UC Berkeley

This research demonstrates that CEO dismissal can be one form of activism utilized by a board of directors against CEOs’ prior records of violating institutional logics (i.e., cultural beliefs, norms, and assumptions about appropriate conduct) especially during poor performance. To this end, it examines two organizational outcomes of CEO dismissal and post-dismissal strategic changes in large U.S. Fortune companies between 1984 and 2007. During this period, the field of large firms was characterized by the rise of a shareholder-value logic, in which maximizing shareholder returns was the ultimate goal of the firm and corporate refocusing and employment downsizing were appropriate and necessary means to that end. According to event-history analyses, poor performance generally led to an increase in the CEO dismissal rate, but this effect was even stronger for CEOs who were reluctant to refocus and downsize during their tenures in the position. Moreover, when their predecessors were dismissed, new CEOs were more inclined to refocus and downsize, especially during their early tenures. These results indicate that when firms deviating from logics perform poorly, directors attribute the performance problem to the deviation itself, and thus seek the removal of the CEO as a means of strategically reorienting towards prevailing logics. This study contributes to institutional theory and upper echelon research.