Changing of the Guards: The Impact of CEO Succession on Corporate Reputation

Leadership change at the CEO position is likely to impact their firms’ reputations, but we know little about these potential effects. In this study, we develop theory explaining how evaluators differentiate between successions and assess them. We propose that reputational evaluators assess CEO succession in different ways depending on the type of succession (forced dismissal or “ordinary” departure), as they apply the different cognitive frames to evaluate particular ones. For forced CEO successions, audiences rely more on a “justification” frame in which observers assess whether there is an apparent justification for firing the CEO. For more ordinary successions, observers are more likely to use a “continuity” frame in which they assess whether succession represents a normal transfer of power, given the incumbent CEO’s “life cycle” and the origin of successors. We find that firm performance prior to succession, outgoing CEO’s perceived quality and their positive media tenor are likely to be more salient during forced dismissal, and the tenure of the departing CEO has more reputational impacts during unforced cases. Our findings contributes to research on corporate reputations and top executive teams.