Executive Recruitment and Interfirm Coordination

Thus far in this chapter we have described executive succession as a mechanism for organizational change, affected by the distribution of power within the organization and the organization s context and, in turn, affecting organizational designs and decisions. Another role served by executive succession is the integration of the organization with its environment and the development of coordinated structures of in- terorganizational behavior. We shall review some evidence consistent with this position and indicate how such results might be expected to emerge from the succession process.

In developing coordinated structures of interorganizational behavior, processes of communication and socialization are important. We argue that the movement of personnel, such as executives, between organizations is one important form of interorganizational communication that can facilitate the development of coordinated structures of behavior. Baty, Evan, and Rothermel ( 1971 ), who studied the movement of faculty between schools of business, wrote that the recruitment of human resources, a universal and recurrent organizational process, gives rise to the flow of personnel, and concurrently, to a flow of information among organizations; for just as members of a society are carriers of the culture which they transmit consciously and unconsciously to the next generation, so members of an organization are carriers of its subculture, which they transmit to new members” (1971:430).

Executive succession, therefore, is itself one strategic response to environmental contingencies. Executive recruitment and succession patterns, much like other forms of interorganizational linkage activity, such as mergers or joint ventures, may derive from interorganizational, interdependence. Characteristics of organizational contexts which, hinder or assist in the development of collective structures of behavior should similarly affect executive movement between organizations,, Just such an argument was explored in a study of executive recruit-ment by Pfeffer and Leblebici (1973).

Twenty randomly selected 4-digit Standard Industrial Classification Code (SIC) manufacturing industries were studied, with at leasti five companies sampled from each industry. Background data on executives from each company were obtained from the World Who’s Who in Finance and Industry (1972) and from Whos Who in America (1972). Industry characteristics were also obtained. From the company data, the following variables were computed for each of the 20 industries: (1) the proportion of the top executives who had their previous job in the same company; (2) the proportion of top execm tives who had their previous job in the same industry; (3) the proportion whose previous job was in the government, including the military; (4) the proportion whose previous job was in finance or banking; (5)J the average number of total job changes; (6) the average number of years spent in the same company; (7) the average number of years spent in the company before attaining the chief executive position; (8)’ the number of years spent in the corporate level chief executive position; (9) the number of years spent in the present position; and (10) the average number of years spent outside the company.

As argued previously in the case of mergers and joint vcutuies, two important conditions for developing interfirm organizations among- competitors are the number of firms in the industry and their concen-tration. With numerous organizations, there is little possibility of developing a collective structure of interorganizational behavior without relying on formal mechanisms. A small number of firms, on the other hand, leads to the possibility of developing tacit coordination through personnel flows. Therefore, we hypothesize that a small number of firms will be associated with executive movements that could enhance communication among organizations. Executives would tend to move within the same industry, have a larger number of job changes, and tend to have been with the company a shorter period of time. Such personnel flows can socialize executives to industry practices and provide interfirm coordination.

Differences in concentration from a median value would tend to reduce both the possibility and the necessity of developing collective structures of behavior through executive movement. Therefore, one would expect executive movement which develops interfirm structures to be most prevalent in industries with intermediate concentration.

In Table 9.5, the correlations between measures of industry context and the characteristics of executive succession and recruitment are displayed. The examination of the results tends to support both the importance of context as an explanation for executive change and recruitment patterns and the relative importance of socialization and interfirm communication factors compared to variables such as firm size or financial structure.

In the first column of the table, the relationship between the number of firms in the industry and executive recruitment characteristics can be seen. As expected, there is a negative correlation with the . proportion of executives with previous jobs in the same industry, indicating there is more recruitment within the industry the smaller the number of firms. This result is, of course, inconsistent with a relative supply argument. The supply of executives to be recruited from within . the industry is larger the larger the number of firms in the industry. The average number of job changes is larger the smaller the number of firms, while the average time spent in the company before attaining the chief executive position and the average number of years spent in that position are both larger in industries with more firms.

A generally similar pattern of results emerges when one considers the second column in the table, the difference in concentration from a median value. Uncertainty is greatest when concentration is intermediate. There is a larger number of job changes in industries with intermediate levels of concentration; executives spend more time in the same company in very concentrated or very unconcentrated industries. More time is spent outside the company the closer industry concentration is to the median value. Both the number of films results and concentration results support the idea that executive recruitment follows the environmental context, either as a strategic response of interfirm coordination or because of performance characteristics of firms operating in such industries.

Growth rate of industry sales and the rate of technological change, measured by growth in industry productivity (Gort, 1962)} are both likely to upset industry equilibria, and therefore tend to be associated with more outside recruitment. Growth in industry sales is negatively associated with recruitment from within the same company! and is positively associated with the number of job changes. Growth in industry sales tends to have both more statistically significant and more consistent effects than growth in industry productivity, the measure of technological change.

Finally, in spite of the importance of size in previous discussions of executive succession (e.g., Grusky, 1961), size has almost no statistically significant effect on any of the succession variables. There is no effect on tenure and no effect on inside versus outside succession for this sample of firms and industries.

The examination of executive recruitment indicates that there is more mobility associated with interfirm communication and socialization processes: (1) the smaller the number of firms; (2) the closer industry concentration is to the median value; ( 3 ) and the greater the growth rate of industry sales. These results are consistent with the idea that executives are recruited in response to the organizational context; executives seem to be more actively recruited from competitors when it is feasible to develop interfirm coordination through informal mechanisms ( there are a small number of firms ) and when it is necessary to do so ( concentration is intermediate so competitive uncertainty is high; growth is relatively rapid so relative positions in the industry are changing unpredictably ). The fact that the same contextual variables used to analyze mergers and joint ventures can again account for another dimension of interfirm behavior is quite important for its sup- port of the basic theoretical argument.

Interfirm Coordination of the “Model of Organizational Change

The discussion of the function of executive succession in managing organizational interdependence has been couched in terms that imply some intentional, strategic action taken by organizations to manage environmental uncertainty. Although such purposiveness may, in fact, be the case, it is not necessary to make any assumptions about intent to observe the results reported by Pfeifer and Leblebici (1973). Indeed, we can consider the tenure and selection of executives using the model developed to examine hospital administrators and can derive the results for the sample of industrial firms.

We have argued previously that turnover tends to be created by contingencies that present administrators cannot handle. In the case of hospitals, we saw the more problematic the organization’s context ( i.e., the greater the competition for funding and the poorer the relations with the local environment ) the lower the average tenure for administrators. In the present case, concentration being intermediate is associated with greater uncertainty and unpredictability, as is rapid growth in industry sales. In highly concentrated industries, there tends to be more price stability, as well as stability in market shares. In very unconcentrated industries, there is little uncertainty arising from in- terdependence because there is little interdependence among com-peting organizations. Thus, as we have argued previously, competitive uncertainty deriving from interdependence is highest at intermediate levels of concentration. Similarly, the more rapidly sales change in the industry, the more instability in industry structure and operations introduced.

Uncertainty is related to both median concentration and rapid sales growth, and it is also the case that uncertainty is likely to lead to higher rates of turnover in executive positions. Other things being equal, the greater the level of uncertainty, the less likely it will be that any given executive can cope with that uncertainty successfully. Consequently, the greater uncertainty would tend to produce more problems and more executive turnover.

We have also argued that organizations will tend to select new administrators with characteristics likely to be associated with the capacity for dealing with current organizational problems. If organizar tions face uncertainty and instability deriving from competitive interdependence, then it is likely that these organizations will select new executives from within the industry, from competing firms, in an effort to reduce this competitive uncertainty. If there is little or no competitive uncertainty, because the industry is very concentrated or extremely unconcentrated, there would be less reason to recruit an executive from within the industry, since the management of competitive uncertainty would be less important.

Thus, we see that if median concentration and rapid growth are related to uncertainty, it is likely that there will be more turnover when these conditions obtain, and furthermore, executives selected will tend to be from within the industry to cope with the competitive uncertainty and interdependence. As a consequence of the operation of a series of processes not necessarily intentionally developed, it is likely that in this case, as in many others, organizations will take actions to align themselves with environmental requirements and take such actions in part through executive succession processes.

Source: Pfeffer Jeffrey, Salancik Gerald (2003), The External Control of Organizations: A Resource Dependence Perspective, Stanford Business Books; 1st edition

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