Walking a Tightrope: CEO Emphasis on Digital Transformation and CEO Dismissal

Abstract

While CEOs’ commitment is crucial to the success of digital transformation, surveys show that CEOs of incumbent firms underemphasize the urgency and challenges of digital transformation. We suggest that career penalties may discourage CEOs from emphasizing digital transformation. We argue that this is driven by governance actors’ attribute substitution, the tendency to unconsciously substitute difficult questions with easier ones. To test these arguments, we apply a semi-supervised machine learning approach to conference calls and create a novel measure for CEOs’ emphasis on digital transformation. We find that CEOs that emphasize digital transformation have a higher probability to be dismissed if financial performance suffers. We find that this relation is stronger if actors within the firm’s governance context possess less digital and more financial expertise, and are busier. Further, we find that firms with CEOs sensitive to career concerns introduce fewer digital products and that this effect is mediated by CEOs’ emphasis on digital transformation. These results suggest that the biased evaluation of CEOs that emphasize digital transformation may impede the transformation of incumbent firms.