In a story today in the Globe and Mail, a study by the executive recruiting firm Spencer Stuart indicates that CEO's who are external hires tend to boost the market value of the company....in the first three years.
I wrote about the three-year CEO cycle on my blog last August "The Three-Year CEO Cycle...for Better or Worse". Basically I gave a compelling (at least I think so) indication that when corporations bring in outside CEO's and they stay for three years or less...then yes...the shares go up....and because of the PR spin...it seems like the corporation is doing well...Yet, time and time again, when these external CEO's stay for more than three years..the "Hawthorne effect" wears off and many corporations have seen that gutting the soul of the corporation has consequences.
When I see this kind of study, I first question the motivation. Spencer Stuart is an executive recruiting firm and as such has a vested interest in corporations hiring externally. This is not to say that their study is false in anyway...I am just pointing out a potential conflict of interest.
Secondarily, when you look at a three year cycle...it is like looking at what is to be a long term investment...say for retirement...and judging your investment solely on the last three years. If you look at mutual funds and the like...you can be misled by considering only the short term returns. A five to ten year retrospective gives you a lot more insight.
So I personally don't think that three years as a CEO enables anyone to state that external is better than internal. Personally I believe it is the quality of the leadership and that can come from within or externally.
I hope that corporations and shareholders won't be looking at this study and say, "well maybe we should consider an external hire" the first step should be to outline what the leadership qualities are and what short and long term outcomes are desired.
I am all for change and I don't think there is a good or bad approach....unless the only focus is short term shareholder value...I've seen the devastation caused by this and it is not pretty.
I wrote about the three-year CEO cycle on my blog last August "The Three-Year CEO Cycle...for Better or Worse". Basically I gave a compelling (at least I think so) indication that when corporations bring in outside CEO's and they stay for three years or less...then yes...the shares go up....and because of the PR spin...it seems like the corporation is doing well...Yet, time and time again, when these external CEO's stay for more than three years..the "Hawthorne effect" wears off and many corporations have seen that gutting the soul of the corporation has consequences.
When I see this kind of study, I first question the motivation. Spencer Stuart is an executive recruiting firm and as such has a vested interest in corporations hiring externally. This is not to say that their study is false in anyway...I am just pointing out a potential conflict of interest.
Secondarily, when you look at a three year cycle...it is like looking at what is to be a long term investment...say for retirement...and judging your investment solely on the last three years. If you look at mutual funds and the like...you can be misled by considering only the short term returns. A five to ten year retrospective gives you a lot more insight.
So I personally don't think that three years as a CEO enables anyone to state that external is better than internal. Personally I believe it is the quality of the leadership and that can come from within or externally.
I hope that corporations and shareholders won't be looking at this study and say, "well maybe we should consider an external hire" the first step should be to outline what the leadership qualities are and what short and long term outcomes are desired.
I am all for change and I don't think there is a good or bad approach....unless the only focus is short term shareholder value...I've seen the devastation caused by this and it is not pretty.
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