A new study from the Stanford Graduate School of Business found that the likelihood of a c-suite mass exodus depends on how long both the new chief executive and the rest of the management team have been at the firm and how well they all get along, according to SmartPros.
The study shows that the probability that a top manager will leave if the CEO departs and is replaced by another internal top manager is nearly 15%. That number doubles to 30% if the new CEO is from outside the firm.
“When an outsider takes over a firm, that really has a big effect on the top management,” said Paul Oyer, associate professor of economics at the Stanford Graduate School of Business and co-researcher in the study. “When an insider moves up, you don’t see nearly as much overall cleaning of house. Relationships within those groups mean something.”
In fact, the key driver in executive turnover is still interpersonal relationships — how much the CEO and a top-level executive have invested in their relationship, according to the study. Changes in firms’ strategies, on the other hand, are not generally a primary cause of top management departures.
Consider, for example, a senior executive who has been working with the CEO for years. The two have developed a shared jargon and an understanding of each other that makes overcoming crises and decision-making easier and quicker. Because of the investment they’ve made in their working relationship, they are more productive working together than with others, researchers said, labeling the development a “complementarity” between the two executives.
“Executive A is more productive if executive B is there,” said Oyer. “If executive A leaves the firm, then executive B’s value to the firm has gone down. He might leave the firm because outside opportunities look more attractive or because without executive A, the firm decides he’s not worth what he used to be.”
The rate of turnover is strongly related to how long both the top executive and incoming CEO have been with the firm. If, for instance, the manager has been with the firm for a long time and if the incoming CEO is either new or from another company, the turnover rate increases significantly. In this case, the executive who remains behind has lost much of his or her value to the firm since going from working extremely well with the old CEO to knowing very little about how the incoming CEO operates.