Handing over the reins: should the CEO’s successor be an insider or an outsider?

This paper is based on an extract from an extensive study of high performance companies around the world, published in July 1997 under the title The Winning Streak, Mark II. The study focused on 24 companies from nine countries, where interviews were carried out with top management and beyond; and a further seven companies from four countries, where data was collected from extensive literature search and/or more limited interviews. All of the internationally operating companies had a long track record of significantly better financial performance and most had a higher public reputation than competitors in their industries. A control group of less successful companies was used to test the findings of the study, as was an “action case study” of a high performance company losing its way. The overall study identified a number of critical issues that these companies all managed well and concluded that maintaining high performance was due in large part to the organisation’s ability to balance conflicting demands within each of those issues. One of the issues concerned succession at the top: was continued high performance best achieved by an internal appointment that sustained the same values, or by introducing new blood at timely points in the organisation’s evolution? By far the majority of companies preferred to appoint from within, making the succession as seamless as possible by: •building a high degree of strategic consensus among the top team, from whom the new CEO will be chosen •ensuring that potential CEOs brought in from outside spend long enough in the company to understand how it works •using the retiring CEO as a chairman‐mentor