The Trouble with Younger CEOs
A new CEO is enough to make most employees at least a little nervous. But if your new CEO is under 50? You might want to hold on-it's going to be a bumpy ride.
Three researchers--Xiayang Li, of the University of Michigan's Stephen M. Ross School of Business, Angie Low of Nanyang Technological University's Nanyang Business School, and Anil K. Makhija, of Ohio State University's Fisher College of Business-tried to determine if career concerns cause young CEOs to act differently from older ones. Using Census Bureau data, they examined 9,344 firms between 1988 and 2005, looking for any activities that changed a firm's business segments or the establishments within each segment. A "young" CEO was one under 50; an "older" CEO was over 60. If your company has a younger CEO, here's what their study says you should expect:
- Get ready for a restructuring. Younger CEOs are more likely to enter new lines of business and to discard old ones. In the sample, one quarter of the firms either enter a new segment or leave an existing one any given year. A young CEO increases the probability of restructuring by 10 to 15 percent.
- An acquisition is more likely with a young CEO. Younger CEOs also prefer bolder ways of getting into or getting out of a business. Younger CEOs are more likely to acquire a plant from another company, while older ones are more likely to buy a plant from scratch.
- Younger CEOs take on larger restructurings. To measure the size of the restructurings, the researchers used the number of employees affected--think layoffs--rather than the dollars at stake.
- Asset growth is faster under younger CEOs.
- Plants tend to be more efficient under younger CEOs. This is counterintuitive, because rapid churn in production plants is generally associated with lower efficiency. So younger CEOs may actually make better decisions about which plants to buy or build.
- The "Not Invented Here" syndrome is alive and well. Both older CEOs and younger ones favor plants that they themselves built or acquired, directing more money for investment their way.
Since there's a pretty healthy market for serial CEOs, it could be that young chieftains are more willing to act boldly to win some attention (hopefully of the positive variety) and establish themselves for the next gig. Older CEOs may have more to gain by being conservative, because their reputation travels with them from company to company. A sudden change in their management style, whether perceived or real, could be seen as a repudiation of the decisions they made at previous companies.
Do you think these young CEOs know what they're doing? Or are they just showing off at the expense of their companies?
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Kimberly Weisul is a freelance writer, editor, and consultant. Follow her on twitter at www.twitter.com/weisul.