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strategy and business
 / Winter 2005 / Issue 41(originally published by Booz & Company)


Recent Research

In some cases, the authors found, the board decides differently — sometimes with poorer results for the company. Voluble stockholders paired with a compliant board may fire a CEO for matters beyond his or her control. Just as problematic are entrenched boards beholden to the executive suite, which may offer unreasonable amounts of protection to CEOs even when it is clear that they should be let go.

The reality, according to the authors, is that boards are rarely perfect advocates for the stockholders. And this, as the case of John Reed illustrates, is often just as well.

Soccer CEOs
Udo C. Braendle ([email protected]), “Replacement of Executives and Corporate Culture.” Click here.

Additional insight into CEO turnover comes from an unlikely source: Austria’s Premier Soccer League. Udo C. Braendle, a lecturer at the University of Manchester’s School of Law in the U.K., sought to understand how a change in top management affects an organization. Reasoning that soccer coaches are much like chief executive officers — they work, after all, in an enormously competitive international multibillion-dollar industry — the author wanted to see whether firing a coach for a team’s poor performance had the desired effect of turning the organization around. After examining the outcomes of 1,979 games that took place just after a team’s leader had departed, Mr. Braendle found that replacing the coach did nothing to improve the team’s showing on the field.

The reason is tied to cost and culture, the research concludes. Replacement is expensive. Large amounts are spent on replacing CEOs — and soccer coaches — typically involving a golden handshake for the ousted boss and a premium for the successor. In addition, organizational culture cannot easily be changed within a few weeks.

The truth is that there is no universal or instant remedy for companies or CEOs that are performing poorly. Like the study by Professors Fisman, Khurana, and Rhodes-Kropf, this piece of research concludes that shareholders and boards of directors (and owners of soccer teams) need to take the long view on corporate performance and the merits of their leaders.

Author Profiles:

Des Dearlove ([email protected]) is a business writer based in the U.K. Mr. Dearlove is the author of a number of management books and a regular contributor to strategy+business and The (London) Times.

Stuart Crainer ([email protected]) is a business writer based in the U.K. and a regular contributor to strategy+business. He and Des Dearlove founded Suntop Media, a publishing and training company providing business content for online and print publications.
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