Institutionalized action and corporate governance: The reliance on rules of CEO succession

This paper follows an institutional theory of action in exploring the conse quences of formal and informal rules on the chief executive officer (CEO) s uccession process. An analysis of the competing: risks of insider versus ou tsider CEO succession in U.S. industrial corporations provides evidence tha t boards rely on both past precedents and formal internal labor markets for executive succession and the selection of insiders versus outsiders as CEO s. To exclude alternative explanations that view rules as epiphenomenal, I examine the moderating effects of performance, rate CEO departures, the fou nder's power, and board structure on reliance on rules. The results show su bstantial inertia in the rules of CEO succession, consistent with an instit utionalized action perspective. The findings suggest that rules both enable and constrain board decision making.