CEO 1000: Insiders vs Outsiders

Chief Executive recently introduced the Class of 2017-2018 CEOs on its CEO 1000 Tracker. Among the group were 128 new CEOs, 92 of whom were insiders and 36 of whom were hired from outside the company.  While all new CEOs face some common challenges, there are also differences in the integration agendas for each group. RHR International’s Deborah Rubin and Paul Winum, co-heads of the firm’s Board & CEO Services practice, have helped thousands of CEOs manage the different challenges—and strengths—of each position. Some key ideas:

OUTSIDERS: BUILD CREDIBILITY

New CEOs coming from outside the company have the advantage of bringing a fresh perspective and no personal investment in safeguarding prior decisions. Thus, they can more easily make difficult decisions regarding current people and priorities than those who were originally involved in setting them. However, they do need to invest time to learn the business and culture of their new organizations. Even if their mandate involves a turnaround, understanding what currently exists can provide insight into key areas to leverage or evolve, and enables the new CEOs to build credibility within the organizations. They will also need to build constructive partnerships with the board, senior management, and key stakeholders.

New CEOs can be surprised at the amount of time needed to build trust and rapport with individual board members, yet few regret the investment.  These CEOs need to develop a strategy, and build alignment with their boards and senior teams, assessing the capability of the management teams they inherit to execute, and addressing any gaps sooner than later.

New CEOs coming from the outside need to be particularly sensitive to the symbolic impact of every early decision and action they take, as they tend to be watched closely internally and externally for signals regarding their values and agendas. Unintended messages can quickly erode confidence or respect and can be difficult to undo.

INSIDERS: BUILD THE TEAM

New CEOs rising from inside the organization know the company and the culture well. They have first-hand knowledge of the businesses and leaders, and a broad internal network. They have a track record, credibility, and followership internally. However, one of their unique challenges is assessing and re-contracting their relationships with former peers.

Changing key members of the management team can be difficult for insiders, who typically have had strong relationships with their colleagues. Harry Levinson, one of the most respected management psychologists of the last 50 years, wrote eloquently about how difficult it is for a new CEO promoted from within to fire his or her peers, comparing it to “psychological fratricide”. However, ensuring that one has the right team, and building buy-in among this group is a key early challenge to address.

Establishing a working partnership with the board presents another unique challenge for the insider. Many at the board level have known the new CEO for years, and may have difficulty adjusting their perceptions to fit his or her current role. New CEOs have expressed frustration at the “avuncular” attitude some board members unconsciously adopt versus seeing them as a new but highly capable leader of the enterprise. Candid conversations about expectations, leveraging the chair or lead director, and investing 1:1 time can help recalibrate these relationships and perceptions.

FOR BOTH: MANAGE THE HANDOFF

One of the key challenges for any new CEO is managing the hand-off from the outgoing predecessor. There are some subtle differences in how to best handle the transition between 1) insiders who already have an existing relationship with the incumbent and 2) outsiders who have to quickly build a constructive partnership within the transition period.

Insiders must establish their own voice and agenda, which can be particularly challenging when the outgoing CEO remains engaged as a board member. In this same situation, outsiders must find a way to be respectful of the previous regime while finding the right time to introduce their own path forward.

To accomplish this, both outgoing and incoming CEOs need to proactively discuss their new roles, key milestones and timing, and how they will leverage the outgoing CEO’s contribution without encroaching upon the leadership prerogatives of the new CEO. The extent of the optimal overlap between these two leaders depends on how dramatic a shift in strategy is required, current business performance, whether there are actual key issues the outgoing CEO can help take off the incoming CEOs plate to aid in the transition, and the chemistry between the two executives.

The challenges of this balancing act are why nearly half of the CEOs and directors that RHR surveyed in our research on CEO transitions said that it is best for the outgoing CEO to exit from the organization with no overlap, and only 3% thought the outgoing CEO should take a board position.