Ignoring Rules of Succession: How The Board Reacts To CEO Illness Announcements

Abstract

Rules of behavior guide decisions, and succession rules guide CEO selection.When CEO turnover is unanticipated, succession rules may not be able toguide the board. We examine unanticipated successions that occur when a CEObecomes ill or injured. These unanticipated successions are associated with agreater likelihood of former-CEO successors than when the successions areanticipated. The stock market reacts positively to former-CEO succession announcements.While this type of succession may not be consistent with successionrules, it may be consistent with their functions by reducing internal conflict andallowing directors to maintain fiduciary responsibiliy.