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Public Choice
Published in: Public Choice 3-4/2019

16-03-2019

Political change and turnovers: How do political principals consider organizational, individual, and performance information?

Authors: Bong Hwan Kim, Sounman Hong

Published in: Public Choice | Issue 3-4/2019

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Abstract

This study explores whether changes in political leadership affect the survival of chief executive officers (CEOs) of Korean state-owned enterprises (SOEs). On the basis of observations of the turnovers of 18 SOEs’ executives during 2000–2015, we demonstrate that political change is significantly associated with CEO turnover, even in the presence of institutional systems designed to achieve political insularity. That association may serve as suggestive but compelling evidence of presidential interventions in top managerial turnovers in Korean SOEs. We also find that political principals may utilize organizational- or individual-level information to gauge the loyalty and competence of SOE executives. Specifically, we demonstrate that executives who have received a poor performance evaluation are more likely to resign following a political change, suggesting the existence of a negativity bias in the political consideration of performance-related information. Some personal characteristics of executives, such as their career and educational histories, also moderate the impact of political changes.
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Footnotes
1
This relative politicization of US federal agencies may be a consequence of the American system of checks and balances (Tomkin 1998).
 
2
It should be noted that Lewis (2007) found further that experienced political appointees also were associated with improved program performance. Such evidence may indicate that low performance arises from the inexperience of certain political appointees.
 
3
Public agencies may differ in terms of the degree to which their outputs are easily measured or visible to outsiders. For instance, Wilson (2000) classified public organizations into four categories, production, craft, procedural and coping agencies, based on whether agency outputs easily are measured and production processes are visible to outsiders. In addition, political principals may consider how the media and citizens perceive the agency's work. In this study, however, we considered only the performance grades, given the large media attention the grades receive in Korea and their salience to the citizenry.
 
4
Recommendations of dismissal to the president are at the CMPI’s discretion. The CMPI may consider various factors in addition to the result of the SOE’s annual performance evaluation, including the industry’s macroeconomic circumstances or whether the CEO’s term was sufficiently long during the year to fully evaluate his or her performance.
 
5
As the members of CMPI serve fixed three-year terms, most members at the time of political change were appointed by the previous president. Therefore, it is unlikely that the appointment process of that nonpartisan committee functions as a channel of indirect presidential influence.
 
6
In some rare cases, executives also may be dismissed when the CMPI approves or recommends dismissal for the reasons described in the Act, such as violation of a statute or poor performance. Two such cases were observed among the SOEs we investigated during the studied period.
 
7
In Korea, all executives of SOEs are subject to a fixed three-year term by law. This term is fixed at the time of the executive’s appointment and may be renewed with a 1-year term based on performance. Renewal is uncommon, though. Korea does not impose a mandatory retirement age on SOE executives.
 
8
We followed Hong and Kim (2017) and included only those managers who worked as civil servants for more than 20 years after passing the entrance examination.
 
9
The SOEs that are subject to governmental price regulation share unique characteristics; they generally are larger than the rest, involve large infrastructure investments, and provide utility services to the citizenry.
 
10
Previous studies (e.g., Hong and Kim 2017) have cast doubt on the possibility that the presidential office can exert significant influence in determining the performance grades.
 
11
In fact, aforementioned anecdotal evidence regarding Minister Kim’s open pressure for CEO departure occurred when the new president represented the same political party as her predecessor.
 
12
However, we find that the impact of political change on CEO turnover was strongest in 2008.
 
13
Six stated-owned power generation enterprises were excluded from the analyses as we could not collect some variables for these entities; the number of observations omitted is 83.
 
14
The estimate is of a substantial size and generally is consistent with the findings of previous studies. For instance, Dahlström and Holmgren (2017) reported that party change in government is associated with an approximately 50% increase in the rate of exit of Swedish agency heads, whereas Boyne et al. (2010a, b) reported that a change in party control is associated with an approximately 6-to-24 % points higher turnover rate of senior managers in the top-tier local authorities in England. Similarly, Ennser-Jedenastik (2014) found that opposition-affiliated managers in Austrian SOEs are twice as likely to lose their positions as the nonpartisan reference group.
 
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Metadata
Title
Political change and turnovers: How do political principals consider organizational, individual, and performance information?
Authors
Bong Hwan Kim
Sounman Hong
Publication date
16-03-2019
Publisher
Springer US
Published in
Public Choice / Issue 3-4/2019
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI
https://doi.org/10.1007/s11127-019-00655-x

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