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Research shows too much executive turnover hurts companies

Wed, 08/27/2014

LAWRENCE — While some companies think shaking up their top management team will limit complacency and improve firm performance, research by University of Kansas School of Business professors shows that’s not always true.

A new study by James Guthrie and Jay Lee, professors of human resource management, shows that although turnover in the highest levels of management can sometimes produce positive results for firms, too much turnover damages the performance of the company. Sometimes, Guthrie said, companies are too trigger-happy in removing top management and they overestimate the positive effects of turnover.

Much research exists about why people choose to leave a job, with less focus on the consequences of employee departures for organizational effectiveness, Guthrie said. The purpose of the current study was to examine the effects of turnover at the highest level of management. As the most significant decision makers with the most influence on a company, the researchers wanted to see how companies perform following the exit of top executives. The research, titled “Turnover at the Top: Executive Team Departures and Firm Performance,” was published this summer in Organization Science.

“Even within management research, there is this idea out there that top management teams get too complacent, too committed to the status quo, and therefore shaking things up will improve performance,” Guthrie said. “And there is a certain extent to which that is true.”

What companies don’t always take into account, he added, is the tacit knowledge executives have such as social connections, industry relationships or organizational knowledge.

“The implication is that turnover not only erodes performance by depleting organizational skill banks but, perhaps more dramatically, by altering the social structure and fabric of an organization,” the research states.

Guthrie said companies don’t always understand the value of a person’s firm-specific experience. Their experience is sometimes overlooked, and there’s a predilection in thinking that change is always a good thing.

“Certainly you need to change top executives when they’re not performing well or skill sets are obsolete, but I think a lot of firms take this too far,” Guthrie said. “Companies often underestimate the value of employee retention.”

Using data from 367 firms representing 134 industries, the researchers’ analyses examined the relationship between top management team turnover and firm performance, taking into account a number of industry and firm characteristics, including a company’s own performance history. Findings show that as rates of top management turnover increase, firm performance tends to suffer.

The ill effects of turnover at the highest level of management are similar to the effects found in studies of turnover among lower-level employees. As turnover increases, productivity goes down and it can also lead to insecurity in other parts of firm, Guthrie said.

“What’s equally important is what happens to the people left behind when a top executive leaves,” he said. “It’s basically a cautionary tale. Don’t necessarily think that if you’re in a volatile industry, changing people at the top will improve things.”

The article is co-authored by Jake Messersmith, University of Nebraska-Kearney, and Yong-Yeon Ji, Towson University.



Matt Menzenski, a graduate student in Slavic languages & literatures, took this photo during President Obama’s speech at KU Thursday. Menzenski says he was struck by how relaxed the president was in his delivery. He missed a chance to hear former President Bill Clinton speak in his hometown in 2004, but finally got to see a sitting president this week at KU. “The opportunity to hear the president speak is just one of many great opportunities I've had at KU. So many interesting talks and events happen here all the time. I try to attend at least one a week-- it's never hard to find something interesting to go to.” Tags: University of Kansas College of Liberal Arts and Sciences KU School of Languages, Literatures & Cultures KU Dept of Slavic Languages - Friends & Alumni Barack Obama The White House #exploreKU #POTUSatKU

#RockChalk to Dana Adkins-Heljeson of @KSgeology , recipient of the Outstanding Support Staff Recognition Award. http://t.co/PbwFlzZD8W
Explore KU: The Bells of Mount Oread KU’s Campanile, a 120-foot-tall timepiece that tolls automatically on the hour and quarter-hour, not only sounded in the 2015 New Year at midnight with 12 mighty gongs, but also regularly rings up memories for many Jayhawks – the 277 faculty and students who gave their lives during World War II, the graduates who walk through its doors at commencement, and aspiring students who have strolled through the Lawrence campus. (See http://bit.ly/1xjjwJj). For nearly 60 years, KU’s 53-bell carillon has been tolling the sounds of peace and serenity across Mount Oread since it was installed in June 1955 inside the landmark World War II Memorial Campanile, which was dedicated in 1951. (See http://bit.ly/1BoL9jv) The carillon is also a four-octave musical instrument, which is played with a giant keyboard and foot pedals. University Carillonneur Elizabeth Egber-Berghout (http://bit.ly/14fiBPl), associate professor of carillon and organ, climbs 77 steps up a spiral staircase in the bell tower to perform recitals several times a month.


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