Why more boards are taking a chance on outside CEOs

Good morning. Big companies that have announced new CEOs lately have mostly chosen insiders. Think Walmart’s John Furner, Target’s Michael Fiddelke, and Geico’s Nancy Pierce. But 2025 is actually a big year for CEOs out there. With AI roaring ahead and unprecedented tariffs, historic geopolitics, and aggressive activist investors, boards of directors naturally want someone who can change the direction of a company, and often an outsider, who is not involved in the company’s past, seems to be the right choice. Through September, 33% of new CEOs in the S&P 500 this year were outsiders, a dramatic increase from 18% last year, according to the Conference Board. Insider CEOs often seem like the obvious choice, but Jim Citrin, who leads the CEO practice and co-leads the board practice at the Spencer Stuart advisory firm, told me that research supports boards taking a chance on an outsider—this or any business climate.

When it’s time to replace the CEO, boards tend to choose insiders, thinking they’re better than outsiders. “That’s an absolute belief,” Citrin said, based on 25 years of advising boards about successions. But “this is not true. The data shows that insiders and outsiders perform almost the same on an average basis in total shareholder return relative to the market.” Spencer Stuart’s research of 950 CEOs of S&P 500 companies showed that 34% of insiders were classified as overperformers while 33% of outsiders. The difference is the variability of performance. With outsiders “there’s more upside, but there’s more downside,” Citrin said, meaning that good performers tend to be really good and poor performers tend to be really poor.

A related belief held by many of the thousands of directors Citrin has advised is that seasoned CEOs perform better than novice CEOs. Wrong again — just the opposite: “The data is strong that first-time CEOs outperform experienced CEOs.” In particular, Spencer Stuart’s research found that when a CEO runs two companies in a row, 70% of them do better than the first. The one exception, Citrin says, is “if it’s a clear change and you have someone who is reliable in that market and ideally has a playbook.” Think Lip-Bu Tan in Intel.

One of the most strongly held views among directors is that insider CEOs bring more stability. It seems so obvious. Citrin says the data isn’t there yet, but he’s skeptical. An insider CEO is usually one of two or three candidates, and those who don’t get the job usually leave, he said. Also, an insider knows where the bodies are buried and wants to form their own group. So it may be that, on average, insiders “make more changes in the C-suite than someone from the outside.”

Citrin says he tells the directors about all these findings, but “that doesn’t mean you have to do anything. It just means—and I say this to boards all the time—make a little bit of a thought about what’s right for your current context.”

Contact CEO Daily by Diane Brady at [email protected]

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