The presence of a separate COO/president and its impact on strategic change and CEO dismissal

Abstract

The literature on corporate elites has paid significant attention to the leadership structure at the very top of organizations (for example, the consolidation vs. separation of the chief executive officer (CEO) and board chair positions-for a review, see Daily and Dalton, 1997). This is because corporate elites in different governance positions may have different interests, which means that the leadership structure at the top can influence organizational outcomes (Jensen and Zajac, 2004). Recently, there is an emerging research stream that specifically focuses on an important structure at the top: the presence of a chief operating officer (COO)/president who is separate from a CEO, and examines the performance consequences (accounting performance and stock market reactions) of this structure and the tenure outcomes of the Keywords: presence of a separate COO/president; CEO dismissal; strategic change *Correspondence to: Yan Zhang, Jesse H. Jones Graduate School of Management, Rice University, 6100 Main Street, Houston, TX 77005, U.S.A. E-mail: yanzh@rice.edu COO/president (e.g., Cannella and Shen, 2001;Davidson, Nemec, and Worrell, 2001;Hambrick and Cannella, 2004;Heenan and Bennis, 1999;Levinson, 1993;Shen and Cannella, 2003).There can be two separate roles of a COO/president: one representing an heir apparent in training for the CEO position and the other representing a co-leader delegated with internal operating authority. From a co-leader perspective, Hambrick and Cannella (2004: 959) argued that 'the decision to have a COO represents a major structural choice: it explicitly divides between two people a set of toplevel roles that are typically fulfilled by one person; it draws a structural distinction between strategy formulation and implementation; it adds an organizational layer; and it adds a highly-paid executive position to the organization's costs.' From a succession (heir apparent) perspective, Vancil (1987) found that many firms identified an heir apparent in the COO and/or president position in advance of the actual succession event and used this position to groom the next CEO. Findings of

Stock market reaction to CEO certification: the signaling role of CEO background

“…CEO shareholdings were measured by the proportion of a firm's outstanding shares owned by the CEO (Zajac and Westphal, 1996;Zhang, 2006). CEO external directorships.…”

“…CEO tenure was measured as the number of years a CEO had been in office (Wu et al, 2005;Zhang, 2006). Data on CEO shareholdings, CEO external directorship, and CEO tenure was collected from company proxy statements at the end of the prior year (i.e., year 2001).…”

“…Firm size was measured as the natural log of firm sales in the year prior to the filing of CEO certification (Zhang, 2006). This data was collected from Compustat Fundamentals Annual.…”

“…Firm performance was measured as the industry adjusted return on assets (ROA) in the year prior to filing by subtracting the median ROA of all firms (excluding the focal firm) in the SEC's list that shared the focal firm's primary two-digit Standard Industrial Classification (SIC) code (Westphal and Khanna, 2004;Zhang, 2006Zhang, , 2008. Data were obtained from Compustat Fundamentals Annual.…”

“…Board structure may signal differences in credibility (e.g., Certo et al, 2001), which in turn may impact the stock market response to CEO certification. This study controlled for three board structural variables (Zajac and Westphal, 1996;Zhang, 2006). CEO duality was coded as '1' if the CEO was also the board chair and as '0' otherwise.…”