The Effects of Leader Succession and Prior Leader Experience on Postsuccession Organizational Performance

• Published date: 01 November 2016
• Author: Malay N. Desai,Andy Lockett,David Paton
• Date: 01 November 2016
• DOI: http://doi.org/10.1002/hrm.21700

Human Resource Management, November–December 2016, Vol. 55, No. 6. Pp. 967–984

© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI:10.1002/hrm.21700

Correspondence to: Malay N. Desai, Nottingham University Business School, University of Nottingham, Nottingham,

NG8 1BB, UK, Phone: +44 (0)115 8468071, E-mail: Malay.Desai@nottingham.ac.uk

THE EFFECTS OF LEADER

SUCCESSION AND PRIOR LEADER

EXPERIENCE O N POSTSUCCESSION

ORGANIZATIONAL PERFORMANCE

MALAY N. DESAI, ANDY LOCKETT, AND DAVID PATON

In this article we strive to reconcile equivocal fi ndings about the effects of

top leader succession and prior leadership experience on postsuccession

organizational performance. In doing so, we draw on insights from theories

of human capital, learning, and asymmetric information to better understand

the conditions under which leaders increase or decrease postsuccession

performance. Employing a sample of 119 newly appointed leaders in the English

Premier League (1996–2010), we fi nd the following results. First, relating to

the succession event, outside leaders that directly move between leadership

positions are associated with higher postsuccession performance while the

departure of a prior leader to a leadership position in another organization

has a negative effect on postsuccession performance. Second, relating to

prior leadership experience, leaders with domestic top leader experience are

associated with lower postsuccession performance, while leaders with foreign

top leader experience are associated with higher postsuccession performance.

©2015Wiley Periodicals, Inc.

Keywords: leadership, recruitment, human capital

Leader succession is a critical issue for orga-

nizations that has important implications

for organizational performance (Guthrie &

Datta, 1998; Kesner & Sebora, 1994). While

the performance and actions of leaders are

often scrutinized, boards and owners may also

be subject to criticism regarding the effective-

ness of their succession decisions (Elsaid, Wang,

& Davidson, 2011; Hamori & Koyuncu, 2015).

Recent trends suggest that owners are increas-

ingly looking to hire leaders with prior top leader

experience, including directly hiring the leaders

of other organizations (Hamori & Koyuncu, 2015;

Karlsson & Neilson, 2009; Lucier, Kocourek, &

Habbel, 2006). Owners may view the hiring of

experienced leaders as a less risky decision than

hiring inexperienced leaders, thereby avoiding

the appointment of an unknown quantity. In this

article we explore the effect of two aspects of the

effect of leader succession on postsuccession orga-

nizational performance: (1) the actual succession

event and (2) the experience of the new leader.

Karaevli (2007, p. 682), after reviewing the

empirical evidence about the relationship between

the leader succession event and postsuccession

performance, argued that “scholars have failed to

968 HUMAN RESOURCE MANAGEMENT, NOVEMBER–DECEMBER 2016

Human Resource Management DOI: 10.1002/hrm

We contribute to

theory by drawing

on insights from

human capital

theory, learning,

and asymmetric

information to better

understand the

relationship between

the succession

event and leadership

experience on

postsuccession

performance.

the EPL is characterized by intense competition

and high rates of successions (Brady, Bolchover,

& Sturgess, 2008; Bridgewater, 2010). In fact, the

average tenure of soccer leaders in England has

fallen from 3.12 years (119 games) in 1993 to

around 1.47 years (56games) in 2009 (Bridgewater,

2010). Furthermore, it is common for leaders

to be appointed from a range of different prior

positions (including inside or outside of the

organization, from abroad, and/or directly from

other organizations), and so we can examine

the performance effects of new leaders bringing

in a diverse range of experiences to shape their

new organizations. Second, the soccer industry

intensifies and accelerates many of the problems

faced by the leaders of business organizations (Brady

et al., 2008). For example, like many other team

sports, soccer teams are meticulously monitored

by owners, fans, and the media; therefore, their

leaders are under enormous pressure to succeed

and keep their jobs during performance difficulties

(Rowe, Cannella, Rankin, & Gorman, 2005).

Indeed, performance is assessed on a weekly or

a game-by-game basis, in contrast to leaders of

business organizations that are evaluated over a

much longer timescale (e.g., quarterly, midyear,

annually). Hence, the EPL provides an extremely

useful context in which to examine issues of leader

succession and organizational performance.

Theoretical Model

Drawing on extant research, we argue that there

are three main factors that will influence the

relationship between leader succession and

post succession organizational performance: the

knowledge and skills of the leader; the ability of

the leader and organization to learn from one

another, and the potential for asymmetric infor-

mation in the hiring decision (Shen & Cannella,

2002b; Zhang & Rajagopalan, 2003).

First, leaders bring with them different skills

and abilities depending on whether they come

from inside or outside of the organization, which

in turn has varying effects on performance. We

root this idea in human capital theory (Becker,

1993; Castanias & Helfat, 1991). Human capital

is defined as an individual’s knowledge, skills,

experiences, and abilities (Bailey & Helfat, 2003;

Harris & Helfat, 1997), which can be accumulated

through education, employment, habits, and

activities (Becker, 1993). As the boundaries

of our study are constrained to intra-industry

successions, we build on Castinias and Helfat’s

(1991) classifications of generic skills, firm-

specific skills, and industry-specific skills. Firm-

specific human capital is useful only to the firms

that provide it and is not transferable, whereas

reach a consensus on whether succession events

in general, and insider vs. outsider successions

in particular, affect firm performance positively,

negatively, or insignificantly.” In addition, and in

contrast to the body of scholarship focusing on the

relationship between the leader succession event

and postsuccession performance, research into the

effects of prior leadership experience on organi-

zational performance is in its infancy (Hamori &

Koyuncu, 2015). Interestingly, the two main stud-

ies find an absence of positive performance effects

(or even negative performance effects) for the

effect of prior leadership experience on postsucces-

sion performance (see Elsaid etal., 2011; Hamori

& Koyuncu, 2015). We suggest that these findings

oppose conventional wisdom that having prior

experience in the top job should

enhance leaders’ skills, which should

lead to positive outcomes.

In this article we contribute to

theory by drawing on insights from

human capital theory, learning,

and asymmetric information to

better understand the relationship

between the succession event

and leadership experience on

postsuccession performance. First,

we contribute to the succession

literature, addressing Karaevli’s

(2007) finding of equivocal results

between the leader succession event

and postsuccession performance, by

decomposing outside appointments

into active leaders hired directly

from other organizations and those

not currently in the top leader

position. In doing so, we explore

how differences in the origin of the

newly hired outside leader may affect

postsuccession performance and,

in addition, examine the corollary

in terms of the effects of how the

nature of the departure of the predecessor leader

affects postsuccession performance. Second, we

contribute to the emerging literature on prior top

leader experience and postsuccession performance

by decomposing top leader experience into the

experience of leading a domestic competitor and

the experience of leading a foreign competitor.

In doing so, we contribute to the debate as to the

portability of leaders’ human capital across different

contexts (Murphy & Zábojnik, 2004, 2007).

To explore our ideas we focus on leaders

of soccer organizations that operated in the

English Premier League (EPL) from 1996 to 2010.1

Wesuggest that the EPL context is conducive for

examining our ideas for two main reasons. First,