When it is time to choose a new CEO, why do so many boards of directors look outside of their own organizations?

There are times when it's advantageous to hire an outsider. Companies looking for dramatic change, for instance, find that outsiders often provide positive early results. Boards may also try to placate investors by looking to a celebrity CEO to give their stock an instant uptick.

Research indicates, however, that newcomers are regularly outperformed by those appointed from within and are fired for poor performance more often, too. They also cost more money and usually don't last as long as their internal counterparts.

But with CEO turnover as high as it is — as high today for CEOs as for any other position in the organization — it's clear there is no guarantee of success whether the candidate comes from the inside
or not.

When boards or selection committees do choose from within, they often rely on the current CEO to make the recommendation.

This can have disappointing results. A departing CEO typically looks to someone who will continue his or her legacy — a clone who will perform in exactly the same way even when the changing needs of the organization may not be served by status quo thinking.

To avoid more of the same, the selection committee often feels compelled to search outside for a candidate, even though the risk of succession failure is greater.

Uninformed Means Unprepared
Too often, companies find themselves choosing CEOs in these ways because they have no formal system of succession in place to identify and cultivate the high potentials within their organization.

Without a plan, what's the board asking itself to do? Make a complex and momentous decision within an acceptable time frame without sufficient information to do so.