Outsider CEOs back in favor?
How is it that trends have a way of slowing down and raising questions as to whether the pendulum might just swing back in the opposite direction? In the ongoing survey by strategy& (originally Booz & Co.) on CEO turnover, the newest analysis found that despite a long-term preference for insider CEOs as successors vs. outsider CEOs (77% vs. 23%), an interesting shift is taking place. As they cite:
- Outsiders accounted for 22% of all CEOs brought in via a planned succession between 2012-2015, up from 14% in 2004-2007
- Almost three-quarters of all outsider CEOs were brought in during planned successions during that same period, up from 43% in 2004-2007
I have followed CEO turnover for what seems like forever and am possibly one of the earliest trackers of CEO turnover. I began tracking CEO succession on ceogo.com back in the early 2000s. Google has no memory of the website I built so it must be buried in the graveyard of outdated dot-com sites. At the time, outsider CEOs were preferred because they came in and overhauled what needed to be done. Celebrity CEOs were at their height and nabbing one enhanced board reputations. However, the challenge of turning around a company by an outsider CEO often only recorded short-term success and frequently ended in mayhem. Then, nearly overnight, the world changed as a succession of catastrophic corporate scandals threatened the world order of business. Board shame necessitated bringing in insider CEOs who knew the culture, were hand-groomed and were less likely to be risk-takers. U.S. boards began following the European model where outsider CEOs were a sign of failure and insider CEOs represented establishment and status quo. Insiders were touted as the answer to corporate consistency and a nod to the board’s governance chops. Yet, for all this trial and error, we now see strategy&’s newest survey revealing that we are possibly at another juncture where outsider CEOs are on the rise again. Maybe it is just a course correction but perhaps not.
What’s to explain for this rise in outsider CEOs? As Per-Ola Karlsson, leader of Strategy&’s organization and leadership practice for PwC Middle East, says: “Hiring an executive from outside a company to serve as chief executive officer used to be seen as a last resort. That is not the case anymore with the disruptive market-related changes that companies are facing today.” The key word here is disruption. Business disruption is very different from innovation which seems to have been the mantra for the past five years. Business disruptors create entirely new industries and new technologies that are shaking up business. There are 45 million mentions on Google for business disruption compared to 64,000 back in 2006, 10 years ago. Business disruption changes how we lead, do business and discover new markets. As an article in Forbes, says, business disruption is “at once destructive and creative.” That’s a tall order. Maybe we are bearing witness to a greater need for these game-changers than we thought. Time will tell.