One of the most important and challenging decisions faced by corporate directors is whether to promote a new CEO from within or to hire new talent when a CEO leaves the company. Both have advantages. Inside candidates, often groomed by their predecessors, bring firm-, market-, and industry-specific knowledge that outsiders might take years to acquire. In contrast, outsiders bring different experiential knowledge to the strategic decision-making position and are often seen as able to make dramatic changes that an insider might not consider.
A Study of Hospitals Found That Outsider CEOs Make Their Organizations More Productive in the Long Run
A new take on the insider versus outsider debate.
May 08, 2018
Summary.
According to a study of U.S. hospitals, any type of leadership change will result in short-term adverse impacts on a firm’s operational efficiency, but new CEOs hired from outside the firm experienced a clear advantage in productivity gains over candidates who were hired from within. Still, one study shows that for corporations that can retain their CEOs, patience pays off: Companies that maintain stable leadership come out ahead in productivity.