Spencer Stuart research shows that whether an “Insider” or an “Outsider” is the best candidate for CEO successor is primarily determined by the condition of the company when the leadership transition takes place.
Critical factors in whether an Insider or Outsider will perform better in this new position are the health, stability and competitive position of the company at the time of transition.
Insiders perform more consistently when their companies are in a healthy state at the time of appointment, whereas outsiders perform better when the company is in some form of crisis. This may sound intuitive, but is often not given enough weight when it comes to making this choice.
Why do Insiders perform better at healthy companies? For internal succession to be effective, there must be a strong pipeline of talent in the organisation. Healthy companies are more likely to attract first-rate talent, providing the board with a broader choice of quality candidates with the potential to become CEO. More resources are often available for the development of senior management and greater effort is sometimes given to fast- tracking high-potential executives. Likewise, the board will have more time to focus on the development of likely CEO successors if they are not in crisis mode.
The strong culture of a healthy company may be an impediment for an Outsider who will need to spend time carefully getting the measure of the organization before having the chance to make an impact. Besides, if there is no burning platform for change, Outsiders may encounter organisational resistance to change and a lack of enthusiasm for the incoming CEO’s agenda.
Outsiders are more likely to excel and outperform insiders at companies that are in crisis; their risk of failure is also lower. Whereas Insiders are more likely to be locked in to a problem culture, outsiders have more freedom to impose change on the organisation; indeed they are expected to do so. What’s more, internal candidates have developed relationships throughout the organisation over many years and this can make it extremely difficult for them to make unpopular decisions and drive the transformation that is needed when they become CEO. If there is no burning platform for change, Outsiders may encounter organisational resistance to change and a lack of enthusiasm for the incoming CEO’s agenda.
WHAT DOES NOT PREDICT ‘INSIDER’ VS ‘OUTSIDER’ CEO PERFORMANCE?
- candidates’ age
- where they went to university
- the number of degrees they hold
- whether they began their career at a blue-chip company
- need to relocate or commute
WHAT DOES PREDICT ‘INSIDER’ VS ‘OUTSIDER’ CEO PERFORMANCE?
- the present health of the company
Insiders are best when the company is performing well; Outsiders do better when the company is in crisis.
To greatly improve their chances overseeing a successful CEO transition, boards should consequently consider the trends for Insider and Outsider variations in performance in line with the present health of their business.
This blog was prepared based on research by Spencer Stuart: one of the world’s leading executive search consulting firms.