Picking the boss - The outside track

Why companies are appointing more outsiders as CEOs

To make or to buy is perhaps the most basic question in business. This week a new report from Strategy&, an oddly named consulting division of PWC, an accounting firm, argues that a growing number answer “buy” when it comes to appointing bosses.

Strategy&, formerly Booz & Co, has been studying CEO succession in the world’s 2,500 biggest public companies for the past 17 years. It found that between 2012 and 2015 boards chose outsiders in 22% of planned successions, up from just 14% between 2004 and 2007. Looking at the numbers in a different way, in cases where outsiders were parachuted in, 74% of them joined as part of a succession that was planned in the 2012-15 period (up from 43% in 2004-07).

Traditionally boards have turned to outsiders in the last resort—when they have to boot out incumbent CEOs or when the pipeline of internal candidates runs dry. The new statistics suggest that firms increasingly go for outsiders as part of regular succession planning.

Good reasons exist for this. Boards want leaders who can deal with powerful disruptive forces, such as new technologies and radical business models. Industries that have seen a lot of disruption from technological innovation or regulatory change are particularly keen on outsiders. In the 2012-15 period, outsiders made up 38% of incoming CEOs in telecoms, 32% in utilities, 29% in health care, 28% in energy and 26% in financial services. How far outside firms will go varies: in financial services almost all outsiders (92%) came from other financial firms; in utilities 72% of outsiders came from other industries.

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