Is commitment to the status quo really bad news? The case of former CEOs staying on as board chairs in Germany

Abstract

A particularly controversial corporate governance practice is the case of former CEOs who decide - and are allowed - to extend their influence by remaining as chairs of the supervisory board (in this study referred to as CACs: CEOs as Chairs). We analyze the effects and preconditions of CACs and confirm a formerly observed pattern that departing CEOs who remain as board chairs restrict their successors’ potential to initiate changes. However, inhibited change is intended and will continue even after the CAC has finally left the scene, i.e., passing the baton or the ultimate departure of the CAC becomes actually a ‘non-event’. In a German context, this commitment to the status quo is essentially good news: By analyzing German HDAX firms over a period of twenty years, we find empirical support that it is mainly CEOs effectively meeting the expectations of two powerful stakeholder groups (namely, shareholders and employees) who get the chance to continue as board chairs and that this practice pays off for both stakeholder groups in the long run. Consequently, the installation of a CAC is not necessarily a symptom of a missed opportunity for strategic realignment, but can rather be an indicator of a firm’s sustainable development.