Just how stigmatized are dismissed CEOs?

Stigma is a strange thing—the very attributes that can result in stigma for some, may not be nearly as damaging to others. A new study entitled How stigmatized are dismissed chief executives? The role of character questioning causal accounts and executive capital in dismissed CEO re‐employment” by Donald J. Schepker and Vincent L. Barker III seeks to explore why. Specifically, in the wake of a potentially stigmatizing event, both extant literature and the corporate spheres take for granted that the dismissed CEOs will be unable to obtain comparable employment. However, this is not always true, and this anomaly inspired Donald Schepker focus his dissertation on understanding why. He stated, “this study was motivated by reading descriptions in popular press of it being nearly impossible for fired CEOs to regain employment and these sentiments were echoed in academic research on stigma; however, there were a number of examples of executive overcoming dismissal to get a second chance (e.g. Joseph Galli, Mark Hurd, Steve Heyer). Research had never really explored what enabled some CEOs to get a second chance after failure, yet it seemed obvious to us that those who do receive the opportunity were not chosen at random.”

In their paper, the authors proposed that if arbiters cite the CEOs character as the reason for dismissal, the chances of re-employment are slim. In this case, a CEO of questionable character is one who lacked moral discipline, and or used his position for personal gain at the expense of shareholders. They also proposed that the CEOs who are able to dodge the unemployment (or underemployment) bullet, are the ones who can use their good reputation and solid social capital as a shield.

The authors found that questionable character does not block a CEO’s chances for future employment. What does, is the CEO violating his or her fiduciary duties. As for having a good reputation (measured through inclusion in Institutional Investor Magazine’s Best CEOs list), it increases the CEO’s chances of reemployment—but, that’s only when the CEO’s character was not called into question in the first place. If the CEO is thought to have questionable character, then indicators of good reputation negatively impacts re-employment.

I found the findings related to social capital (measured by elite education), to be most interesting. It turns out that access to elite networks really comes in handy when arbiters are concerned about the CEOs character. At that point, the social network steps in to help the CEO to find new employment. However, if the CEOs character was notthe primary reason for the dismissal, then, “elite education decreases the likelihood of regaining CEO employment”. Wait a minute! Am I hearing that being a part of an elite networks is primarily beneficial to CEO’s who are believed to questionable character, but has the opposite effect if bad character is not an issue? This raises all kinds of questions and potentially exposes an area that is ripe for future research. Why are elite social networks not willing to vouch for a CEO whose character is not under attack? To what extent are members of these networks concerned about stigma by association? If this is a concern, why are they not instead distancing themselves from tainted CEOs?

I asked Donald Schepker about this finding, and he had this to say, “on net, we would expect social capital to improve the executive’s likelihood of regaining a CEO position. As such, this finding was initially surprising; however, it also makes some sense in that the asset value of social capital via elite education was likely unrealized while the CEO was employed. That is, the benefits of social capital were not realized. In the end, social capital may not be able to serve as a signal to hiring firms when performance was an issue because its value may not be appropriated.” Food for thought.

Overall, this paper makes a much needed contribution to the social evaluations literature by exploring how negative and social evaluations interacts, highlighting when positive evaluations can counter negative ones such as stigma.



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