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Jeffrey Pfeffer
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Jeffrey Pfeffer

Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at the Graduate School of Business, Stanford University, and author of the Sept. 2010 book, POWER: Why Some People Have it and Others Don’t.

Risky -- and Necessary

Literally decades of empirical research reveals three things about senior leadership succession. First, it is disruptive and particularly so when outsiders come in. The probability of organizational failure actually increases when top management turns over because the new team needs to learn the company and their job and change is often associated with increased mortality risk.

Second, scapegoating occurs not just with sports teams and their managers but with companies as well--the person in charge often gets the blame or the credit--for having effects on organizational performance and this attribution of potency is invariably overdone. Company results come from the actions of many people and decisions are seldom made by lone individuals. But nonetheless, it is individuals who are held accountable for what happens, particularly in the U.S. with its individualistic culture.

And third, organizational change almost invariably requires the turnover of senior leadership. Although there are examples of profound transformations being led by the same people who were in charge, such examples are few and far between. Jamie Dimon was an outsider who helped transform JP Morgan Chase; Gerstner came in from outside to oversee a much-lauded reorientation at IBM; it was the hiring of Gordon Bethune from Boeing that sparked the rise in both customer service and profitability at Continental Airlines, and the list goes on. It is unusual for those in power to change direction, which would require them to admit they were wrong--something that hubristic CEO's are wont to do.

Thus, turnover at the top is at once risky and sometimes unfair. But if you actually pay attention to the evidence, changing senior leadership is mostly necessary to get companies to alter course. The problems at GM have been decades in the making, but Wagoner did nothing to alter the course of the company's decline. By itself, of course, just changing out the management does not guarantee better future results. But not doing so almost guarantees an undesirable continuity in the case of struggling businesses.

By Jeffrey Pfeffer

 |  April 3, 2009; 1:43 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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