In almost all but the smallest businesses, middle managers play a crucial – yet often underappreciated – role in shaping a firm’s performance.

Middle managers are the essential link for turning strategy into action; they drive process improvement by synthesizing information and channeling initiatives upwards; and they help effective implementation by aligning goals and efforts between different levels of the organisation.

On the flip side, losing effective middle managers can hamper a firm’s efficiency, shrink the talent pool for potential future top managers of the business, and risks hemorrhaging industrial knowhow to rival firms.

Given their importance, most senior business leaders understand that retaining great middle management talent is a key part of sustaining their firm’s competitive advantage.

Conventional wisdom would suggest that providing good bosses (e.g. humble leaders, who empower their subordinates) and ensuring job satisfaction are the best ways to minimise turnover. However, in a recent joint research study between NUS Business School and colleagues at California State University and Arizona State University we found another critical, but often overlooked, factor.

While individual bosses may do their best to support their own middle managers, our study found that divisions in the composition of a firm’s top management team (TMT) can have unexpected spill-over effects, intensifying job dissatisfaction among middle managers and leading to higher turnover.

These divisions – known as faultlines – are hypothetical partitions that commonly occur within any team, causing it to split into subgroups based around one or more individual attributes. For example, subgroups can evolve based around age, gender, race, national origin, educational attainment, which university or school you went to, or even allegiance to a particular football team.

These divisions can easily occur. What matters is how strong these faultlines are, or are allowed to become.

When faultlines are especially strong, teams tend to face more communication problems, have more conflicts, and coordinate less effectively – all of which undermines performance. Indeed, whilst diversity is widely seen as benefiting teams by leading to better decision making, diversity that leads to faultlines within teams is more likely to be detrimental to team functioning.

Impact on performance

Teams can be equally diverse but have faultlines that differ in their intensity and hence the impact on that team’s performance. For example, two teams may be seen to be equally diverse when they consist of two women and three men, a mix of young and old age, and Singaporean and American nationalities.

However, one team made up of two young Singaporean women and three older American men would have stronger faultlines and therefore likely perform worse. Yet a second team made up of an old Singaporean woman, a young American woman, a young Singaporean man, a young American man, and an old American man would have weaker faultlines because their attributes do not all align. This latter team is therefore likely to be more effective.

In our study, we surveyed 502 middle managers and 313 top executives at 43 companies across China, ranging in size from less than 100 employees to more than 12,000. For the top management teams, we gathered data on six key differentiators that helped us determine the degree of faultlines with the teams. From middle managers we surveyed, we gathered data about how they perceived humility of their bosses. Later, we surveyed the same middle managers to gauge their job satisfaction, and then, a year later, we gathered data on middle manager job turnover.

What we found showed that in TMTs which exhibited stronger faultlines, those faultlines overrode efforts by executives in that team to boost the job satisfaction of their middle managers and minimise turnover. In other words, even if individual executives were seen as especially humble and empowering to their subordinates, this had no impact on retention.

On the other hand, we found that it was only in TMTs with weaker faultlines that executive humility was effective in increasing job satisfaction and minimising turnover.

Spillover effects

Our findings defy some of the most commonly taken-for-granted management wisdom. More than half a century of management research has shown that job satisfaction is one of the most powerful predictors of employee retention. However, our study suggests that job satisfaction by itself cannot predict middle manager retention when there are strong faultlines in the TMTs.

Indeed, whilst it is generally understood that faultlines cause teams to malfunction and decrease the team’s own performance, we found that when these faultlines occur within TMTs, the negative effects go well beyond just that team and spill over to impact the functioning of talented employees at other levels of the hierarchy.

So what can we learn from this?

First, when companies are recruiting new members of their TMT, they should pay attention to the demographics of proposed recruits and whether it may create or accentuate faultlines that harm the team’s functioning.

Take, for example, an entrepreneurial firm looking to expend its top management team from three founding male executives to five and aiming also to increase gender diversity. The original team were all local Singaporean graduates from the National University of Singapore. Recruiting two female, Australian-born, NTU graduates could prove problematic because several individual attributes are aligned to create strong faultlines between the two new hires and the three incumbents. Instead, the firm may consider recruiting two female NUS graduates, obtaining the same level of gender diversity but reducing the degree of faultlines.

Second, in situations where faultlines have already developed in top management teams, those teams must put extra effort into team building. This might include steps to focus the team around a shared vision and measures, building more effective communication to bridge the subgroups.

And thirdly, for companies that are having a hard time retaining talent and don’t understand why, they should broaden their viewpoint beyond those specific employees or their immediate leaders. Exit interviews are a common approach to troubleshooting, but may not reveal the substantial yet invisible causes such as faultlines and interaction dynamics in the firm’s top management team.