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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.



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Wanna Skype? Chancellor gets creative to surprise Truman winner From KU News Service: http://bit.ly/1awodaa Ashlie Koehn, a University of Kansas junior from Burns studying in Kyrgyzstan, interrupted helping her host family prepare dinner to make a Skype call on Monday evening. To her surprise, Chancellor Bernadette Gray-Little was on the other end of the call letting Koehn know she had been named a 2015 Harry S. Truman Scholar. Koehn is the 18th KU student to be named a Truman Scholar and the only 2015 recipient from the state of Kansas. Earlier this month, she was also named a 2015 Udall Scholar. And in spite of a distance of more than 10,800 kilometers and 11 time zones, Koehn’s thrill from hearing the news from the chancellor came through loud and clear. “Ashlie’s experience at KU epitomizes a quality undergraduate experience. She challenged herself in her coursework, exposed herself to different research opportunities, studied abroad in Germany, Switzerland and Kyrgyzstan, and participated in both student government and community service projects,” Gray-Little said. “This is quite a year for Ashlie. Her hard work is a wonderful reflection on her and also a great reflection on the university, and we all congratulate her.” Each new Truman Scholar receives up to $30,000 for graduate study. Scholars also receive priority admission and supplemental financial aid at some premier graduate institutions, leadership training, career and graduate school counseling, and special internship opportunities within the federal government. Koehn, a member of KU’s nationally recognized University Honors Program, is majoring in environmental studies, economics and international studies. Her goal after earning her KU degree is to pursue a master’s degree in economics at either the London School of Economics or the University of Reading, with a focus on the economics of climate change. In 2014, she received KU’s Newman Civic Engagement Award for her work establishing the Coalition against Slavery and Trafficking. Her involvement with the issue was sparked by Hannah Britton, associate professor of political science and women, gender, and sexuality studies, who hosted national conference on contemporary slavery at KU three years ago. “Ashlie and I met several times to think about what KU students could contribute to the issue of slavery and human trafficking, and the result was her founding of KU CAST,” Britton said. “After a year as president, Ashlie successfully handed the organization over to the next student leader. She demonstrated her strong leadership qualities by setting a unique goal and then pursuing it with her sense of passion, engagement and dedication. No matter the country or context, her leadership strength is evident in her coursework, her public service and her work experiences.” The University Honors Program works with a campus committee to select KU’s nominees for the Truman Scholarship and supports them during the application process. Anne Wallen, assistant director of national fellowships and scholarships, noted it was an amazing ruse to pull off the surprise. Originally, the call was set up to be between Wallen and Koehn. “I was totally not prepared to be greeted by Chancellor Gray-Little, but it was an amazing surprise for sure,” Koehn said. “As a first-generation student, it took time to learn the collegiate system, but my parents taught me to be resourceful and independent from a young age and KU and the Kansas Air National Guard have provided me with the opportunities to drive me into the future, both at graduate school and in my career. I plan to use the Truman Scholarship to pursue a career as an environmental economist helping to shape future trade agreements and leverage action on important international environmental issues, particularly concerning climate change.” Koehn also had a surprise of her own for the chancellor — the meal she was helping to prepare was not exactly typical Kansas dinner fare. On the menu with her host family in Kyrgyzstan on Monday was a traditional Kyrgyz meal called Beshbarmak, or “five fingers,” because you eat it with your hands. The dish is made of horse and sheep and was being prepared as a birthday celebration for Koehn’s host mom. Chancellor Gray-Little, as she signed off from Skype, made sure to encourage Koehn to enjoy her Beshbarmak. Koehn is the daughter of Rodney and Carolyn Koehn of Burns. She graduated from Fredric Remington High School in Moundridge. She is an active member of the Kansas Air National Guard and currently on leave while studying abroad in Bishkek, Kyrgyzstan. She is a member of the KU Global Scholars Program and a past member of the Student Senate. In addition to being named a 2015 Truman and Udall scholar, she was named a 2014 Boren Scholar and Gilman Scholar and in 2013 was named the Kansas Air National Guard Airman of the Year.


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