Eric van Gils
External CEO vs an internal CEO candidate?
Several recent studies and opinion pieces have debated whether an external candidate makes a better CEO than promoting an internal candidate.
Some of the benefits suggested of an external candidate have included :
Having a fresh set of eyes looking over the business
Bringing new thinking into a business
Experience of how other organisations have succeeded
An ability to make changes without having any ties to the previous CEOs team
Writers have also highlighted the benefits of an internal candidates, including :
An understanding of the corporate culture
An established internal network
The latest Harvard Business Review ranking of the world’s top-performing CEOs (https://hbr.org/2018/11/the-best-performing-ceos-in-the-world-2018) uses financial returns over the CEO’s entire tenure to identify which of the world’s corporate leaders are the most successful, and once again the internal vs external debate comes to the fore.
Using HBR’s definition of success, 87 of the top 100 CEOs come from within the business, “insiders”, showing that perhaps the benefits an internal candidate can bring to the role may out weigh the benefits an external candidates has.
Another interesting fact is that the the number of “insiders” on the list is increasing, with 81 in the 2017 ranking versus 87 in the top 100 CEOs in 2018.
These successful CEOs are also not overnight successes and they have typically enjoyed an average tenure of 16 years in their CEO role, compared to only 7.2 years average tenure for all S&P 500 CEOs. The list also sees very little churn, with only a quarter to a third dropping off the list due to retirement, resignation, death or poor performance.
If 87% of the most successful CEOs are internal candidates, how many outstanding internal candidates are being overlooked by the board when a preferred external CEO is hired? Are our talent management and succession plans effectively identifying the best internal candidates to rise to the top?
Lessons for leadership
The most critical lesson, in my view, from this research is that it highlights the importance of Learning and Development and Talent Management in ensuring a business has a balanced view of internal and external candidates when considering the right leader to take a business forward.
Further reading :