The King is Dead. Long Live the King. About CEO Succession

The New CEO

A company in the hospitality sector hired a new CEO from a different industry. As is often the case, the CEO went through a brief induction period before stepping on stage to address a group of employees. He was nervous — understandably so. What could he say to people working in an industry he barely knew? He felt the pressure to be inspirational.

What he did next effectively sealed his fate. He took a PowerPoint deck on leadership and governance from his previous company, changed the layout, and presented it to the audience.

They stared at him blankly. The presentation made no sense to them. It was filled with language that felt foreign, disconnected from their world. This CEO had failed to absorb the new culture or adopt a language that could inspire trust.

He did not last long.

Creatures of Habit

Never underestimate the influence of past experience on the behaviour of a new CEO. Someone coming from GE might automatically assume that the GE way applies everywhere — and so will push for black belts. Someone from Toyota might want to introduce the Toyota Way. Someone from Spotify will probably try to replicate its agile culture.

People are people. Creatures of habit.

Outside or Inside?

The examples above might suggest that hiring an external CEO is never a good idea. But no CEO can stay forever — every CEO has an expiration date. And when that moment comes, the perennial question arises: should the next CEO come from outside the organisation, or from within?

A meta-analysis on CEO succession found that a new CEO has no meaningful impact on short-term performance. When the successor comes from within, the effect on long-term performance tends to be positive. Strikingly, when the CEO comes from outside, long-term firm performance tends to suffer.

Why?

External CEOs typically drive significant strategic change — and strategic change brings disruption: high investment, uncertainty, and organisational friction, all of which weigh on performance.

That said, in times of crisis, continuity can itself be a liability. An external CEO may be better positioned to make bold decisions and pursue the strategic change an organisation urgently needs. But the transition must be managed carefully. Barging in is never the right approach, and the myth of the "first 90 days" deserves serious scrutiny.

The authors of the meta-analysis recommend providing sufficient guidance and support during the transition.

When strategic change is needed, an outside CEO may be the right call — but the risks are real. Without deep institutional knowledge, the new leader may make hasty decisions based on experience from previous roles, with potentially damaging consequences.

What Should Governance Do?

The non-executive board that appoints a new CEO must be fully aware of the risks and consequences of CEO succession, and take contextual factors seriously into account.

Boards should also examine their own decision-making biases. Research shows that larger boards with more independent members tend to favour external candidates from different industries, while smaller boards composed of industry insiders are more likely to choose a successor from within (Jalal et al., 2012).

The choice of CEO should ultimately be driven by context.

If there is no pressing need for strategic change, an internal successor is almost always preferable. This requires deliberate preparation and planning, and a governance approach grounded in coaching. If the board opts for an outside CEO regardless, the focus of oversight should centre primarily on cultural integration.

If strategic change is genuinely needed, an external CEO is likely the stronger choice. In this case, governance must actively challenge the incoming CEO to prevent strategic overreach and excessive collateral damage. Evidence also suggests that external CEOs hired from a different industry tend to perform better than those hired from within the same sector (Jalal et al., 2012).

Whatever the circumstances surrounding a CEO's departure, succession is a pivotal moment. Boards should calibrate their guidance to the profile and background of the incoming leader. A risk assessment to identify potential derailing factors is strongly advisable, supported by targeted executive coaching to limit collateral damage.

Never assume a new CEO will simply do the right thing.

References

• Abu M. Jalal & Alexandros P. Preza (2012). Outsider CEO succession and firm performance. Journal of Economics and Business, 64, 399–426.
• D.J. Schepker, Youngsang Kim, Pankaj C. Patel, Sherry M.B. Thatcher & Michael C. Campion (2017). CEO succession, strategic change, and post-succession performance: A meta-analysis. The Leadership Quarterly, 28(6), 701–720.