Stability of Top Management Teams∗

We identify several theories that each suggest a link between CEO turnover and changes among a firm’s top non-CEO managers. We then assess these links empirically using two panel data sets. We present five main findings. First, we find that CEO and non-CEO turnover are positively associated. Second, we do not find that this association is stronger when firm performance is poor. Third, this association is driven largely by instances of outside CEO succession. Fourth, the association between CEO and non-CEO changes persists; even the year after CEO turnover, non-CEO managers are more likely to leave the firm’s top management group. Fifth, changes in the identities of non-CEO managers are more closely associated with subsequent organizational changes than is CEO turnover. We interpret these results as being consistent with theories in which non-CEO managers make investments in human capital that is specific to co-workers, and specific to the firm’s current practices or strategy. ∗Hayes: Graduate School of Business, University of Chicago. [email protected]. Oyer: Graduate School of Business, Stanford University. oyer [email protected]. Schaefer: Kellogg School of Management, Northwestern University. [email protected]. We are grateful to the the American Compensation Association’s Emerging Scholars Program and the General Motors Center for Strategy Research at Kellogg for support. Thanks to seminar participants at the Summer 2000 Stanford Personnel Economics Conference, Wharton, and the Federal Reserve Bank of New York’s November 2001 Conference on Corporate Governance in Banking and Financial Services Industry. Thanks also to Charles Himmelberg for comments and questions. Special thanks to Kevin Hallock for allowing us to use his data on Fortune 500 firms’ layoff announcements. Chris Forman, Adrian Mak and Denis Wywroll provided expert research assistance.