“I’ve got enough change management. What I’m looking for is change leadership!” ~a frustrated CEO.
One of the most frequent questions I am asked by Board Chairmen is “when is the right time to change the CEO?” Usually this is not just an idle question of intellectual curiosity, but comes with a back story that often has the Board troubled.
Changing the CEO is one of the most important and far-reaching decisions facing the Board and is never a straight forward decision (unless for fraud or inappropriate personal behaviour) and some interesting new data has recently been published by McKinsey & Co. that provides useful insights.
In a recent study of 600 CEOs leading S&P 500 companies between 2004-2014, McKinsey looked at the success of leaders from the outside vs inside appointees, plus whether or not they were recruited into successful or failing companies. While there is no actual causal data, the insights drawn by McKinsey tend to shed some interesting insight on leadership and change.
While it is not surprising that when recruited into failing companies, CEOs from the outside outperformed internal promotions and not only made more changes in organization structure, strategy and senior team composition, but also made those change more quickly. The hypothesis about the poorer performance of internal promotions has to do with legacy thinking, imbedded political ties, and lack of perspective. Being inside an organization for too long creates a natural myopia and change inertia.
We don’t know who discovered water, but you can be certain it wasn’t fish!
Change the Leader or Change the Leader?
Before jumping to the conclusion that the best approach is to hire an outsider, let’s consider what might be really going on. It’s not that outsiders are “better leaders” or any smarter than insider candidates, but they do bring one important edge, fresh thinking and an “outsider’s mindset”.
But what about the value of internal candidates and appointees? Of critical importance with an inside candidate is their knowledge of the customer, culture and organization. It often takes months if not years for an outsider to fully understand the strengths and weaknesses of company culture and to understand customers at a deeper level. And we all know that you can shift strategy and even restructure, but unless the culture is brought into alignment with these new changes, progress can be slow at best.
There are numerous ways to help internal CEO candidates broaden their perspective and develop an outsider’s mindset. One is external coaching by a former CEO or business leader who has been through one or more such transitions. Another is one of the excellent AMP (Advanced Management Programs) residence courses run by Stanford, Harvard, MIT and other centers of executive education. Another is an external assignment with an NGO or International Development organization in a developing country. A great way to break the shackles of insider inertia and build courage and new thinking. A less radical approach is the YPO (Young President’s Organization) where senior business leaders meet regularly and share challenges and solutions in a confidential and direct manner.
Before you automatically go outside for your next CEO, I suggest you explore the internal option along with some good leadership development. The one with insider’s knowledge but an external mindset may be your best bet.
Organizations are shadows of their leaders . . . that’s the good news and the bad news!
Written and Posted by: John R. Childress
Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid
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John also writes thriller novels!