CEO succession with gender change is not always disruptive to firm performance but depends on the context.

Summary

How does CEO succession involve a change of CEO gender matter? The transition of CEOs from a male CEO to a female CEO, and vice versa, has garnered attention for its potential impact on organizational dynamics. While such transitions present opportunities for gender equality in leadership, prior research suggests they can disrupt performance temporarily. However, our study, published in the Journal of Management Studies, reveals nuanced insights: the effect of CEO gender transitions on firm performance varies based on contextual factors like industry dynamism and ownership type. This research emphasizes the importance of considering gender dynamics in leadership transitions for long-term strategic success.

CEO Gender Succession

The events surrounding the replacement of a male CEO with a newly appointed female CEO (as one instance of CEO succession with gender change) have gained increasing attention due to their potential organizational consequences. Such appointments, which create opportunities for women to assume the highest positions in organizations, are looked upon as evidence that firms can overcome biased cultural beliefs about gender. However, building upon the viewpoint found in the CEO succession literature, any succession event disrupts procedures and leads, at least temporarily, to a decrease in performance. Prior studies found that when a CEO succession involves a gender change, such disruptive effects are further amplified.

In contrast, we propose that that CEO succession with gender change does not always disrupt firm performance, depending on whether the degree of gender parity found in the context is sufficient for the new CEO to enact strategic changes, especially in the case of male-to-female CEO succession. As the foremost decision-makers within organizations, CEOs direct strategic change. Specifically, we examine the intricate consequences of CEO succession on the performance and strategic trajectory of a firm, with a particular focus on instances where a gender change is involved. As such, this research holds great importance as it illuminates how these changes in high-level leadership impact the wider business environment and the long-term performance of the firm. By analyzing data obtained from both Chinese and U.S. firms, we found that the influence of a gender transition in the CEO position on a company’s long-term performance and strategic shifts is highly contingent upon the external environment of the company. We discovered that female-to-male CEO successions provoked greater strategic change in dynamic environments, whereas male-to-female successions led to greater strategic change in stable environments. Moreover, significant strategic change is induced by the transition from female to male CEOs in state-owned enterprises, while the opposite holds true in privately held enterprises. Moderated mediation analysis showed that the significant interaction effects on strategic change affect long-term downstream performance (i.e., Tobin’s Q).

Management Takeaway

Our study uncovers important insights: the impact of CEO gender transitions on how well a company performs depends on various factors like how quickly or drastically things change within a particular industry and who owns the company. We discovered that when a female CEO transitions to a male CEO, particularly in government-owned companies and in fast-changing industries, it tends to spur more strategic changes within the company. Conversely, when a male CEO transitions to a female CEO, it’s associated with greater strategic changes in stable industries and private companies. Our analysis also shows that these effects on strategic change have a long-term impact on company performance.

Following are some key takeaways from our study:

Understanding Industry Dynamics: Knowing whether your industry is fast-changing or stable can help anticipate the kind of strategic changes that might follow a CEO transition.

Recognizing Gender Impact: Being aware of the gender dynamics in leadership transitions is important. If your company is facing a leadership change, considering the gender of the incoming CEO and its potential impact on strategic decisions becomes crucial.

Tailoring Strategies: Depending on the industry’s pace and ownership type, managers may need to tailor their strategic planning and adaptation efforts accordingly. For example, in a fast-changing industry, if transitioning from a female to a male CEO, it might be wise to anticipate more significant strategic shifts and prepare accordingly.

Promoting Diversity: Recognizing the influence of gender on strategic changes highlights the importance of promoting diversity in leadership roles. Having a diverse leadership team can bring different perspectives and approaches, which could be beneficial for navigating various industry dynamics and ownership structures.

Long-Term Performance Consideration: Understanding that these strategic changes have long-term implications for company performance emphasizes the need for thoughtful and well-planned transitions, taking into account both gender dynamics and industry context.

The results hold significant importance for a range of stakeholders as they indicate that gender dynamics in the succession of CEOs may have an impact on strategic decision-making and performance. This has far-reaching implications for policy, society, and education by emphasizing the significance of gender and environmental context in leadership transitions.

One of the study’s actionable conclusions is that gender diversity in leadership when aligned with environmental dynamism and ownership type, can be a strategic asset. This underscores the necessity for more sophisticated support structures to be in place for prospective chief executive officers, particularly women operating in dynamic environments.

Scholars, corporate boards, HR professionals, and policymakers who are interested in the intricate relationship between environmental factors, strategic corporate change, and gender dynamics would all benefit from reading the complete paper due to its exhaustive empirical data and insightful analysis.