Assets or Liabilities? The Role of Founder-CEOs in Successful Turnaround in Declining Firms

Abstract

Despite the growing research interest in top executives’ role in successful turnarounds, not much is known on the effect of founder-CEOs on the turnaround process in declining firms. By virtue of their position, founder-CEOs could be an “asset” and emerge as strong and decisive leaders that “take charge” and orchestrate a successful turnaround in such crisis situations. Conversely, given their long tenure and the increasing mismatch between their entrepreneurial skills and managerial competencies needed for a rapidly growing and complex organization, founder-CEOs could sometimes be considered a “liability” in a turnaround context. We tested these alternative arguments of founder-CEO effects in matched pair sample of 142 U.S. public firms. The findings of our empirical analyses indicate that founder-CEO status is a significant positive predictor of likelihood of corporate turnaround among declining sample firms. In addition, the findings suggest that founder-CEOs adopt more conservative strategic actions in their turnaround attempts than their professional (non-founder) counterparts. Overall, the findings support the view of founder-CEOs as an important ‘asset’ during successful corporate turnaround. The implications of these findings to corporate governance and successful turnaround management are discussed.