Insiders Perform Better As CEOs Than Outsiders
Citigroup and Merrill Lynch might be best served by replacing their outgoing CEOs with an insider rather than a high-profile executive from another prominent firm. That’s the advice of a newly published book by Harvard Business School Professor Joseph Bower.
Bower’s analysis of the leadership and performance of S&P 500 companies in the US leads him to conclude that “insiders perform better than outsiders” whether the company was performing well or poorly at the time of their appointment, but “especially when the company had had poor prior performance.”
In The CEO Within, Bowers worries about the “cognitive and emotional baggage” that insiders bring with them as a result of their long employment in the organization.
His solution, based on an intensive examination of a number of case studies, is the “inside outsider.”
This executive avoids, in his view, some of the shortcomings of both insiders and outsiders. He or she has successfully led portions of the business, such as international ventures, which are away from the purview of headquarters.
Headquarters has given them full responsibility for performance with little direct oversight, and allowed them to develop a more objective view of the enterprise and its strategies. This enables them to entertain ideas for new directions while leading with the credibility, the understanding of the organization and its culture, and a good knowledge of its talent that “outsiders” have to accumulate over time, often with some difficulty.
Exhibit A among “insider outsiders” is Jack Welch at GE, who at the time of his promotion to CEO had been a member of the organization for a number of years and was making his mark running a non-core business, plastics, with a management style that was very different from his predecessor, Reg Jones. His selection culminated a careful process in which Jones nurtured a talent pool of successors and involved the board in identifying finalists for the job.
The CEO Within: Why Inside Outsiders Are the Key to Succession Planning (Boston: Harvard Business School Press, 2007) can be purchased here. A free summary and discussion forum can be found here.
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