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Sunday, May 5, 2019

When a Colleague Dies, CEOs Change How They Lead

Guoli Chen
www.barrons.com
Originally posted April 8, 2019

Here is an excerpt:

A version of my research, “That Could Have Been Me: Director Deaths, CEO Mortality Salience and Corporate Prosocial Behavior” (co-authored with Craig Crossland and Sterling Huang and forthcoming in Management Science) notes the significant impact a director’s death can have on resource allocation within a firm and on CEO’s activities, both outside and inside the organization.

For example, we saw that CEOs who’d experienced the death of a director on their boards reduced the number of outside directorships they held in the publicly listed firms. At the same time, they increased their number of directorships in non-profit organizations. It seems that thoughts of mortality had inspired a desire to make a lasting, positive contribution to society, or to jettison some priorities in favor of more pro-social ones.

We also saw differences in how CEOs led their firms. In our study, which looked at statistics taken from public firms where a director had died in the years between 1990 and 2013 and compared them with similar firms where no director had died, we saw that CEOs who’d experienced the death of a close colleague spend less efforts on the firms’ immediate growth or financial return activities. We found that there is an increase of costs-of-goods-sold, and companies they lead become less aggressive in expanding their assets and firm size, after the director death events. It could be due to the “quiet life” or “withdrawal behavior” hypotheses which suggest that CEOs become less engaged with the corporate activities after they realize the finite of life span. They may shift their time and focus from corporate to family or community activities.

Meanwhile we also observed that firms lead by these CEOs after the director death experienced an increase their corporate social responsibility (CSR) activities. CEOs with a heightened awareness of deaths will influence their firms resource allocation towards activities that provide benefits to broader stakeholders, such as employee health plans, more environmentally-friendly manufacturing processes, and charitable contributions.

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