Changing the gender of your CEO could be damaging to firm performance

New research from emlyon business school shows that hiring a successive CEO who is a different gender to the outgoing CEO often negatively affects firm performance, however hiring a CEO who is the same gender as the one before ensures the firm continues to perform well.

Interestingly, no matter what the combination of outgoing CEO to successor – male-to-male, male-to-female, female-to-male or female-to-female – it is only when the gender of the CEO changes, that negative effects on the firm’s performance arise, due to the change.

These are the findings from research by Nikos Bozionelos, Professor of HRM and Organisational Behaviour at emlyon business school, alongside postgraduate students, Yingbing Lan and Yifan Xu, also from emlyon, who wanted to understand whether the gender of a successive CEO impacted on the firm’s performance.

The researchers extracted data that covered all CEO successions in firms listed in the Chinese stock market between 2001 until 2016 – 4,338 CEO successions in total. Then they examined the relationship between firm performance, through return on assets, one year before and one year after the CEO succession and the four combinations of CEO predecessor-successor sex (male-to-male, female-to-female, male-to-female, female-to-male).

Interestingly, they found no difference in subsequent firm performance when the CEO was replaced with a CEO of the same sex (male-to-male or female-to-female). Instead, they found that the performance of the firm deteriorated when the sex of the new CEO was different from the sex of the predecessor, regardless of whether the succession was male-to-female or female-to-male.

Clearly this implies that the natural transition of a new CEO is made more difficult by CEO also being a different gender. The researchers say that for any new CEO, it takes time to embed themselves in the ‘in-group’ of top management, and they are often seen as outsiders. Newcomers with similar key characteristics to those already in the in-group are much more likely to be accepted – if the management are used to a female or male CEO, it’ll take longer to accept a CEO of the other gender.

“CEO succession is often disruptive or at least unsettling for the executive team and by extension for the firm”, point out the research team, and Nikos Bozionelos adds, “No matter how similar to the predecessor the new CEO is, there are always differences in management style and outlook of situations. It appears that newcomers who are, or are seen, as similar to the CEO before – thus, often due to being the same gender – make the transition from one CEO to another smoother, thus affecting the organisation less”.

Interestingly, this may say more about those already in the organisation, compared to the actual new CEO. Clearly, there are no difference between CEO performance based on the gender of the new CEO, however the reaction of all stakeholders has a great impact on the firm’s performance – something management should be mindful of in the CEO transition process.

The researchers suggest that when looking for or appointing a new CEO, firms must not consider the sex of the candidates, they should simply look at credentials and past performance. Whilst firms should also pay attention to facilitate the process of succession, specifically when a CEO of different gender is taking over, regardless of whether this CEO is a woman or a man.

Featured Photo by Christina @ on Unsplash.

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