Abstract

Introduction
Succession has remained a viable and fruitful avenue for scholarly research. Research questions
seem to be more fine-grained and deeper. Succession continues to be a source of interest in the
popular press. Heavy attention is placed on leaders, speculation about succession and successors,
analysis of succession planning, and scrutiny of post-succession events and performance.
Comments on succession research up to 1994
Two rationales for the importance of succession: first, that succession results in instability and;
second, that succession is inevitable for organizations. Inside succession was associated with
stability and increased performance.
Three theories: common sense, vicious circle, and ritual scapegoating. Common sense argued for
performance benefits from the wise choice of a successor, the replacement of a known failure,
honeymoon effects, and the successor’s new enthusiasm and fresh outlook. Vicious circle
proposed that decline precedes succession, which then disrupts routines and lowers morale,
hastening decline and more succession. Succession could best be described as a ritual
scapegoating process, motivated at least in part to placate frustrated stakeholders and publicly
demonstrate awareness of a need for change.
Holy Grail of leadership questions: Does the leadership matter? Managers differentially impact a
wide range of firm decisions and provide support for the continuation of succession research.
Outsiders were mainly brought in as change agents to low-performing firms, but reached little
consensus regarding post-succession performance. Two concerns: first was the reliance on short-
term stock market reactions as a measure of organizational performance, and second was
differing measurements of outsider status, ranging from being outside during the predecessor’s
incumbency.
Poor performance was associated with increased rates. Social and political factors moderated the
relationship between performance and choice of successors.
Contingency approach offered a few insights, such as board-initiated successions yielding
positive results and divergent performance outcomes, depending on whether previous
performance was high.
Firms with formal processes to rationalize and plan successions were associated with higher
performance, suggesting the value of smooth transitions. CEO and firm characteristics were also
advanced. CEO firm-fit, which resulted in higher performance.
2.1. Assessment
Different lenses on succession taken by sociologists, social theorists, organizational behavior and
human resources scholars and strategists.
Origin may be multidimensional and that longer time perspectives reaching as far as the entire
life cycle of the successor would be helpful in clarifying succession’s relationship with
performance.
Original three theories are not generally well developed. An exception was vicious cycle.
Six problems which tended to understate the performance impact of succession. Corrections for
size, leader ability, and year understate results. Sport setting do not capture top-level leadership.
3. The current view
4. Research on antecedents of succession
4.1 Untangling the dependent variable: succession
Two broad approaches to considering succession as a dependent variable. The first approach
predicted incidences of succession. Some studies examined the rate of CEO succession and how
it covaries with antecedents, while others assessed the probability or likelihood of the succession
event. In the second approach, studies associated antecedents with successor characteristics, such
as the CEO successor’s demographic background or whether the successor is an insider or
outsider to the firm, or to the industry.
4.2.1
A central theoretical perspective focuses on power and politics within the firm in understanding
the role of the board members in CEO succession. Under economic adversity, more inside board
members led to an increase in the rate of CEO succession.
Social psychological and sociopolitical approach in understanding board preferences towards
new CEO choice. Powerful boards were associated with successors’ demographic similarity to
the board. Outside successors are more likely to be demographically similar to the board, and
dissimilar to the predecessor CEO. In times of high performance, outside directors used their
power by supporting heirs apparent to prevent incumbent CEOs from abusing power, and during
times of low performance, the initiated the exits of heirs apparent to diminish the impact of
incumbent CEOs.
Higher proportion of inside directors would lower the probability of CEO succession.
Lower proportion of internal directors on the board was associated with an outsider or external
CEO successor when the departing CEO was younger than the traditional retirement age, but not
otherwise. No main or interactive relationship between outside directors or stock holdings of
directors and relationship between the proportion of outside directors and the likelihood of
outside CEO succession. Strong support across both forced and voluntary departures and the
latter also found a positive relationship between share ownership by officers and directors other
than the CEO and likelihood of outsider CEO succession.
Greater outside control of the board was associated with increased top management team (TMT)
replacement during turnaround attempts. The number of non-heir inside directors on the board
was positively related to intra-firm succession.
Most important advances to the field would result if sociopolitical factors and human capital
issues are examined simultaneously and not separately as two counter-balancing literatures.
4.2.2
Poor prior performance is associated with succession continues to be robust.
Lower profitability and lower growth were associated with selection of an outsider CEO. CEO
turnover increased in the five years immediately preceding bankruptcy relative to non-bankrupt
firms.
Three different measures of financial performance – ROA< change in ROA, and stock returns –
decreases in performance result in increased likelihood of CEO turnover. Sensitivity of the
relationship between firm performance and a forced CEO turnover was not affected by changes
in the intensity of the takeover market, repudiating the claim that an active takeover market
improves internal control mechanisms. Since poor performance suggests a bad match between
CEO and firm, poor performance would increase the likelihood of CEO turnover.
Poor organizational performance was associated with external successors when CEOs left before
reaching retirement age. Negative performance –succession relationship extended to the strategic
business unit level in their study of mutual fund performance, measured by the Sharpe Ratio.
Sharpe ratio represents the excess return of a portfolio compared to another portfolio, calculated
per unit of risk. Performance was also found to negatively moderate the relationships between
the SBU manager’s tenure/portion of firm’s revenue controlled/market share controlled/existence
of substitutes for the SBU manager and CEO succession.
Performance in three major studies on succession. In the first study firm performance, discussed
as “economic adversity” interacted with the incumbent CEO’s prior board experience, and also
separately with board size, to increase the rate of executive succession. Results suggested that
prior board experience was a liability, and that a larger board was more likely to challenge the
CEO’s control of the firm.
In the third study, a firm’s decreased financial performance was associated with an increase in
the selection of CEOs with an operations background.
Low firm performance measured via excess stock returns and ROA over three years, interacted
with board power to increase likelihood of change in CEO characteristics and also to increase the
demographic similarity between the successor CEO and board members.
Positive relationship between performance and relay succession, inverting the idea of poor
performance necessitating change into the notion that strong performance would lead to
continuity.
Succession event is a result of the interplay of several complex factors than unfold over a period
of time starting well before the actual event. Scholars should select settings and samples that
allow observing how performance interacts with other factors over a longitudinal plane.
4.2.3
During the first decade of tenure, a “circulation of power” model involving an internal contest
for control and providing opposition to the incumbent CEO resulted in an increasing rate of CEO
succession.
Two mechanisms: obsolescence and contestation.
“institutionalization of power” model resulted in a slow decline in the rate of CEO succession.
Hazard of succession decreased as the tenure increased.
The best matches of incumbent and successor CEO occurred when insiders followed incumbents
who quit, and when outsiders followed incumbents who were dismissed.
Personal prestige and duality of the incumbent CEO lowered the probability of dismissal, though
being an insider did not. Industry-specific skills did decrease the probability of CEO dismissal.
Delineated industry-specific human capital into within-industry and related-industry skills, firms
that hired external successors with less transferable skills had a greater variance of post-
succession performance, consistent with the logic that outsiders may undertake more aggressive
changes.
Presence of heir apparent made intra-firm succession more likely, relative to outside industry
succession.
Managers of lower quality were more likely to leave involuntarily. Coaches with more
experience were more likely to be fired for poor performance. No difference in pattern of actions
taken by managers of distressed firms or any difference in market reactions.
Career specializations of successor CEOs were often different from those of incumbent CEOs.
Neither incumbent CEO career specialization nor previous corporate strategy predicted successor
career specialization.
Likelihood of selecting a CEO from a particular functional background is related to the
proportion of CEOs of that background among other firms in the sector.
4.2. 971
5. Research on consequences of succession
5.1. Performance for sports teams
Three areas: performance for sports teams; performance for business organizations; and strategy,
restructuring and other outcomes.
Performance was measured as the number of points gained divided by the number of points
available or winning percentage.
Performance in the first full season after the season with a coaching change was not significantly
better than the performance in the period immediately following a coaching change; nor was it
superior to the performance in the full season prior to the season with a coaching change.
Coaching changes have a short-term impact on performance but not a long-term impact.
No main succession-performance effect.
Leader life cycle theory to examine the impact of coaching and owner succession on
performance. The life cycle performance effects were stronger for coaches than owners. Leaders
need time to learn and teach but that they eventually succumb to stagnation and complacency.
Coaches and general managers need time to develop organization-specific knowledge, skills, and
values.
Test three theories: vicious-circle, ritual scapegoating, and common-sense. Support was found
for all three theories, giving leaders more time would lead to better performance, especially in
the subsequent season.
5.2.1
CEO succession was positively related to ROA change but that this relationship was contingent
on context.
CEO succession and senior team changes had a negative impact on performance; performance
crisis coupled with a CEO succession inversely affected performance, and a performance crisis
coupled with senior team exits positively affected performance.
Average post-succession ROA was significantly better than the average pre-succession ROA, but
average R&D intensity and average pension integrity were significantly lower after succession.
CEOs were behaving opportunistically by reducing pension funds and R&D investments to
enhance short-term performance at the expense of long-term performance.
Outside succession had a negative main effect on performance when compared to follower
successions. Contender successions had a greater positive effect than follower successions as
senior executive turnover increased, whereas outside successions had a greater negative effect
than follower successions as senior executive turnover increased.
Inside successions need to be more finely assessed, based on power circulation theory, and CEO
succession coupled with executive turnover, improve our understanding of the impact of
succession on performance.
A new CEO’s pay premium and the stock’s response to the CEO’s appointment would be
positively related to the firm’s unexpected future accounting performance.
Positive main effects for post-succession performance of relay successors, and this effect was
stronger when pre-succession performance was low. Relay successors were better able to cope
with strategic and industry instability and transform performance.
Voluntary turnover was associated with performance gains after adjusting for control-group
performance and that involuntary turnover was robustly associated with performance gains. A
positive main succession effect that was reflected for both voluntary turnovers and forced
turnovers follower by outside succession.
Performance improvement was higher in the latter years of their sample than the former.
Outside succession tended to yield better performance results. Institutional shareholdings were
positively associated to post-succession performance.
5.2.2
Neither contenders nor outsiders were significantly different from followers in their main effect
on the firm’s market-to-book ratio. How performance is measured affects observed relationships
between succession and performance. Investors rewarded firms that gave their CEOs a pay
premium when appointed.
Investors reacted negatively to heir apparent exits, positively to heir apparent promotions,
positively to outside successions, and did not react positively or negatively to heir apparent
appointments and non-heir apparent inside successions. Prior year’s ROA positively affected
investor reaction when an heir apparent was promoted and negatively affected investor reaction
when an heir apparent was dismissed.
Insiders arrived following a two-year excess return of 13%, while outsiders succeeded following
a two year excess return of 39%, post-succession excess returns were 28% for insiders and 4%
for outsiders.
5.2.3
When there is a CEO duality creating succession, the CEO has greater control of the impression
created by the firm’s financial reports and is expected to generate positive results. These CEOs
will engage in earnings management to a greater degree than non-dual CEOs. Prior poor
performance will be associated with greater earnings management after a successions, whether it
is duality creating or not.
Impact of founder succession on organizational failure. Ideological zeal is an enthusiastic
commitment to a set of principles or beliefs that channels social behavior in a desired direction.
The hazard rate of failure is the probability of failure of the organization at any particular
interval of time in its operation.
Differential effects depending on whether the founder was the editor, the publisher, or both. The
ideological zeal of a founder significantly increased the hazard rate of founding editor
successions when the founder was the editor only or both the founding editor and publisher, but
did not significantly affect the hazard rate of founding publisher successions. Founding publisher
successions did not affect the hazard rate for failures either positively or negatively.
Organizations are more likely to fail after a founder succession if ideological zeal is higher.
5.3
After financing rounds with CEO turnover versus after financing rounds without CEO turnover,
the number of all types of directors increased, but only the venture capitalists increased
significantly, leading to the conclusion that CEO succession in private firms seeking financing
from venture capitalists leads to more monitoring by venture capitalists.
CEO succession would be more likely to lead to a revolutionary transformation.
New CEOs use control systems and these control systems are used differently to affect
revolutionary and evolutionary changes.
Corporate restructuring is the divestment of strategic business units, reduced dependence on core
businesses, and emphasis on new core businesses. Non-routine turnover is executives departing
before the age of 65, and routine succession was defined as either no succession or executives
leaving at age 65.
Firms with non-routine successions in the CEO and other top executive positions have a greater
likelihood of exiting more businesses, reducing dependence on core businesses, and experiencing
less overall growth in firm size.
Poor performance coupled with CEO tenure, TMT tenure and TMT homogeneity all had
significantly negative impacts on strategic change.
Organizational restructuring is the composite measure of strategic changes using the entropy
measure, downsizing as the changes in number of employees, operating efficiency as both the
inventory turnover and the ratio of variable costs to sales, and capital investment was measured
as the ratio of actual depreciation to sales.
CEO succession did not significantly affect organizational restructuring nor were several
hypothesized moderators significant.
Using OLS regression the authors found a significant relationship between self-identified TMT
replacement and changes in control systems and organization structure for business-level change.
Negative relationship between openness to change and persistence.
Moderating effect of environmental jolts, significant three-way interaction effects of coach
ability and coach experience under the environmental condition of levels of rivalry.
Senior executives do matter in that they differentially affect investment policy, financial policy,
organizational strategy, and accounting measures of performance.
6. Current state of the field
Life-cycle theory draws on learning and inertia to understand the dynamics of a leader’s tenure.
The theoretical approaches range from the succession context itself to the arguments underlying
the three succession theories espoused to developed theoretical lenses, such as punctuated
equilibrium., institutional theory, job-match theory and organizational learning.
Stronger grounding in organizational and strategic management theory can only benefit the
successions literature for at least three reasons. First, the rich theory and literatures surrounding
them facilitate fertile ground for new research questions. Second, theories of organization and
strategy often offer the potential for competing explanations and hypotheses, which can result in
particularly interesting studies and can also be of interest to a wide array of scholars. Third,
applying organization strategic management theory can keep succession literature vibrant by
maintaining its visibility to organization theorists and strategists.
Succession is a crucial, even traumatic organization event, scholars consider succession an
avenue to study perhaps the largest question in leadership does leadership matter. Succession
studies have natural potential for experimentation, since succession events are cleanly defined in
terms of what they are and when they occur, and their effects stand in bold contrast to
organizations not experiencing succession.
Heirs apparent because of their day-to-day responsibilities develop a mindset that is more
apropos to being a managerial leader.
It is more likely that strategic or visionary leaders will be selected through a horse race. First,
heirs apparent have CEO-like responsibilities because of the positions to which each candidate is
appointed while in the horse race. It follows that the current CEO and board are in a better
position to judge which candidate in the horse race has the better ability to exercise strategic
leadership.
6.2
Life-cycle theory is perhaps the most advanced existing theoretical area using temporal aspects
of succession consequences, and relay and heir apparent succession offer potential for
elaborating temporal aspects of succession antecedents.
Successions in sports teams would almost behave like a sine wave, with a task-oriented leader,
who tends to burnout and alienation being followed by a relations-oriented leader to patch up
morale and return positive attitudes. This trend would usually be followed by players becoming
lax and complacent, leading to the hiring of another directive, disciplinarian type.
Insiderness may have several dimensions: time in firm, industry, fit/chemistry between TMT and
incumbent CEO, contrast with other candidates and perhaps others.
6.3.1.
There was little reporting of skewness and kurtosis to indicate whether lack of univariate
normality was a problem in data sets. A few studies reported checking for multicollinearity but
very few reported variance inflation factors. Center or standardize variables when conducting
moderator research.
Low reliance on survey and interview methods which offer much potential for exploring the
many holes and gaps in our understanding of processes from the early stages of succession and
exactly what it is successors do.
6.3.3
Sport settings should continue to be a vital part of the literature. First, any mid-range or general
theory of leadership should generalize to many settings. Finding supporting results in a distal
setting provides, other things being equal. Second, validity is a joint function of many validity
types that are, to an extent, invisible. Third, arguing that sport studies do not generalize to
industry has at least two flaws. Fourth, seminally important leadership literature has frequently
come from outside mainstream industry: charisma studying U.S. presidents, contributions from
military leadership, and classic succession studies using sports. Fifth, invalidating sports settings
requires at least some theoretical burden differentiating sports leadership as having unique
processes and outcomes versus leadership in other arenas. Sixth, although coaches are
“analogous to mid-level managers”, coaches have disproportionate organizational impact, and
often have substantial input into a general manager’s decisions.
6.3.4
A few important construct issues that create challenges for succession scholars. First, the
insider/outsider succession distinction continues to be elusive, with scholars adopting everything
from being inside the firm at the time of succession to being with the firm for four years as a
dividing point. Second, voluntary versus involuntary turnover is also problematic.
In the sports literature, team performance is the typical performance construct, which is not
surprising given that performance indicators are readily available, accurate, and strongly related
to what coaches are evaluated on.
6.3.5
Internal validity remains a serious problem for succession scholars, and it is a challenge for field
studies generally.
Only organizational size is now commonly accounted for. Even here, size must be proxied and
scholars should take care to use a good size metric.
6.3.6
External validity is typically defined as the degree of generalization to their settings, populations,
and times.
An important type of external validity is generalization back to theory and this aspect of
generalization is often neglected. It is important to advance theory that holds explanatory power
across a wide array of settings and conditions.
6.4.1
Traumatic effects of succession are likely to be even more pronounced in small and medium-
sized firms the need for knowledge of succession in these settings is even more urgent.
6.5
Those with more of an “outsider” perspective would be more likely to pursue aggressive
changes. Education and age were found to impact investment and financial policies and
accounting performance. CEOs with MBAs were likely to be more aggressive in that they paid
fewer dividends, held more debt, and maintained higher levels of capital investments. CEOs with
MBA had higher rates of return on assets and higher operating returns on assets. Older CEOs
were more likely to be less aggressive demonstrated by their lower levels of capital investments,
less leverage, and holding of more cash.
Japanese companies are less likely to undergo major structural changes soon after a CEO
succession, as compared to their Canadian and U.S. counterparts.
If outsiders are to be chosen, it should be recognized that there is a steeper learning curve to
develop firm-specific knowledge. While there may be no ideal time to hire a new CEO or leader,
sometimes would clearly be worse than others, in terms of stress, workload, and the critical
nature of immediate decisions. For firms to consider timing in their succession planning efforts
and make every effort to bring on new executives during relative downtimes. Bring new CEOs
onboard during the busiest times to give them the opportunity to observe their senior
management teams during stressful periods. This approach led to higher performance when the
busy period was soon followed by a less stressful period during which CEOs can change and/or
train their senior management teams. Successors need time to establish themselves, effect
strategic changes and improve performance.