Abstract
In this study, we examine the relationship between past firm performance and the likelihood of co-CEO adoption. Using Korean data for the period 2003 to 2018, we find that poorly performing firms are more likely to appoint multiple CEOs and adopt shared leadership. This provides evidence that owners add CEOs to the firm in order to penalize the poor performance of the incumbent sole CEO. In addition, a comparison of firms that replace an existing sole CEO with another versus those that newly adopt a co-CEO structure shows that firms exhibiting extremely bad performance are more likely to choose the former option. Furthermore, we divide the sample by type of co-CEO structure and find that poor performance by a sole CEO is more likely to be a cause of the type that indicates a dilution of authority for the existing sole CEO.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
“Can two CEOs successfully run a business together?” Market Watch, Aug. 12, 2018. See https://www.marketwatch.com/story/can-two-ceos-successfully-run-a-business-together-2018-08-12/print.
For instance, Martha Stewart Living Omnimedia appointed two co-CEOs in 2009. However, the co-CEO structure lasted less than a year, reportedly owing to top management disagreements. See http://views.washingtonpost.com/leadership/post_leadership/2010/10/news-has-been-swirling-for.html.
Following the Korean Exchange Market Disclosure Regulation, all listed companies are required to disclose detailed information about changes to their CEO(s), including the date of CEO turnover, the former CEO’s name, and the new CEO’s name.
Co-CEO structures are not unique to Korea. They are also common in Germany and other European countries where collective management is a tradition, as well as in U.S. family firms (O’Toole et al., 2002).
Choi et al. (2018) provide evidence of co-CEOs acting as mutual monitors, thus reducing the agency problems related to a dominant CEO.
According to Korean Commercial Acts 207 (“Representation of company”) and 208 (“Joint Representation”), Korean firms can choose their own co-CEO structure.
In classifying the types of co-CEOs using corporate disclosures or news media, we were unable to identify the types for 229 observations (or 207 firms). For concrete classification, we searched for the copy of corporate registration in the “Supreme Court of Korea” homepage for each of the unclassified observations. We classify as Type 2 (COCEO_TYPE1 = 0) if a firm’s corporate registry states CEOs as “joint CEOs” (i.e., “gongdong CEOs” in Korean), and as Type 1 (COCEO_TYPE1 = 1) if a firm provides no description on CEO type.
“Why Major Companies Like Oracle, Whole Foods, And Chipotle Have 2 CEOs,” Business Insider, Sep. 19, 2014. See https://www.businessinsider.com/why-major-companies-have-2-ceos-2014-9.
References
Alvarez, J. L., & Svejenova, S. 2005. Sharing executive power: Roles and relationships at the top. Cambridge University Press.
Anthony, J. H., & Ramesh, K. 1992. Association between accounting performance measures and stock prices: A test of the life cycle hypothesis. Journal of Accounting and Economics, 15(2): 203–227.
Arena, M. P., Ferris, S. P., & Unlu, E. 2011. It takes two: The incidence and effectiveness of co-CEOs. Financial Review, 46(3): 385–412.
Arnone, M., & Stumpf, S. A. 2010. Shared leadership: From rivals to co-CEOs. Strategy & Leadership, 38(2): 15–21.
Barker, V. L., Patterson, P. W., & Mueller, G. C. 2001. Organizational causes and strategic consequences of the extent of top management team replacement during turnaround attempts. Journal of Management Studies, 38(2): 235–270.
Che, Y. K., & Yoo, S. W. 2001. Optimal incentives for teams. American Economic Review, 91(3): 525–541.
Chen, G., & Hambrick, D. C. 2012. CEO replacement in turnaround situations: Executive (mis)fit and its performance implications. Organization Science, 23(1): 225–243.
Choi, Y. S., Hyeon, J., Jung, T., & Lee, W. J. 2018. Audit pricing of shared leadership. Emerging Markets Finance and Trade, 54(2): 336–358.
Coughlan, A. T., & Schmidt, R. M. 1985. Executive compensation, management turnover, and firm performance: An empirical investigation. Journal of Accounting and Economics, 7(1–3): 43–66.
Dennis, S. A., Ramsey, D., & Turner, C. 2009. Dual or duel: Co-CEOs and firm performance. The Journal of Business and Economic Studies, 15(1): 1–25.
Dobbin, F., Dierkes, J., Kwok, M. S., & Zorn, D. 2001. The rise and stagnation of the COO: Fad and fashion in corporate titles. Unpublished paper, Department of Sociology, Princeton University.
Fayol, H. 1949. General industrial management. Boston, MA:Pitman.
Finkelstein, S., & D’Aveni, R. A. 1994. CEO duality as a double-edged sword: How boards of directors balance entrenchment avoidance and unity of command. Academy of Management Journal, 37(5): 1079–1108.
Hackman, J. R. 2002. Leading teams: Setting the stage for great performances. Boston:Harvard Business Press.
Harris, D., & Helfat, C. E. 1998. CEO duality, succession, capabilities and agency theory: Commentary and research agenda. Strategic Management Journal, 19(9): 901–904.
Jensen, M. C., & Murphy, K. J. 1990. Performance pay and top-management incentives. Journal of Political Economy, 98(2): 225–264.
Jung, K., & Kwon, S. Y. 2002. Ownership structure and earnings informativeness: Evidence from Korea. The International Journal of Accounting, 37(3): 301–325.
Kang, J., & Shivdasani, A. 1995. Firm performance, corporate governance, and top executive turnover in Japan. Journal of Financial Economics, 38: 29–58.
Kato, T., & Long, C. 2006. Executive turnover and firm performance in China. The American Economic Review, 96(2): 363–367.
Khanna, T., & Palepu, K. 2000. Is group affiliation profitable in emerging markets? An analysis of diversified Indian business groups. The Journal of Finance, 55(2): 867–891.
Krause, R., Priem, R., & Love, L. 2015. Who’s in charge here? Co-CEOs, power gaps, and firm performance. Strategic Management Journal, 36(13): 2099–2110.
O’Toole, J., Galbraith, J., & Lawler III, E. E. 2002. When two (or more) heads are better than one: The promise and pitfalls of shared leadership. California Management Review, 44(4): 65–83.
Pearce, C. L., & Conger, J. A. 2003. Shared leadership: Reframing the hows and whys of leadership. Thousand Oaks, CA:Sage Publications Inc..
Song, Y. H., & Meek, C. B. 1998. The impact of culture on the management values and beliefs of Korean firms. Journal of Comparative International Management, 1(1).
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Appendix
Appendix
Rights and permissions
About this article
Cite this article
Yoo, S.W., Lee, G., Shin, J.E. et al. Firm performance and the adoption of a co-CEO structure: Evidence from Korea. Asia Pac J Manag 38, 1351–1368 (2021). https://doi.org/10.1007/s10490-020-09713-1
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10490-020-09713-1