Insiders vs. outsiders
An age-old question: is it better to hire a new CEO from inside an organization or from outside?
Today's Harvard Business Review Daily Stat points to a study that suggests that a CEO hired from within an organization is a less risky choice than one hired from the outside. The study, by Yan Zhang of Rice University and Nandini Rajagopalan of the University of Southern California, says "relative to outside CEOs, inside CEOs will tend to have a more 'even' performance across various levels of strategic change."
The exact details of the study are more nuanced, of course, and they suggest that an outside CEO's affect on an organization can be positive at low levels of change. It also suggests that the advantage of hiring an inside CEO becomes more apparent over the long term, after the first two to three years. Before then, the performance of both inside and outside CEOs is comparable.
Associations face this CEO question with an extra wrinkle: is it better to hire an experienced association executive or someone from the industry that the association represents (e.g. a banker as CEO of a bankers association)?
Nonprofit or for-profit, the most basic question is this: does good management trump experience in an industry or organization, or vice versa?
I don't have the management experience to answer that question, though I'd lean a bit in favor of inside experience. The answer may also depend on exactly how much change you're looking for in a new leader, too.
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Comments
This is one of those issues that so much depends on the organization in question that I'm not convinced a overall guideline and ever be authoritatively supported. In my book, you want an association CEO to be a great manager AND to have a detailed understanding of the industry the association represents. If that person exists anywhere, it's likely to be inside the organization. But the learning curve for the insider who needs to develop their management expertise is likely steeper than the learning curve for the outsider who needs to develop their industry knowledge.
Posted by: Eric Lanke | February 3, 2010 10:47 AM
There's two models of what is consider an "insider" here and in my mind they are very different: elevating a current staff member to CEO vs. hiring someone from the association's industry to be CEO. Boards often feel like they need someone with experience from their industry to successfully manage their association. I believe the opposite - they have a roomful of board members and volunteers who know their industry - they need someone who knows association management. Good association management executives can learn an industry quickly. The learning curve on association management is much greater.
Posted by: mark | February 3, 2010 10:50 AM
You'll find a similar subject--the rise in CEO "tryouts"--discussed in the October 19 issue of Business Week ("Test-Drives In the C-Suite"): "After all, 40% of executives hired from the outside last only 18 months, says Heidrick & Striggles International CEO L. Kevin Kelly."
"Try-buys," as they're called reduce risk for both parties, says the article, because there are no contracts or severance agreements--and "no drama."
Posted by: Kristin Clarke | February 3, 2010 1:59 PM
These are two different issues.
1. A CEO needs expertise in executive management, not in the industry. It's much easier to learn industry issues than it is to learn executive management skills. Board members and key staff possess industry knowledge. The CEO needs to manage their expertise and blend it into association success.
2. Hiring a CEO from outside has many advantages: the outsider has no preconceived notions of how to do things and is more willing to change the way things have been done; the outsider has no obligations to people in the industry, obligations that could negatively affect performance; the oustider is not a "buddy" with staff and will be better able to manage, supervise, and, if necessary, fire staff.
Posted by: David M. Patt, CAE | February 3, 2010 4:58 PM
Thanks for the responses, everyone. Sounds like there's a little bit of differing opinions here, but at least one thing is agreed upon: association management expertise is more valuable than industry experience, b/c the latter can be learned more quickly.
I definitely understand that perspective and think I might agree with it, but I want to push back on something David said is an advantage: "the outsider has no preconceived notions of how to do things." Wouldn't this be the case with someone who comes from outside association management? Wouldn't that person have some fresh ideas, too?
I'm wondering where the line is between a "fresh, outsider viewpoint" and "inexperience" when it comes to hiring an association CEO.
(This same question is indirectly debated in political elections all the time. The incumbent says "My long-time experience in Washington means I know how to get things done in Washington," and the challenger says, "Washington stinks. I come from the real world and will do things a new, better way." And of course they all end up stinking either way, but that's a blog post for another time.)
Posted by: Joe Rominiecki | February 4, 2010 10:23 AM
Studying for the CAE exam made me realize that there are many facets of managing and leading an association well and wisely, and some of them are particular to associations. If I were a board member I would hope that my chief staff executive was highly competent at his or her profession (managing an association) and not just competent at my profession (builder, nurse, accountant, whatever). I would feel the same as a staffer.
I've seen some associations flounder and not be positioned well for today's challenges partly because their CSE came from the industry and not from our profession -- they just didn't have what it takes to run an association. Unfortunately sometimes the ones doing the hiring (executive committee) don't understand this truth.
Posted by: Deirdre Reid | February 4, 2010 12:03 PM