STRATEGIC LEADERSHIP ASSIGNMENT

A SUMMARY

Changes at the Top - The Consequences of Executive Turnover and Succession

BY GROUP 1

RISA LIANDA PUTRI YULIA RAHMAWATI WIRAHAYU

07 152 11 07 152 112 07 152 1

MANAGEMENT DEPARTEMENT, INTERNATIONAL PROGRAM ECONOMIC FACULTY ANDALAS UNIVERSITY 2010

What Are the Consequences of Succession? Gordon and Roses (1981) made a point in a thoughtful article in which they proposed a succession model with numerous pre-arrival and post-arrival factors. Indicates the thinking: one cannot make cogent predictions about the effects of succession without considering the factors precipitating the succession, the succession process, and the characteristics of the successor. Moreover, events and actions following the succession affect each other; these include the new leaders behaviors, organization changes, organizational performance, and stakeholders reactions. The new Executives behaviors and organizational Change A new executive often lack of information to make prudent decisions. They are under great pressure to demonstrate worthiness for the job and managerial efficacy, generally requiring that some early actions be taken. A new executive enters the position at a disadvantage in terms of knowledge of the task at hand; pertinent facts, contacts, trends, and issues are not yet well understood. At the same time, the new executive will feel pressure to show promptly that he or she was the right choice for the job. So, constructive and supportive relationships with members of the management team and the board may well be the most important factors for surviving. The Going-In Mandate Most new executive have a mandate, even implicit, stemming from the organizations current performance and prospects, as well as board expectations. New executives often are selected because their experiences and credentials align with the mandate, and thus their initial actions also tend to align with the mandate. A new CEOs are likely to have been selected with at least some consideration for their skills and how those skills match the perceived needs of the firm and its context. It follows that a going-in-mandate is present in many succession settings. The lower the performance of the organization prior to the succession, the greater the strategic and staffing changes made by the successor. The more dissimilar the successor is from the predecessor, the greater the changes made by the successor. The more the successor is an extreme outsider, the greater the changes made by the successor. The correspondence between an executives background characteristics and the amount and type of strategic actions taken is stronger in the first years of tenure than at any other time in the positions.

The Executives Early Survival Prospects There is some evidence that CEO successions bring about change, regardless of the nature of the succession. Probability of divesting a poorly performing acquisition would rise following the exit of the CEO who made the acquisition. Smooth successions permit new leaders to make changes that the prior CEO may have been unwilling or unable to make. Executives behaviors entering their positions vary widely and cannot be universally predicted. However, by incorporating the precipitating context, succession process, and successor characteristics into a predictive model, a greatly improved understanding of early executive actions can be achieved. Implications for Organizational Performance The Sports Team Studies 4 succession situations in most organizational settings:
1. Organizations with no executive succession these were high performing, and in the

following year, they were still high performing.

2. Organizations with inside successions - these were slightly inferior, and in the following

year, they were still a slightly inferior.

3. Organizations with outside successions these were very inferior, and in the following

year, they improved somewhat, but probably due primarily to regression to the mean.
4. Organizations with multiple successions these were very inferior. Regression to the mean

somehow eluded them, and their performance deteriorated even more. Thus succession events tend to occur under certain conditions, which may create the erroneous impression that the successions caused the conditions. But the mere act of succession particularly when the qualities required of the leader have not changed and there is no reason to believe the new leader is necessarily any better than the old allows no convincing predictions about the new leaders effects. Specifically, sports team does not face major changes in their environments. Their rules, playing surfaces, ball size, and so on, all remain roughly the same over time. Competitive

advantage depends greatly on firm-specific factors. To extent that all competitors are the same, and all draw from the same pool of input resources, it is quite difficult to develop firm-specific competitive advantages. It is very hard for competitors to imitate the firm-specific human capital. It Depends on the Succession Context When the rules change, when environments shift, when major new strategies have to be developed and implemented these are conditions in which succession effects may be profound. It is reasonable to expect that the executive succession has differing effects, depending on the organizations stage of life. Apparently, as the organization becomes more substantial and institutionalized the departure of the first CEO is not as disruptive. Presidential exit increased organization mortality. These effects were pronounced in younger organizations but diminished as time passed. New leadership is needed for a turnaround to be successful. A change in leadership is needed if a turnaround is to be successful, because incumbent management has a difficult time making the required changes and has a lost too much credibility with key stakeholders. In turnaround situations, these changes of CEOs might amount to little more than ritual rain dances. A change in management, particularly bringing in an outsider, provides the best chance for performance improvement in a turnaround. The institutional context in which the succession takes place is another important factor in the strategic changes that the succession initiates, or fails to initiate. Alternatively, when environments are turbulent, and particularly if there is a major discontinuity, incumbent executive competencies may be rendered obsolete. Under such conditions, executive succession may generally be salutary. When the institutional context changes dramatically, organizations that are central within the industry are often at a loss in dealing with the change. But, interestingly discontinuous environment change may not bring about uniform pressures for leadership change among all firms in the industry, especially early in an environmental shift. So, on average, new executives will fit current and emerging requirements more than departures executive. Executive Turnover: Beyond the CEO

Turnover in executive ranks, beyond the CEO, may also be reflective of predictive of important organizational phenomena. The most consistent predictor of top executive turnover is organizational performance. There is a similarly strong association between low performance and executive departures. CEOs seem to be held more accountable for poor firm performance than lower-level managers. Once they controlled for CEO dismissal, the link between performance and team member exit was weak. Overall performance does not fully explain executive turnover rates. it can happen because of departure reflects power. In poorly performing firms, highly powerful CEOs were not dismissed. The powerful CEOs were able to deflect scapegoating and pass it on to their fellow executives. So, individual power (individual stockholdings, elite connections, the degree of fit between their competencies and the firms critical contingencies) would be highly predictive to adapt in a turbulent industry. There are two-way causal process or a vicious circle through cross lagged analysis of team changes and performance changes: 1. Team deficiencies bring about or aggravate corporate deterioration, either through strategic errors or stakeholder uneasiness with the visibly inadequate team. 2. Corporate deterioration brings about team deterioration, through a combination of voluntary departures, scapegoating, and limited resources for attracting new executive talent. At a broad level, that external labor markets extract a penalty from managers of failed firms, although their evidence pointed clearly toward external factors as the chief causes of failure. Another context in which to consider top team turnover is in corporate acquisitions. Acquisitions are socially disruptive events that provide a crucible for studying turnover phenomena.

Conclusion

A good deal of work has attempted to examine the linkage between CEO turnover or executive turnover and organizational performance. The link between CEO succession to organizational performance tend to suffer from a single inescapable fact: organizational performance is a very broad concept and it arises from very complex antecedents. It is difficult to rigorously link any single organizational antecedent to overall organizational performance. New leaders cannot directly create organizational performance, but must influence performance through the changes they initiate and the actions they take. Succession and turnover below the CEO level is also a very important issue and one in need of further research attention. It is important to identify and capture the actual responsibilities of the executive studied. For example, in top management team, the most common title is probably executive vice president. That title clearly indicates high status, but suggest little about what its holders actual responsibilities are.