Changes in listed companies’ CEOs and their corporate governance implications

Abstract

Purpose: This study analysed the reasons for changes in CEOs and evaluated the CEO selection process adopted by MLCs. Furthermore, the study assessed the impact of CEO turnovers on selected corporate governance aspects in those MLCs that experienced a change in CEO between 2012 and 2016. Design: A mixed methodology approach was applied in order to achieve the objectives of this study. Semi-structured interviews, consisting of both qualitative and quantitative questions, were conducted with eight MLCs, three Big Four Audit Firms and four stockbrokers. Findings: Initially, this study showed that CEOs are normally dismissed on the basis of performance. Subsequently, it was revealed that experience was the main criteria considered by MLCs in the CEO selection process. This study also indicated that since CEOs have leading positions within MLCs, a CEO turnover have implications on corporate governance. Conversely, Boards are composed of individuals with strong personalities and the ability to scrutinise the new CEOs. Another interesting result is that the CEOs’ influence on corporate governance aspects increased over time after taking position. Finally, the organisational culture was the most affected CG aspect. Conclusions: Firstly, this study concluded that performance is a mechanism for change. Boards are enhancing control mechanisms in order to decrease the extent of influence exerted by new CEOs. However, there is still room for improvement as new CEOs still influenced certain CG aspects such as the Boards’ structure and the Boards’ monitoring on the CEO. Given the opportunity, new CEOs will strive for a Board that supports their proposals in order to have more influence on corporate governance aspects. In fact, as the progression of the CEOs term of office increases, CEOs tend to build a relationship with directors resulting in a greater influence on the selected CG aspects. Furthermore, it was concluded that new CEOs find it much more difficult to influence the activities at Board level rather than at management level. This is due to the fact that the Boards trust CEOs with the management of the organisation. Value: This study would raise awareness on the implications that a CEO turnover would have on the corporate governance of a listed company. It is expected that it helps those MLCs that are going to experience a CEO turnover and sheds light on what the companies’ expectations should be after the change in CEO. Therefore, companies can refer to this study and implement control mechanisms before the CEO turnover occurs.