How firing a leader may be explained in Keynesian terms

By John Keane

The firing of leaders should be clear evidence of rational decision processes. Sometimes it seems driven by irrational expectations

My example comes from the world of football in England, but it could easily be extended to other business situations.

As Easter approached [March 2013] Premier League battles for survival were heating up. Six clubs were considered most likely to supply the three who would be relegated, with serious loss in income. If a boost to performance could be achieved in the final ten games, financial disaster could be avoided. It is considerably harder for a club to fight its way back, as the relegation to the Championship has considerable consequences on recruitment of new players, sponsorship and match attendances.

On firing a leader

The decision to fire a manager seems to be one primarily taken by a powerful owner, who may or may not be influenced by others such as the manager, and (or so the fans would like to believe) the vocal protests of supporters.

One of the most powerful and wealthy owners, Roman Abramovitch of Chelsea, has a track record of removing managers in search of others he approves of more. At present his choice has already been told he is a stop gap to be replaced at the end of the season by the best manager money can buy. This is somewhat different as Chelsea is also able to buy good enough players to win trophies. They are currently European Champions, but the achievement was not enough to save the last manager from being fired.

The candidates for the chop

Managers facing relegation this year included those at Southampton, Wigan, Aston Villa, Reading, Queens Park Rangers and Sunderland. One of these (QPR) acted earlier in the season and appointed Harry Redknapp, one of the most experienced managers capable of helping ‘the great escape’. Reading, Southampton and Aston Villa pressed the trigger later. In these cases the replacement is not obviously a better manager by track record than the departing one. This is particularly the case for Sunderland, who replaced a manager of considerable prior achievements, with a controversial one with less experience.

These sorts of decisions illustrate the Keynesian view that financial decisions are driven by irrational forces and expectations. Or, as Keynesians like to say, the leaders are left trying to ‘push on a piece of string’ [to obtain supply-side wins] to achieve better results than might otherwise have been produced.

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