Fast Company: 2 Reasons Why Outsider CEOs Fail

17 Jul 2021
External CEOs with relevant experience who manage to engender positive sentiment do very well long term, according to AOM research.

Originally found at Fast Company, by Arianne Cohen.

Sometimes new CEOs who are hired externally perform brilliantly, turning companies into cash cows. But more often they don’t: CEOs hired from outside seem to succeed less than internally hired candidates, and their outcomes are less predictable, though the data is debated. Companies these days are hiring a lot of external CEOs. So how to pick a successful one?

Scholars are on the case. A trio of European coauthors from the University of Zurich, Frankfurt School of Finance and Management, and Bocconi University in Milan studied 1,275 new CEOs in 882 U.S. firms over a 13-year period, tracing their performance as well as their experience and surrounding general sentiment. The research appears this month in the Academy of Management Journal.

It’s tricky to quantify sentiment, so the researchers tracked employee ratings, 27,000 press articles, analysts’ buy/sell/hold recommendations, and executives’ sales of their own company’s stock. They found that externally hired CEOs are likely to struggle not because they’re outsiders, but for two more specific reasons: bad match and bad buzz.

Continue reading the original article at Fast Company.

Read the original research in Academy of Management Journal.

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