The article sought to examine, among other things, the results of large companies hiring an "outsider" CEO (from outside the company) but from the company's existing industry versus a new CEO from an outside and different industry. Interestingly, only about 1/3 of companies hiring new CEOs did so from outside their own ranks, although this number has increased in recent years.
The authors found:
- 528 companies from 1993 to 2009 who hired an "outsider" CEO
- 312 hired a new CEO from outside the company's industry
- 216 hired a new CEO from within their own sector.
Within the first year, companies that hired an "outsider" CEO from the company's own industry had higher overall returns. After the third or fourth year, however, CEOs that were hired from outside the company's industry posted better stock returns on average.
Initially, the market reaction to a new CEO from a different industry is, predictably, negative. After the CEO is able to implement new policies and demonstrate better performance, however, "the market turns and remains in favor." Also, in the long run, new CEOs from outside the company's industry "paid more dividends to shareholders, engaged in higher capital spending, and demonstrated better operating performance as measured by profitability."
The study also looked at CEO's as "generalists" versus those considered "specialists". Overall, the generalists were not only better at making a positive impact on their new companies, they were compensated as much as 19 percent more than other CEOs.
Of course, it wasn't necessarily that a "generalist" were more sought after, but typically "generalist" CEOs were more likely to have:
- guided businesses through challenging business landscapes
- challenged conventional wisdom
- experimented with unconventional ideas
So, needless to say, after years of taking jobs for experience over pay and a mountain of student loans, all in an effort to better prepare myself to step into new businesses and industries, this news was exciting and encouraging.
Granted, I'll probably continue to take on challenges for the experience rather than the compensation ... unless, of course, a Fortune 500 company wants to take me up on that additional 19%!