Why do some insider CEOs make more strategic changes than others? The impact of prior board experience on new CEO insiderness

• Author: Qi Zhu,Songcui Hu,Wei Shen
• Published date: 01 October 2020
• DOI: http://doi.org/10.1002/smj.3183
• Date: 01 October 2020

RESEARCH ARTICLE

Why do some insider CEOs make more strategic

changes than others? The impact of prior board

experience on new CEO insiderness

Qi Zhu

1

| Songcui Hu

2

| Wei Shen

3

1

Faculty of Business, Hong Kong

Polytechnic University, Hung Hom,

Hong Kong

2

Eller College of Management, The

University of Arizona, Tucson,

Arizona, USA

3

W.P. Carey School of Business, Arizona

State University, Tempe, Arizona, USA

Correspondence

Wei Shen, W. P. Carey School of

Business, Arizona State University, PO

Box 874006, Tempe, AZ 85287-4006.

Email: weishen@asu.edu

Abstract

Research Summary: This study draws attention to

the impact of prior board experiences on the variation

in new insider CEOs' degree of “insiderness”in terms

of commitment to the status quo and their propensity

to make strategic change. We theorize and find that

new insider CEOs' prior board experience at the focal

firm has a negative effect on strategic change, whereas

their prior board experience at other firms has a posi-

tive effect. Moreover, the positive effect of prior board

experience at other firms is stronger (weaker) for new

insider CEOs who have less (more) prior board experi-

ence at the focal firm. Our study contributes to upper

echelons theory and research on new CEOs, and has

important implications for organizational practices

regarding CEO succession and strategic change.

Managerial Summary: Although new insider CEOs

tend to make less strategic changes than new outsider

CEOs, some of them do make more than others. Our

study focuses on new insider CEOs' prior board experi-

ences to explain the difference in their tendency to

make strategic change. We find that new insider CEOs

who have greater prior experience on the focal firm's

board make less strategic changes, whereas those who

have greater prior experience on the boards of other

firms make more strategic changes. Moreover, our

analysis shows that new insider CEOs who have both a

All authors contributed equally.

Received: 9 November 2017 Revised: 31 March 2020 Accepted: 18 April 2020 Published on: 23 June 2020

DOI: 10.1002/smj.3183

Strat Mgmt J. 2020;41:1933–1951. wileyonlinelibrary.com/journal/smj © 2020 Strategic Management Society 1933

high level of prior board experience at other firms and

a low level of prior board experience at the focal firm

make the most strategic changes.

KEYWORDS

board of directors, CEO succession, learning, strategic change,

upper echelons theory

1|INTRODUCTION

Prior research generally classifies new CEOs into insiders and outsiders based on whether they

were full-time executives of the focal firms before taking over as CEOs (Finkelstein, Hambrick,

& Cannella, 2009). Compared with outsider CEOs, insider CEOs have long been proposed to be

less likely to initiate strategic change because their previous organizational experience as a full-

time executive of the focal firm has limited their strategic perspectives and elevated their psy-

chological commitment to the firm's current strategy (Kesner & Sebora, 1994). Consistent with

this proposition, many studies have found that insider CEOs tend to have a stronger commit-

ment to the status quo and initiate fewer strategic changes than outsider CEOs (Zhang &

Rajagopalan, 2004, 2010; see Finkelstein et al., 2009 for review).

Meanwhile, a few studies suggest that insider CEOs vary in their propensity to initiate stra-

tegic change. For example, Bigley and Wiersema (2002) draw attention to the impact of insider

CEOs' heir apparent experience and suggest that insider CEOs who served as the heirs apparent

to their predecessors are more likely to be committed to their predecessors' strategies than are

insider CEOs who do not have this experience. Shen and Cannella (2002a) separate insider

CEOs into contenders and followers based on whether they are appointed following their prede-

cessors' dismissal or retirement, and they propose that contenders are less likely to be psycho-

logically committed to their predecessors' strategies than followers. These studies suggest that

there can be significant variation in new insider CEOs' degree of “insiderness”in terms of com-

mitment to the status quo.

Because a large majority of new CEOs are insiders who are promoted from within the firm

(Finkelstein et al., 2009; Zhu & Shen, 2016), it is important to further investigate why some

new insider CEOs make more strategic changes than others so that we can better understand

the factors that influence the variation in their degree of insiderness. Our study intends to con-

tribute to this research by introducing new insider CEOs' prior experience on corporate boards

as such a factor. Because directors are directly involved in a firm's strategic decision-making

process (Boivie, Bednar, Aguilera, & Andrus, 2016), serving on corporate boards can signifi-

cantly influence one's strategic perspective through the mechanisms of learning by observing

and learning by doing, as indicated by research on board interlocks that focuses on the effect of

executives' current external board ties (Beckman & Haunschild, 2002; Geletkanycz &

Boyd, 2011). Only recently have scholars started to investigate the strategic implications of an

executive's prior board experience gained at other firms before he or she becomes the CEO (Zhu

& Chen, 2015; Zhu & Shen, 2016).

We propose that prior board experience is especially important for new insider CEOs

because it can influence not only their strategic perspectives but also their psychological com-

mitment to the current strategy, and consequently impact their degree of insiderness. We

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