Managerial Power and Succession: SBU Managers of Mutual Funds

Introduction

One of the major contributions of the literature on the antecedents of senior executive succession has been the development of the performance-power-succession model. The primary attributes of this model are twofold. First, researchers expect performance to be negatively related to the likelihood of succession. That is, the lower the performance, the more likely succession is to occur. Second, social and political factors moderate this performance-succession relationship by either mitigating or enhancing the effects of poor performance. A review of the succession literature shows that this general model has been vigorously and successfully applied to the study of the role of the CEO. Boeker (1992: 400) stated the essence of this approach succinctly: 'chief executive dismissal is more likely when organizational performance is poor and the power of the chief executive is low'. Many studies of CEO and executive dismissal rely on these twin propositions for their theoretical core. Fredrickson et a1.(1988: 255) summarized the extant literature in an explicit model of CEO dismissal. Their main hypothesis is that CEOs are fired '...when their organizations perform poorly'. However, they maintain that four socio-political forces moderate this relationship, the primary construct being the power of the incumbent CEO.

Researchers have uncovered a variety of factors that moderate the performance-succession relationship that, taken together, provide us with an informative and robust model of CEO succession (Kesner and Sebora 1994). However, we observe that a large portion of the executive succession literature deals with non-CEO samples. In fact, the study of non-CEO executives could be considered as much of a mainstay of succession research as CEO studies. For example, Grusky's early studies, often credited with initiating empirical analysis on succession, dealt with sports-team coaches (1963). Similarly, so did the work of Allen et a1.(1979), Brown (1982), and Pfeifer and Davis-Blake (1986). Studies have also been conducted on succession among corporate officers, but these tend to link CEO succession explicitly to the succession of others. They do not study succession among a population of comparable executives (Wiersema and Bantel 1993; Kesner and Dalton 1994; Wagner et al. 1984; Tushman et al. 1985; Walsh 1988; Hambrick and Cannella 1993; Haveman 1993; Boeker 1992). Kesner and Sebora's (1994) extensive review of the literature lists other positions that have been samples in succession research, including hospital administrators, principals, school administrators, and university department heads.

The purpose of this paper is to examine the social and political contexts that affect the succession of one important, but understudied, group of senior executives - strategic business unit (SBU) managers. For several reasons, the role of the SBU manager is a particularly intriguing setting to study succession. First, SBU managers and their roles in achieving business-unit performance have not been systematically studied (Gupta 1984; Gupta and Govindarajan 1984). In the succession literature, more attention has been paid to building models of CEO succession than those of SBU-manager succession (Kesner and Sebora 1994; Fredrickson et al. 1988). The SBU-manager position is important and unique in itself, for multiple reasons. The SBU role is a training ground for future CEOs; senior managers, especially in larger firms, form a pool of available talent that can be tapped when internal successors are needed (Pfeifer and Moore 1980; Kotter 1982; Dalton and Kesner 1983). SBU managers perform tasks included in both CEO and non-CEO roles; the SBU manager has performance or profit responsibility, but only for a part of the organization, and, unlike the CEO, the board of directors is unlikely to be involved in the SBU manager's performance evaluation. Further, SBU managers are subject to human resource strategies that govern the pool of managers in the parent firm - this makes SBU managers potentially more replaceable than CEOs. Thus, the analysis of SBU-manager performance should consider the uniqueness of their context. This paper introduces a preliminary set of factors that influence the rate at which SBU-manager succession occurs. We take as a starting point the general performance-power-succession model, but present the social and political factors appropriate to the unique context of the SBU manager that are expected to moderate this relationship. In particular, we build our model of SBU-manager performance around the strategic contingencies theory of sub-unit power first proposed by Hickson et al. (1971) and then elaborated on by Pfeifer and Salancik (1978). Our analysis is conducted on data collected on 634 successions among portfolio managers of 1,069 U.S. equity mutual funds, during the nine-year period of 1986 to 1994.

Succession and Multiple Executive Roles

Most of the research on executive succession uses the role of the CEO as its theoretical base. This is understandable because the succession of a CEO is a traumatic and highly visible event, implying a substantive or symbolic change of major proportions (Hofer 1980). More than 30 years of accumulated research has informed us about succession topics such as the antecedents of CEO turnover, the choice of insider or outsider as successor, and the consequences of CEO succession on organizational change and performance (see Kesner and Sebora 1994 for a recent review). There is widespread agreement that CEO succession is different from turnover at other executive levels in the organization, and this has resulted in the development of unique theory to deal with this idiosyncratic, but important role (Kesner and Sebora 1994).