On average, CEOs recruited from outside the company perform about the same as those who come up through the ranks, the authors’ research suggests. But there are certain circumstances in which outsider CEOs tend to do better.
Authors, Ayse Karaevli (Sabanci University’s School of Management in Istanbul) and Edward J. Zajac (Northwestern University’s Kellogg School of Management in Evanston, Illinois), conducted a detailed empirical investigation of the performance and strategic change consequences of CEO succession in 90 single-business organizations over 30 years (1972- 2002), using two contrasting environmental situations in terms of turbulence and growth/ munificence: the U.S. airline and chemical industries.
The authors also examined the changes in post succession performance by creating a composite measure that standardizes and then sums the change in two operational performance indicators, industry-adjusted return on assets and industry- adjusted return on sales, along with a market-based performance indicator, industry- adjusted total shareholder return. Their research suggests that outsiders outperform insiders at companies with a recent history of poor performance.