Defending the throne: The influence of performance feedback on CEO succession in family‐controlled firms

Abstract Research Summary We explore how dominant coalitions' political goals influence firms' responses to performance feedback, introducing the concept of political slack. We propose that dominant coalitions use opportunities created by strong firm performance to make changes that reinforce their dominance while making defensive maneuvers to neutralize threats to their dominance posed by poor performance. A dominant coalition's ability to execute such strategic moves hinges on how much political slack it has. An analysis of South Korean family‐controlled firms shows that family coalitions with high political slack are more likely to be able to retain the incumbent family CEO despite below‐aspiration performance or to undertake CEO succession to a next‐generation family member, even when above‐aspiration performance favors retaining the incumbent CEO, than family coalitions with low political slack. Managerial Summary A firm's performance has crucial implications for CEO succession. The conventional wisdom is that CEO succession is determined mainly by firm performance under the incumbent CEO. We uncovered a novel pattern of results in which CEO succession decisions are significantly influenced by the firm value created collectively by previous CEOs from the dominant coalition. The greater the collective value they have created, the more likely the dominant coalition will be able to appoint its preferred CEO, even when short‐term firm performance calls for other CEOs. Our study offers insights that can help a firm's stakeholders anticipate and counter the dominant coalition's political maneuvers to strengthen its control to ensure proper corporate governance.