CEO Turnover: Causes and Interpretations
The study of top executive succession has captured widespread public and academic interest. This is especially true of changes in organizations that appear to be in trouble. For example, numerous articles appeared in the business press when Samuel Armacost was replaced as chairman of the Bank of America in October 1986 following several years of poor performance by the bank. Attention focused on A.W. Clausen, Armacost's replacement and a former CEO of the bank, and his chances of improving the bank's performance and dealing with several friendly and unfriendly merger offers.
The attention paid to such dramatic and visible leadership changes might suggest that they are typical events, and that they represent a trend toward more frequent and contentious top management turnover. Whether this is in fact true can only be determined by studying CEO turnover and the conditions surrounding it over an extended period of time.
WHY ARE CEOs REPLACED?
One of the more commonly advanced views of top management succession has been that it is a mechanism whereby the organization copes with its problems. Removal of the top executive and the selection and installation of a successor are parts of the mechanism. Considerable organizational research has been conducted to try to identify the factors influencing the decision to remove top managers and those predicting how firms will behave when faced with the turnover situation. Much of this research indicates that, as might be expected, organizational performance is an important determinant of top management turnover. The relationship is not, however, a simple one. External factors such as environmental volatility, resource scarcity, and financial risk, and internal factors such as characteristics of the board of directors, size of the firm, and power of the incumbent, may have important effects on the decision to remove the CEO and who will replace him or her.
An alternate view is that performance and related situational factors have, in fact, little influence on top management turnover. Vancil (1987) found that 60 percent of CEOs take normal retirement at the appointed time, and that 80-90 percent retire or leave under usual, expected conditions. Vancil's findings raise the question of how much CEO turnover may be explained by performance or other factors, dramatic or otherwise. CEO departures may occur across a wide spectrum of organizational circumstances, and although it is a reasonable assumption that dramatically poor performance often results in the termination of the top manager, there may exist a broad zone of tolerance of performance in which the CEO is able to maintain his or her position until retirement. This tolerance by the board may result in the CEO's tenure being somewhat turnover-resistant.
Our study examined the turnover of top executive officers in 80 randomly selected Fortune 500 firms over a 40-year period, 1945-1984. Our purpose was to determine whether the rate of CEO turnover is increasing, thereby providing some support to the idea of a trend toward more frequent CEO turnover. This trend, it was hypothesized, would be …