Arguments on the potential
advantages and disadvantages of hiring a Chief Executive Officer (CEO) from the
internal pool of resources over that of a hired CEO who is external to the
organization, is gaining momentum with a distinct variation in performance
expected from actual performance. The term internal is restricted to one
who has direct affiliation and works with the company on a day-to-day basis
and is on its payroll, whereas the term external is associated with an
individual who has a different affiliation, is on
a different company's payroll, irrespective of the fact whether or not the
individual is from the same industry. In many company practices, it is
believed that internal hiring will lead to a number of positive outcomes,
including reduced costs associated with socialization, low turnover,
rational compensation, reduced selection errors and an increased ability to
attract and retain employees. Further,
some firms believe that their emphasis on internal hiring yields potential
benefits associated with retaining firm-specific knowledge, because
familiarity with products, markets, technologies and standard operating
procedures generally accrues with organizational
tenure. The whole argument is that if the prospect CEO is
groomed internally, the individual embodies the potential benefits that are
obvious, such as firm-specific knowledge on products, markets,
technologies, and so on, as he is associated with
the firm for some time and knows what is happening. Therefore, keeping
performance factors equal, internal candidates tend to be higher valued
over external candidates. However, the perceptual shake-up or radical
change is somehow not associated with an insider CEO.
On the other hand, when a company goes outside the organization
to hire a CEO, the board is normally faced with dramatic problems, such as
past performance, affiliation of the potential candidate, and so on, during the
selection process. This becomes compounded with the acceptability and
reactive factors, such as viewing the new CEO as an outsider within the
organization, complicated further by the market sentiments and reactions
towards the outside CEO. In cases of radical change or turnaround (Carlos
Ghosn as CEO of Nissan-Renault), or when there are credibility issues with
the company (Satyam to Tech Mahindra), outside CEOs are usually
preferred. There is a market belief that an outsider is more likely to bring in a
fresh perspective on things perhaps by using old political alliances, new ideas,
different experience, and so on. |
