Jeff Pfeffer has an inspired post over at BNET in which he reviews the evidence — and tells some evidence-based stories — about how companies that become enamored with the magic of an outside CEO who can ride in on his or her white horse and save the day are deluding themselves. Jeff relies in part on Harvard Business School Professor's Rakesh Khurana's well-crafted Searching for the Corporate Savior. As Pfeffer notes, and as we discuss in our book Hard Facts, that — although there are very vivid stories of outside saviors, notably Gerstner at IBM, the track record for outsiders is generally weak. As one example, Boris Groysberg's research on GE executives who became CEOs of other companies found that, on average, their new companies performed well-below the industry average. This effect was especially pronounced when their past experience did not fit those skills required for the new company (This finding was reversed when there was a good fit. Boris reports that a good fit was associated with performing about 15% above the expected industry average, something called "annualized abnormal returns;" while those companies that had a GE CEO who didn't fit performed about 40% below average).
The upshot, as Jeff and I suggested in The Knowing-Doing Gap, is that the best CEOs and other bosses have the experience and skill required to run their businesses — and insiders have an upper-hand in the typical case. Compare Xerox's former CEO and now Chair Anne Mulchay to HP's fired Carly Fiorina. Anne had numerous different jobs at Xerox and had been there more that 20 years. And she is widely praised by insiders as a good listener. Note that Carly not only had a tendency to become bored with the details of running HP's business, Fortune reported that she had never had any P&L responsibility in prior jobs before becoming HP CEO. Moreover, Carly, although brilliant, was known to be a lousy listener when it came to talking to insiders, and instead preferred to rely on consultants. When Mark Hurd came in, one of the first things he did was to fire hundreds of them. During Carly's reign, I once was at Silicon Valley party where I was talking with a disgusted high-ranking HP insider who was complaining that Carly — who is charismatic and inspiring — was perfectly suited to politics because there are no real deliverables, which fit her skills perfectly! I guess Carly figured that out too, as she is now running for the U.S. Senate in California.
Leave a Reply