Top Director Shake‐up: The Link between Chairman and CEO Dismissal in the UK

Annita Florou

52 citations0/0 files storedJournal of Business Finance &amp Accounting

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Corporate Finance and Governance Corporate Governance and Law Organizational Management and Leadership

Abstract

Abstract: Most UK companies separate the roles of CEO and Chairman. The former runs the company and the latter runs the board. Using turnover data on 2,180 separate Chairmanships of the top 460 UK firms over the 1990–1998 period, I find that the Chairman is more likely to be replaced when the CEO is dismissed. Detailed data on the dismissal events suggests that Chairman replacement is associated with board restructuring. This may be necessary to bring in different skills and experience which, in turn, might facilitate changes in future corporate decisions. Moreover, I find that the Chairman's previous position, or the type of Chairmanship, does not affect the association between Chairman removal and CEO dismissal. But, the increase in the dismissal likelihood of the Chairman at the time of forced CEO departure is higher when she is involved in the appointment of the failing CEO. This, in turn, can be interpreted as an indication of effective governance.

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References

1983Separation of Ownership and Control 1983Limited-dependent and qualitative variables in econometrics 1980Agency Problems and the Theory of the Firm 1990Performance Pay and Top-Management Incentives 1988Outside directors and CEO turnover 1988Stock prices and top management changes 1997CEO turnover and outside succession A cross-sectional analysis 2001Internal Monitoring Mechanisms and CEO Turnover: A Long‐Term Perspective

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