All's Fair in Love, War, & Bankruptcy

Ethan S. Bernstein

Article | Stanford Journal of Law, Business & Finance | spring 2006

All's Fair in Love, War, & Bankruptcy: Corporate Governance Implications of CEO Turnover in Financial Distress

Abstract

Prior discussions of management turnover during financial distress have examined bankrupt and non-bankrupt firms as distinct groupings with little overlap. Separately investigating rates of turnover in-bankruptcy and out-of-bankruptcy, without a direct comparison between the two, has resulted in a narrowing of the accepted influence of bankruptcy law to post-petition, in-court decisions. Based on new evidence of CEO turnover in 2001, I argue empirically that this distinction between in-court and out-of-court restructuring has become meaningless from a governance perspective. In 2001, filing for bankruptcy did not change the rate of CEO turnover when one controls for financial condition. This statistically significant finding indicates that the shadow of bankruptcy has lengthened, making bankruptcy law a central tenet of governance policy regardless of whether a Chapter 11 petition is ever filed. After presenting these results, this article considers the implications of these results on the changing perceptions of the role of CEOs and the evolution of the multi-pronged U.S. corporate governance system.

Keywords: CEO Turnover; bankruptcy; restructuring; Shadow of Bankruptcy; Borrowing and Debt; Credit; Financing and Loans; Corporate Governance; Finance; Theory; Markets; United States;

Format: Print

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Citation:

Bernstein, Ethan S. "All's Fair in Love, War, & Bankruptcy: Corporate Governance Implications of CEO Turnover in Financial Distress." Stanford Journal of Law, Business & Finance 11, no. 2 (spring 2006): 299–325.

Making good hiring decisions is a critical management activity, yet many leaders just “wing it” when interviewing candidates to fill openings by having an organic conversation to assess the candidate’s fit, unknowingly subjecting the process to unconscious bias. Instead, organizations should employ structured interviewing techniques to carefully assess the skills needed for a given opening, to determine a consistent approach for fairly evaluating candidates’ skills, and ultimately to make the best possible hiring decision. This note aims to help the reader acquire the skills necessary to be an effective interviewer and to champion best-practice interviewing within his or her organization. Beginning by briefly summarizing the pitfalls of unstructured interviewing, the note proceeds to explain three types of structured interviewing techniques, the steps hiring managers should undertake to prepare for and conduct interviews, and tips for making evidence-based assessments.

Teaching Note | HBS Case Collection | October 2015 (Revised February 2020)

Trouble at Tessei

Ethan Bernstein and Ryan Buell

In 2005, Teruo Yabe is asked to revive Tessei, the 669-person JR-East subsidiary responsible for cleaning its Shinkansen ("bullet") trains. Operational mistakes, customer complaints, safety issues, and employee turnover are at or near all-time highs, even as the demands on Tessei continued to grow.

Given previous leaders' failed attempts to fix Tessei's problems with increased managerial monitoring and controls, Yabe seeks a creative approach to overcome the motivation, capability, and coordination challenges facing his organization. Like many contemporary leaders, he selects transparency as his tool. He is, however, unique in adopting a highly nuanced approach to implementing transparency. In the process, he not only leads a fantastic organizational turnaround but even helps to make otherwise "dirty" work more meaningful for Tessei front-line employees. The case therefore presents students, particularly in leadership, organizational behavior, operations management, and service operations courses, with an opportunity to think through how a well-crafted transparency strategy can act as a powerful leadership tool.

Keywords: service operations; service management; employee engagement; employee motivation; leadership and managing people; leadership; quality improvement; efficiency; Japan; operational transparency; employee coordination; transparency; Leadership; Service Delivery; Service Operations; Employees; Quality; Transportation Industry; Japan;

Citation:

Bernstein, Ethan, and Ryan Buell. "Trouble at Tessei." Harvard Business School Teaching Note 616-031, October 2015. (Revised February 2020.) View Details

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All's Fair in Love, War, & Bankruptcy: Corporate Governance Implications of CEO Turnover in Financial Distress

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