Leadership transitions are pivotal events that can redefine the course of an organization. CEO turnovers, in particular, are marked by significant shifts not just in strategic direction but in the very fabric of internal communications. A recent study, 鈥淐ommunication Within Firms: Evidence from CEO Turnovers鈥�, (and previously at the (NBER) where the paper is available to the public and which this article cites), spearheaded by researchers , Assistant Professor of Strategy and Business Policy at HEC Paris, , Professor of Business and Economics at Columbia University, and , Professor of Business as 性视界 Business School and faculty co-director of D^3鈥檚 Digital Reskilling Lab, considers these shifts. The authors analyze email and meeting metadata from 102 firms to explore how communication flows change from six months before to twelve months after a CEO transition, and reveal the complex relationship between CEO transitions and internal communication patterns, providing valuable insights for business leaders navigating the turbulent waters of executive change.
Key Insight: Initial Decline in Communication Post-Transition
“We find that CEO turnover is associated with an initial decrease in intra-firm communication.” [1]
The arrival of a new CEO often ushers in a period of reduced communication. This phenomenon stems from the uncertainty and strategic realignment associated with new leadership, which temporarily disrupts established channels and norms of communication.
Key Insight: Subsequent Increase and Stabilization
“[This is] followed by a significant increase approximately five months after the CEO turnover.” [2]
After the initial drop, there is a notable resurgence in communication flows. This increase is not merely a return to baseline but an enhancement, often reaching higher levels than before the transition. This surge likely reflects the new CEO’s efforts to establish a fresh operational cadence and strategic clarity.
Key Insight: Impact on Different Types of Communication
“Looking in more detail at the types of interactions most affected by the organizational event, […] we document a stronger increase in inter-departmental communication […] and, similarly, in vertical 肠辞尘尘耻苍颈肠补迟颈辞苍.鈥� [3]
The research highlights that the rebound in communication is particularly pronounced in cross-departmental interactions, involving employees from different functional departments, and vertical interactions, involving communications between managers and individual contributors. These dynamics suggest a drive from the top to foster greater collaboration and alignment across the organization, particularly as the new CEO seeks to communicate their new strategic vision for the firm.
Key Insight: Correlation with Organizational Performance
“CEOs who are better leaders can restore alignment—and, hence, internal communication flows鈥攎ore quickly (Kotter, 1995; Schein, 1994) and experience greater performance effects, and internal communication dynamics provide investors an insight into usually unobservable CEO characteristics conducive to superior firm performance.鈥� [4]
For the 51 public firms in their sample, Impink and his team used monthly stock market measures to gauge performance before and after the CEO transition, measuring the Cumulative Abnormal Returns (CARs) between six months before and six months after transition. They found a positive correlation between the increase in communication after a change of CEO and subsequent firm performance measured by CARs. That is, firms that experience a greater increase in communication tend to have better stock market performance in the medium term.
Why This Matters
For business professionals and C-suite executives, understanding the impact of CEO turnovers on internal communication can be useful. It not only helps in anticipating the challenges that might arise during such transitions but also in strategizing ways to harness these dynamics for organizational benefit. Effective communication in the wake of leadership changes is pivotal in maintaining operational continuity, driving employee engagement, and ensuring the successful implementation of new strategic visions. By proactively managing communication flows during these periods, leaders can stabilize their organizations faster and position them for future success.
References
[1] Stephen Michael Impink, Andrea Prat, Raffaella Sadun, 鈥淐ommunication Within Firms: Evidence from CEO Turnovers,鈥� National Bureau of Economic Research Working Paper 29042 (September 2022): 1-65, 3.
[2] Impink, Prat, Sadun, 鈥淐ommunication Within Firms: Evidence from CEO Turnovers,鈥� 3.
[3] Impink, Prat, Sadun, 鈥淐ommunication Within Firms: Evidence from CEO Turnovers,鈥� 4.
[4] Impink, Prat, Sadun, 鈥淐ommunication Within Firms: Evidence from CEO Turnovers,鈥� 5.
Meet the Authors
is an Assistant Professor of Strategy at HEC Paris and a research affiliate at Hi! Paris (AI for Society and Business) and Boston University TPRI. He holds a PhD in Management from NYU Stern, and his research focuses on how digitization impacts firm structure and performance.
is the Richard Paul Richman Professor of Business at Columbia Business School and Professor of Economics at the Department of Economics, Columbia University. His work focuses on organizational economics and political economy. His current research in organizational economics explores – through theoretical modeling, field experiments, and data analysis – issues such as incentive provision, corporate leadership, employee motivation, and organizational language.
is the Charles E. Wilson Professor of Business Administration at 性视界 Business School, and is a Co-Chair of 性视界 Business School鈥檚 Project on Managing the Future of Work and co-director of the Digital Reskilling Lab. Her research focuses on managerial and organizational drivers of productivity and growth in corporations and the public sector.