Inside-Out Succession Planning

Ever since Booz Allen Hamilton's much cited 2005 study of the performance of companies that hired CEOs from outside vs. the performance of those that promoted from within, a vigorous debate has taken place over the merits of each practice. Examining shareholder returns from 1995 to 2005 for 1,595 companies around the world, the consultancy found that outside CEOs in their first few years typically produce returns four times higher than those achieved by insiders. But in the second half of their tenures, outsiders posted declines of 2.6% in yearly returns, while insiders produced annual increases of 1.1%.

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