Will Your CEO Leave When Times Get Tough

If you want to know whether your CEO is going to jump ship when times get tough, look at what kind of relationships they have with other professionals, new research suggests. A study recently published in the Strategic Management Journal found that a CEO’s decision to voluntarily leave a company when it starts to fail is driven by the executive’s social capital – the personal relationships they have with business colleagues and key external stakeholders. The researchers found that executives who have strong social capital as well as those who have poor social ties with business colleagues are the least likely to quit when their organizations start to suffer. It’s those right in the middle who are the least likely to stick around and ride out the ship when times get rough.

Han Jiang, the study’s lead researcher and an assistant professor at the University of Arizona, said a CEO’s decision to stay or go is ultimately a cost-benefit dilemma. He said when a company fails, an executive’s reputation could suffer dramatically, which could prompt them to leave before things get too bad. On the other hand, if they leave, they risk losing out on access to valuable company resources and connections.

The study found that CEOs with low social capital are unlikely to leave a failing company because their minimal connections make quitting not a viable option. “If I don’t have strong enough social capital and I don’t know anybody in this business circle, even if I want to escape from my declining firm, I probably won’t be able to find opportunities that will allow me to do so,” Jiang said in a statement. “I probably will be locked up in my company, so I have no choice but to stay.” Conversely, CEOs with strong professional networks are also unlikely to leave struggling firms. Jiang said CEOs with strong social capital likely aren’t worried about the negative consequences to their reputation if their company fails. “Even if my firm does end up failing, I can still manage to leverage my strong connections to find myself a parachute that will allow me to land safely after that failure,” Jiang said. “More importantly, if I have very strong social capital, I’m probably more confident about using my capability and my resources to save my firm.” The research discovered that it’s those CEOs with a moderate level of social capital who are the most likely to bolt for the door when their companies start to head south.

“If I have a medium level of social capital, I can leverage my fairly established social network to find myself alternative employment opportunities,” Jiang said. “Compared to extremely socially connected executives, I’m probably not that confident about being able to save my firm, and I probably won’t be that protected from the consequences of a potential public failure. I have both the motivation and the capability to leave.” The study was based on an analysis of the social capital and voluntary job movements of 278 executives of declining firms in China. The researchers controlled for factors such as CEOs’ age, education, gender, compensation, executive shareholding and tenure in their current positions. Although the study looked specifically at firms in China, the researchers believe the findings hold true across cultures and industries. Jiang believes the research can provide some fresh insight into the operation of declining firms.

Culture of Fear for a Better Bottom Line

Company culture makes a difference for employees, which means hiring and retaining talent that effectively meets goals. If a company is leading with fear and lack of self-awareness, the company is more likely to have a high turnover. “If your organization doesn’t have a healthy culture, then two things can happen. First, the workplace environment can be unpleasant and friction-filled, which ultimately may lead to attrition by your best employees,” said Ken Staut, founder and CEO of GrowthFountain, an equity crowdfunding platform. “And second, your organization won’t reach its full potential, because not everybody within your organization shares the same values or buys into the company mission.” “People won’t stay [at the company],” said Lior Rachmany, CEO and founder of Brooklyn-based, Dumbo Moving + Storage. “If people feel overly watched or that they will get shouted out if they make a mistake, they will leave your company as soon as they can.”

That attitude comes at a price. It’s costly to replace employees. According to a CAP study, to replace an employee who earns $30,000 to $50,000 a year, it will cost a company 20 percent of that employee’s annual salary. For example, to replace an employee who makes $50,000 annually, it would cost the company $10,000.

“A negative, fear-based work culture can absolutely affect the bottom line of any company because replacing unhappy employees is expensive,” said Phil Shawe, founder and Co-CEO of TransPerfect,  a translation and content management company. “Each time you lose an employee, whether they were a high or low performer, it costs the company a lot to interview, hire and train each new hire.”


Positives of a healthy culture

It’s possible leaders of companies see “positive culture” as startup culture. You don’t need to provide employees with getaways or a beer tap if that doesn’t match your company’s values. Rather, making employees feel welcome and part of the process goes a long way.

“Life is too short. If team members aren’t having fun, if they don’t enjoy the environment where they spend most of their waking moments, they’ll look for something else to do,” Staut said.

The positives to having a good company culture are increased motivation to come into the workplace, Shawe said.

This means a larger emphasis on the creative flow of ideas and collaboration, along with a higher retention rate of employees and promotional hiring from within, he added.

“If you have a good culture, your employees will be more open to learning/being mentored because they will trust your leadership,” Rachmany said.


Fixing the culture

It can be an overwhelming task tackling such a sweeping problem. Fixing company culture isn’t an easy undertaking, but it can be done. It takes hiring and retaining the right people. [See Related Story: 4 Ways to Improve Your Company Culture]

“There’s an old saying: If you hire someone for a paycheck, they’ll work for your money. But if you hire someone who believes what you believe, they’ll work for you with blood, sweat and tears,” Staut said. “Passionate employees who believe in your company’s mission and share your company’s values will help you succeed.”

Matthew Gonnering, CEO of Widen, a digital asset management company, suggests these five approaches to move your company in the right direction:

  • Don’t hire emotionally ignorant leaders. Some leaders instill fear in people because they don’t know any other way to motivate; they are not self-aware and not empathetic to the needs of others. Keep them out; encourage self-discovery.
  • Leave your baggage at the door. New hires bring all kinds of behaviors with them that are not natural: At their previous job, they were told to not question, not share, don’t think, just do. Not only is that not normal, it pollutes the work culture of their new job. A business  needs inquisitive employees who are willing to question everything. We think on-boarding mentors can help with this.

Show Employee Appreciation

Anyone can perform a task at work knowing the end result is a salary. However, passion and hard work often stems from affirmations employees hear from their boss or manager. Workers don’t just crave a paycheck — they want recognition, verbal appreciation and encouragement. Of course, it’s easy to say “thank you” or “good job” and be done with it; but there are countless ways to show your support and respect for your employees. Business News Daily asked business owners and experts to share the best ways to make your employees feel more appreciated. 1. Let employees reward one another. “[Put] the power of recognition and reward in their hands. I use apps and programs like YouEarnedIt to give my employees the power to give each other kudos for good work done. I let my team members choose their reward, too, because not everyone wants a cash bonus or a gift card.”

2. Offer employees a platform. “It could be done as a request to share. When we let people know we value what they have to offer by asking if they’d share their story, tips, methods, etc. with others, it provides validation to them that they do have something of value to offer, and it boosts their self-confidence and self-esteem in the process. This doesn’t mean we add a training function to their currently overloaded job, but it could be sharing at a team or organizational event, award ceremony or even in a newsletter.” – Sandy Geroux, CEO, WOWplace International 3. Let employees make important decisions. “Let them make decisions that matter and can impact the company. Verbal appreciation is important, and bonuses or other perks are appreciated, but ultimately, showing someone that you trust their opinion and expertise is far more valuable.” – Drew Thomas, chief creative officer, Brolik 4. Give them little surprises. “My favorite forms of appreciation include unexpected treats like group lunches or a shortened workday. I also like activities that add value for both the individual and the company, including team-building challenges and fully paid continuing-education courses.”

– Kelsey Libert, vice president of marketing, Fractl 5. Be specific with praise. “Leaders need to be specific in expressing their appreciation so that it reinforces behaviors through positive feedback for the employee. Instead of a generic ‘great job,’ be specific — for example, ‘I really like how you’ve pulled the discussion back together – You’re an exemplary collaborator.’ Being specific also adds meaning and inspires the employee to further develop their skills in that particular area.” – Reuven Gorsht, global vice president of customer strategy, SAP 6. Give employees extra time off. “I think the most valuable way to recognize an employee today is through time —that is, time off, time to do something else besides work. It could be family, a hobby, or a charity, or a short vacation. I don’t think it needs to be routine or regular, and has the most value when it’s unexpected.” – Mark S. Valenti, president and CEO, The Sextant Group

Hire Overqualified Candidates

Hiring managers shouldn’t be so quick to eliminate overqualified candidates from consideration for new jobs. A new study in the Academy of Management Journal revealed that employees who are considered overqualified for a job can take the position in a new, positive direction. Employees who are overqualified, up to a certain point, bring an added level of innovation and dedication to their jobs, according to the research. “A low-to-intermediate degree of perceived underemployment may drive employees to craft their jobs actively in ways that benefit the organization,” the study’s authors wrote. “Recruitment managers should not turn away job applicants who are overqualified, because such individuals, if managed appropriately, may bring creativity and organizational citizenship behavior to the organization.”

The degree to which someone is overqualified plays a critical role in determining whether or not they bring a unique perspective to their job. The study’s authors said when underemployment is perceived as too high, employees are often not motivated enough to do their jobs.

Employees who can bring a fresh perspective to how a job is done are highly valuable in today’s workplace. “Organizations today compete in a dynamic and uncertain environment in which creativity and organizational citizenship behavior are highly valuable,” the study’s authors wrote. For the research, the study’s authors conducted two studies of two different types of employees: school teachers and factory workers. In the first study, researchers surveyed 327 teachers at six high schools in China. Initially the teachers were queried on how overqualified, one a scale of one to seven, they felt they were for their jobs. One week later, they were asked to what extent they had engaged in job-crafting, such as introducing new approaches of their own to the classroom, organizing special events or bringing in materials from home. A final survey, another week later, asked the teachers to rate their creativity and organizational citizenship, which is defined as behavior that goes above and beyond the basic requirements of a job. The researchers found that job-crafting reached its peak among those who rated themselves a five on how overqualified they felt they were for their position.

The study’s authors said these teachers tended to do significantly more job-crafting than their peers who saw themselves as either more or less overqualified. The researchers said that extra job-crafting resulted in high ratings for both creativity and citizenship. In a second study, the researchers analyzed nearly 300 electronic toy factory workers. To determine how overqualified a worker was, the study’s authors had the technicians try to reproduce a model helicopter in less than 10 minutes. The number of pieces that the technicians were able to assemble in the short amount of time provided a reference to assess overqualification for this kind of work. The technicians were then given a second task. They were asked to design and assemble, in 30 minutes, at least one toy boat patterned after a model projected on a screen. Although a single boat required at least 30 components, the workers were free to use an unlimited number of parts to produce as many boats as they wanted. “If the workers used more than 30 pieces and assembled boats in different patterns . . . the excess number of the parts reflected the degree of self-driven effort for altering task boundary, i.e. task-crafting,” the study’s authors wrote.