Insider or Outsider — Who makes a better CEO?

Kamal Karanth | Updated on January 12, 2018 Published on January 19, 2017

N Chandrasekaran, recently anointed Chairman, Tata Sons, has worked with the group for 30 years.

Kamal Karanth

When an insider gets promoted, is loyalty getting rewarded over talent?

Ever wondered why many large organisations bring in external CEOs despite claiming they have built capable leaders within to succeed? Or why some opt to promote only internally? And why certain founders refuse to let go of the reins despite the organisation being stagnant?

We can argue that such decisions depends on the organisation’s performance context. If the company is doing poorly, a dramatic leadership change may be required. According to a McKinsey paper published in May 2016 based on a study of 600 new CEOs and 250 case studies, externally-hired leaders outperformed their internally-promoted counterparts by a margin of more than five to one in poorly performing companies.

Yet we still see large corporations appointing internal candidates for top jobs even when there is a need for a radical turnaround. The reason is simple. As much as the boards and promoters of these organisations want significant progress, they are also uncomfortable with rapid change and the pain it brings.

The outsider’s challenge

This reminds me of an incident in my own career, when I got offered a senior, high-visibility role. The organisation was desperate for change. At the job interview, my ‘to be’ boss told me how I needed to bring in fresh ideas, be brave, act tough, get new people... He assured me of his support in this major change. I was bowled over, and accepted the offer. In three months, I had prepared a new blueprint for the organisation. But when I went to discuss this with my boss, the conversation went something like this

Oh, marketing plan? Please consult Jaq and if she is okay then let’s go ahead, IT? Have a meeting with John. If he is on board we are good to go. Some of these policy tweaks in HR, ensure that Sara is supporting you on these changes, Sales strategy new direction? Looks great, but let’s have Tim whet this ...

So I went about consulting everyone who was key in marketing, IT, HR and Sales. Only to find they were sitting on the ideas, waiting for my boss to clear them. After a couple of months, I concluded that instead of running around in circles all I had to do was to have a one-on-one with my elusive boss to get his approval.

He was very honest when I confronted him. “Look,” he said, “first you need to understand the culture of this organisation and be respectful of it. So be careful when you are trying to change something. Do it in a way where you don’t hurt others. Also, some of the new hires you have made have caused the existing leaders to feel insecure. Some of these people have served the organisation for long and we need to give due credit to their tenure.”

I almost felt like asking why he would hire someone like me from outside if all he wanted was somebody to maintain status quo. Many professionals who join in a senior role from outside will be familiar with these challenges.

An insider’s baggage

My theory on why organisations take the safer route of appointing an insider is because they believe

He or she knows the culture.

We have the right team to take it forward.

My staff knows him or her well, so the buy-in will be faster.

As the person is my choice for the new job, he/she will always keep me informed about any drastic changes.

An insider can have an outsider mindset and be able to bring in necessary changes

But I would argue that cultures too sometimes need to change, that reshuffling teams is a good idea and that familiarity often makes it difficult to implement change. Also, it is far more difficult for an insider to introduce sweeping changes because he or she would have been part of the decision-making process of the organisation, having worked there for a considerable time. Disowning the past requires tremendous courage and a different orientation which seldom comes from insiders. The biggest impediment is that most insiders get weighed down by feelings of loyalty towards promoters for giving them the opportunity to lead and become subservient to the master rather than the cause of the organisation.

Of course, I have seen insiders leading organisations to success in multiple instances. But in a turnaround situation when massive change is the need of the hour, I would bet on an outsider with right competencies to lead.

(The author was till recently Managing Director of Kelly Services & Kelly OCG India and is now pursuing his entrepreneurial dreams. He is a commentator on the workplace)

Published on January 19, 2017
This article is closed for comments.
Please Email the Editor