CEO Transitions - Avoiding a Lottery

The NY Times reports an orderly CEO transition at Xerox - something of a rarity these days. It follows a (so far) successful turnaround of a company that was perilously close to bankruptcy, and it is the first Fortune 500 company to pass the CEO baton from one woman to another (who is also the first African-American female CEO in this category). The contrast with the more painful transition at AIG reported on the same page is hard to escape. Whilst hardly a valid sample, it's interesting to speculate if this difference might partly reflect the value of promoting internal candidates over externals in difficult times. When markets are flat or declining, companies need to look inside themselves for the answers, and a CEO who knows the company inside out is going to be in a better position than an outsider to know what needs to be done and how. Parachuting someone in from the outside who must be, to some extent, blind to the complexities of the real job, in order to fix a challenging set of internal issues may seem a great idea, but it's a risky approach. They may get lucky, but there's a good chance the fix won't work.

Back in 2002 in his book Searching for a Corporate Savior, Rakesh Khurana showed how, on an objective basis, and all things being equal, a good internal candidate is likely to perform better than a good external. Maybe the Xerox transition can be an encouragement to us all to spend less time focusing on the shortcomings of internal candidates who have the misfortune to be known quantities. Instead, we might benefit from spending more time focusing on the risks involved in recruiting outsiders about whom we have little more than reputations on which to judge their suitability for a new role.

By the way, the business section of the NY Times on the same front page also reports on planned changes to the rules for appointing company directors. Organizational change is in the air and the job of the CEO is about to get even harder, as if it wasn't tough enough already.