Wednesday, January 18, 2017

Do Boards Pick the Right Person as CEO?

What happens when the Board of Directors appoints an internal candidate to the position of CEO?  Do they tend to pick the right person, or do they overlook/reject an alternative candidate that would have been a better CEO?  Stanford scholars David Larcker, Stephen Miles, and Brian Tayan examined this issue recently.  They examined 121 transitions at the 100 largest companies over a ten-year period.  They found that roughly 1/3 of executives who were not selected for internal promotion to CEO were, in fact, hired at other companies.  However, the internally promoted CEOs experienced higher shareholder returns than those executives who were not chosen and left to lead other firms.   


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