CEOs change course when they resemble their predecessors

Psychological effect induces new bosses to change strategy.

CEOs change course when they resemble their predecessors
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The more noteworthy the similarity of recently delegated CEOs to their antecedents, the more probable they are to change the organization’s technique. This outcome in spite of winning feeling in the field – was shown in an examination by a group of analysts from Germany and Denmark.

According to scientists, this behavior results from the need for new managers to be distinctive. The effect is even more pronounced when the previous CEO remains with the firm in the supervisory board.

It is the big question after each change at the best in vast enterprises: How far will the new CEO go astray from the key course set by the last one?

Management science previously assumed that managers with a similar professional and demographic background also tended to be similar in their actions. Prof. Thomas Hutzschenreuter at the Chair of Strategic and International Management at the Technical University of Munich (TUM) frequently noticed cases that contradicted the prevailing theory.

He along with his colleagues analyzed around 180 progression events at the highest point of around 80 German organizations from 1985 to 2007. They were recorded on the DAX, MDAX or TecDAX exchanges. To decide the similarity between the old and new administrators, the specialists took a gander at their past functions and industries, nationality and ages.

To quantify the degree of a vital change, the examination investigated whether the new CEOs sold business units during the initial two years of their tenure, which had been procured by their predecessors.

Hutzschenreuter said, “The results are clear: The greater the similarity between the old and new CEOs, the more likely it is that the new managers will change the company’s strategy. Top executives are inevitably compared with those who were previously in charge. Because nobody in that position wants to be considered interchangeable, they feel a need to make themselves distinctive through their actions. This urge is stronger when there are no biographical features that might set them apart.”

“This need for distinctiveness even becomes greater if the predecessor stays on as a member of the supervisory board. By contrast, the change in strategy is less pronounced in cases where the predecessor is forced out. These findings can be an important basis for future succession decisions in listed companies.”

“The psychological effect revealed in the study has not been considered in previous research on executive succession scenarios. Other studies could look into whether these behavior patterns occur in other countries and other types of companies. People taking charge of family businesses might feel highly motivated to show that they are not going to follow in their father’s or mother’s footsteps.”

The examination is published in the journal Managerial and Decision Economics.