Corporate Size, Bureaucratization, and Managerial Succession

Founder-CEO Succession and the Paradox of Entrepreneurial Success

“…This is supported by the findings in large-company succession studies, which consistently show that the rate of succession is much lower when the CEO's company is performing well or is meeting board expectations than when firm performance is low or falls short of board expectations (Grusky 1963, Allen et al 1979, Jensen 1986, Puffer and Weintrop 1991, Boecker 1992, Cannella and Lubatkin 1993, Useem 1993. Therefore, I pose the following hypothesis:…”

“…However, there are some critical ways in which Founder-CEO succession departs from the later-stage succession findings from past organizational research. Most important, in contrast to large companies, where delivering good performance helps ensure CEO longevity (Grusky 1963, Allen et al 1979, Jensen 1986, Useem 1993, Denis and Denis 1995, success can be detrimental for FounderCEOs who want to remain in their position. In this "paradox of success," Founder-CEOs who are successful either at leading their companies to successful completion of product development or at raising a round of financing have a higher rate of turnover.…”

“…Outside successors have been found to make more changes, to be more highly compensated, and to achieve higher interorganizational status than inside successors (Grusky 1963). In more competitive industries, successors tend to come from inside their firms and to remain in the CEO position for longer than in lesscompetitive industries (Pfeffer and Leblebici 1973).…”

“…For instance, although succession has no impact on the stock market performance of larger companies, it has a positive impact on the performance of small companies (Reinganum 1985), especially where the new executive came from outside the firm and the former CEO departed. Larger organizations experience succession events more frequently than do smaller firms (Grusky 1961) because their bureaucracies are more capable of handling the disruptive effects of a succession event, and because succession is one of the means by which an organization can adapt to a changing environment. Similarly, from a Weberian perspective, while founders rely on charisma to build their companies, organizations have become a lot more routinized by the time a professional CEO joins the firm (Burton and Khurana 2000).…”

“…Third, research on large-company succession has shown that CEOs who enter the position with allies are more secure than are CEOs who enter without allies (Grusky 1969). In early-stage companies, an analog to this would be whether the Founder-CEO has founded the company along with one or more cofounder "allies," or whether the Founder-CEO started the company on his or her own ("without allies").…”