Business Commons^™

The Consequences Of Forced Ceo Succession For Outside Directors, Kathleen A. Farrell, David Whidbee

College of Business: Faculty Publications

We find an increased likelihood of outside director turnover following forced CEO succession, especially among those directors that are closely aligned with the outgoing CEO, own little equity, and make poor replacement decisions. Directors that remain on the board, however, are more likely to acquire new directorships than those that remain on the board of a matched-sample firm. Overall, the results suggest that outside directors who are not aligned with the CEO and own relatively large equity stakes are rewarded when they remove a poorly performing CEO and replace him or her with a CEO that improves firm performance.