Results announced yesterday of 20-year study by Indiana University’s Kelley School of Business in conjunction with AT Kearney found that companies that exclusively promote CEOs from within the ranks – as opposed to hiring outsiders – routinely outperform companies that hire CEOs from outside the firm.
The finding, I’d suggest, should hardly be any surprise. Organizational leaders have four or five hurdles to clear to be effective in organizations; effectiveness with colleagues, direct reports, and bosses (CEOs, investors, boards of directors), sector proficiency, managing change and organizational culture.
Hiring insiders who know how to work the culture (and how to manage change within that culture) gives those firms somebody who has a leg up on clearing the other challenges in front of them.
What’s also not surprising from the study is that the cost to place an outside CEO is 65% higher than internal candidates. Catch this for a marketing phrase bargain; internal hires perform better, cost less.
One of the reasons that getting good coaching (see this post and the Hire Me tab for this coach) for externals that are critical new hires or high risk hires is that unless you provide some added help to navigate the organizational dynamics of a new job and new culture the success rate is not very good. With internal hires, at least one of those challenges is mitigated.
The problem, having run executive recruiting programs, is that people tend to fall in love with the devil they don’t know as opposed to the devil they do; the outsider in almost all cases looks more attractive. The warts and downsides are less known, or less obvious.
Search firms, some of whom now offer executive assessment, have a built in bias (and conflict) to suggest that insiders are not as qualified as outsiders. Unfortunately – the the IU study bears it out – performance results don’t suggest that hiring externals is generally more effective.
Part of the challenge for internals is to “look the part” for consideration for promotion; while the bad news is that bias by some firms is to hire from outside, the good news is the looking the part is coachable. People who can integrate feedback, and work with coaches with a behavioral bent who can teach people how to modify their behaviors – and how they appear to others – can pick up that promotable look.
While the grass may be greener elsewhere for candidate, truth for performance in senior leaders is more complicated than that. The best candidates for your senior roles may be right in your front yard – particularly if you’ve spent some time developing them.
A copy of the study can be obtained from George Vlahakis at gvlahaki@indiana.edu
Life Back West is an occasional set of writings focused on ways people, teams and organizations can be both more effective (doing the right thing) and more efficient (doing the right thing well). More about executive, career and team / leadership coaching services can be found at the “About J. Mike Smith and Back West, Inc.” sidebar or the “Hire Me” tab above. You can also read an online interview with me at WhoHub, as well as participate in my learning community courtesy of KnowledgeCrush.