Founder‐CEOs and corporate turnaround among declining firms

• Author: Chanchai Tangpong,Michael A. Abebe
• Date: 01 January 2018
• Published date: 01 January 2018
• DOI: http://doi.org/10.1111/corg.12216

ORIGINAL ARTICLE

Founder‐CEOs and corporate turnaround among declining firms

Michael A. Abebe

1

|Chanchai Tangpong

2

1

Department of Management, Vackar College

of Business and Entrepreneurship, The

University of Texas Rio Grande Valley, 1201

West University Drive, Edinburg, TX 78539‐

2999, USA

2

Department of Management and Marketing,

College of Business, North Dakota State

University, Richard H. Barry Hall, 811 2nd

Avenue N., Fargo, ND 58108‐6050, USA

Correspondence

Michael A. Abebe, Department of

Management, Vackar College of Business and

Entrepreneurship, The University of Texas Rio

Grande Valley, 1201 West University Drive,

Edinburg, TX 78539‐2999, USA. Tel.: 956‐

665‐5225

Email: michael.abebe@utrgv.edu

Abstract

Manuscript Type: Empirical

Research Question/Issue: Despite the growing interest in leaders' role in the turnaround

process, there is a paucity of research on founder‐CEOs' role in achieving successful turnaround

among declining firms. In this study, using insights from the organizational identification litera-

ture, we argue that founder‐CEOs play an important role in turnaround attempts due to their

strong organizational commitment and psychological attachment to the declining firm as well as

the relative absence of agency problem issues common among their non‐founder counterparts.

Research Findings/Insights: Using data from a matched pair sample of 142 US firms that

experienced performance decline, we found that founder‐CEO leadership significantly increases

turnaround success in declining firms. We also found that, among turnaround firms, those led by

founder‐CEOs tend to put more emphasis on market‐based turnaround strategies, such as new

product introductions, and less emphasis on retrenchment actions, such as divestments.

Theoretical/Academic Implications: Our findings contribute to corporate turnaround

research by providing a more nuanced view of leaders' role in the turnaround process by specif-

ically exploring the effect of founder CEO leadership. Furthermore, this study contributes to the

turnaround literature by highlighting the strategic choices of founder‐CEO‐led firms and how

these choices influence successful turnaround. Finally, by introducing organizational identifica-

tion perspective, this study provides additional theoretical explanation of leadership antecedents

of successful turnarounds.

Practitioner/Policy Implications: The findings of this study suggest that boards of direc-

tors, shareholders, and consultants who often participate in turnaround management should care-

fully consider retaining founder‐CEOs and endorsing their leadership during the turnaround

process. Further, the findings provide turnaround specialists and other stakeholders with further

understanding of not only the importance of product market strategies in the turnaround process

but also founder‐CEOs' role in fostering such strategies.

KEYWORDS

Corporate Governance, Founder CEOs, Turnaround, OrganizationalDecline, Bankruptcy

1|INTRODUCTION

The focus on senior leaders' role in reversing declining organizational

performance is quite prevalent among the business press. Indeed,

stories of strong CEOs leading successful turnarounds in companies,

such as Apple, IBM, Ford, Starbucks and Xerox, abound across media

outlets (e.g. George, 2008; Groth, 2011; Kraemer, 2015; McIntyre,

2011). Both the media and practitioner community tend to emphasize

the strong, “take charge”role leaders play in stemming performance

decline and achieving a successful turnaround (George, 2008; Slatter,

Lovett, & Barlow, 2006).

Past research in this area has documented the role senior

executives' play in organizational decline and turnaround (Lohrke,

Bedeian, & Palmer, 2004; Mueller & Barker, 1997; Trahms, Ndofor, &

Sirmon, 2013). A number of empirical studies have demonstrated the

need for leadership team replacement following declining performance

in order to achieve successful turnaround (e.g. Barker, Patterson, &

Mueller, 2001; Chen & Hambrick, 2012; Gong & Wu, 2011; Nguyen,

Received: 22 January 2017 Revised: 12 August 2017 Accepted: 14 August 2017

DOI: 10.1111/corg.12216

Corp Govern Int Rev. 2018;26:45–57. © 2017 John Wiley & Sons Ltdwileyonlinelibrary.com/journal/corg 45