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THE INFLUENCE OF THE TOP MANAGEMENT TEAM DIVERSITY ON INDONESIA REGIONAL BANK DEVELOPMENT PERFORMANCE
Joy Elly Tulung PhD Student SKEMA Business School
Lecturer Sam Ratulangi University Manado www.joytia1999.com
International Conference for Emerging Markets Business Sustainability and Technology Innovation:
Opportunities and Challenges 22 – 23 January 2015
OUTLINE PRESENTATION
INTRODUCTION
LITERATURE REVIEW
METHODOLOGY
RESULTS
CONCLUSION
Introduction
Introduction
There are so many issues in the business sector in Indonesia that are interes3ng to inves3gate, one of them is top management team
Hambrick and Mason (1984), Hambrick (2007 ) Finkelstein and Hambrick (1996). They noted that between 1984 and 1996, there were more than two hundred studies on upper echelons theory published in several major journals all over the world
Indonesia is a big country – the biggest archipelago in the world and the 15th largest area in the world, as well as the fourth highest number of popula3on with more than 237 million people (BPS, 2010).
Un f o r t u n a t e l y , there have not been numerous s c i e n 3 fi c p u b l i c a 3 o n s , n e i t h e r i n i n t e r n a 3 o n a l j o u r n a l s n o r accredited journals, that discuss top management team in Indonesia.
Research Question
Whether the diversity in top management team influences the comWany performance, especially in banking, and more specifically in
Bank Pembangunan Daerah (BPD) in Indonesia.
Two - tier Indonesia adopts a two-‐?er system, which separates board of directors and board of commissioners
On one hand, the board of directors (hereaCer is called top management team) is in charge of opera?ng the company, and on the other hand, board of commissioners is in charge of monitoring the board of directors in organizing the company. Private Companies In private companies, it has been the tendency to appoint the family member of the company owner and several professional people, as well as the employees that are considered brilliant and are appropriate to be included in the top management team.
Business Elite in Indonesia
SOE in the State-‐Owned Enterprises, the appointment of the board of directors and the board of commissioners is influenced by the government, which is represented by the minister of State-‐Owned Enterprise. Thus, the minister can appoint the professionals from outside the company or officials from within the company.
Regional Bank Development ( BPD)
There are 26 BPDs in 34 prov inces in Indonesia
At the end of 2011, the assets of all BPDs in Indonesia reached 305 trillion rupiahs, or in the fourth place in Indonesia aCer Mandiri Bank (493 trillion), BRI (456 trillion), and BCA (378 trillion) (www.infobanknews.com)
There has been very liYle aYen?on given to this bank. More research on banking conducted in Indonesia was mainly about other issues in other banks, such as private banks and State-‐Owned Enterprises bank
The issue on the top management team is seen to be interes?ng from the poli?cal point of view. That is, it has been a public secret that to enter the top management team in BPD, the applicant has t o h a v e c l o s e connec?on with the local government
Literature Review
The Age of Top Management Team Pegels and Yang (2000: 697) stated that a senior manager tends to avoid any risk (Vroom and Pahl, 1971), while a young manager tends to run aCer something risky, and takes an innova?ve strategy.
Level of Educa3on Dahlin et al (2005) found that the diversity in educa?on on TMT posi?vely influences the range and the depth of the informa?on used; meanwhile, this may influence the informa?on combina?on nega?vely.
LITERATURE REVIEW Defini3on of Top Management Team TMT is defined as those who are in the upper ?er in an organiza?on (Hambrick and Mason 1984). The poten?al members of TMT are CEO or chief execu?ve, president of the commissioner, financial director, opera?onal director, and so on. These individuals are the major execu?ves in an organiza?on, each of which provides instruc?ons and direc?ves on an important decision
Hypothesis
H1: average age in the top management team has posi2ve effect towards the performance of BPD.
H2: The diversity of level of educa2on at top management team will posi2vely influence the performance of BPD.
Methodology
METHODOLOGY
In this research, the researcher used deduc3ve method as the methodological approach. A deduc3ve approach needs conceptual development and previous theore3cal structure, and
is examined using empirical observa3on (Gill and Johnson, 2002).
Samples • 24 out of 26 BPDs in Indonesia were used as samples and data were taken from 2007 to 2011. They were obtained from the annual report provided by each website of each BPD.
• 184 members of TMT. The members consisted of the board of commissioners and the board of directors
Performance • CAR • ROA • ROE
Bialas and Solek (2010), CAR was first legalized as the measuring instrument of banking health in July 1988 by Basel CommiYee on Banking S u p e r v i s i o n u n d e r t h e guidance of Peter Cook, thus making it named Cook Ra?o. A bank is considered in good condi?on if the CAR value is above 8%.
ROA is chosen because it shows the ability of the bank performance and it also measures the effec?veness of the company in geeng the i ncome f rom the a s se t management. The higher the ROA, the beYer performance the bank has. This is due to the bigger reimbursement and thereby the company assets may develop (Dendawijaya, 2001: 120)
ROE is employed because it is a ra?o between net income and equity (Bodie et al, 2002). In other words, if the ROE value of a company is high, there will be more profits and may have posi?ve influence towards stock price. ROE has commonly used to measure the performance of the company’s financial condi?on (Certo et al, 2006).
Results
Results
Level of Education High School 1 (0.5%) Bachelor 67 (36.4%) Master 92 (50%) Doctor 20 (10.9 %)
Background Banking 126 (68.5%) Non Banking 50 (27.2%) Government 37 (20.1%) Non Government 140 (76.1%)
Age 40 – 49 = 32 ( 17.4% )
50 – 59 = 109 ( 59.2 % ) 60 < = 38 ( 20.7 % )
Gender Male 180 (97.8%)
Female 4 (2.2 %) .
Characteristics of TMT in BPD
The Development of CAR value of BPD in 2007-2011
23.29
19.99 19.64 17.74
16.66
0
5
10
15
20
25
2007 2008 2009 2010 2011
The development of ROA in BPD in 2007 – 2011.
3.06
3.56
3.32
4.15
3.44
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007 2008 2009 2010 2011
The development of ROE of BPD in 2007-2011
25.7 27.39 27.13
31.83
28.05
0
5
10
15
20
25
30
35
2007 2008 2009 2010 2011
the rela?on between the level of educa?on with the company performance shows an insignificant value of CAR (0.53) and ROA (0.24), but the rela?on of the level of educa?on and the company performance reaches a significant value of ROE, that is 0.04. Therefore, since one of the two variables which are used to measure the performance of BPD, those are CAR and ROA, are not significant, H2 is rejected. .
the average age does not influence the performance of TMT in BPD in Indonesia. This can be seen from the value of CAR (0.59), ROA (0.77), and ROE (0.92). This is not significant since the significant value is 0>0.05. Given this result, the H1 is rejected
Conclusion
The Age of Top M a n a g e m e n t Team
(Vroom and Pahl, 1971), while a young manager t e n d s t o r u n a ] e r something risky, and takes an innova3ve strategy.
average age in the top management team has posi3ve effect towards the performance of BPD
Pegels and Yang (2000: 697) stated that a senior manager tends to avoid any risk
This research shows that the average age of TMT members and the diversity of the level of educa?on of TMT members do not influence the performance of BPD. It is contradictory to the research conducted by Mayr (2011) and HiY and Tyler (1991) who found that the average age of TMT significantly influenced the company performance.
The present research supports other findings from other researchers such as Tihanyl et al (2000), Wiersma and Bantel (1992), and Child (1974), sta?ng that the average age of TMT does not influence the company performance
Bachelor 67 TMTs
10.9%
Master 92 TMTs 50%
Doctor 20 TMTs
36.4%
The rela?onship between the level of educa?on of TMT members and the performance of BPD is not insignificant. This is different with the research conducted by Bantel and Jackson (1992) who found that the level of educa?on influenced the company performance. However, this present research supports the research conducted by Tulung (2009) who found that the level of educa?on of TMT does not significantly influence the company performance.
Level of Education
Limitation data validity and reliability. Because of the limited ?me, the researcher did not conduct construct validity and reliability.
The independent variables of this research, those are age and the level of educa?on, are insufficient to see the variety of TMT and the rela?onship with the performance of BPD.
Data Secondary data collected were not enough to measure the performance of BPD. Again, due to the limited ?me and place, the researcher did not conduct any observa?on, survey, ques?onnaire, or interview. .
Those methods may help to find more variety of TMT in BPD and also to see the strategy of making appropriate decision for BPD. .
Limitation
Managerial Effect These results become significant input for TMT of BPD that even though the diversity of level of educa?on and the average age do not influence the performance of BPD, they cannot be avoided, and that there may be other characteris?cs that were not analyzed in the present research that may have posi?ve effects towards the company performance, such as gender, background of educa?on, background of occupa?on, or the rela?on with the company.
Suggestion for the Next Research
other characteris?cs such as gender, background of occupa?on, or the rela?onship with the government.
Since the secondary data collected were not enough to measure the variety and the performance of BPD, it is suggested that the next research employ several methods such as observa?on, survey, ques?onnaire, or interview.
It is also interes?ng to relate the poli?cal connec?on of the TMT members with the government.
Such research can support the present researcher and the next researchers to find more gaps within the strategy and especially on the topic of top management team.
Thanks Discussion
