Frequent CEO Turnover and Firm Performance: The Resilience Effect of Workforce Diversity

• Published in: Journal of business ethics Vol. 173; no. 1; pp. 185 - 203
• Main Authors: Kim, Youngsang, Jeong, Sophia Soyoung, Yiu, Daphne W., Moon, Jinhee
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer 01.09.2021; Springer Netherlands; Springer Nature B.V
• Subjects: Business and Management; Business Ethics; Chief executive officers; Companies; Education; Ethics; Gender; Management; Organizational environment; Organizational performance; Original Paper; Philosophy; Quality of Life Research; Resilience; Social integration; Succession; Uncertainty; Workforce; Workplace diversity; Firm performance; CEO succession; CEO turnover; Diversity; Resilience
• ISSN: 0167-4544; 1573-0697
• DOI: 10.1007/s10551-020-04534-0

CEO turnover (or succession) is a critical event in an organization that influences organizational processes and performance. The objective of this study is to investigate whether workforce diversity (i.e., age, gender, and education-level diversity) might have a resilience effect on firm performance under the frequency of CEO turnover. Based on a sample of 409 Korean firms from 2010 to 2015, our results show that firms with more frequent CEO turnover have a lower firm performance. However, firms with more gender and education-level diversity could buffer the disruptive effect of frequent CEO turnover on firm performance to offer a benefit to the organization. Our theory and findings suggest that effectively managing diverse workforce can be a resilience factor in an uncertain organizational environment because diverse workforce has complementary skills and behaviors that can cope better with uncertainty and signals social inclusion of an organization, thus fostering a long-term exchange relationship. These findings contribute to the literature on CEO turnover (or succession) and diversity.