BackCan a director’s death deter a CEO from buying more companies?
Research suggests a director's death heightens a surviving CEO's sense of mortality and shifts the focus to inner concerns such as autonomy, relatedness and self-growth
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Mumbai: Can the death of an independent director prompt a CEO to make fewer acquisitions? Strategic management experts at Rice University’s Jones Graduate School of Business seem to believe so.
A director’s death, the researchers suggest, heightens a surviving CEO’s sense of mortality and shifts the focus to inner concerns such as autonomy, relatedness and self-growth. This can lead a surviving CEO to pursue a quieter life and weaken the propensities for undertaking decisions such as acquisitions, which can increase compensation and social status, the researchers said in a 4 April press statement.
The dynamics was more pronounced when the death was sudden, the researchers added in their paper that will be published in the Strategic Management Journal.
For their study, the team looked at a sample of large US public firms and interviews with corporate CEOs and executive search consultants. The researchers examined a sample of nearly 300 independent-director deaths between 2002 and 2012. The sample excluded the deaths of executive directors and independent board chairs; such deaths can prompt direct organizational disruptions, which can result in fewer acquisitions in the post-death period.
The researchers then classified independent-director deaths into non-sudden deaths and sudden deaths, including heart attacks, strokes, accidents and causes that were unreported but described as unexpected, unanticipated or sudden.
The team found that firms that experienced an independent director’s death had nearly 4% fewer acquisitions from the pre-death period to the post-death period than did firms that did not experience an independent director’s death. And the value of those acquisitions was 18% lower than the value of the acquisitions made by firms that did not experience an independent director’s death.
The researchers found that post-traumatic growth theory suggests reasons for this change in behaviour. The mortality of others actually prompts re-evaluation of established ideals. Rather than heightening interest in extrinsic goals like wealth and status, these meditations may shift a person’s focus to inner concerns, such as autonomy, relatedness and self-growth.
The researchers also found that CEOs who served as an outside director on boards where an independent director died did few acquisitions at their home firms after this loss. Given that these CEOs’ home firms did not experience an independent director’s death, such a finding indicates that the decrease in CEOs’ acquisitiveness in the post-director death period is less likely to be driven by the decrease in a board’s human and social capital caused by an independent director’s death.
All the findings imply that corporate leaders seemed to attach more value to a quieter life and less value to aggressive pursuits, such as acquisitions that promise more compensation and status, after their social peers passed away.
The paper, titled Independent Director Death and CEO Acquisitiveness: Build an Empire or Pursue a Quiet Life? was co-authored by Robert Hoskisson, the George R Brown Professor of Management; Yan “Anthea" Zhang, the Fayez Sarofim Vanguard Professor of Management; and Wei Shi, a doctoral candidate in strategic management at the Jones School, who is expected to join the faculty at Indiana University around May.
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