Where once companies might have looked at their outside CEO prospects as a last-ditch option in succession planning, a new study shows that organizations are now deliberately making the decision to hire externally.
According to the 2015 CEO Success study by Strategy&, PricewaterhouseCoopers’s strategy consulting business, outsider CEOs accounted for 22 percent of all chief executives brought into the world’s 2,500 largest public companies between 2012 and 2015, up from 14 percent between 2004 and 2007. Further, nearly 75 percent of the outsider CEO choices were brought in as part of a planned succession compared with 43 percent during the 2004-2007 period.
“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,” said Per-Ola Karlsson, partner and leader of Strategy&’s organization and leadership practice for PwC Middle East, in a statement.
“While an internal CEO candidate may have an excellent record of achieving the business goals the company has pursued in the past, boards are recognizing that this candidate may lack the skills needed to lead the company through the changes necessary to win in the future,” he said.
Telecommunications, health care and utilities — industries significantly affected by disruption — have brought in a higher-than-average share of outsider CEOs, the study found. Additionally, for the third straight year, outsider CEOs have been outperforming their insider peers, delivering higher median shareholder returns.
The 2015 CEO Success Study found that a company was more likely to hire an outsider candidate if the company was low performing, the board chairman didn’t have CEO experience in the same company, or the former CEO was also an outsider.
Chief learning officers may want to consider these numbers when deciding how heavily to invest in leadership development strategy and how tightly to connect that strategy to succession planning efforts.
Bravetta Hassell is a Chief Learning Officer associate editor. Comment below, or email firstname.lastname@example.org