Too Good to Be True? The Unintended Signaling Effects of Educational Prestige on External Expectations of Team Performance

In this paper we report the results of two experimental studies designed to test how demographic characteristics affect outsiders’ assessments of a management team. We draw on theories of evaluation, status characteristics, and social identity to examine the interactive effects of racial characteristics and educational prestige on assessments of team competence and expectations of performance. We find that leaders’ race and the prestige of their educational background affected outsiders’ assessments of both a philanthropic project team and a company’s top management team. Outsiders gave lower assessments to the philanthropic project teams and made lower stock price projections for firms seeking funding when the teams were led by African Americans who had highly prestigious educational backgrounds, though they gave higher evaluations to Caucasian-led teams with similarly educated leaders. We posit that the moderating effect of educational prestige on the managerial teams’ racial characteristics stems from outsiders' assumptions that African American managers were preferentially selected by high-status schools. Race And Prestige Effects On Outsiders’ Assessments 3 The increasing reliance of organizations on teams has coincided with a period in which the U.S. workforce has become significantly more diverse (Johnston, 1991), prompting organizations to attempt to leverage the distinct reservoirs of knowledge possessed by their increasingly heterogeneous pools of employees to improve performance. This approach is consistent with the “value in diversity” hypothesis (Cox, Lobel, and McLeod, 1991), which argues that heterogeneity among team members will benefit a team's outcomes even though it might create challenges for the team's interaction processes. Scholars who study diversity in teams tend to focus on these internal processes – which include member participation, influence patterns, and conflict episodes – and their effects on team performance, but have given little consideration to how the demographic characteristics of team members might affect external perceptions of the team. In reality, work teams do not operate in a vacuum. They are embedded and function within a larger organizational context, and any team working inside an organization is accountable to an individual or individuals outside the team. These external constituents often form their perceptions even before the team members have any opportunity to act, and their impressions are important. For example, when outsiders have a dim view of the project team or its leader, they might not provide the team with as much budget and material support as it needs to get the job done. The same goes for the broader marketplace: the consumer who doesn’t respect the visible partners of a law firm will not retain the firm’s services, the executive who is skeptical of the ability of a consulting team’s leader will not pay heed to the team’s counsel, and the investor who thinks poorly of a company’s management team won’t buy the company’s stock. Early assessments of a team can affect outsiders’ psychological commitment and allocation of Race And Prestige Effects On Outsiders’ Assessments 4 resources to the team, which can have a significant impact on its ability to perform. In our work, we focus on the effects of diverse demographic characteristics on outsiders' assessments of teams in order to gain a better understanding of this behavior. Researchers who study organizational level phenomena have consistently adopted an external perspective in their work, considering how the larger context in which an organization is embedded affects the way in which the organization `behaves and performs (e.g., Lawrence and Lorsch, 1967; Aldrich and Pfeffer, 1976; Hannan and Freeman, 1977). Resource dependence theorists, for example, argue that organizations respond to external actors’ demands when the external actors control resources that the organizations need to survive (Pfeffer and Salancik, 1977). Institutional theorists, as well, have repeatedly argued that outside observers’ perceptions are important in that they affect the bestowal or withdrawal of organizational legitimacy (DiMaggio and Powell, 1983) which is critical to organizational success (Scott, 1992). Recognizing the impact of organizational context on teams, groups researchers have also started to adopt an external viewpoint, seeking to identify behaviors outside the team that help groups succeed. One of the assumptions of this work is that a team’s capacity to manage its external boundaries affects its ability to discern organizational expectations and manage performance around those expectations, which are critical determinants of its ability to survive and thrive within an organization (Gladstein, 1984; Ancona, 1990; Ancona and Caldwell, 1992). Those team members who fulfill the boundary management role – usually the team’s leaders – become the focal point for outsiders looking in, and impressions of the leaders form the basis for impressions of the team as a whole. This assertion is supported by empirical work conducted by Race And Prestige Effects On Outsiders’ Assessments 5 Flynn and Staw (2004) in which they found that charismatic leaders made their organizations more attractive to outside investors, leading to higher levels of investment and greater appreciation of company stock. This argument is also consistent with the extensive body of research on top management teams usually grounded in the upper echelons perspective (Hambrick and Mason, 1984) which tells us that external evaluators pay particular attention to an organization’s managerial team when making their assessments of the organization. Research that highlights the importance of considering a team's external interactions with its environment has largely focused on the behaviors of team members. However, sociological theories of groups suggest that prior to observing individuals’ actions and behaviors, group members begin to form their assessments of other members’ capabilities based on the observable personal characteristics they possess (Berger, Cohen, and Zelditch, 1972; Ridgeway and Correll, 2004). Consequently, we take a step back and focus our research on the initial impressions that outsiders form based not on managers’ behavior, but instead on externally observable characteristics of the management team. Specifically, we focus on the team’s racial characteristics and educational pedigree. Whereas a number of researchers have looked at the effects of top management team composition on the team’s likelihood of success, only a few have taken an external perspective (e.g., Higgins and Gulati, 2006). Most of the research in this area has focused instead on the effects of demography on the management team’s internal processes and subsequent performance (e.g., Eisenhardt and Schoonhoven, 1990; Hambrick and Daveni, 1992; Keck, 1997; Simons, Pelled, and Smith, 1999). The growing body of research on demography and internal team processes, however, provides rich theory upon which to draw in Race And Prestige Effects On Outsiders’ Assessments 6 considering the factors that affect outsiders’ formation of impressions of a diverse management team. DEMOGRAPHIC CHARACTERISTICS AND TEAMS