Logics in Executive Power: Organizational Strategy, Performance, and Chief Executive Dismissal in the Shareholder Value Era

• In Event: 292 - Regular Session. Organizations: Organizational Decision-Making

Abstract

By examining the process of CEO dismissal, this article seeks to demonstrate the embeddedness of executive power and politics within cultural beliefs and assumptions about appropriate organizational behavior—institutional logics. I propose that CEO dismissal is a negative consequence of the firm’s defection from logics for top managers, especially during performance downturns. Poor performance, combined with organizational nonconformity with logics, intensifies political resistance to incumbent executive power. In turn, such resistance increases the likelihood of CEO dismissal. I test this argument in the Fortune 132 largest U.S. manufacturing firms between 1984 and 2007. During this period, the field in which these firms were situated was governed by the “shareholder value logic,” which prescribed the breakup of conglomerate structure and the pursuit of specialization around “core competencies” as appropriate for maximizing shareholder returns. Event-history analyses indicate that when the shareholder value logic dominated, the effect of poor performance on the rate of CEO dismissal was weaker in firms that pursued corporate specialization within a single industry; conversely, the pursuit of conglomerate diversification made the dismissal rate more susceptible to the effect of poor performance. These results have important implications for the study of executive power and succession and for institutional theory.

Author

• Shoonchul Shin, University of California-Berkeley