A new study from researchers at Florida Atlantic University has found that CEOs who are not originally from the country they work in are more likely to lose their jobs if the company they lead is not doing well. The study looked at 1,500 companies over 18 years and compared the rates at which foreign-born and native-born CEOs were fired when their companies were performing poorly.
“We wanted to look at this idea that if firms are appointing people born outside of the United States at the CEO-level, does that mean that those foreign-born CEOs might not face discrimination at that level as they face at other positions, and once they were on the job, whether they were evaluated in the same way as their national counterparts?” the researchers explain.
Unequal treatment
Examining an extensive dataset encompassing nearly 12,000 instances between 2000 to 2018 within the S&P 1500 index, the researchers discovered a clear disparity in terms of how CEOs were treated. This disparity reveals that American-born CEOs faced a 4.02% probability of professional displacement should their stewardship coincide with lackluster corporate performance.
In stark contrast, their foreign-born counterparts confronted a substantially elevated 15.96% likelihood of job termination when confronted with similar levels of underachievement. The findings highlight the potential for bias in how boards make their decisions.
“When we talk about biases that might hinder the career progress of workers in general, these biases exist at the CEO level, even at the largest firms in the United States,” the researchers explain.
Moving forward, boards of directors at companies need to be aware of these biases and the social-psychological factors that contribute to their decision-making and take steps to lower them, as the biases can hurt the firm in the long run.
“Premature or more frequent CEO turnover is problematic for firms because it represents human capital loss, including loss of valuable contextual know-how, the severing of important relational ties, the depletion of organizational memory, and the disruption of established routines,” the authors conclude. “Our findings thus offer an important caveat to the notion that leaders with a foreign or international background benefit their firms.”
