How stigmatized are dismissed chief executives? The role of character questioning causal accounts and executive capital in dismissed CEO reemployment

Abstract

Research Summary: Despite the prevalence of CEO dismissal, theory only briefly explores its consequences. Past research indicates few fired CEOs regain employment. We suggest dismissal stigmatizes executives; however, stigmatization is greatest when character questioning causal accounts exist, which affect the likelihood of regaining a CEO position. Furthermore, we argue that reputational and social capital provide signals of executive quality that moderate the level of stigmatization experienced when character questioning causal accounts exist. Following 280 dismissed CEOs, we find that social capital increases the likelihood of rehiring for those with character questioning causal accounts, but negatively impacts those without causal accounts. Alternatively, we find reputational capital positively influences those without causal accounts, while having a slight negative relationship for those with causal accounts. Managerial Summary: Dismissed CEOs often desire second chances to run companies; however, few are ever afforded the opportunity. We explore what allows some dismissed CEOs to regain employment as a CEO. We find that reasons surrounding a CEO's dismissal influence such prospects depending on the CEO's prior reputation and social capital. In particular, social capital through elite education increases the likelihood of regaining a position when the CEO's character is called into question. Alternatively, a strong reputation increases the likelihood of regaining a CEO position when a CEO's character has not been called into question. These findings suggest that dismissed CEOs can regain a CEO position; however, this likelihood is strongly influenced by how others perceive the executive and their concerns about prior behavior.

Hedge fund investor activism and human capital loss

“…In this regard, Brav et al (2015) find that following hedge fund activism employees are faced with stagnation in wages and work hours in spite of an enhancement in their productivity. Even worse, if dismissed by a firm, managers and employees may be stigmatized and be faced with negative consequences for their employability in the labor market and future careers (see also Gibbons & Katz, 1991; Schepker & Barker III, 2018). Anticipating such potentially adverse effects, key employees may choose “flight” instead of “fight” to reduce their uncertainty, to avoid these adverse effects, and to relieve their job anxiety.…”

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

“…Although this classification has been somewhat standardized following the approach of Shen and Cannella (2002a), there has been no attempt to ensure that scholars are making these classifications correctly or that a given event is uniformly categorized across studies. In assessing dismissal, studies often rely on the authors' subjective assessments of contemporary press accounts of the turnover event (e.g., Jenter & Kanaan, 2015; Jenter & Lewellen, 2021; Schepker & Barker, 2018; Shen & Cannella, 2002a; Zhang, 2006). In some cases, expediency necessitates the application of coarse rubrics such as age or ongoing board membership as proxies for dismissal, which, as we will show, can lead to incorrect classification.…”

Chief Executive Officer Dismissal: A Multidisciplinary Integration and Critical Analysis

“…Perceptions about CEO character and ability that may have led to dismissal impact their future career trajectories by signaling capabilities (or lack thereof) to effectively lead a firm in the future. For example, dismissal because of serious indiscretions (e.g., personal scandals) decreases the likelihood of the CEO finding employment after dismissal (Schepker & Barker, 2018; Ward et al, 1995). Yet, it seems some CEOs are able to weather dismissal better than others.…”

“…Yet, it seems some CEOs are able to weather dismissal better than others. From a network theory perspective (Burt, 1984), having social and reputational capital aids dismissed CEOs in finding subsequent employment (Nguyen, 2012; Schepker & Barker, 2018). Other CEO characteristics, such as demographic attributes, also impact their careers post-dismissal.…”