James Guthrie and Jay Lee, professors of human resource management at the school, sought to see how companies perform following the exit of top executives, using data from 367 firms representing 134 industries. According to a UK statement, the researchers’ analyses “examined the relationship between top management team turnover and firm performance, taking into account a number of industry and firm characteristics, including a company’s own performance history.”
Guthrie and Lee found that, “as rates of top management turnover increase, firm performance tends to suffer.”
This may seem intuitive enough, but the researchers maintain that companies can sometimes be too “trigger-happy” in removing corporate leaders, and actually overestimate the positive effects of turnover at the top.
“There is this idea out there that top management teams get too complacent, too committed to the status quo, and therefore shaking things up will improve performance,” according to Guthrie. “And there is a certain extent to which that is true.”
But what firms don’t always count on losing in the process, he adds, is the departing executive’s tacit knowledge—social connections, industry relationships or organizational knowledge, for example.
The implication, says Guthrie, “is that turnover not only erodes performance by depleting organizational skill banks but, perhaps more dramatically, by altering the social structure and fabric of an organization.”
While acknowledging that change at the top is necessary when an executive isn’t performing well enough, “I think a lot of firms take this too far,” he continues, noting that companies can tend to overlook executives’ firm-specific experience and fall into a mindset that change is always a good thing.
Ultimately, Guthrie and Lee concluded that the effects of turnover at the highest levels of management are comparable to those found in studies of turnover at the lower levels of the organization—increased turnover equates to decreased productivity and insecurity in other parts of the firm.
“It’s basically a cautionary tale,” says Guthrie. “Don’t necessarily think that if you’re in a volatile industry, changing people at the top will improve things.”Twitter It!