Top Management Turnover and Ceo Succession: An Investigation of the Effects of Turnover on Performance

Abstract

One strategic action which is often taken by firms in need of a turnaround is to bring in a new chief executive officer (CEO). Many observers argue, however, that having done this the new CEO must replace large numbers of top managers in order to effect a change in the firm's interactions and subsequent performance. Critics of this perspective insist that just the opposite is true. Substantial levels of turnover may only serve to further disrupt the organization decreasing performance still more. This controversy is addressed in the following study using a sample of 84 firms all of which experienced CEO succession during the year 1980. Analyses rely on a three-year-period pre-succession and three-year period post-succession. Three hypotheses are proposed. First, poor performance prior to CEO succession leads to greater turnover afterward. Second, that turnover is curvilinearly related to performance after the succession. And, finally, that successor type (i.e. whether the CEO was an inside or outside candidate) is related to the level of turnover in upper level management positions in the post-succession period. The results from tests of these hypotheses are presented, and the implications of these findings are discussed.

Downsizing implementation and financial performance

“…Third, high levels of downsizing are associated with greater turbulence in the organization, which may have an adverse impact on organizational performance (Kesner et al, 1994). When an organization resorts to large scale employee reduction, many skilled employees may choose to leave the organization rather than stay and face uncertainty.…”

The Wealth Effects Of Managerial Turnover: Implications For The Spanish Corporate Governance System

“…According to that, Helmich and Brown (1972), Boeker (1992) and Kesner and Dalton (1994) observed more personnel turnover in the managerial second tier when the top executive is substituted by an outsider than when the substitute is an insider.…”

Hanging Together, Together Hung? Career Implications of Interpersonal Ties Between CEOs and Top Managers

“…The stronger an alliance between the CEO and a top executive, the less likely the latter will be regarded either as a promising CEO successor or as a reliable and trustworthy strategic partner for the new CEO (Cao, Maruping, and Takeuchi 2006; Shen and Cannella 2002b). Furthermore, strong interpersonal ties to the former CEO may make it more difficult for a senior executive to establish good working relationships with a new CEO (Kesner and Dalton 1994). Overall, the arguments developed so far suggest that in the normal course of a firm's operations, strong interpersonal ties among the TMT members, in general, and between the CEO and other TMT members, in particular, should be beneficial to both the firm and the TMT members concerned.…”

“…Alternatively, building constructive relationships with TMT members -a critical success factor for incoming CEOsis likely to be more difficult with managers closely related to the former CEO (Shen and Cannella 2002b). If the new CEO cannot build productive relationships with or fails to develop trust among existing TMT members, they might push for their replacement in order to make way for executives with whom better cooperation and a stronger relationship can be achieved (Kesner and Dalton 1994; Shen and Cannella 2002b). In sum, a strong relationship with a CEO who has been fired may, subsequently, increase the likelihood that a senior manager will be dismissed.…”