When does CEO succession lead to strategic change? The mediating role of top management team replacement

Abstract

While mandates for strategic change may accompany the selection of new Chief Executive Officer (CEOs), the broader set of leadership changes necessary for strategic change remains unclear. Motivated by upper echelons and resource dependence theories, direct relationships between three structural events associated with CEO succession and strategic change are examined, as well as whether these relationships are mediated by replacing top management team (TMT) members. Significant mediated relationships are found in which TMT replacement mediates the relationships of pre-succession firm performance and hiring an outsider as CEO with post-succession strategic change. Involuntary CEO turnover is found to be directly related to post-succession strategic change, with no significant mediating effects from TMT replacement. These findings suggest that boards seeking strategic change following a CEO succession should also consider TMT member succession, including whether CEO candidates can leverage their networks to attract new TMT members with human and social capital that supports strategic change objectives.