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When the Former CEO Stays On As Board Chair

IBM CEO Ginni Rommety, who succeeded Samuel J. Palmisano. He remains IBM’s chairman of the board.

Keeping the outgoing CEO of a company on as a board chair could stymie many of the expected  outcomes following succession, says new research by Timothy Quigley, assistant professor of management at Lehigh.

Quigley and Donald C. Hambrick of Penn State University analyzed recent CEO successions at 181 hi-tech firms and found that keeping the old CEO around restricts the successor CEO’s discretion, dampens their ability to make changes, and weakens their potential to alter a firm’s performance – this even after controlling for the firm’s need and resources for change.

“When a predecessor CEO stays on as board chair, little in the firm changes,” said Quigley. “Strategies remain in place.  There are fewer acquisitions or divestitures, the new CEO is restrained from shuffling the top management team, and performance continues largely in line with what existed at succession.  In essence, the company is frozen from making important strategic change.  In effect, the continuing presence of the former CEO could be thought of as a ‘partial succession’.

“Yet isn’t change often the point of switching CEOs?” says Quigley. 

Most interesting, according to the research team, was the finding that retaining the predecessor CEO as board chair decreases the likelihood of large gains in performance, but has no impact on the chances for steep declines.  In other words, keeping them at hand provides very little reward potential and a whole lot of risk.

The study is published in the July 2012 issue of Strategic Management Journal and is part of a new trend in the world of business research aimed at clarifying the roles and rules of succession in corporate America. Prior research on CEO succession has, according to Quigley, ignored the critical reality that many CEOs never fully depart the scene.

The findings suggest that the outcomes of succession can be strongly impacted by the disposition of the predecessor CEO, something prior work hasn’t considered.

The full study, When the Former CEO Stays On As Board Chair:
Effects on Successor Discretion, Strategic Change, and Performance
, appears online in the Strategic Management Journal.

Story by Jordan Reese

Posted on Tuesday, June 12, 2012

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