New CEOs and Corporate Strategic Refocusing: How Experience as Heir Apparent Influences the Use of Power

This paper integrates corporate governance research on the consequences of executive power and the upper echelons literature on top managers' cognitive orientation to develop a framework in which the characteristics of the chief executive officer (CEO) predict corporate strategic refocusing. With data from a sample of large and diversified firms, we examine the extent to which newly appointed CEOs' strategic orientation determines whether they use their power to maintain the status quo or refocus their firms' business portfolios. We assess CEOs' power with seven widely used indicators and use experience as heir apparent to the prior CEO as a measure of new CEOs' strategic orientation. Overall, results show that CEOs' power use is influenced by heir apparent experience in predicting the level of corporate strategic refocusing. Heir apparent experience interacts with four power indicators—compensation, functional expertise, elite education, and number of outside boards on which the new CEO is seated—but the interaction between heir apparent experience and number of outside boards is contrary to what was hypothesized.

[1]  Donna L. Mohr,et al.  Multiple Regression , 2002, Encyclopedia of Autism Spectrum Disorders.

[2]  M. C. Jensen,et al.  The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems , 1993, A Theory of the Firm.

[3]  Michael K. Mauws,et al.  Passing the baton: The importance of sequence, timing, technique and communication in executive succession , 2002 .

[4]  James D. Westphal,et al.  Who directs strategic change? Director experience, the selection of new CEOs, and change in corporate strategy , 2001 .

[5]  Edward J. Zajac,et al.  Decoupling Policy from Practice: The Case of Stock Repurchase Programs , 2001 .

[6]  Albert A. Cannella,et al.  So Close and Yet So Far: Promotion Versus Exit for CEO Heirs Apparent , 2001 .

[7]  Ezra W. Zuckerman,et al.  Focusing the Corporate Product: Securities Analysts and De-diversification , 2000 .

[8]  W. Davidson,et al.  CEO duality, succession‐planning and agency theory: research agenda , 1998 .

[9]  Edward J. Zajac,et al.  The symbolic management of stockholders: Corporate governance reforms and shareholder reactions , 1998 .

[10]  D. Hambrick,et al.  The external ties of top executives: Implications for strategic choice and performance. , 1997 .

[11]  L. Donaldson.  Strategic Leadership: Top Executives and Their Effects on Organizations , 1997 .

[12]  W. Davidson,et al.  ONE HAT TOO MANY: KEY EXECUTIVE PLURALITY AND SHAREHOLDER WEALTH , 1997 .

[13]  C. Hardy.  Understanding Power: Bringing about Strategic Change , 1996 .

[14]  Edward J. Zajac,et al.  Director reputation, CEO-board power, and the dynamics of board interlocks , 1996 .

[15]  Donald E. Hatfield,et al.  Corporate Restructuring and the Consolidation of US Industry , 1996 .

[16]  James D. Westphal,et al.  Who Shall Succeed? How CEO/Board Preferences and Power Affect the Choice of New CEOs , 1996 .

[17]  James D. Westphal,et al.  Accounting for the Explanations of CEO Compensation: Substance and Symbolism , 1995 .

[18]  James D. Westphal,et al.  Who Shall Govern? CEO/Board Power, Demographic Similarity, and New Director Selection , 1995 .

[19]  Michael S. Weisbach,et al.  CEO turnover and the firm's investment decisions , 1995 .

[20]  J. Robins,et al.  A resource‐based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and corporate financial performance , 1995 .

[21]  Kose John,et al.  Asset sales and increase in focus , 1995 .

[22]  G. Jarrell,et al.  Corporate focus and stock returns , 1995 .

[23]  Edward J. Zajac,et al.  Substance and Symbolism in CEOs' Long-Term Incentive Plans , 1994 .

[24]  Brian K. Boyd,et al.  Board control and ceo compensation , 1994 .

[25]  W. Ocasio,et al.  Political Dynamics and the Circulation of Power: CEO Succession in U.S. Industrial Corporations, 1960-1990 , 1994 .

[26]  D. Hambrick,et al.  TOP EXECUTIVE COMMITMENT TO THE STATUS QUO: SOME TESTS OF ITS DETERMINANTS , 1993 .

[27]  S. Finkelstein,et al.  Top Management Team Size, CEO Dominance, and firm Performance: The Moderating Roles of Environmental Turbulence and Discretion , 1993 .

[28]  Richard A. D'Aveni,et al.  Top Managerial Prestige, Power and Tender Offer Response: A Study of Elite Social Networks and Target Firm Cooperation during Takeovers , 1993 .

[29]  Douglas D. Moesel,et al.  CONSTRUCT VALIDITY OF AN OBJECTIVE (ENTROPY) CATEGORICAL MEASURE OF DIVERSIFICATION STRATEGY , 1993 .

[30]  Susan Pourciau.  Earnings management and nonroutine executive changes , 1993 .

[31]  Rachel Davis,et al.  Diversification, vertical integration, and industry analysis: New perspectives and measurement , 1992 .

[32]  W. Boeker.  Power and Managerial Dismissal: Scapegoating at the Top. , 1992 .

[33]  S Finkelstein,et al.  Power in top management teams: dimensions, measurement, and validation. , 1992, Academy of Management journal. Academy of Management.

[34]  Constantinos C. Markides,et al.  Consequences Of Corporate Refocusing: Ex Ante Evidence , 1992 .

[35]  P. Barr,et al.  Cognitive change, strategic action, and organizational renewal , 1992 .

[36]  Charles R. Schwenk,et al.  TOP MANAGEMENT, STRATEGY AND ORGANIZATIONAL KNOWLEDGE STRUCTURES , 1992 .

[37]  M. Wiersema,et al.  Top Management Team Demography and Corporate Strategic Change , 1992 .

[38]  René M. Stulz,et al.  A Test of the Free Cash Flow Hypothesis: The Case of Bidder Returns , 1991 .

[39]  David J. Miller,et al.  Stale in the Saddle: CEO Tenure and the Match Between Organization and Environment , 1991 .

[40]  D. Hambrick,et al.  Top-management-team tenure and organizational outcomes: The moderating role of managerial discretion. , 1990 .

[41]  Richard A. D'Aveni.  Top Managerial Prestige and Organizational Bankruptcy , 1990 .

[42]  Lynn A. Isabella.  Evolving Interpretations as a Change Unfolds: How Managers Construe Key Organizational Events , 1990 .

[43]  F. Lichtenberg,et al.  Industrial De-Diversification and its Consequences for Productivity , 1990 .

[44]  Louis.  Acculturation in the workplace : Newcomers as lay ethnographers , 1990 .

[45]  Jay W. Lorsch,et al.  Pawns or Potentates: The Reality of America's Corporate Boards , 1989 .

[46]  Warren Boeker,et al.  Strategic Change: The Effects Of Founding And History , 1989 .

[47]  Annette B. Poulsen,et al.  Free Cash Flow and Stockholder Gains in Going Private Transactions , 1989 .

[48]  V. Govindarajan.  Implementing competitive strategies at the business unit level: Implications of matching managers to strategies , 1989 .

[49]  James P. Walsh,et al.  Selectivity and selective perception: An investigation of managers''belief structures and informatio , 1988 .

[50]  J. Dutton,et al.  Discerning threats and opportunities. , 1988 .

[51]  Frances J. Milliken,et al.  Challenger: Fine-Tuning the Odds Until Something Breaks , 1988 .

[52]  G. Stewart,et al.  THE MOTIVES AND METHODS OF CORPORATE RESTRUCTURING: PART II , 1988 .

[53]  J. Harrison,et al.  The Changing of the Guard: Turnover and Structural Change in the Top-Management Positions. , 1988 .

[54]  Donald C. Hambrick,et al.  A Model of CEO Dismissal , 1988 .

[55]  J. M. Griffin.  A Test of the Free Cash Flow Hypothesis: Results from the Petroleum Industry , 1988 .

[56]  Rakesh B. Sambharya,et al.  Strategic orientation and characteristics of upper management , 1987 .

[57]  Barry M. Staw,et al.  Behavior in escalation situations: Antecedents, prototypes, and solutions. , 1987 .

[58]  Kevin J. Murphy,et al.  Corporate performance and managerial remuneration: An empirical analysis , 1985 .

[59]  Anil K. Gupta.  Contingency Linkages Between Strategy and General Manager Characteristics: A Conceptual Examination , 1984 .

[60]  R. Daft,et al.  Toward a Model of Organizations as Interpretation Systems , 1984 .

[61]  F. Schoorman,et al.  A Limited Rationality Model of Interlocking Directorates. , 1983 .

[62]  E. Pedhazur.  Multiple Regression in Behavioral Research: Explanation and Prediction , 1982 .

[63]  M. Hitt,et al.  Industrial Firms' Grand Strategy and Functional Importance: Moderating Effects of Technology and Uncertainty , 1982 .

[64]  R. Katz.  The Effects of Group Longevity on Project Communication and Performance. , 1982 .

[65]  B. M. Staw.  The Escalation of Commitment To a Course of Action , 1981 .

[66]  M. Tushman,et al.  Characteristics and External Orientations of Boundary Spanning Individuals , 1981 .

[67]  Y. Amihud,et al.  Risk Reduction as a Managerial Motive for Conglomerate Mergers , 1981 .

[68]  M R Louis,et al.  Surprise and sense making: what newcomers experience in entering unfamiliar organizational settings. , 1980, Administrative science quarterly.

[69]  Michael L. Tushman,et al.  Characteristics and External Orientation of Boundary Spanning Individuals. , 1979 .

[70]  Michael Useem,et al.  THE SOCIAL ORGANIZATION OF THE AMERICAN BUSINESS ELITE AND PARTICIPATION OF CORPORATION DIRECTORS IN THE GOVERNANCE OF AMERICAN INSTITUTIONS , 1979 .

[71]  A. Jacquemin,et al.  Entropy Measure of Diversification and Corporate Growth , 1979 .

[72]  John Van Maanen,et al.  People processing: Strategies of organizational socialization , 1978 .

[73]  Barry M. Staw,et al.  Commitment to a Policy Decision: A Multi-Theoretical Perspective. , 1978 .

[74]  J. V. Maanen,et al.  Toward a theory of organizational socialization , 1977 .

[75]  Robert Dubin,et al.  Handbook of work, organization, and society , 1976 .

[76]  Barry M. Staw,et al.  Knee-deep in the Big Muddy: A study of escalating commitment to a chosen course of action. , 1976 .

[77]  Jacob Cohen,et al.  Applied multiple regression/correlation analysis for the behavioral sciences , 1979 .

[78]  J. Pennings,et al.  Structural conditions of intraorganizational power , 1974 .

[79]  J. Child.  Organizational Structure, Environment and Performance: The Role of Strategic Choice , 1972 .

[80]  K. Andrews.  The Concept of Corporate Strategy , 1971 .

[81]  Frank M. Andrews,et al.  Scientists in Organizations , 1968 .

[82]  James D. Thompson.  Organizations in Action , 1967 .

[83]  M. Crozier.  The Bureaucratic Phenomenon , 1964 .

[84]  A. Zander,et al.  Group dynamics, research and theory , 1955 .

[85]  C. Mills,et al.  The Theory of Social and Economic Organization , 1948 .

[86]  Bertrand Russell,et al.  Power: A New Social Analysis , 1938 .