Two new papers on the economics of sport corroborate my prejudice that we shouldn't look to a change of leader to turn around a failing organization.
First is this (pdf) from Anne-Line Balduck and Marc Buelens. They asked: should a poorly performing football team sack its coach? And the answer, on average, they found, is no.
Sure, teams do better immediately after replacing their coach. But this is entirely because coaches are sacked after a run of abnormally poor results and subsequent results regress to the mean. Sacking the coach does not cause a (short-term) improvement in results. Fans of West Ham and Charlton would probably agree.
Second is this paper (pdf) from Peter Groothuis and colleagues, who studied the performance in the NBA of the top draft picks. And they found that most top picks failed to live up to their potential. Between 1987 and 2004, only 35% of number-one picks made the top five NBA players. "When talent is thin, more false positive signals exist than correct decisions" they conclude.
Together, these two papers have an implication that might apply outside sport, to companies and politics.
This is that we shouldn't expect a change of leader - minister, chief executive - to turn around a failing organization. The effectiveness of changes at the top is over-rated. And even if a leader is sufficiently talented to be able to turn an organization around, we might not be able to spot him
To back up your point, if you haven't already then see the paper "Holes at the Top" by Margarethe Wiersema on how replacing corporate leaders fails to make a difference:
http://web.merage.uci.edu/~wiersema/Holes%20at%20the%20Top.pdf
Posted by: tom s. | February 12, 2007 at 04:25 PM
Here's an extract:
The firing of CEOs when performance nosedives has become commonplace in U.S. business. And it’s not hard to understand why. At a time when companies have come to be judged by the valuation of their stock, investors now view chief executives as the primary determinant of corporate performance. When companies do well, their CEOs are showered with money, perks, and attention. When they do poorly, they’re given the blame—and the boot. The roster of recently deposed U.S. CEOs is long and growing, including —in addition to Kmart’s Antonini and Hall—such names as Coca-Cola’s Ivestor, Ford’s Nasser, Procter & Gamble’s Jager, WorldCom’s Ebbers, and Qwest’s Nacchio. And the trend is now spreading to Europe as well, with high-profile dismissals at Deutsch Telekom, ABB, Swiss Life, Fiat, Vivendi, and Bertelsmann, among others.
But does firing a CEO pay off, or do most companies end up like Kmart, with little or nothing to show for bringing in a new leader?
I’ve been studying that question over the last few years, and what I’ve found is not encouraging. Most companies perform no better—in terms of earnings or stock-price performance—after they dismiss their CEOs than they did in the years leading up to the dismissals. Worse, the organizational disruption created by a rushed firing—particularly the bypassing of a normal succession process—can leave a company with deep and lasting scars. Far from being a silver bullet, the replacement of a CEO often amounts to little more than a self-inflicted wound.
The blame for the poor results, my research indicates, lies squarely with boards of directors. Boards often lack the strategic understanding of the business necessary to give due diligence to the CEO selection process. As a result, they rely too heavily on executive search firms, which are even less informed about the business than they are. Concern over restoring investor confidence quickly—rather than doing what’s right for the company—drives the selection process. And board members’ ignorance about the factors that drive company performance undermines their ability to provide strategic oversight after the CEO is dismissed. Clearly, while boards have become accustomed to firing CEOs, they have not yet become adept at making the dismissals pay off.
Posted by: tom s. | February 12, 2007 at 04:38 PM
Football teaches us that turnaround is almost exclusively (Redknapp as an outlier?) a function of investment in "productive resources" (players) who can improve results due to greater skill/efficiency/insert industrial analogy here.
Of course, sometimes, you pick a Bruce Rioch, so presumably changing to an Arsene Wenger has some noticeable effect? Mind you, it was only 2 places higher in the first season. In the long run however, it seems difficult to think that Rioch would have been quite the same success.
Ah, you say, but this is about failures. Trouble is, given the banding in the EPL there is literally a success/failure distinction between 3rd and 5th. (c.f. that team you like so much, Spurs.)
Posted by: Meh | February 12, 2007 at 05:12 PM
Wasn't Rioch the chap who bought Bergkamp?
Anyway, how about banning "corporate leader" and using "company boss"?
Posted by: dearieme | February 12, 2007 at 08:55 PM
Come on - the change from Neil Kinnock to Tony Blair made no change to the Labour party or it's prospects for election? Or the change from Heath to Thatcher made no change to the Tories?
Leaders can change organisations. The leader of GEC changed the organisation to Marconi, they certainly had a major effect on the prospects for their company (for the worse). It is no stretch of the imagination to imagine a reverse Marconi. Football teams are not a good example of the impact of leaders - strategy and tactics of football are highly developed and the areas to make changes are very small. This is not like real life, where things are less well defined.
Posted by: ChrisA | February 13, 2007 at 01:03 PM