Getting everyone on board: The effect of CEO differentiated transformational leadership on top management team effectiveness and leader-rated firm performance

Abstract

Drawing on the principles of upper echelons theory and team leadership research and using 101 subsidiary top management teams (TMTs), our study revealed that subsidiary CEO transformational leadership that was focused evenly on every TMT member increased team effectiveness and firm performance, whereas leadership that differentiated among individual members decreased both outcomes. By differentiating the amount of individual consideration and intellectual stimulation across TMT members, CEOs unintentionally disrupted the team’s dynamics (team potency), ultimately reducing team effectiveness and subsidiary firm performance ratings. Furthermore, CEO gender and moral inconsistency across executives served as moderators of the detrimental effects of differentiated leadership on the outcomes. The negative effect of differentiated leadership behavior was stronger among female CEOs and those who failed to consistently exhibit moral behaviors that might justify differentiation in transformational leadership.