Design a Comprehensive Learning and Development Leadership Program As the executive learning and development director for a midsized global petroleum organization, you have been asked by the c

ORIGINAL RESEARCH

Chief human resources officers on top management teams: an empirical analysis of contingency, institutional, and homophily antecedents

Magdalena Abt1 • Dodo zu Knyphausen-Aufseß1

Received: 5 June 2015 / Accepted: 13 September 2016 / Published online: 21 September 2016

� The Author(s) 2016. This article is published with open access at Springerlink.com

Abstract Having the director of human resources (HR) as a member of the top

management team (TMT) and giving him/her the title of chief human resources

officer (CHRO) indicates an important strategic and symbolic choice. Such deci-

sions not only determine who participates in controlling an organization and setting

its strategic direction, but also reflect the organizational structure. In this paper, we

examine the antecedents of CHRO presence according to the contingency, institu-

tional, and homophily theories. Based on a multi-industry sample of 215 firms that

considers a 10-year period, we find that the presence of a CHRO is influenced by the

rates of unionization, rapid declines or increases in numbers of employees, the

employment of a new or outsider chief executive officer (CEO), and the institu-

tionalization of the CHRO position in the industry or firm. However, we find no

evidence of the presumed influence of knowledge intensity or the CEO or TMT

human resource management (HRM) experience. Overall, we find that the institu-

tional theory has the highest explanatory power regarding the existence of CHRO

positions.

Keywords Chief human resources officer � Top management team � Contingency theory � Institutional theory � Homophily theory � Upper echelon theory

& Dodo zu Knyphausen-Aufseß

[email protected]

Magdalena Abt

[email protected]

1 Technische Universität Berlin, Faculty VII, H92, Straße des 17. Juni 135, 10623 Berlin,

Germany

123

Business Research (2017) 10:49–77

DOI 10.1007/s40685-016-0039-2

1 Introduction

Since Hambrick and Mason’s (1984) groundbreaking article, the study of top

management teams (TMTs) has developed into a prominent area of management

research (Carpenter et al. 2004). Within this area, a growing body of research now

examines the presence of diverse TMT members, who are the top executive officers

responsible for certain functional domains and report directly to the chief executive

officer (CEO) (Hambrick and Cannella 2004; Menz 2012; Menz and Scheef 2014;

Nath and Mahajan 2008; Preston et al. 2008; Strand 2013). A key premise of these

studies is that the TMT structure, and the presence or absence of certain TMT

positions, opens a ‘‘window into organizations’’ (Beckmann and Burton 2011,

p. 52). Analyzing the functional roles of executive officers provides insight into

organizational processes and structures (Beckmann and Burton 2011), signals which

business functions are believed to be the most important, and indicates where power

resides within an organization (Fligstein 1987). Additionally, the presence of certain

functional TMT positions not only impacts ideologies or group processes within the

upper echelon, but also drives the strategic decision-making, and, hence, affects

organizational performance (Menz 2012).

Accordingly, promoting directors of human resources (HR) to the ranks of the

upper echelon, and granting them titles such as chief human resources officer

(CHRO) or personnel director,1 is an important structural, strategic, and symbolic

choice. It signals a fundamental change in managerial roles, demonstrating the

greater influence of institutionalized HR in the TMT structure. Thus, the presence of

a CHRO is a reflection of the importance of HR in strategic decision-making (e.g.,

Brewster 1994; Budhwar 2000). Therefore, understanding how organizations handle

the ‘‘human aspect’’ at the executive level, or the highest levels of management,

allows us to investigate the upper echelons and the institutional development of

capitalism as a whole. While the dominance of the chief financial officer (CFO)

function indicates how capital market-driven ideologies impact how chief officers

consider governance issues (Davis 2009a, b; Dobbin and Zorn 2005; Dore 2008;

Zorn 2004), it remains unknown whether a human resource management (HRM)-

centered stream of ideology can impact this level of management as well. We live in

an increasingly technology-driven knowledge society (Kasworm 2011) in which

people are considered to be a firm’s most important asset. HR topics, such as

inventing new ways of working, building a high-performance culture, developing

leaders, or recruiting talent, are at the top of most strategic agendas (Boselie and

Paauwe 2005; Josephson and Reinken 2008). Some researchers and practitioners

already view CHROs as crucial for the future (Wright et al. 2011), and argue that it

is only a matter of time until CHROs will have equal or even more weight than

CFOs (Charan et al. 2015; Donkin 1999; Groysberg et al. 2011, pp. 67–68; Welch

and Welch 2005) or become favored for CEO succession (Josephson and Reinken

2008). However, many organizations, especially in the US, seem surprisingly

1 For reasons of simplicity, in this paper we use the term ‘‘CHRO’’ for human resource-related positions

at the executive level. See the methodology section below for further information.

50 Business Research (2017) 10:49–77

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reluctant to establish a CHRO (Aijala et al. 2007), whereas roughly 90 % have

established a CFO (Zorn 2004).

This study aims to understand why firms differ in having a CHRO. By providing

academics and practitioners with an understanding of antecedents, this study adds to

the existing body of knowledge on strategic HRM (SHRM) (see, e.g., Mello 2015),

particularly as the decision to have an HR officer be a part of a TMT is one of, if not

the, most important steps in the SHRM process (Welbourne and Cyr 1999). By

exploring the reasons for CHRO presence, we also intend to contribute to strategic

management and upper echelon research by answering the key research questions of

how contextual conditions, organizations, and CEOs affect TMT structures and

which theories and research methods are suitable for studying this issue (Carpenter

et al. 2004). Our research shows that the contingency theory, which has been the

dominant theoretical approach for identifying the antecedents of chief officers’

presence in existing research (e.g., Hambrick and Cannella 2004; Menz and Scheef

2014; Nath and Mahajan 2008), should be supplemented by other approaches, such

as homophily and the institutional theory. With regard to recent practitioner-

oriented recommendations highlighting the evolving role of the CHRO (Challah

2006; Charan et al. 2015), our study helps to explain the reality behind CHRO

choices. Finally, by discussing the role of the CHRO in the upper echelons of a

business, our paper also adds an important facet to the recent discussion on the

financialization of the modern economy and the development of capitalism (e.g.,

Davis 2009a, b).

2 Context, theory, and hypotheses

The analysis of TMTs and their antecedents is dependent on the institutional and

cultural context. For example, Crossland and Hambrick (2011) show empirically

that nation-level institutions determine the degree of managerial discretion that

CEOs have in public companies, and, more specific to our research questions, Kabst

and Giardini (2009) provide data on the presence of CHROs in 27 countries, which

spans from 91 % in France to 25 % in Turkey, with 41 % in the US and 56 % in

Germany (data for 2005). We focus in our empirical study on US firms due to the

leading role these firms have always played for the development of modern

capitalism (e.g., Chandler 1990; Van Elteren 2006, ch. 9), and also because the

‘‘natural fit’’ between America’s individualistic culture and the human-centric

perspective that defines our research interest (Hofstede 1980). We therefore briefly

describe this context through a historical perspective before analyzing the roles that

CHROs may have. We then introduce our theoretical lenses and develop our

hypotheses.

2.1 The head of HR in US firms

In the US, the head of the HRM function was traditionally considered ‘‘a low man’’

(Jacoby et al. 2005) in the managerial hierarchy. At various times, however, HR

managers became more valued. In the 1940s and 1950s, most large US companies

Business Research (2017) 10:49–77 51

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had personnel departments responsible for administrative tasks, such as payroll

processing or record keeping, as well as for setting the company-wide employment

policy, qualifying employees, and handling increasingly powerful labor unions

(Bottger and Vanderbroeck 2008; Eilbirt 1959; Kaufman 2008; Kochan and Barocci

1985). Due to the increasing importance of financial criteria for intra-organizational

resources and power allocation during the 1960s (Fligstein 1987) and HR

professionals’ inability to quantify their contributions in financial terms, HR

managers were increasingly considered to be ‘‘not business oriented’’ (Ritzer and

Trice 1969, p. 66). In the late 1960s and 1970s, the rise of unions (Beaumont and

Leopold 1985), the spread of the behavioral sciences applied to personnel

management in academic research, and the passage of diverse government

employment laws helped again legitimize the power of HR managers in the US

(Dobbin and Sutton 1998). In 1971, AT&T perceived the strategic importance of

HR and became the first firm in the US to create the position of an executive officer

mainly responsible for managing HR (Bottger and Vanderbroeck 2008). In the

1980s, all of the factors that had previously bolstered the worth of HR executives in

the US diminished: governmental influence shrank, unions became weaker, the

unemployment rate rose, and corporate governance began focusing even more

intensely on shareholder value (Jacoby et al. 2005). As HR departments weakened,

the HR executives at the tops of organizations found themselves a primary target for

outsourcing (Greer et al. 1999).

During recent decades, however, HR issues, such as structuring organizations to

attract, develop, and retain the best workforce, inventing new ways of working that

allow employees to be productive whenever and wherever they are, and creating a

corporate culture that enforces moral principles and guides organizational change,

have become part of the most important strategic tasks TMTs fulfill (Challah 2006;

Groysberg et al. 2011). Analogously, the calls to promote the head of HR to the

highest management ranks and make them a close partner to the CEO (Bottger and

Vanderbroeck 2008) have recurred and strengthened. Currently, many researchers

and practitioners view top HR professionals as the upcoming strategic key players

(Wright et al. 2011) with a weight comparable to the CFO (Charan et al. 2015;

Donkin 1999; Josephson and Reinken, 2008; Welch 2005).

2.2 Roles of CHROs in TMTs

Different roles for HR professionals have since emerged (Lengnick-Hall and

Lengnick-Hall 2002; Storey 1992; Ulrich and Brockband 2005), which can also be

applied to CHROs. Although the conceptual approaches differ in the denomination

of the HR roles, they all share that HR professionals must handle operational as well

as strategic duties and responsibilities and, thus, act as both a ‘‘strategist and

steward’’ (Caldwell 2003; Kelly and Gennard 2001).

More specifically, the roles and responsibilities of CHROs can be described in

four major categories (Deloitte Consulting 2006). As workforce strategists, CHROs

play a key role in steering the direction of a business strategy that coincides with the

current labor trends and available workforce. This is becoming more important, as

‘‘business strategy is increasingly a function of the workforce itself’’ (Deloitte

52 Business Research (2017) 10:49–77

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Consulting 2006, p. 7). As organizational performance conductors, CHROs help

implement the organizational structures that promote innovation and collaboration

as well as flexible work practices that produce inspiring work. As HR service

delivery owners, CHROs deliver the goods of day-to-day HR administration.

Finally, as compliance and governance regulators, CHROs ensure that all activities

adhere to local, national, and international laws and regulations in a business world

that is affected by globalization and offshoring, and provide board development and

executive succession planning.

As these categories have never been verified empirically, we compared them to

24 press releases accompanying CHRO appointments, 17 CHRO job descriptions on

company web sites, and insights from 12 interviews with CHROs of private firms.2

According to our qualitative research, CHROs spend most of their time as

workforce strategists. Examples of CHRO tasks belonging to this category include

‘‘creating and implementing human resource strategies to support the company’s

long-term strategic goals’’, ‘‘doing everything regarding HRM to reach superior

business objectives’’, or ‘‘identifying strategic locations targeted for workforce

growth’’. Tasks belonging to the function of being a governance regulator, such as

reviewing candidates for TMT or board membership or creating compensation

packages, were not mentioned in the press releases, job descriptions, or our

interviews. Instead, most often the following tasks were included: ‘‘direct HR

development and talent management activities’’, ‘‘support employee relations’’, ‘‘do

staffing, recruiting and retaining’’, ‘‘assist organizational development and change,’’

‘‘developing a learning organization’’, ‘‘management of demographic change,’’

‘‘transform corporate culture’’, or ‘‘handle compensation planning and controlling’’.

This plethora of tasks describes the CHRO work domain in the firm as such, not so

much the specific CHRO role within the inner TMT. Based on anecdotal evidence

from firms such as General Electric and Tata Communications, Charan et al. (2015)

recently concretized this role through three critical activities: predicting outcomes,

diagnosing problems, and prescribing people-oriented actions that add value to the

business.

2.3 Selection of theory perspectives

To study our research question in a more systematic way, we integrate different

theoretical perspectives to derive the theoretically-driven antecedents of CHRO

presence.

2 We interviewed 12 CHROs from private firms in various industries, including air transportation, textile

mill products, transportation equipment, chemicals and allied products, and communications. The

company sales ranged from $593 million to $2.95 billion. The CHROs were all contacted by email or

letter and interviewed in person or on the phone. The partly standardized interviews lasted about an hour

and mainly covered the tasks and responsibilities of CHROs, the reasons for their appointment, the skill

requirements, and their influence on strategic decision making. The interviews being conducted with

German CHROs while our empirical study is based on a sample from the US is certainly not ideal but also

not detrimental since this evidence was only used for illustrative purposes in our hypothesis development

and not for hypothesis testing (for an elaboration of the idea of such a ‘‘mixed-method’’ approach, see,

e.g., Hesse-Biber and Johnson 2015). The press releases and job descriptions refer to US companies.

Business Research (2017) 10:49–77 53

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Previous research has revealed that contingency considerations are useful to

research the antecedents of chief officers’ presence, although they explain only a

small proportion of variance (Hambrick and Cannella 2004; Menz and Scheef 2014;

Nath and Mahajan 2008). According to Schoonhoven (1981), the contingency

approach is not a distinct theory, but rather a strategy for developing hypotheses.

However, Boyd et al. (2012) argue that, particularly in strategic management

literature, there is an ongoing trend of referring to contingency as a theory.

Therefore, we apply contingency logic and complement it with institutional and

homophily viewpoints. Consequently, we argue that CHRO presence is affected by:

(1) rational considerations about the costs and benefits of the position depending on

situational factors (contingency theory), (2) less-economical processes of legit-

imization and institutionalization at the industrial and organizational levels

(institutional theory), and (3) individual experiences and preferences of TMT

members (homophily theory). Thereby, we respond to Okhuysen and Bonardi’s

(2011) call for more ‘‘multiple-lens explanations’’ in management research. Further,

Maritan and Peteraf (2008, p. 71) indicate that combining multiple theories and

perspectives from research fields such as ‘‘economics, sociology, behavioral science

and social science’’ (…) ‘‘can generate richer insights’’ for strategic management

research. By using different theories, we analyze the reasons for CHRO presence at

the micro (TMT members), meso (organization), and meta (industry) levels.

Consequently, we consider these explanations as complementary and investigate

what these explanations can contribute to our understanding of CHRO presence in

TMTs.

2.4 CHROs on TMTs: a contingency perspective

According to the contingency theory, there is no single best way to structure an

organization. Instead, the suitability of organizational structures and characteristics

depends on internal and external contingencies (Donaldson 2001). Only after

considering the costs and benefits of different possibilities, while also allowing for

internal and external contingencies, can the most efficient alternative be chosen. In

this way, organizational structure and characteristics are shaped by situational

factors (e.g., Child 1975; Schreyögg 1980).

We apply this logic to researching the reasons for CHRO presence in TMTs. In

line with previous research that applies the contingency perspective (Hambrick and

Cannella 2004; Menz and Scheef 2014; Nath and Mahajan 2008; Zorn 2004), we

base our analysis on the assumption that CHRO presence is more useful, and

therefore more likely, when HR issues cause complexity and uncertainty at the apex

of a firm. By analyzing prior empirical and theoretical publications, especially from

within research streams on TMTs (Finkelstein et al. 2009; Menz 2012) and SHRM

(Caldwell 2003; Welbourne and Andrews 1996), and condensing the indicative

evidence extracted from our qualitative research, we focus on five regularly-

occurring factors that increase HR complexity at the top of an organization, and thus

drive the appointment of a CHRO. These are the representation of unions, the

knowledge-intensity of a firm, major strategic or organizational changes indicated

by changes in the number of employees, and employment of a new or outsider CEO.

54 Business Research (2017) 10:49–77

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2.4.1 Representation of unions

Collective bargaining negotiations between labor unions and corporate employers

include sensitive topics such as pension plans, health benefits, working conditions,

pay rates, hours worked per week, and number of paid days of leave, and are partly

governed and mandated by external laws. As the goals of the negotiating parties are

often incompatible, conflicts between management and unions are likely. Negoti-

ations with unions are thus considered to be important and sensitive. The higher the

rate of unionization within an enterprise, and the more power unions gain, the more

complex bargaining negotiations become, especially when there is a variety of

unions (Craver 1997; Jackson and Schuler 1999). As our interviews indicated,

conducting these negotiations is a task fulfilled by CHROs. One CHRO described,

‘‘I have a very close relationship with labor union representatives; we fight nearly

every day.’’ Admittedly, the union membership rate has recently decreased globally

and especially in the US. In 2015, union membership decreased to only 11.1 percent

(and 6.6 percent in the private sectors) from 20.1 percent in 1983, according to data

from the US Bureau of Labor Statistics (http://www.bls.gov/news.release/union2.

nr0.htm; retrieved on May 2, 2016). However, unions can put pressure on employers

by forming coalitions with other interest groups (e.g., environmental activists)

(Tattersall 2010). Furthermore, Huselid (1995) and Pfeffer (1998) state that the

existence of and positive relations with unions suit other high performance work

practices. They also suggest, at least implicitly, that CHRO representation could

signal an appreciation of the importance that unions have for the workplace climate

and, eventually, for firm performance. Thus, we propose the following hypothesis:

Hypothesis 1 A firm’s rate of unionization is positively related to the likelihood of

CHRO presence on its TMT.

2.4.2 Strategic and organizational change

HRM is of special importance during episodes of strategic or organizational change

(Galpin 1996). New strategic directions may require competencies that have to be

developed, and restructuring activities usually provoke resistance to change that

must be overcome (Kotter 1995). We focus on episodes of growth and downsizing,

which have received considerable attention in existing literature (see, e.g., Datta

et al. 2010; Phelps et al. 2007). When a company’s body of employees increases or

decreases rapidly (in terms of the number of employees), a high percentage of

employees must be hired, displaced, trained, or laid off. Further, reward systems and

career ladders (e.g., those for middle managers) must be revised and HR

development activities or recruitment strategies adapted (Finegold and Frenkel

2006). One of our interviewees formulated it as follows: ‘‘Finding the right people is

the basis for any growth strategy and thus determines our growth targets—before we

decide about market penetration, market expansion, or diversification strategies, I

have to evaluate how to provide the required employees.’’ Another CHRO stated,

‘‘Of course I play a key role in every decision that changes our employees’ situation;

if we decide to reduce our workforce, I am responsible for finding adequate

Business Research (2017) 10:49–77 55

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measures and carrying on negotiations with employee representatives.’’ These are

strategic HR tasks that must be aligned to each other and to corporate strategy and,

therefore, must be addressed at the very top of the firm (Brewster 1994). Previous

research has concluded that when a firm’s number of employees changes rapidly,

integrating HR strategy and corporate strategy is even more necessary (Bennett

et al. 1998) and has a greater effect on performance (Welbourne and Andrews

1996). Furthermore, HR departments are required to act as agents of change, help

individual employees and departments deal with change, and shape cultures that

improve organizations’ capacity for change (Caldwell 2003). To meet these

challenges, the integration of senior HR specialists within TMTs is essential

(Brewster 1994).

Given these considerations, we formulate the following hypothesis:

Hypothesis 2 A firm’s amount of change in employees is positively related to the

likelihood of CHRO presence on its TMT.

2.4.3 Knowledge intensity

In knowledge-driven companies, intellectual and social resources are the key drivers

of success, rather than financial and physical capital (Finegold and Frenkel 2006).

When success depends primarily on knowledge creation, kn

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