How a CEO’s Social Standing Can Influence his or her Tendency to Jump Ship

CEOs wondering if they’d bail if their employer ran into trouble should perhaps consider how many friends they have on LinkedIn.

Yes, it turns out that a CEO’s “social capital” can have a big influence on important career moves, at least according to new research led by the University of Arizona.

To test the proposition, a team led by assistant professor Han Jiang monitored the social capital and voluntary departures of 278 executives from declining firms in China—though Jiang argues the results can, to some extent, be applied universally.

Their paper, just published in the Strategic Management Journal, found that CEOs possessing strong personal relationships with business colleagues and key external stakeholders were more likely to stick around. Yet, the very least popular leaders had a high tendency to hang on, too.

It was the ones in the middle—those not very popular but not exactly friendless—who were the most likely to bail.

“THERE’S ALSO THE RISK THAT WELL-CONNECTED CEOS COULD BE PERCEIVED AS QUITTERS WHO ABANDON EVERYONE WHEN THINGS GET TESTY.”

An explanation, Jiang suggested, comes down to reputation and the presence of alternative options. CEOs with low social capital might want to leave a struggling company to protect their reputations, but their lack of connections means escaping isn’t a viable option.

On the flipside, CEOs held in high regard could leverage their connections to find a parachute, though their strong social capital would likely make them more confident that they can actually turn their companies around.

There’s also the risk that well-connected CEOs could be perceived as quitters who abandon everyone when things get testy, ultimately risking having their reputations trashed, particularly if they’re used as scapegoats.

Then we have CEOs with medium levels of social capital, who could tap their reasonably large pool of connections to find another job. “Compared to extremely socially-connected executives, I’m probably not that confident about being able to save my firm, and I probably won’t be that protected from the consequences of a potential public failure,” Jiang said. “I have both the motivation and the capability to leave.”

Jiang acknowledges that social capital’s effects could differ in countries that are driven more by individualism. Still, he said the findings should broadly hold true in places other than China, offering boards a way to assess how likely key executives are to leave.

Indeed, separate research has shown that American CEOs value their social standing so highly that they’re prepared to take a decent-sized pay hit to work at more prestigious companies. A study by researchers at Germany’s Mannheim University found that CEOs at businesses on Fortune’s Most Admired Companies list earned an average 8% less than their peers.

The researchers discovered that their willingness to earn less was more likely to do with a simple status boost, rather than any increased earnings potential. For example, among companies in regions where people cared more about social status, such as Texas and California, there was a larger negative effect on CEO pay.

So it’s clear that even in more individualist cultures like the U.S., leaders still care about what other people think.

“Your social capital determines both the opportunity to voluntarily leave your employer and the potential costs of doing so,” Jiang said.

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Ross Kelly
Ross Kelly is a London-based business journalist. He has been a staff correspondent or editor at The Wall Street Journal, Yahoo Finance and the Australian Associated Press.

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