Performance and Successor Choice: The Moderating Effects of Governance and Ownership.

This study examined influences on whether chief executive successors are chosen from inside or outside an organization. We examined the choice of a successor as a function of organizational performance as moderated by the composition of an organization's board of directors and its ownership structure. Results indicate that performance influences successor choice, but board composition, firm ownership, and ownership concentration moderate that relationship. These relationships were examined using data from 67 semiconductor producers over a 22-year period. Few events that occur in organizations are as substantively important or as open to potential contention as chief executive succession. The replacement of a chief executive can critically enhance or diminish the power of organizational members and have important consequences for an organization's future strategy and structure (Pfeffer, 1981). How a succession event occurs and who is appointed as the successor reflect the future direction of an organization and can indicate how organizational resources will be allocated in the future (Allen Friedman & Olk, 1989). In particular, researchers have singled out whether a successor comes from inside or outside a firm as critical in succession (Reinganum, 1985). This study examined the influence of the composition of a firm's board of directors and the structure of its ownership in the choice of a chief executive successor. Following past research, we predicted that the type of successor chosen will depend on the organization's past performance. However, the particular focus of this research was on how board and ownership influences moderate the relationship between performance and successor choice.