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Past Issue • Oct-Dec 2011

Hiring an Outsider CEO: Change is Not Always Good

Do firms really benefit when they hire an outsider as the CEO? Professor Nandini Rajagopalan presents her research findings. More than one-third of Fortune 1000 companies are run by CEOs recruited from outside the firm. Outsider CEOs are often hired based on reasons such as “the firm needs a fresh start” or that the firm needs someone to “shake things up.” Firms favour outside CEO candidates because “outside succession” is equated to “organisational change,” which is further equated to ‘‘better performance.” Generally speaking, CEOs recruited from outside the firm are more likely to make bolder changes than CEOs promoted from within the firm because outside CEOs bring new perspectives and experiences, and they are not constrained by prior commitments, formal or informal, with the firm’s internal stakeholders (especially, its employees). As a result, they are less likely to hesitate to make changes, especially painful changes such as cost-cutting, retrenchment and downsizing.

ABOUT THE AUTHORS

  • Feature 1_Nandini Rajagopalan

    Nandini Rajgopalan

    Captain Henry Simonsen Chair in Strategic Entrepreneurship and Professor of Management and Organisation, Marshall School of Business, University of Southern California, and visiting scholar at the Indian School of Business (ISB).
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