'Outsider' bosses perform better than internal ones

Bill Boyle
Published on:

Telecoms operators in emerging markets perform better when they hire an outsider as CEO is the surprising finding of a new report

The surprise findings of a new research report by emerging markets-focused executive search firm KWR contradict the accepted view that new CEOs should be internal appointees.

The new research results contradict the often accepted wisdom, and studies conducted in more mature markets, which have found insider CEOs consistently outperform outsider CEOs. Outsider CEO’s being those hired from outside the business and insiders being those promoted from within the business.

KWR compared the performance of listed telecoms operators in the emerging markets of the Middle East, Africa and the Asia Pacific region between 2008 and 2015. The report found that across the metrics of net profit, operating profit, EBITDA, return on assets and return on equity, telecoms operators with outsider CEOs at the helm significantly outperformed those with insider CEOs. Only in the generation of increased revenue did insider CEOs on average outperform outsider CEOs.

KWR managing director Sean Rutter said: “We believe our new findings will be a big surprise to many in the industry. Our research clearly shows the substantial financial impact a senior outside hire can have on business. The long-term picture for telecoms operators is certainly challenging, and there is much talk about industry transformation, however, in most respects, we have not yet seen this change materialise. This is an area where we believe outsiders can make a significant impact.”

Rutter said: “Based on our findings, we believe that the boards of emerging market businesses should certainly look at what a material change and rapid impact the right outsider can bring to their organisation.”