George Osborne, chancellor of the exchequer, was pleased to announce on 26 November that an outsider would be the next governor at the Bank of England. Even Ed Balls, shadow chancellor and Osborne’s main political opponent, congratulated him on the appointment of internationally well-regarded Mark Carney, governor of the Bank of Canada.
Leaving aside the relative merits of the various candidates for the vacancy, which were extensively dissected in the media, I wondered instead whether an outsider boss would be better than an insider for this long standing institution where I used to be the HR director.
Most business gurus are in favour of insider CEOs. In their highly influential book Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras found that outstanding US companies did not recruit their CEOs from the outside. Instead insiders were carefully developed and prepared so that there would be a choice of strong senior leaders when the time came. Hence, we’ve seen the significant investment in talent management in recent years in most of our major organisations.
Christian Stadler has recently conducted a similar extensive study of outstanding companies in Europe (Enduring Success: What we can learn from outstanding companies). Stadler has found that the top European companies in his sample hired an outsider CEO in only 4 per cent of cases, compared with the less successful comparator companies he studied, which hired an outsider CEO in 23 per cent of cases.
Outsider CEOs are often thought to be more able to change a company. This is likely to have been Osborne’s thinking when he approached Mark Carney. Interestingly, though, Stadler found that insider CEOs were in fact the most successful at achieving dramatic and successful transformation of their companies. He thinks that insider CEOs may be just as likely as outsiders to come up with fresh ideas but have the intimate contextual understanding and the power base required to make these ideas succeed.
As HR and talent management professionals, we’re responsible for the identification and preparation of future leaders. We’ll naturally be biased in favour of insider appointments as we’ve invested time and resource on the internal candidates. We also tend to be acutely conscious of the disappointment suffered when internal key talent fails in its ambitions and what that could signal to everyone else who hopes for a successful long term career in the company.
However, the Booz CEO Succession Report for 2011 reveals that globally 22 per cent of new CEO appointments in 2011 went to outsiders. The desire to appoint a new broom from the outside will not go away – after all we don’t all work for the long-lived outstanding corporations that Collins and Porras and Stadler have studied. Nor do we all have foolproof talent pipelines that deliver the strongest looking new boss when the board starts to look outside.
At many organisations in 2013, not just at the Bank of England, employees will be wondering how they will be perceived by the new boss and how the “favourites” or “key talent” will fare. After all, with an outsider CEO a new level playing field for talent gets created. Who will stand out now? Who else will the CEO bring in with him or her? On the other hand, outsider bosses typically serve for less time than insider bosses, so one approach is to keep your head down and wait. Maybe next time, we’ll get an insider boss.
Meanwhile, HR professionals and talent managers should make sure they have good strategies and approaches to supporting new external talent just as much as they have for developing internal hopefuls. Outsider appointments are here to stay – whatever the business school professors tell us.