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When a CEO is dismissed, peer CEOs often turn fiscally conservative, dialing back on research and development, acquisitions and capital expenditures.

Firing a CEO can change the strategic decision-making of CEOs at competing firms. Two 91看片 College researchers found that seeing peer CEOs get the boot causes other CEOs in the industry to experience job insecurity and motivates them to dial back on strategic risk taking. 

In a co-authored study published in the Strategic Management Journal, Brian Connelly and Kang Lee found the position of a CEO is more volatile than ever.

When it comes to pulling the trigger on CEO dismissal, companies have increasingly twitchy fingers. Therefore, it seems important to ask: When a company fires the CEO, what happens at all the other companies in the industry?

鈥淥ur main argument,鈥� said Connelly, Luck eminent scholar in Management, 鈥渋s that when a CEO gets fired, all the other CEOs in the industry begin to think 鈥極h no! This could happen to me!鈥� This is important because CEOs have a good gig, and they do not want to lose it. So, they turn to what they can control: the company鈥檚 risk-taking. They dial back on things like R&D, acquisitions, and capital expenditures.

鈥淐EOs are especially concerned about job security. Unlike most of us, though, CEOs don鈥檛 compare themselves to other people within the company because they are at the apex of the firm. Instead, they compare themselves to other CEOs.鈥�

Most people, including analysts, shareholders, and directors, will generally attribute a company鈥檚 performance outcomes to the CEO. But even a modest level of performance should be adequate for CEOs to preserve their highly valued job. Because CEOs are acutely aware of their competitors, when a company dismisses the CEO, it generates consequences that ripple throughout the entire industry.

鈥淲e suggest the CEOs at those rival companies will start worrying about their job,鈥� Connelly and Lee wrote. 鈥淭his fear affects their strategic decision-making.

鈥淢otivated to preserve their job, we argue that when a CEO is fired, competitor CEOs will refrain from risk-taking to focus on ensuring their job safety rather than seek possible long-term performance gains via risky endeavors.鈥�

Connelly and Lee, EBSCO associate professor, also found there are some scenarios that exacerbate this reaction. One is constitutional constraints on shareholder power, which are governance provisions like supermajority voting requirements and staggered elections for directors.

鈥淲hen these are present,鈥� Connelly noted, 鈥渢hey isolate the CEO from shareholder influence and protect the CEO鈥檚 job. This is not great for shareholders, but CEOs like it because they are less worried about getting fired, and thus are less affected when a competitor gets fired.鈥�