Insiders who have been chosen as chief executive officers (CEOs) of companies, like Mukesh Ambani of Reliance Industries and Steve Jobs of Apple, have fared better than those who have been brought in from outside, says a survey.
According to a list of best performing CEOs prepared by Harvard Business Review, 38 of the world’s top 50 CEOs were promoted from inside the companies.
“CEOs who were promoted from inside the company tended to have stronger performance than those brought in from the outside,” the survey said.
The top four — US IT majors Apple’s Steve Jobs and Cisco Systems’ John Chambers, South Korean Samsung Electronics’ Yun Jong-Yong and Russian gas behemoth Gazprom’s Alexey Miller are all insiders.
So also Mukesh Ambani, who joined Reliance Industries in 1981 when it was still a textile company run by his father, Dhirubhai, placed at the fifth spot by the survey.
According to HBR’s analysis of 1,999 CEOs, on an average, insider CEOs ranked 57 places higher than outsiders in the full list.
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Only two CEOs who came from outside — online market place eBay’s Margaret Whitman and Eric Schmidt of internet search engine giant Google — figure in the top 10 list.
Interestingly, most of the American companies preferred insiders as their chiefs. These are followed by British companies.
After he joined Apple as CEO in 1997 when the firm was in a dire strait, Job delivered a whopping 3,188 per cent industry-adjusted return (34 per cent compounded annually). From that period until the end of September 2009, Apple’s market value has increased by $150 billion.
Yun, who ran Samsung from 1996-2008, joined the company straight out of college and worked there 30 years before becoming CEO.
Among other best performing CEOs who have come up from inside are Amazon.Com’s Jeffrey Bezos, Gareth Davis of Imperial Tobacco Group, retail firm Tesco’s Terry Leahy and consumer goods firm SABMiller Graham Mackay.
In the list of 50 CEOs, only 12 were brought in from outside to run the firms. They include utility company Fortum’s Mikael Lilius, Energy firm BG Group’s Frank Chapman and Chung Mong–Kooh of Hyundai Motors.
“Outsiders are expensive and that industry- and firm- specific knowledge is critical when it comes to generating long-term growth,” Harvard Business School’s Joseph Bower and Rakesh Khurana said.
John Thompson of IT firm Symantec is among the few chiefs who performed well as an outsider CEO. In 1999, he left his job at IBM to become the CEO of Symantec and “transformed it into a standout” during his 10-year tenure.
According to the survey, troubled companies were more likely than other firms to tap outsiders to be their CEOs.