I'm getting ready to move on. Should I look for my successor inside the organization or find a candidate on the outside?
Developing a great successor is one of the most important accomplishments that a CEO — or any senior-level executive — can achieve. But, what's best for your organization, and for you? Should you develop an internal or an external successor?
There are many reasons, both personal and professional, to invest in development for an internal candidate. To start, if a new CEO comes from outside the company, the board will expect a name-brand leader who has a proven track record of success. There aren't that many of those out there, and to hire such an executive, you're going to have to pay a ton of money and provide an expensive golden parachute if things don't work out.
High-profile disaster stories — Home Depot, Hewlett-Packard — have shown exactly how much this type of failure can cost the company. The main damage, however, is not the amount of money spent; it's the damage to the organization's reputation if its new rainmaker fails.
CEOs from the outside who fail — and then get tens or even hundreds of millions of dollars from the company for getting fired — provide incredibly negative stories for the business press that can lead to long-term PR damage for the organization.
The damage is even worse inside the organization. When CEOs fail, employees are often dismissed and resources cut, and it's very hard to explain to 20-year veteran employees why they have to take less so a failed, externally-hired CEO can get more.
In short, hiring a name-brand CEO from outside the company who fails is usually a disaster. The board of directors looks like a group of idiots, and this sad drama only reinforces the increasingly common perception that CEOs are overpaid and that executives and board members are ultimately looking out for their own interests, not the interests of the company.
I am not suggesting that organizations should always hire internal candidates. Obviously there have been cases where external CEOs made a huge difference — IBM, for instance — but external candidates come with extremely high risk. Talent managers should develop an internal successor if at all possible, if only because the need to look outside sends the wrong message about an organization's leadership development capabilities.
I teach in a corporate leadership development program with one very famous CEO who was hired from outside the company. This executive personally instructs management training courses for vice presidents and above. In each session he makes the point that his own hiring is indicative of a failure in leadership development for the company. He clearly states his personal commitment to nurture talent from within, and to develop his own successor.
Your company should ask leaders at all levels to develop talent. Every manager has to answer the question, "If you were hit by a bus tomorrow, who could take your place?" When you, the CEO or senior-level executive, cannot develop your own successor, it indicates you have not been practicing what you preach. Do you want to send a message that you have not succeeded in something you've been asking frontline supervisors to do for years?
Hiring an external successor brings great risk and sends the wrong message about development. Effective internal succession can produce the opposite, positive outcomes.
Hiring an internal candidate shows that you have made the same effort to develop internal talent that you are asking of everyone else. As your successor moves up to the C-suite, a top-level position opens up so that another internal executive can be promoted.
You have a vision for the company. After putting in years to make this vision a reality, you find it important that you vision continue after you leave. By developing an internal successor, you can be assured your vision will be carried out after you depart. You want your successor to bring a fresh perspective, but you don't want him or her to negate all you did in the past.
By carefully developing your successor from inside the company, you can dramatically increase the probability of a positive transition and a successful future.
When developing your successor, remember that a senior-level executive — especially the CEO — transition process is extremely personal. Prior columns have been aimed at helping you face the reality of passing the baton of leadership — and getting you ready for the hand-off — developing an internal successor is all about getting that person ready to take the baton and ultimately become a great leader for your company.
Life is good.
My newest book, MOJO, is a New York Times (advice), Wall Street Journal (business), USAToday (money) and Publisher's Weekly (non-fiction) best seller. It is now available online and at major bookstores.