Adapt or Perish: Evidence of CEO Adaptability to Strategic Industry Shocks

Adapt or Perish: Evidence of CEO Adaptability to Strategic Industry Shocks

Wayne R. Guay University of Pennsylvania – Accounting Department

Daniel J. Taylor University of Pennsylvania – The Wharton School

Jason J. Xiao University of Pennsylvania – The Wharton School

March 13, 2013

Abstract: 
Prior turnover literature documents various signals of poor performance that lead a board of directors to terminate the CEO, but does not explore the underlying causes of the CEO’s poor performance. Recognizing that terminated CEOs have often been successful earlier in their tenure, we conjecture that strategic shocks to a firm’s business environment can cause the board to decide that the existing CEO’s skills do not fit with the firm’s current leadership needs. Moreover, prior research on manager ability engenders the question of whether managers are specialists or are instead capable of adapting their “style” to the changing economic conditions. We examine industry-level changes in investing, financing, and operating policies, and their effects on CEO turnover. Our turnover results suggest that CEOs struggle to adapt to a change in industry globalization, investment and marketing efforts. We also find that boards consider the CEO’s performance in response to strategic industry shocks when inferring the CEO’s adaptability, and that the sensitivity of turnover to these shocks varies with activist investors, CEO tenure, and CEO entrenchment.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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