Guardians of the Previous Regime: Post-CEO Succession Factional Subgroups and Firm Performance

How can newly-hired CEOs compose their executive team to realize high performance? We attend to this question by drawing on the notion of factional subgroups. We propose that TMT change after a CEO succession event can promote the emergence of a factional faultline between executives hired by the new CEO, and executives who had been TMT members prior to succession (the ‘guardians of the previous regime’). Such faultlines will lead to destructive TMT processes and, thus, advance undesirable firm performance. We also argue that these detrimental effects of post-CEO succession factional faultlines will be stronger when: (a) the firm faced poor financial performance prior to succession, (b) the new CEO is hired from outside the firm, and (c) the incumbent executives shared a longer-term experience with the predecessor CEO. Data from 154 CEO succession events in large European firms between 2008 and 2013 support some of our hypotheses. Overall, our study contributes to upper echelons and strategic leadership research – by highlighting the importance of TMT reconfiguration after a CEO succession event.