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What makes CEOs less aggressive?
Acquisitions | Peer-Reviewed Research

You Can’t Take It With You

Death Of An Independent Director Dampens Acquisitions Fervor For CEOs Left Behind

Based on research by Yan Anthea Zhang, Robert E. Hoskisson and Wei Shi

Death Of An Independent Director Dampens Acquisitions Fervor For CEOs Left Behind

  • Contemplating mortality can mute a CEO’s aggressiveness in pursuing large acquisitions.
  • Because CEOs are less likely to delegate acquisition decisions than other decisions, acquisition patterns can faithfully capture aspects of a CEO’s response to the death of a peer.
  • CEOs at companies that have experienced the death of an independent director seek fewer acquisitions in the post-director death period — especially fewer large acquisitions.

Researchers pay considerable attention to fluctuations in stock market performance after a key company leader dies. But how does such an event affect the surviving CEO? After the 2016 death of company founder and former CEO Aubrey McClendon, for instance, the stock price at Chesapeake Energy markedly rallied. Less obviously, McClendon’s death may have heightened mortality awareness among his social peers — an outcome which actually can shape strategic choices.

Wei Shi, a former Rice Business doctoral candidate, Emeritus Rice Business Professor Robert E. Hoskisson and Professor Yan Anthea Zhang decided to study how an independent director’s death affects CEO acquisition decisions. Blending current research in social psychology with analyses of firm acquisition patterns, the researchers found a strong correlation between the recent death of an independent director and less vigor from the surviving CEO in seeking acquisitions, especially large ones. The dynamic, the researchers found, was more pronounced when the death was sudden.

Historically, studies on executive mortality have focused on reactions from investors. Researchers in management and finance have shown that the stock market reacts negatively to the death of a CEO, but positively to the demise of a board chairman. Other researchers have found that firm stock prices experience a striking drop after independent director death announcements, suggesting that independent directors play a key role in corporate governance.

For their own study, the team looked at a sample of large U.S. public firms, and interviews with corporate CEOs and executive search consultants.

The researchers examined a sample of 296 independent director deaths between 2002 and 2012. The sample excluded the deaths of executive directors and independent board chairs; this is because such deaths can prompt direct organizational disruptions, which can result in fewer acquisitions in the post-death period. The researchers then divided their sample into sudden deaths including heart attack, stroke, accidents, or when causes that were unreported but described as unexpected, unanticipated or sudden, and non-sudden deaths.

To create a theoretical framework, the researchers drew from two contrasting social psychology models: terror management theory and posttraumatic growth theory. Both address how the death of others can influence the choices of surviving individuals, yet offer different explanations.

According to research in terror management theory, humans’ instinct for self-preservation can mean that after the death of a peer, survivors want to defend their current world view in a bid to sustain self-esteem. “Bolstering one’s worldview and increasing self-worth,” the authors explain, “can extend one’s symbolic existence and help cope with mortality terror.”

In capitalist cultures such as the U.S., the corporate worldview prioritizes wealth and fame, and evidence suggests that higher compensation and social status play an important part in CEO’s acquisition choices. After the death of a peer, terror management theory holds, it’s logical that a CEO might intensify pursuit of these goals.

Posttraumatic growth theory proposes a different explanation. The mortality of others, this research suggests, actually prompts re-evaluation of established ideals. Rather than heightening interest in extrinsic goals like wealth and status, these meditations may shift a person’s focus to inner concerns such as autonomy, relatedness and self-growth. According to this theory, a CEO will scale back on seeking acquisitions after the death of a close peer.

The team's findings were consistent with the second theory. CEOs who witnessed an independent director's death, the researchers discovered, launched fewer acquisition efforts in the period after the death of an independent director on the firm’s board. The director’s death, it seemed, really did heighten the surviving CEO's sense of mortality. The researchers also found that CEOs who served as an outside director on boards where an independent director died did few acquisitions at their home firms after this loss. Suddenly, these leaders seemed to attach more value to a quieter life and less value to aggressive pursuits such as acquisitions that promise more compensation and status.

You can’t take it with you, masters of the universe often are chided. Curiously, when one of their number departs, the craving for earthly treasures also seems to fade for their peers.

Yan Anthea Zhang is the Fayez Sarofim Vanguard Professor of Management in Strategic Management at Jones Graduate School of Business at Rice University.

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University. 

To learn more, please see: Shi, W., Hoskisson, R. E., & Zhang, Y. A. (2016). Independent director death and CEO acquisitiveness: Build an empire or pursue a quiet life? Strategic Management Journal, 38(3), 780-792.

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