CEO Replacement in Turnaround Situations: Executive (Mis)Fit and Its Performance Implications

Authors:
Guoli Chen;Donald C. Hambrick
Affiliations:
INSEAD, Singapore 138676;Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802
Venue:
Organization Science
Year:
2012

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Abstract

Countering the widely held view that chief executive officer (CEO) succession is generally beneficial in turnaround situations, we adopt an executive fit/refit logic, proposing that the implications of CEO replacement depend integrally on the incumbent's degree of misfit and the successor's degree of fit to the contextual conditions at hand. Drawing from prior turnaround research, we identify several prominent forms of CEO fit/misfit that are especially germane to troubled firms. In testing our hypotheses, we find substantial support for the fit/refit theory: troubled companies have substantially better performance to the extent that they replace incumbents who are poorly suited to the conditions at hand and when they appoint new CEOs who are well matched to those conditions. Further reaffirming the fit/refit model, we find that CEO replacement per se has no general effect on the improvement of troubled firms.