Record Details

Connecting Governance to CEO Replacement and Organizational Recovery

Advances in Business Research

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Field Value
 
Title Connecting Governance to CEO Replacement and Organizational Recovery
 
Creator Downes, Meredith; Illinois State University
 
Subject Corporate Governance
corporate governance, social network theory, board composition, CEO dismissal
 
Description STRUCTURED ABSTRACTManuscript Type:  Conceptual/TheoreticalResearch Question/Issue:  Why do CEOs overstay and, in some cases, long overstay their welcomes?  Social Network Theory may offer some explanation for delays in dismissing CEOs that, in the eyes of shareholders, should have been long gone. Social Network Theory also suggests that delaying the dismissal of a CEO will in turn delay firm performance recovery.  Social Network Theory is reviewed in the context of board monitoring and its effects on CEO dismissal and subsequent recovery.  It is ultimately suggested that certain board attributes will have an indirect effect on recovery time, as mediated by CEO dismissal time.  A model and propositions are laid out and potential next steps are outlined for pursuing this line of inquiry.Research Insights:  Based on the literature review, it seems likely that board composition will have an indirect effect on how long it takes for organizations to recover from poor performance, after replacing an underperforming CEO.Theoretical Implications: This paper makes important contributions to the corporate governance literature. First and foremost, it extends the research agenda on board composition, CEO turnover, and performance, to include the element of time.  More specifically, it suggests that certain characteristics of corporate boards are more likely to inhibit the types of governance necessary to remove underperforming CEOs, and this in turn will impact the time it takes for organizational performance to recover.  The paper also deepens the application of Social Network Theory to the study of corporate governance, addressing several elements of social networks that are found in non-independent boards and with “overboarded” directors. Practitioner Implications:  Risks of poor performance due to inadequate governance are far reaching, and shareholders and D&O (Directors and Officers) liability insurers are particularly vulnerable.  Even with new management in place, shareholders might lose faith in the board if important strategic actions were delayed and especially if they negatively impact their investments.  The anticipated effects of recovery can also discourage future investment in the company.  Vigilant boards, composed of independent directors with optimal bandwidth, would be more likely than dense and embedded boards to replace the CEO when it is warranted.  It would therefore behoove shareholders to participate in the election of directors, rather than turning that privilege over to the very board that took too long to replace the CEO due to its strong network structure.  
 
Publisher Tarleton State University and the University of Arkansas - Fort Smith
 
Contributor —
 
Date 2019-12-06
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Articles
Conceptual/Theoretical
 
Format application/pdf
 
Identifier http://journals.sfu.ca/abr/index.php/abr/article/view/227
 
Source Advances in Business Research; Vol 9, No 1 (2019); 64-77
2641-5208
2153-6511
 
Language eng
 
Relation http://journals.sfu.ca/abr/index.php/abr/article/view/227/153
 
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