Every company needs to be prepared for the possibility of having to hire a new CEO at some point.
That’s when you’ll need to answer the all-important question – should you promote someone internally to your CEO office, or hire externally?
The latest research from the Robert Half CEO Tracker found that in Australia, almost 6 in 10 of ASX 200-listed CEOs* were promoted internally, while 38.5% were recruited from outside the company.
While this might make internal hiring seem like the logical choice, a number of different factors need to come into play when making such an important decision. Here’s an overview of the pros and cons of internal vs. external recruitment when appointing a new chief executive.
Hiring internally for the CEO office
The logic behind internal promotion to the CEO office is simple. Existing employees can offer deep knowledge of the company starting from day one, including its operations, products and services. This can be a positive if you want a ‘business as usual’ approach to the CEO role that emphasises stability and continuity over change.
Of course, that can be either a good thing or a bad thing, depending on what your recruitment goals are. Here are some key reasons for (and against) hiring internally for an available CEO position.
Advantages
Straightforward onboarding:
In Australia, the Robert Half CEO Tracker found that it took an average of 6 years of tenure to be hired internally for CEO. This time spent with the organisation should allow most candidates to transition into the role and ‘learn the ropes’ relatively faster than someone new to the business operations.
Lower cost:
Promoting an existing employee to CEO may incur less cost. The costs of hiring and training an external hire in the company’s systems and processes would have to be factored in.
Improved morale:
An internal promotion to CEO sends a powerful message to employees that hard work can pay off with career progression, all the way to the top job. This can be a great booster for employee morale and retention.
Disadvantages
Internal disruption:
Hiring internally to the CEO office is going to create another vacancy within the company that will need to be filled. That’s when you may want to hire an outsider to avoid further vacancies, or have to consider another internal promotion.
Difficult choices:
If your internal promotion process isn’t completely transparent, the transition may not be a completely smooth one – especially if more than one person was angling for the position. Therefore, it’s important that qualifications and requirements for the job are clear, to show that the final decision was made objectively.
Hiring externally
A common reason for hiring externally for CEO is because the right internal talent isn’t available. But some companies will also want someone who can bring bold new ideas to the business, and hiring externally can be the best way to achieve this. Here are some pluses and minuses to consider.
Advantages
Fresh perspective:
An externally hired CEO can bring a fresh perspective and a new background of experience to the organisation. This can allow them to be better positioned to drive significant changes in strategy, operations and culture.
Proven track record:
The best external hires for CEO will often have a strong track record of performance in the same industry, or even have previously served in a CEO role. This can also help to assure shareholders and customers that the company is serious about delivering good results.
Objectivity:
Due to their lack of pre-existing relationships with staff or departments, it can be easier for externally hired CEOs to make difficult decisions about current challenges.
Disadvantages
Transition period:
There is likely to be some loss of productivity while the new CEO settles in, learns new processes and gets to know their team. Nonetheless, this process is remedied if the right candidate is a quick learner and able to start making contributions to the business very quickly.
Cultural difference:
If the company has a unique and well-defined organisational culture, it may be hard to find an outsider for the CEO office who understands and can fit in with it. However, an experienced executive search and recruitment firm can assist in sourcing candidates who bring a strong degree of cultural alignment.
Loyalty is rarely a bad thing when it comes to hiring. When it comes to the top job in the company, however, you’ll need to consider what the business really needs – whether that’s continuing along its present path, or betting on a bold new direction or approach.
