Experience Required? In a CEO, Maybe Not
When it comes time to bring on a CEO, the temptation to hire somebody who's already served as a chief executive is understandable. After all, you're tasking this person to take responsibility for the long-term health of your company.
But new research suggests otherwise. A team led by NEOMA School of Business professor Burak Koyuncu found that first-timers are about as good a bet as former CEOs who had stepped away from the big chair. And the inexperienced CEO tends to work out much better than somebody who is already serving as a CEO at the time you hire him or her.
Green Is Good
The research was based on the career histories of the CEOs at S&P 500 companies since 2005.
The study showed that executives who had previously served as CEOs, but had served in different positions or otherwise taken time off before assuming the new gig, saw returns on assets that were about even with first-time leaders.
But those hired into the role directly from a previous CEO position were eye-poppingly less effective than newbies: The companies that hired them saw 48 percent lower returns after three years than those who were new to the position.
The researchers said the reason for this can be summed up simply: Old habits die hard.
"The job-specific experience these CEOs gained in their prior CEO job interferes with their performance in their new job,” Koyuncu said.
Companies that do bring on an experienced CEO, the researchers said, should make sure they provide the new leader with the support and time they need to get acclimated to the new culture.
"The greater the chance the company can avoid falling into the CEO experience trap,” Koyuncu said.
The study jives with an MIT Sloan Management Review article from last year, detailing a study showing there is virtually no difference in performance when companies bring in outsider CEOs compared to internally promoted leaders. And that study did show that sometimes, an outsider CEO works best -- especially as it pertains to cutting costs and resetting strategy. But in those circumstances, the Sloan article advises, you should have an onboarding strategy in place for the new leader.
Koyuncu told Inc.com his research also meshes with previous findings that show founders who see success early in a product cycle sometimes struggle as their products, companies, and industries changed. When you reach that stage, of course, it might be time to start thinking about bringing on a CEO anyway -- and Koyuncu's research indicates that when that time comes, experience might not be tantamount.