Executive succession: The importance of social capital in CEO appointments

Abstract

Research Summary: Firm performance and corporate governance have been shown to influence CEO selection, but our understanding of the role of social capital is more limited. In this study, we seek to provide further insight into the role of social capital by examining the influence of both “bonding” and “bridging” forms of social capital on CEO appointments. We find that candidates who have relational social capital, in terms of overlap with the CEO in organizational tenure, board tenure, and CEO tenure are more likely to be appointed as CEO. We also find that candidates who have external linkages to the CEO in the form of geographic, prestigious university, and prior employment affiliations are more likely to be appointed CEO. Managerial Summary: The appointment of a new CEO has significant and widespread implications for the firm’s future strategic direction and performance, the relationship between the board and CEO, and perceptions by investors, employees, and other key stakeholders. Our study finds that candidates who have shared connections and experiences with the CEO in terms of geographic, prestigious university, or prior employment affiliations as well as overlap in terms of organizational tenure, board tenure, and CEO tenure are more likely to be appointed CEO. Given the enormous impact that executive appointments have on the strategic direction and performance of the company, it is important to recognize that social factors such as shared experiences and connections influence how candidates are perceived, and thus, may affect appointment decisions.

A database of CEO turnover and dismissal in S&P 1500 firms, 2000–2018

“…The wide availability of our database will also facilitate research on previously un‐explored or under‐explored antecedents to dismissal. For example, recent strategic leadership research has highlighted the importance of socio‐cognitive factors for firm‐level processes and outcomes, including CEOs' personality traits (Benischke, Martin, & Glaser, 2019; Harrison, Thurgood, Boivie, & Pfarrer, 2020; Peterson, Smith, Martorana, & Owens, 2003) as well as professional and social ties between the CEO and other executives (Wiersema, Nishimura, & Suzuki, 2018). While some of these have been linked to more general executive turnover (e.g., Resick, Weingarden, Whitman, & Hiller, 2009), it would be interesting to explore how socio‐cognitive factors differentially affect dismissal, specifically.…”

Demonstrating the interconnection of hierarchical order disturbances in CEO succession with corporate social responsibility and environmental sustainability

“…CEO plays an integrative role while escorting the upper echelon to escalate the firms' performance (Buyl, Boone, Hendriks, & Matthyssens, 2011) but the occurrence of CEO succession is a certain procedure either normally or forcefully. In each case, the incumbent successor exerts influence on firms' performance (Wiersema, Nishimura, & Suzuki, 2018). In the Chinese perspective, the intensity of CEO succession is high among poor‐performing state‐owned enterprises (Hu & Leung, 2012).…”

Relational Capital and Post-Traumatic Growth: The Role of Work Meaning

“…Krishna [ 9 ] pointed that relational capital refers to the capital rooted in the relationship, emphasizing factors such as attitudes, norms, beliefs, and values. Most scholars believe that relational capital is an important part of social capital, which has a certain influence on the perception and behavior of individuals in the organization [ 10 , 11 ]. Research has verified the role of relational capital in promoting individual performance.…”