A chief executive officer hired from outside the company is more likely than an inside appointee to affect either positively or negatively the firm's future performance, says a University of Utah management researcher.
William S. Hesterly, assistant professor of management, says that poor-performing companies that change CEOs and then trim the size of their operations usually experience "significant improvement in profitability."Hesterly based his findings on a study of how more than 500 of the nation's largest companies performed between 1974 and 1983. His research examined the circumstances under which top management changes affected organizational behavior.
"The extent to which a firm is regulated (by government) limits the impact of leadership changes," Hesterly says. "The less regulation, the more a new leader can affect the direction and success of a company."
Hesterly's research specialties are the impact of leadership on organizational performance, transformational leadership and vertical integration. He serves on the editorial board of the Journal of Management.
The Utah professor says Americans were amused by the love-hate relationship between former New York Yankees owner George Steinbrenner and the late Billy Martin. Steinbrenner hired and fired Martin five times over a period of years.
"Changing leaders with the aim of improving performance is not unique to Steinbrenner," says Hesterly. "Organizations have long tried to advance themselves by changing leadership. In war there was Abraham Lincoln and his generals, and in business, Harold Geneen and his managers at ITT."
Scholars have asked and continue to ask whether these changes make a difference, and there is no agreement that they do, says Hesterly.