CEO replacement, top management vacancy, and the sequence of top management team changes in high technology turnaround companies

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Abstract

This study extends the literature on CEO replacement, top management change, and corporate turnaround by examining the sequence of top management team change events and turnaround outcomes among declining firms in industries affected by technological innovation and digitalization, including information technology, electronics, imaging and communications. This study focuses specifically on the top management change events before and after CEO replacement during the turnaround attempts. Using 12 cases of successful/unsuccessful turnaround matched pairs, we adopt a two-phase case study research approach, first generating insights from six cases (three pairs), and then cross validating our findings with additional six cases (three pairs). Through the qualitative examination of these cases, we uncover top management vacancy as a new theoretical construct and refine an existing construct, top management change, by differentiating between primary and support functions. We then observe distinct patterns of CEO replacement and top management changes separating successful and unsuccessful turnarounds. Our case findings indicate that successful turnarounds are characterized by top management vacancy in primary functions before the new CEO arrival and by top management stability in support functions after the new CEO arrival, and that unsuccessful turnarounds involve top management personnel replacement in primary functions after the new CEO arrival. Based on the case findings and related literature, we propose a theoretical model for CEO replacement, top management change, and corporate turnaround.

Introduction

Their earnings are way down. It's time for management to go.”

Carl Icahn, Icahn Enterprises founder and majority shareholder on top managers of underperforming firms

Problem causers have little credibility as problem solvers.

David A. Whetten,

Distinguished organization and management theory scholar on top managers of declining firms

In recent decades, the business landscape has been rapidly changing, driven largely by technological innovation and digitalization (e.g., Brynjolfsson and McAfee, 2012). These changes have often been disruptive in nature, making it difficult for many firms to sustain their viability, and leading many into decline and organizational crisis (Trahms et al., 2013). Firms seeking to reverse their declines often replace their CEOs and change their top management teams (TMTs) (Barker and Duhaime, 1997; Schoenberg et al., 2013). Top management is an important organ of organizations, responsible for their competitiveness and survival and for orchestrating effective responses to external and internal pressures (Hambrick and Mason, 1984; Wiersema and Bantel, 1992). CEO replacement, often accompanied by changes in the TMT, is frequently driven by the desire of the board of directors to change the company strategy and to replace the managers associated with the causes of decline with new managers (Barker and Duhaime, 1997; Buyl et al., 2015; Jenter and Kanaan, 2015; Tang and Crossan, 2017). Both practitioners and academics have contended that top management change is a necessary requirement for turnaround success (Alexandridis et al., 2019; Bibeault, 1982; Chen and Hambrick, 2012; Chulkov and Barron, 2019; Whetten, 1987). The quotes above are illustrative examples of these arguments. Indeed, the need to change leadership has evolved into conventional wisdom in practitioner circles, as the quote from Carl Icahn implies.

On the other hand, others have argued that changes in the CEO and the TMT can cause organizational disruption and thus decrease the potential for turnaround success (e.g., Hambrick and D'Aveni, 1992; Zimmerman, 1989). Such changes can exacerbate already difficult situations internal to the organization experiencing decline (Bermiss and Murmann, 2015; Jiang et al., 2017). Overall, the arguments about the benefits, as well as regarding the drawbacks of changes in the TMT in organizational crisis appear to have merit. Each side provides sensible points from their relative perspectives. However, empirical research has yielded inconclusive findings on whether, or in what cases, top management change affects turnaround success (Trahms et al., 2013), indicating that the topic of top management change and corporate turnaround, although important, has not been resolved. Additionally, past empirical research on top management change in turnaround has largely focused exclusively on the CEO position, and not examined changes in the rest of the TMT. This has led us to consider examining changes across the TMT accompanying the replacement of CEO, particularly focusing on how top management change as a process unfolds during the turnaround efforts.

Therefore, in this study, we ask the research questions: “what are the patterns of CEO replacement and TMT change in successful and unsuccessful turnaround firms?” and “how do they differ from each other?” To shed light on these questions, we qualitatively examine the events regarding CEO replacement and TMT changes and the sequences of how top management change events unfold in 12 successful and unsuccessful turnaround firms in industries affected by technological innovation and digitalization. We specifically focus on top management change events before and after CEO replacement during their turnaround attempts. Using case study research methodology, we first uncover ‘top management vacancy’ as a new theoretical construct that emerged from our investigation of the 12 cases. Given the transient nature of this construct and the lack of process-oriented longitudinal research on top management change during corporate turnaround, it is not surprising that top management vacancy has been overlooked in the extant literature. In our cases, we observed top management vacancy occurring after the departure of a manager from the TMT when a replacement for that position was not subsequently appointed. In other words, the top management position was left unfilled after such a personnel departure. Our data also suggest that the implication of top management vacancy on turnaround success intertwines with the event of CEO replacement whereby top management vacancy in primary functions (e.g., operations, marketing, business units, etc.) before CEO replacement is an important condition for turnaround success. Additionally, our findings suggest that top management personnel replacement in primary functions and top management stability in support functions (e.g., finance, human resources, etc.) after CEO replacement are also important conditions that can moderate the relationship between CEO replacement and successful turnaround.

Our study contributes to the current literature in two distinct ways. First, this study highlights that the sequence of CEO replacement and top management change events, in other words the temporal order of these events, has important implications to the likelihood of turnaround success. This is, indeed, a shift in the theoretical focus from events to their sequence or timing of the events and how they unfold in the turnaround process. This theoretical shift thus offers scholars a new way to approach their research in corporate turnaround and provides new insights to top executives and boards of directors regarding their managerial practices in turnaround. Second, following the tradition of case study research, this study identifies a new theoretical construct, top management vacancy, and suggests a refinement of an existing construct, top management change, by making a distinction between top management change occurring in primary and support functions. When taken into theoretical consideration, these new and refined constructs can potentially contribute to a more holistic view of CEO replacement, top management change and corporate turnaround.

The rest of this paper is organized as follows. In the next section, we examine existing literature relating to top management change in turnaround situations. We then move on to the case study research section in which we present the methodological details, discuss our findings from the cases, and then derive our theoretical model from the case findings in tandem with relevant literature. Our final section includes our discussion and conclusion, which highlights the theoretical and practical contributions of this study, its limitations, and future research directions.

Section snippets

Literature review

Turnaround refers to the situation in which the firm first experiences performance declines of a magnitude great enough to threaten its existence (Hofer, 1980; Slatter, 1984), from which it later recovers to achieve and maintain satisfactory performance (Arogyaswamy et al., 1995; Barker and Duhaime, 1997). The circumstances that managers face in such crises are markedly different from business-as-usual situations faced by firms exhibiting stable financial performance (O’Kane and Cummingham, 2014

Case study research

We organized our methodological approach into three stages. These stages were: (1) case selection and data collection, (2) Phase-I analysis to generate initial insights, and (3) Phase-II analysis for cross validation. Heeding calls for rigor in qualitative research (e.g., Gioia et al., 2013), our approach adopts rigorous case selection criteria and a replicable methodology. Our two-phase, multi-case approach also incorporates a “replication” logic, which strengthens our ability to induct

Discussion and conclusion

In this study, we explored the patterns of CEO replacement and top management changes at successful and unsuccessful turnarounds among declining firms in turbulent industries affected by technological innovation and digitization. Specifically, we put forth two related research questions: (1) “what are the patterns of CEO replacement and top management change in successful and unsuccessful turnaround firms?” and (2) “how do they differ from each other?” The results of our case study efforts

Credit author statement

Chanchai Tangpong: Investigation, Data curation, Formal analysis, Methodology, Conceptualization, Visualization, Writing – original draft, Writing – review & editing. Derek Lehmberg: Investigation, Data curation, Formal analysis, Conceptualization, Visualization, Writing – original draft, Writing – review & editing. Zonghui Li: Investigation, Data curation, Writing – original draft. Writing – review & editing.

Declaration of competing interest

The authors certify that they have no conflicts of interest relating to this research or this manuscript.

Acknowledgements

The authors would like to thank the North Dakota State University Department of Management and Marketing for supporting data gathering for this research.

Chanchai Tangpong. Chanchai Tangpong is Professor of Management at North Dakota State University and Chair of the Management and Marketing Department. He received his MBA and PhD in Business Administration from Southern Illinois University Carbondale. Chanchai's current research includes corporate decline and turnaround, top management team dynamics, strategic implications of buyer-supplier relationships, role of human agents in supply chains, innovations across firm boundaries, and research

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    Chanchai Tangpong. Chanchai Tangpong is Professor of Management at North Dakota State University and Chair of the Management and Marketing Department. He received his MBA and PhD in Business Administration from Southern Illinois University Carbondale. Chanchai's current research includes corporate decline and turnaround, top management team dynamics, strategic implications of buyer-supplier relationships, role of human agents in supply chains, innovations across firm boundaries, and research methods in management and organization studies. His work appears in scholarly journals, such as Journal of Management Studies, Journal of Business Research, Corporate Governance: An International Review, Journal of Supply Chain Management, and Journal of Operations Management.

    Derek Lehmberg. Derek Lehmberg is Associate Professor of Management, Challey Institute Fellow, and MBA Program Director at North Dakota State University. Lehmberg holds a PhD from the Ivey School of Business, an MBA from INSEAD, an MS Kobe University, and a BA from Northwestern University. Lehmberg's research areas include corporate turnaround, innovation, strategic management, and Japanese business. Lehmberg's research has been published in Industrial and Corporate Change, Journal of Management, Journal of Behavioral Finance, Organizational Dynamics, Business Horizons, and other peer reviewed journals. Prior to entering academia, Lehmberg was a management consultant with IBM Japan, PWC Consulting, and Japan Management Association Consulting.

    Zonghui Li. Dr. Zonghui (Zoey) Li is an Assistant Professor in the Management department at Jacksonville University's Davis College of Business. She received her second Ph.D. at Mississippi State University with the concentration on Strategic Management. Li earned her first Ph.D. from Nanjing University with the concentration on International Business. Her research interests include corporate turnaround, family business, and top management team. She has published on these topics and others in Journal of Management Studies, Journal of Small Business Management, and Journal of Family Business Management.

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