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School of Business | Department of Management Studies | MSc program in Entrepreneurship | 2015
Thesis number: 14134
Situating mindset swap through a legitimacy lens: exploring the tensions from founder - CEO succession
Author: Nihtilä, Niko
Title: Situating mindset swap through a legitimacy lens: exploring the tensions from founder - CEO succession
Year: 2015  Language: eng
Department: Department of Management Studies
Academic subject: MSc program in Entrepreneurship
Index terms: yrittäjyys; entrepreneurship; yritykset; companies; kasvu; growth; menestyminen; success; johtajat; managers; muutos; change
Pages: 103
Key terms: CEO succession; founder departure; institutionalism; legitimacy; mindset swap
Founder-CEO succession in growth companies is an inevitable and significant event that often proves to be influential to the company's future and not nearly always ends successfully. How can a succeeding CEO gain legitimacy to lead the firm after a founder-CEO who has been in the company from the beginning and around whom the organization has grown? During succession the CEO is changed from one person to another and no matter how alike the two are, there will be an immediate and significant mindset swap, inducing legitimacy tensions within the organization.

The research adopts a legitimacy lens through which to observe the tensions caused by the mindset swap. Legitimacy is the right to govern that the succeeding CEO needs to gain in order to fulfill the task given to him by the board of directors. There is three types of legitimacy: cognitive, which is the natural and socially widely accepted legitimacy that certain institutions have; moral, which is based on the righteousness of procedures and consequences that the institutions actions have; and pragmatic, which depends on what the institution has to give for legitimacy, be it something concrete in exchange or abstract e.g. merely influence.

For the succeeding CEO, it is important to set the baseline legitimacy as high as possible. This means that the succeeding CEO would have the best possible start for their career through high level of legitimacy on which to build it further. Considering the entire legitimation landscape, setting the baseline legitimacy is the static part of it. Endorsement by an authority at the point of succession can set the cognitive legitimacy baseline high and is easiest done through founder- CEO's expression of trust in the successor. Moral legitimacy baseline depends on the strength of company culture in question and how well the succeeding CEO matches it. New expectations, demands, and leadership introduced by the successor, in turn have an immediate effect on the pragmatic legitimacy that the employees need to adapt to.

Dynamic legitimation begins immediately after the succession and there is a clear dilemma between having the predecessor CEO giving endorsement and presenting the past. It is called institutional legacy problem when the founder-CEO remains in the company that possibly has a negative effect on new CEO cognitive legitimacy. Successor has to be actively and comprehensively involved in company matters in order to satisfy employee curiosity and assure everyone of the cultural fit. Simultaneously new CEO should look at the legitimation process and the organization modularly in order to remain agile and build legitimacy effectively all around. Employees need to adjust to the new demands and leadership and the CEO has to be reasonable but determined to build pragmatic legitimacy.

This research contributed to the current research by introducing a new way of studying CEO succession through legitimacy. It also widened our knowledge of legitimation process by revealing the impact of baseline legitimacy. Research should still strive to gain more understanding of the matter especially through studying legitimacy from softer leadership points of views.
Master's theses are stored at Learning Centre in Otaniemi.