Abstract Increasing senior leadership diversity and decentralizing decision-making have become imperatives for many organizations, supported by a growing normative literature. However, mixed empirical evidence suggests that these may hinder the decision-making processes required to deliver value to firms and their stakeholders. We argue that diversity and decentralization should instead be viewed as means of organizing towards these ends , and theorize the conditions under which they may harm performance – specifically, the nature of the knowledge problems faced by leaders. Analyzing a 19-year panel of 922 U.S. firms, we find that diversity and decentralization are associated with stronger financial and market performance in uncertain environments but become liabilities under ambiguity, where speed and strategic clarity are critical and homogeneous, centralized leadership is more effective. Stakeholder outcomes are similarly affected, particularly employee wellbeing and ethical political activity. These findings challenge normative claims, with implications for theory, proscriptions, and practice.
Kerry Hudson (Fri,) studied this question.