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Inside Job: Why Companies Pick CEOs from Within
Inside Job: Why Companies Pick CEOs from Within

By Candice Choi
February 9, 2014 7:57AM

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Big companies like Microsoft, Coke and Chevron have tapped insiders to fill vacant CEO spots, suggesting a radical change isn't wanted. While outsiders may bring a fresh perspective, they also come with more risk. Meanwhile, homebred insiders bring benefits to the CEO suite, such as extensive knowledge of the company's structure and culture.
 



Companies looking for a leader face a big question: Pluck a CEO from the rank-and-file or a fresh face from outside the organization?

Microsoft decided to take the former path. The software giant on Tuesday tapped 22-year company veteran Satya Nadella for the top job.

The appointment suggests the company isn't looking for a radical change in the way it operates. It's a move companies including Coke and Chevron have made to fill their corner offices. Others such as Procter & Gamble even make a habit of grooming CEOs from within.

While outsiders may bring a fresh perspective, they also come with more risk. Meanwhile, homebred insiders can bring many other benefits to the CEO suite, such as extensive knowledge of the company's structure and culture.

That's a big reason why about two-thirds of CEOs have traditionally been hired from within, says Sydney Finkelstein, a professor of strategy and leadership at the Tuck School of Business at Dartmouth and author of "Why Smart Executives Fail."

"There's always more risk when you go outside," says Bob Damon, executive chairman of the Americas for Korn Ferry, an executive search firm.

Still, corporate history is dotted with examples of companies who have gone with outsiders, with varying results. Some companies even try one route, and then go back the other way when that fails.

And with so many industries from technology to retail undergoing dramatic changes, experts say more companies will likely look to outsiders for new energy in the years to come. Here are some examples of how the two different paths have played out in the past:

BEST BUY: OUTSIDER

Best Buy faced a double whammy in 2012: its CEO Brian Dunn left amid allegations that he violated company policy by having an inappropriate relationship with a female employee. At the same time, its business was eroding due to tough competition from discount stores and online retailers.

So the consumer electronics retailer decided to look outside for a fix -- far outside. It hired French turnaround expert Hubert Joly as CEO in August 2012.

Since then, Best Buy has cut jobs, changed store layouts and implemented a price-matching policy to compete with online rivals and discounters. The company had disappointing sales during the holiday shopping season, raising concerns about the electronic retailer's turnaround plan.

But most analysts say Best Buy is in a better position than it was before Joly came aboard, and the turnaround will be a long-term effort. Share movement shows investors seem to back Joly; the stock has nearly doubled since the beginning of 2013. (continued...)

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© 2014 Associated Press/AP Online under contract with NewsEdge. All rights reserved.
 

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