The Cultural Diversity of German Companies’ Executive Boards and the Success of Their Internationalisation

Abstract

The sociocultural composition of executive boards has a long-term relevance for the success of their companies and their organisation’s internationalisation. Companies must weigh the possible advantages of having employees from different cultural backgrounds against possible inefficiencies caused by cultural misunderstandings. Using on Upper Echelon theory and Social Capital theory we hypothesised that cultural diversity has a positive effect on internationalisation success. We used the “Blau Index” to calculate cultural diversity and measured internationalisation success as the level of internationalisation, a common success measure in internationalisation studies. Data were generated from companies’ annual reports. SMT members’ citizenships were additionally validated by internet-based business-oriented social networks. Controlling for team size and company size effects did not change our conclusions. Using a panel analysis, this article examines the effect of the level of cultural diversity in the boards of the DAX30 companies on their success in internationalising. Complementing previous studies, a slight but significant positive correlation was evident, assuming that a higher internationalisation success can be found in firms having a culturally diverse senior management team. Our study revealed a positive correlation between cultural diversity in SMTs and internationalisation success. The results of our study might serve as a good reason for adapting the social structures of German SMTs to the firms’ economic reality. Furthermore, it may encourage the legislative body to reexamine the German Corporate Governance regulations from an international perspective. Future research could investigate this correlation on a broader basis and reinforce our argumentation, possibly by including cultural studies.