Top-Level Leaders’ Retirement and Organization Performance

The role of top-level management in organizations cannot be overlooked—leaders guide the business and make strategic decisions that move their company forward. Therefore, retirement is a significant step for any CEO or top manager—when leaving the firm, these individuals often take their ideas with them, and the appointment of a new leader results in major changes (Desai, Lockett, &Paton, 2016). The present research aims to investigate what impact leaders’ retirement can have on organizational performance and sustainability. Specific questions arise:

  • How does organizational performance change if the newly appointed leader comes from the same organization?
  • How does the choice of an external leader affect the sustainability of organizational processes and performance?
  • How can an organization choose a leader from its internal structure to support and improve its existing performance levels?

The examination of correlations between top managers’ retirement and organizational performance is an important topic as businesses must change leaders over time. The abundance of business industries and a continuously changing organizational climate requires new research to be performed to assess whether the latest findings yield revealing results about the proposed ties. While this study will not be based on testable hypotheses, but rather on open-ended questions, it may be able to provide some insight into the connection between leaders’ retirement and organizational performance by considering both internal and external leadership succession.

Literature Review

A number of scholarly works have reviewed the problem of leadership succession. Boyne, James, John, and Petrovsky (2011) find that top management change is often not a single retirement but a whole group of top-tier professionals withdrawing in a short period of time, leaving the business with an entirely new managing team. As a result, the authors argue that this type of major turnover is what truly affects businesses and impacts their performance. Interestingly, Boyne et al. (2011) assert that organizations will change regardless of their previous sustainability. On the other hand, their performance after leaders’ replacement is negatively correlated with their previous performance levels—high rates become low and vice versa.

Barron, Chulkov, and Waddell (2011) partially confirm this finding, noting that the retirement of some CEOs can be significant enough to bring change on its own, while other cases involve multiple shifts in top management. The researchers found that when CEOs leave, many companies drop their older projects and discontinue operations. They also suggest that outsider CEOs have a strong effect on enhancing the level of change introduced in a company, while internal successors retain their predecessors’ plans.

A study by Desai et al. (2016) distinguishes between leaders being hired away and dismissed. The authors argue that a leader deciding to change organizations is an event that substantially disrupts the processes of a company, while a natural succession or the internal decision to fire a CEO both leave the organization more prepared. As a result, while both shifts in management affect performance, there exists a difference not only between the types of leaders hired but also the reasons for the previous CEO’s departure.

Quigley and Hambrick (2012) investigate another situation where a former CEO does not leave the company but remains as one of the board members. According to the authors, by encouraging a former CEO’s retention in other positions, businesses limit their new managers’ opportunities for progress, which stifles innovation and limits performance gains (Quigley & Hambrick, 2012). As a result, they find that this factor matters as well, and retirement as a factor of change should exclude the replacement of CEOs without them leaving a decision-making position. This finding is also connected to the study by Graffin, Carpenter, and Boivie (2011) who wrote that the announcement of new CEOs is often deliberately overshadowed by other events in order to make the change less visible. Here, the strategy of hiding the change under other news can be compared to some organizations attempting to move a CEO to the board to make the change seem insignificant.

Methods

The analyzed works demonstrate the limited scope of recent investigation into the influence that top-level leadership has on organizational performance. Nevertheless, all presented works allow the choice of a research design since each focuses on similar variable and data collection methods. The analysis of performance-related changes requires the use of a quantitative approach. Data collection will involve both records of companies that underwent a top-rank leader change and their performance indicators before and after this change (Barron et al., 2011). Additionally, some information will be collected through surveys in which managers will analyze the most effective strategies to choose an internal leader who will bring positive change. Dependent variables will include key performance indicators of companies as well as their sustainability records (Quigley & Hambrick, 2012). The primary independent variable will be the fact of a leader retirement; both internal and external leaders will be acknowledged.

Conclusion

Organizational performance is affected by many factors, and the retirement of a leader is one of major aspects contributing to change as well. The proposed research will consider the impact that top management shifts can have on a firm’s processes. Moreover, the difference between the newly appointed internal and external CEOs will be reviewed. The study will employ a quantitative methodology and collect data from previous studies as well as some surveys of managers who underwent a CEO change in their workplace. The expected results may add to the existing body of research on the ties between CEO retirement and organizational sustainability and reveal some connections between the history of new top managers and their ability to improve business outcomes.

References

Barron, J. M., Chulkov, D. V., & Waddell, G. R. (2011). Top management team turnover, CEO succession type, and strategic change. Journal of Business Research, 64(8), 904-910.

Boyne, G. A., James, O., John, P., & Petrovsky, N. (2011). Top management turnover and organizational performance: A test of a contingency model. Public Administration Review, 71(4), 572-581.

Desai, M. N., Lockett, A., & Paton, D. (2016). The effects of leader succession and prior leader experience on postsuccession organizational performance. Human Resource Management, 55(6), 967-984.

Graffin, S. D., Carpenter, M. A., & Boivie, S. (2011). What’s all that (strategic) noise? Anticipatory impression management in CEO succession. Strategic Management Journal, 32(7), 748-770.

Quigley, T. J., & Hambrick, D. C. (2012). When the former CEO stays on as board chair: Effects on successor discretion, strategic change, and performance. Strategic Management Journal, 33(7), 834-859.