U.S. CEOs More Likely to be Fired When the Going Gets Tough

 

Takeaway

  • Probability that a U.S. CEO will get the boot is nearly 20 percent, while the likelihood of Japanese CEO dismissal is under 10 percent

Chief executives in the United States, Canada and Australia generally enjoy fewer constraints and exercise more influence on the firm than their counterparts in other areas of the world, particularly East Asia. Some even achieve celebrity status. That freedom and visibility reverberates to the negative, however, when rocky times hit.

According to a comparison study by Craig Crossland, a Ph.D. researcher at McCombs School of Business, U.S. chief executives are 86 percent more likely to be fired than Japanese executives when their company misses financial targets.

Crossland looked at predicted probability of CEO dismissal following a year in which the firm missed financial performance goals, such as having negative net income, below average return on assets, and poor stockholder returns. When all three performance measures are down, the probability that a U.S. CEO will get the boot is nearly 20 percent, while the likelihood of Japanese CEO dismissal is under 10 percent.

"Here in the U.S. we tend to think of CEOs as game-changers and wielders of power," says Crossland. "Particularly in high-tech companies they are given a lot of responsibility and significant opportunity to affect the value of the firm. Some might argue this is a justification for higher CEO salaries in the United States.

"Whether or not that is the case, we can certainly say that American chief executives are living on the edge, compared to their East Asian contemporaries."

CEOs aren't the biggest targets on the landscape, according to Crossland. In an upcoming research project, he and his colleagues will be looking at the factors that influence whether an NFL coach will get rehired after being fired. "And they all get fired eventually," Crossland reminds us.

 

Faculty in this Article

Craig Crossland

Assistant Professor of Management McCombs School of Business, The University of Texas at Austin

Craig R. Crossland, Ph.D., is an Assistant Professor in the Department of Management, at the McCombs School of Business, The University of Texas at...

About The Author

David Wenger

Director of Communications, McCombs School of Business

David Wenger is the director of communications at the McCombs School of Business. He writes primarily on topics of innovation, competition and human...

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