMT members. Hambrick and Mason (1984)
seem to assume (appropriately) a modest level of heterogeneity, and nearly
all authors associated with the upper-echelons model assume that the goals
of team members are consistent (for notable exceptions, see Bourgeois,
1980; Eisenhardt, Kahwajy, & Bourgeois, 1997). This is not surprising,
considering that the primary roots of strategic management theory lie in
economics and therefore thinking in the eld is strongly guided by assumptions of rationality and value maximization (Schendel & Hofer, 1979).
Furthermore, the notion of CEO charisma and vision are important heterogeneity-reducing forces in organizations (Kets de Vries, 1998; Klein &
House, 1995; Waldman & Yammarino, 1999). It is possible and perhaps
even likely in larger organizations and certain decision contexts that a
political model of strategic decision making would be appropriate. At the
heart of any political model of decision making is heterogeneity in both
power and goals among parties to a decision.

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Eisenhardt and Bourgeois (1988, p. 738) describe politics as the observable, but often covert, actions by which executives enhance their power to
make decisions. Many researchers argue that conict is central to the concept of politics (March, 1962; Pfeffer, 1981). Political models of decision
making usually describe large and infrequently occurring decision settings in
which the interests of the parties to the decision are clearly in some conict
settings such as CEO succession or CEO compensation. Political models have
been used in strategic management studies (Cannella & Lubatkin, 1993;
Finkelstein & Hambrick, 1989; Ocasio, 1994; Shen & Cannella, 2002a; Zajac
& Westphal, 1996; Zald, 1965), although their use in general strategic decision
making has been limited. Note that in CEO succession and compensation
decisions, the interests of those charged with making the decision are in some
conict. However, political models are equally appropriate to situations in
which important differences of opinion arise about courses of action. Reasonable people not only can, but frequently do, disagree about what is the
appropriate course of action. In strategy settings, there is frequently no arbiter of last resort when differences of opinion arise, so political models of
decision making make be quite appropriate. The approach is usually to determine the opinions of the person with the power to impose his or her will
typically, the CEO. In settings without a dominant power like a strong CEO,
researchers often look for coalitions among those charged with making the
decision. Coalitions reect bargaining by the parties, as they strive to secure
their favored courses of action (Cyert & March, 1963).
Additionally, studies using political models often make important distinctions between executives and directors (members of the companys
board of directors) and note the conicts of interest inherent in the relationship between the two groups (Finkelstein & Hambrick, 1989; Shen &
Cannella, 2002a). Decision contexts such as day-to-day strategic decision
making and decisions limited to the TMT (i.e., not involving board assent or
approval) have received considerably less attention.
Political models open the door to the assumption that goal congruity
among TMT members may be neither complete nor universal, thereby
greatly complicating the strategic decision-making process. For this reason,
political models begin with the assumption of important heterogeneity
among TMT members. To begin using some of these models, the researcher
must consider the decision context and determine which TMT members (or
groups of TMT members) interests are served by what decision alternatives
an onerous burden for some decision contexts.
Most authors argue that politics is most evident when power is
decentralized (Pfeffer, 1981). When no single TMT member has the power

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to enforce his or her will on the others, TMT members are more likely
to form coalitions that seek to inuence decision making. As such, political
models take us somewhat further from the traditional upper-echelons
model, at least in its current formulations. Perhaps most challenging
would be the notion of significant heterogeneity in overall goals among
TMT members. With a political lens, issues would arise and would essentially be contested by groups of executives, depending on their particular
goals and interests. Additionally, political models usually invoke some
degree of negotiation, bargaining, and trade-offs among the parties (Ocasio,
1994). Political models require fairly clear and well-specied conicts
of interest or sources of disagreement among the parties (Eisenhardt &
Bourgeois, 1988; Mintzberg, 1985; Pettigrew, 1973), and these settings are
often outside the arena of what might be called ordinary strategic decision
making.
Political models represent another approach in which the left side of the
upper-echelons model depicted in Fig. 1 (limited eld of vision, selective
perception) is circumvented. The interpretation of issues is likely to be a
source of contest and disagreement among the parties. Even more prominent might be disagreement about construed reality. It is easy to imagine
situations in which executives might disagree on fundamental issues, such as
the importance of incremental versus breakthrough innovation, or the extent to which a new technology poses a threat. These fundamental disagreements, where present and allowed to grow, could recur over and over, as
the competing camps interpret what they see (the same facts) in light of their
own worldview. In this way, decisions follow the construed reality of the
powerful groups in organizations. The presence of a singular power in the
organization, such as the CEO, likely minimizes the occurrence of this situation. In fact, Pfeffer (1981) argues that when power is highly centralized,
conict becomes submerged and the use of politics declines. In contrast,
Eisenhardt and Bourgeois (1988, p. 743) found the use of politics was also
tied to centralized decision making. The more powerful the CEO, for example, the greater the likelihood that TMT members will act to consolidate
power and engage in alliance and insurgency behavior while the CEO acts
to control or completely withhold information from the group.
TMT Heterogeneity: The Role of the CEO
The CEO is the top ofcer in the rm and, correspondingly, is usually
thought to be the most powerful and inuential person in the rm (Vancil,
1987). The CEO is also regularly considered to be the architect of the
TMT, in that members serve at his or her option (Finkelstein, 1992; Shen

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223

& Cannella, 2002a). Therefore, TMT members may feel a strong obligation
toward the CEO and be unwilling to challenge him or her (Lorsch, 1989).
No treatment of TMT decision-making processes would be complete without consideration of the CEOs role as separate from other top managers.
The CEOs role in TMT functioning might have been considered as part
of overall heterogeneity. We provide this separate treatment, however, because discussions of heterogeneity in prior TMT research overwhelmingly
emphasize dispersion measures among team member characteristics (Finkelstein & Hambrick, 1996). Our approach focuses on the concept of heterogeneity as the term is used in levels research (Klein et al., 1994). We
discuss key issues relating to the CEOs vision (or lack thereof) and the CEO
as guardian of the interactions among TMT members (the processes used to
make decisions).
CEO Vision. The CEO is expected to set the vision and/or mission of the
organization, which will strongly inuence the context in which decisions by
TMT members are made (Gabarro, 1987; Kotter, 1990; Vancil, 1987). As
previously discussed, Waldman and Yammarino (1999) argue that heightened cohesion with the TMT ensues when a charismatic relationship develops between a CEO and TMT members. The CEO fosters this
commitment by inspiring TMT members to wholeheartedly embrace his
or her vision. Once the vision is established, it will be used to frame subsequent issues. This framing inuence will be felt throughout the rms
hierarchy, as issues raised will be tied to the vision to gain the CEOs support for action. Additionally, executives in all parts of the hierarchy who
want to boost their careers will likely watch carefully for issues that they can
identify and articulate as important to the overall vision and mission of the
CEO. In this way, they curry favor in the promotion process. These selfinterest drivers will produce important consistency in the mindsets or construed realities among managers at all levels, but especially among TMT
members, making the TMT more homogeneous than it might be otherwise.
This suggests that the more strongly the CEO holds to a vision and frames
alternatives as building toward that vision (or detracting from it), the more
the TMT members will come to be (or act as if they are) highly homogeneous. Similarly, CEO charisma will lead to reduced heterogeneity among
TMT members (Klein & House, 1995; Waldman & Yammarino, 1999).
Alternatively, the CEO who does not take charge (Gabarro, 1987) by
strongly articulating a vision and course of action may leave a power vacuum in the organization that others might strive to ll. In this situation,
political coalitions are likely to form among TMT members and inuential

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others in the rm, with each group vying for the right to bring its own issues
to the fore (Shen & Cannella, 2002a). It is possible and perhaps likely
that political inghting and struggles among TMT members will result from
the presence of a weak CEO. Certainly, with a weak CEO in place (dened
as one with no clear vision or direction), TMT heterogeneity will be accentuated.
The CEO as Guardian of TMT Process. The CEO exerts a powerful inuence on TMT functioning by establishing the process through which decisions are made. For example, a CEO may encourage open discussion of
issues, problems, and ideas raised by anyone in the organization, regardless
of hierarchical position. Jack Welch of GE became known as this kind of
leader one who fostered lively and open debate on all issues before the top
group (Tichy, 1989; Tichy & Charan, 1989). Alternatively, a powerful CEO
may openly discourage debate and dialog, moving quickly to squelch any
opposition to his or her choices (Miller, 1991; Miller & Droge, 1986).
The CEO who encourages open debate and disagreement moves the TMT
toward the assumption of more heterogeneity among members, whereas the
CEO who frames open debate as dissent or, even worse, as disloyalty
moves the TMT toward less heterogeneity among members. Therefore, we
assert that only when the CEO encourages open debate and dialog among
TMT members does a team-level approach to decision making truly improve the effectiveness of decision making, as per Finkelstein and
Hambricks (1996) prediction. Under an autocratic or intolerant CEO, only the opinions and perspectives of one person really matter (i.e., the CEO).
The CEOs commitment to a single vision for the companys strategy is
not necessarily a requirement if he or she encourages open debate and dialog. Nevertheless, some consistent and objective methods for selecting preferred courses of action are essential. For example, Jack Welch clearly
preferred market share, profitability, and growth as organizational outcomes, but was open to divergent views regarding how to actually achieve
those objectives. At the same time, he did not tolerate disagreement about
these ultimate objectives (Tichy, 1989; Tichy & Charan, 1989). Put differently, disagreement about means is not the same as disagreement about ends
(Bourgeois, 1980).
In situations where the CEO is both powerful and insistent on a full
discussion and consideration of the issues (e.g., Jack Welch of GE), the
TMT moves toward what we might think of as the ideal state envisioned by
Hambrick and Mason (1984). Our earlier caution that issues raised are
noticed and framed before the TMT considers them, and that the team does

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225

not jointly experience and make sense of stimuli, stands even in this setting.
However, a full discussion of the issues will likely cause those who raise
issues to more fully consider the dimensions and ramications, and the
discussion is likely to highlight issues for further consideration. Decisions,
when made, are likely reective of the full set of facts that can be gathered
around the decision setting, and those facts will be considered by all TMT
members though their various backgrounds and value sets.
Additionally, the open discussion among TMT members, with the CEO
as guardian of the process rather than dictator of the outcome, will help to
build a consistent and relatively up-to-date construed reality among TMT
members. Rather than dedication to historical beliefs or blind commitment
to one approach, the TMT is more likely to recognize and confront changed
realities and to incorporate those new circumstances into their subsequent
issue processing. It is difcult to see how this endeavor could fail to improve
the quality of decision making overall. Finally, with the CEO enforcing a
full and open decision-making process, it is less likely that member disagreements and conicts will turn personal, leading to disintegration and
distrust among TMT members (Amason, 1996). Conict must remain constructive if TMT interactions are to avoid negative consequences from it.
Again, a powerful CEO who is dedicated to a fair and open discussion of
issues will probably tend to keep the conict constructive.
Finally, some CEOs are aloof and distant, and these individuals are likely
to have a correspondingly negative inuence on TMT functioning. When it
is unclear what the CEO wants or will support, it is naturally more difcult
for TMT members to hold open discussions and reach any sort of consensus. Additionally, TMT members may end up competing for the CEOs
attention. One example of the problems that this situation may produce is
illustrated in Hambrick and Cannellas (2004) study on CEOs who have
COOs. The authors argue that the CEOs most likely to have COOs are those
who do not like or feel condent in managing internal matters in their rms.
For this reason, they elect to have COOs and delegate to those COOs all or
most internal responsibilities. Because TMT members in this situation nd
themselves further removed from the CEO and remain unsure of what the
CEO will support or how the COO ts into the picture, decision-making
interactions among team members are likely to suffer. When leadership is
unclear, turmoil in decision making is the likely result. In support of this
notion, Hambrick and Cannella (2004) show that rms that separate the
roles of CEO and COO (i.e., have separate people fulll each role) are
significantly poorer performers than those that do not separate these
roles.

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TMT Temporal Dynamics


Dansereau et al. (1999) argue that groups frequently evolve over time, and
this evolution is likely to have important levels-related consequences. For
example, Shamir (1995) suggests that positive interactions between a CEO
and his or her TMT over time lead to the development of trust. Other
researchers have raised the possibility that cohesion between the CEO and
TMT over time promotes the cascading of leadership behavior to lower
echelons within the organization, thereby strengthening group cohesion and
effort across the hierarchical echelons. In turn, this cohesion is believed to
affect the goal orientation of groups and lead the organization toward a
higher level of organizational performance (Waldman & Yammarino, 1999).
In this section, we describe two approaches for considering this evolution of
group characteristics over time:
 The seasons and cycles model of Hambrick and Fukutomi (1991), in
which the behaviors of the CEO are argued to evolve in predictable ways
over CEO tenure.
 The natural group evolution of TMT members over time, and the intrusion of conicts of interests among team members both late in CEO tenure, as a successor is being selected, and early in a new CEOs tenure,
before his or her power has been consolidated (Shen & Cannella, 2002a).
Two factors are likely to affect TMT heterogeneity during the tenure of
the incumbent CEO. The rst of these is illustrated by the seasons and cycles
model of CEO tenure, put forth by Hambrick and Fukutomi (1991). The
second is caused by tensions among TMT members generated by the process
of CEO succession. Each of these factors is discussed below.
CEO Seasons and Cycles
Hambrick and Fukutomi (1991) argue that CEO behavior changes in predictable ways over the course of the individuals tenure as top ofcer.
Drawing on the work of earlier authors such as Gabarro (1987) and Kotter
(1982), the seasons and cycles model describes changes on several critical
dimensions over time namely, commitment to the paradigm, task knowledge, information diversity, task interest, and power. The authors label the
ve seasons as (1) response to mandate, (2) experimentation, (3) selection of
an enduring theme, (4) convergence, and (5) dysfunction, noting that not all
CEOs last through all ve of the seasons. Next, we discuss each season and
its implications for TMT decision processing and interactions.

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227

In the response to mandate stage, the new leader responds in ways that
he or she perceives to be expected by those who made the selection decision
(i.e., board members, large investors, and the predecessor CEO). Typically,
the new leader seeks to remedy perceived inadequacies of the predecessor
and follow any initial instructions or suggestions of the board of directors.
Power is relatively low at this point, and there is a moderately strong commitment to respond to the perceived mandate. Task knowledge is low, but
increases rapidly. Task interest is quite high, as the CEO is actively engaged
in the new job. Information diversity is high, as the new leader is actively
learning and seeking out divergent points of view while he or she builds an
agenda (Kotter, 1982).
During this stage, the TMT is either quite committed to the new CEO or
plotting his or her replacement (Shen & Cannella, 2002a, b). TMT members
are quite uncertain of their own futures in the company at this point, as they
likely serve at the behest of the new leader and are typically anxious to
please the new leader so that they can stay on and become full members of
the TMT. Thus, TMT heterogeneity, though evident in the nature of the
members, may be tempered to gain the approval of the CEO. At the same
time, actions taken outside the group are more likely reect the individuality
of each member. The fact that the new leader seeks out information diversity
encourages TMT members to speak honestly and openly, and it is likely that
the new leader will identify several members of the group who will form a
core TMT that will stay in place during the new leaders entire tenure
(Gabarro, 1987).
During the experimentation stage, new CEOs who survive the response
to mandate stage (which is quite likely) begin to experiment on the job,
seeking the vision (or enduring theme) that will characterize their tenures.
Miller and Shamsie (2001) characterize this life-cycle phase as the learning
stage in which leaders test the waters and nd out more about their
organization and market. In this stage, the CEO is again open to many
sources of information, but the information is becoming increasingly more
ltered, as the new leaders vision begins to take shape. The CEOs
commitment to the paradigm (vision) could be strong or weak. Task
knowledge is growing rapidly, and the CEOs power is increasing. During
this stage, TMT members either become permanent or are replaced by the
new leader as he or she seeks a stable group of executives to form an
enduring TMT. The increased focus of this stage begins to reduce the heterogeneity of the TMT, though it may still be quite diverse. TMT members
are developing work habits that will stay with the team permanently as well.
As the enduring theme is developed, the team members form an ever tighter

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group. In addition, the CEOs decision-making style (open discussion and


disagreement versus no dissent permitted) is becoming xed.
In the selection of an enduring theme stage, new leaders work to capitalize on their past learning experience. They gain more condence and
begin to select and communicate a unied vision or enduring theme. This
theme will typically remain in place throughout the duration of the leaders
tenure. Information diversity is still present, but rapidly becoming ltered.
Considerably fewer sources of information are referenced, relative to the
two earlier seasons. Tushman and Romanelli (1985) refer to this phase as a
period of consolidation. The CEOs power is increasing rapidly, and task
knowledge is beginning to peak. The CEO is becoming quite committed to a
unitary vision, and is looking to build support for that vision throughout the
organization. TMT members who are not fully committed to the vision are
expected to leave the organization. Notably, TMT functioning is becoming
increasingly more regular and organized (whether characterized by open
discussion or muted discussion). TMT members are growing sharply in
homogeneity, as those who do not t the enduring theme are replaced or
depart voluntarily.
In the convergence stage, the theme has been selected and the new leader is
fully committed to it. Those who disagree with it are removed. Dissent is
unlikely on the theme, although some dissent may be permitted with respect to
the means of achieving the theme. CEO power is high, but CEO task interest
begins to decline, as the leader settles in for the remainder of the tenure. Even
more information lters are put in place, and information diversity declines
steadily. The TMT becomes much more homogeneous in this stage, and a large
number of team members have regular and established interactions that lead to
predictable outcomes. Likewise, actions taken by members outside the group
tend to become more predictable. Even if a TMT member perceives a significant threat or opportunity, unless it ts well within the established theme, it is
unlikely to garner much attention. To a increasingly greater extent, the TMT
acts like a group of highly homogeneous members.
In the dysfunction stage, those CEOs who stay this long become complacent and lose touch with their markets (Miller & Shamsie, 2001). They
are stale in the saddle (Miller, 1991), leading to the conclusion that continuation of the leader is actually harmful to the organization. At this point,
the CEO is very powerful but brooks little or no dissent or debate. Executives tend to stick with a strategic formula beyond its usefulness to the
organization. The leaders task interest declines rapidly, as he or she no
longer feels challenged by the job. Not surprisingly, this phase is marked by
declining nancial performance. Interestingly, during this period, the TMT

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may perceive that the board is likely to select an outsider as the new leader,
as all current TMT members are strongly associated with the dysfunctional
leader (Shen & Cannella, 2002a). This strong threat unites TMT members,
and they may take action to remove the CEO in an effort to assure that one
of them will become the new leader. The threat of an outsider succession
arises because outsider successors are well known to replace more of the
existing executive cadre than insider successors (Dalton & Kesner, 1983;
Helmich & Brown, 1972).
CEO Succession and Its Effects on Team Dynamics
One nal issue is likely to have important temporal effects on the TMT and
its functioning the issue of CEO succession. Early in a new CEOs tenure,
it is likely that some individuals who were viable competitors for the position remain part of the TMT. Therefore, the new CEO must deal with the
psychological implications of being passed over among what are surely key
members of the new team. We say surely key members because the most
senior members of the team would also be the most likely candidates for the
CEO job (Cannella & Shen, 2001).
The assumption that the TMT members serve at the pleasure of the CEO
is widespread in the literature (e.g., Finkelstein & Hambrick, 1996). At the
same time, empirical examination illustrates that the TMT does not resign
en masse when a new CEO is appointed (Cannella & Lubatkin, 1993;
Cannella & Shen, 2001; Helmich & Brown, 1972). Indeed, the rm often
strives to keep senior executives in place so as not to lose the rm-specific
talent that it has accumulated (Castanias & Helfat, 1991, 2001). Most of the
time, and for most issues, the TMT is expected to work together as a highly
unied group. When the time comes to choose a successor, however, team
members may (at least for the succession issue) become competitors. Shen
and Cannella (2002a) describe how senior executives, in a succession setting,
want very much to become CEO, for both nancial and personal reasons.
Being passed over is difcult for them, and this rejection will surely complicate their interactions with the new leader and with each other.
For all of these reasons, early in a new leaders tenure, TMT members
may be working out interpersonal issues with one another, and perhaps
having a difcult time functioning as a team. If the succession was the result
of a relay, with an heir apparent serving in a grooming period of a few years,
many of these issues may have been worked out by the time the CEO title
passes to the successor (Cannella & Shen, 2001; Vancil, 1987). In the event
of a horse race, where several candidates are pitted directly against one
another, more exits among those who were passed over are expected (Vancil,

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1987). Horse races accentuate the fact that the succession process has winners and losers, and it publicly identies both. In any event, early in a new
CEOs tenure, a number of points of disagreement among TMT members
are likely to arise. This situation is ripe for dysfunctional conict to interfere
with functional conict (Amason, 1996). Furthermore, this is a time when
the new CEO is attempting to build and consolidate his or her power. For at
least a year or two, regardless of the CEOs style of leadership or whether he
or she encourages open debate and dialog, the TMT is likely to be operating
at a higher-than-optimal level of heterogeneity. Applying this factor to the
upper-echelons model, the team may not notice key issues arising in the
external and internal environment, or it may not pay attention to those
issues or to others outside the team who try to raise them. Strategic decisions
themselves may be surrounded by conict, but the discord may be the remnants of affective conict, rather than the constructive conict needed for
effective decision making. In many ways, the team will be heterogeneous,
but the benets of heterogeneity will not be fully realized.
In the middle years of a CEOs tenure, the team should settle in, resolve the
affective conicts left over from the succession decision, and function more
effectively. In the later years, when it is clear that a new successor is needed,
the competition among team members will again sharpen (Vancil, 1987) as
the TMT members position themselves to be selected as the next CEO.
Of course, in real life, the situation is not always as clearly dened as pictured
here. Many rms have a single favorite son or a person whom all on the
TMT expect to be the next CEO. This clear choice would likely reduce the
conict and tension among the TMT members as the succession decision arises.
In contrast, if there is no clear successor, coalition behavior among TMT
members would be expected (Shen & Cannella, 2002a). That is, team members
may align themselves with candidates that they are close to, and work to place
those candidates in the CEO position. Of course, the expectation is that the
entire coalition will benet if its candidate is selected. Again, it is not likely that
this competitive and political behavior will always be severe, but the competition for the top position can get out of hand, causing significant harm to both
the TMT and the organization (Vancil, 1987). Keeping the TMT functioning
effectively is one reason for the popularity of the relay succession.

DISCUSSION
In this chapter, we have evaluated the upper-echelons model with a levels
lens, noting several concerns about using the model with groups as well as

A Multi-Level Analysis of the Upper-Echelons Model

231

individuals. At the individual level, the model appears to be quite reective


of individual psychological responses. At the group level, the model is
hampered by the fact that the group is unlikely to jointly experience and
make sense of stimuli; instead, individual members will note issues and raise
them to the larger group. This tendency has important implications for the
framing of decisions and for the kind of action that is likely to be observed.
Note that our discussion does not present sharp challenges to the predictions made by the upper-echelons model, but rather poses questions about
the theoretical logic behind those predictions. We caution researchers using
the upper-echelons model to carefully specify their assumptions about theoretical logic to assure that their results are not confounded with alternative
explanations.
We are upper-echelons researchers, and we intend to remain so. The model
has spawned a huge array of research projects, and it has put managers back
in the forefront of strategy research (Hambrick, 1989). Nevertheless, as research on the model accumulates, it is important to go beyond significant
results to consider realistic pictures of how TMTs actually function and how
strategic decisions are made in real-world rms. This chapter represents an
attempt to provide some of that realism to the study of upper echelons, and
we have tried to be complete in our discussion of what might stand in the way
of a TMT functioning as predicted by the upper-echelons model.
Finally, we have challenged the assumption that the team level is universally the best approach to use when studying upper echelons. We discussed a number of situations in which team-level analysis may, in fact, not
predict outcomes as well as simply using the CEOs psychological prole
and preferences. If the TMT is not co-located, or if it does not meet regularly as a group to discuss issues and scrutinize strategic decisions, then the
predictions of the upper-echelons model are not likely to be observed. Additionally, if the CEO does not support open debate and dialog on the issues
and choices, the team is not likely to act in the ways predicted by the upperechelons model. In all of these cases, the CEOs individual-level preferences
and biases will likely provide much stronger predictions about decisions
about strategic decision making.
We note that our discussion of levels issues in organizations has some
parallels to the discussion of the Cuban missile crisis by Allison (1971). Allison explains the Cuban missile crisis using three very different theoretical
models. His rst, the rational actor model, assumes that the organization acts
like a single rational person. This approach is quite similar to our discussion
of the homogeneous TMT, or the team led by a single dominant leader.
Allisons second model is the organizational process model, in which different

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parts of the organization see the world differently and respond very differently to various stimuli. This model follows the assumption of heterogeneity
in consolidating the actions taken to the organization level. Allisons third
model is a political model, in which different parts of the organization have
different goals and objectives, and outcomes result from political processes
including bargaining. All three models explain the ultimate outcome, but each
successively explains in more detail the actual outcomes observed. Each theory also adds significantly more complexity relative to previous one(s). Understanding, however, requires an appreciation for the inherent complexity of
strategic situations and organizational action.

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