New CEOs and Corporate Strategic Refocusing: How Experience as Heir Apparent Influences the Use of Power

Abstract

This paper integrates corporate governance research on the consequences of executive power and the upper echelons literature on top managers' cognitive orientation to develop a framework in which the characteristics of the chief executive officer (CEO) predict corporate strategic refocusing. With data from a sample of large and diversified firms, we examine the extent to which newly appointed CEOs' strategic orientation determines whether they use their power to maintain the status quo or refocus their firms' business portfolios. We assess CEOs' power with seven widely used indicators and use experience as heir apparent to the prior CEO as a measure of new CEOs' strategic orientation. Overall, results show that CEOs' power use is influenced by heir apparent experience in predicting the level of corporate strategic refocusing. Heir apparent experience interacts with four power indicators—compensation, functional expertise, elite education, and number of outside boards on which the new CEO is seated—but the interaction between heir apparent experience and number of outside boards is contrary to what was hypothesized.