Founder Turnover and Organizational Change

Abstract

Why might start-ups not change even when doing so may enhance firm performance? It seems reasonable to point to founder presence as a potential culprit given founders’ cognitive myopia and/or commitment to the status quo. However, founder presence may instead be a facilitator of change in response to environmental uncertainty because founders can uniquely coordinate resources needed for organizational change. We empirically address these two opposing views on the impact of founder presence (versus loss) on organizational change by using a comprehensive administrative data set of start-ups in the United States. Correlational analysis shows that start-ups generally become less likely to change following founder turnover. Given the potentially endogenous nature of founder turnover, we exploit premature deaths as a natural experiment that suddenly removes some founders from their start-ups while leaving others intact. We find that start-ups are less likely to change after losing a founder, especially if the founder loss happens during an economic recession. At the same time, the effect is attenuated when losing a founder with more experience in the same industry, suggesting that founder presence can also contribute to reinforcing the status quo under some conditions. Broadly, these results not only show that founders tend to facilitate change in their organizations but also identify when founders are merely subject to organizations’ bureaucratic forces that they themselves may have imprinted originally. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2023.1668 .