The Cost of Entrenchment: Why CEOs Are Rarely Fired | Hacker News Reader

The Cost of Entrenchment: Why CEOs Are Rarely Fired

knowledge.wharton.upenn.edu

22 pointsjackowayed5 comments

Interesting. One critique of the paper---the notion that a higher level of equilibrium firing would making being CEO less attractive (and hence lower the talent level) seems wrong, or at least incomplete. First, more firing would make more space at the top, increasing the probability of getting the job in the first place. Second, in a world with more firing, getting fired would be less of a negative signal. Getting canned would still be bad, but my guess is that it would be more like losing an NFL head coaching job e.g., you become an offensive coordinator, coach in college, move to a different team etc.

I'm not convinced that perceived availability of jobs leads to an improved talent pool for headhunted Fortune 500 CEOs; it's not as if suitable people are declining to consider interviewing for positions because they've heard that there are many more vacancies for programmers or equity analysts.

Assuming that the board isn't certain of hiring the best candidate, lots of space at the top is going to make any individual companies' talent pool worse by ensuring that other companies snag some of the best available talent for their own vacancies.

This selection problem (and your argument about signalling) might partly explain why larger companies are more willing to fire and loss-making companies are apparently no more likely to fire than profitable ones - a loss-making small company is much less confident in their ability to hire an outstanding replacement than a profit-making larger company with a board perceived as trigger-happy.

Agreed - in the short run, it wouldn't have an effect for the reason you highlight (the pool is fixed). I was thinking more about the long run, where a change in CEO probability alters the career choice of people deciding say between going into business or going to medical school, becoming a lawyer etc.

The Ann Rand fanboy fantasy thought permeates so many of the trustfunded hipsters here.

> so many of the trustfunded hipsters here

How are you identifying "trustfunded hipsters" and how do you know that you're correct? Or, are you just assuming something about people whom you don't like that lets you feel good about yourself?

Data point - I don't have a trust fund and I'm too old to be a hipster. My parents are comfortable now but grew up below "dirt-poor".

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