“Four out of five times, boards choose insider candidates when selecting a CEO. Insiders tend to perform better and last longer.” The quote comes from strategy + bus., Summer 2010 at 80. Booz & Company analyzed successions of CEOs at the world’s 2,500 largest publicly traded companies. They then studied relative shareholder returns of newly-appointed CEOs over the next ten years and how long the CEOs kept their position. Both indicators of success favor inside promotions.
We lack comparable data for general counsel, but the essential finding may hold true for them. A general counsel promoted from the internal ranks may fill the role more successfully – however that is defined – than a general counsel recruited from outside the company. Other posts have commented on the decision to fill a vacancy at the top from within the company or without (See my post of Jan. 4, 2006: if the law department needs shaking up, hire a general counsel from outside; Feb. 19, 2006: higher pay for the external than the internal GC hire; Aug. 1, 2006: second-order consequences if GCs aren’t promoted from within; April 16, 2007: in the wake of an internal promotion; May 27, 2007: to tell or not to tell internal candidates about their prospects for promotion to the GC opening; June 20, 2007: turnover of GCs when new CEO arrives; May 15, 2009: some ideas about GCs based on a study; Sept. 30, 2009: likelihood of more managerial changes in early years, but does it favor insiders or outsiders; and Jan. 7, 2010: Booz’s earlier research on best performing CEOs come from inside.).