How to Choose the Right Type of CEO Based on your Company's Situation?
When seeking the best CEO candidate, most boards would prefer the ones with prior experience in a similar role. 16% of the newly hired top executives previously held the same role, which has quadrupled since 1997. However, a study of 855 S&P 500 CEOs appointed over a 20-year period shows that experienced CEOs consistently underperformed the first-time ones. Hildebrand, Anterasian and Brugg (2021) believe the two different types of CEO have unique traits, which make them work better for one company over the other.
Traits of First-Time CEOs
Traits of Experienced CEOs
- Long-term orientation
- More balanced focus on between profitability and revenue growth
- Younger in age and therefore stay in the role longer
- Curiosity, adaptability, and flexibility
- Ability to approach problems with fresh eyes
- Knowledge of the role
- Recognition of the importance of short-term results
- Focus on cost-cutting
- Wider access to external resources, talent, and other critical relations
Before deciding on a new CEO, the board needs to clarify what challenges the incoming leader will confront and what his or her agenda will look like. If the company would benefit most from a shorter-term top executive who's skilled at cost-saving and achieving quick wins that will please the stakeholders, an experienced CEO may be the better choice. But if a long-term orientation and revenue growth are key concerns, someone new to the role may be more suitable.
No matter which type of CEO candidates are being considered, the board should access how well the candidates listen and whether they enjoy handling unfamiliar problems. The study indicates the experienced CEOs who had succeeded in their first and second assignments had an empty stomach the second time around. They asked questions and explored what was different in their new organisations.
Source: Hildebrand, C., Anterasian, C. and Brugg, J., 2021. Why Rookie CEOs Outperform. HBR, 99(1), pp.15 - 18.