Strong Track REcord for CFOs Promoted to CEO

While boards of directors tend to seek sitting chief executives to fill CEO vacancies, new research from Rice University suggests that promoting CEOs from within may be more effective — which could be good news for CFOs who want the top spot.

In a study of 193 chief executives in the industrial sector, Rice associate professor of management Anthea Zhang and Nandini Rajagopalan, professor of management at the University of Southern California's Marshall School of Business, found that internally promoted CEOs significantly outperformed externally hired CEOs over time.

Both insider CEOs and outsider CEOs made changes upon taking the reins, says Zhang. "A new CEO wants to — indeed has to — make some change, just to signal that his or her era is different from the time of the predecessor CEO," she says. "Especially when an outside CEO is brought in, it's the expectation that he will initiate some change."

But while both types of CEOs institute changes, "CEOs from outside the firm are likely to initiate bigger changes," says Zhang. "We wanted to know whether bigger change meant better change." As it turned out, it doesn't. "If a change is too big, it can take the firm away from its identity and core competencies," she says.

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