Executive succession: The importance of social capital in CEO appointments

Research Summary: Firm performance and corporate governance have been shown to influence CEO selection, but our understanding of the role of social capital is more limited. In this study, we seek to provide further insight into the role of social capital by examining the influence of both bonding and bridging forms of social capital on CEO appointments. We find that candidates who have relational social capital, in terms of overlap with the CEO in organizational tenure, board tenure, and CEO tenure are more likely to be appointed as CEO. We also find that candidates who have external linkages to the CEO in the form of geographic, prestigious university, and prior employment affiliations are more likely to be appointed CEO. Managerial Summary: The appointment of a new CEO has significant and widespread implications for the firm's future strategic direction and performance, the relationship between the board and CEO, and perceptions by investors, employees, and other key stakeholders. Our study finds that candidates who have shared connections and experiences with the CEO in terms of geographic, prestigious university, or prior employment affiliations as well as overlap in terms of organizational tenure, board tenure, and CEO tenure are more likely to be appointed CEO. Given the enormous impact that executive appointments have on the strategic direction and performance of the company, it is important to recognize that social factors such as shared experiences and connections influence how candidates are perceived, and thus, may affect appointment decisions.