Should You Hire an External CEO as Your Succession Plan?

So, your firm has found itself in need of new executive leadership for your investment advisory, legal or tax practice. This could be because your founder and current CEO is aging and ready to retire, your firm has not hit its growth targets and/or something has happened to your existing leadership head to make him/her unfit going forward for the role.

One of the first questions you might ask is whether the new leader should come from inside or outside the company. While an internal hire would already know the company and your business, its clients and team, an external candidate could bring new ideas to the table.

Before you make a decision, here are a few things to consider: 

3 Reasons to Hire an External Candidate 

1) Internal employees may lack the leadership ability 

The top performers in your firm would be the logical choice for promotion and leadership roles, right?

Not necessarily.

Just because someone is great at their current role doesn’t mean they have the skills and leadership ability to lead the company. It’s really two different skill sets. While a new executive could absolutely benefit from the experience of the current team, that experience should merely inform a leader’s perspective, not define it.

That’s why an outside hire makes sense if your current team lacks the ability to take the next step into leadership [read more of our views on leadership skills for wealth management firms]. A new leader can learn the business, but the intangibles of leadership are much more difficult to cultivate.   

That being said, Select Advisors will always be here to help you train your existing team around leadership, if that is the route you would like to take.

2) It’s time for a shakeup

The old saying has some merit here, “If you always do what you’ve always done, you’ll always get what you’ve always gotten.”

While “fresh blood” tends to rejuvenate a firm with new thinking and new experience, one overlooked benefit of an external hire is a lack of existing relationships with current employees. As an outsider without established relationships and norms in your business, it’s freer to introduce radical new ideas and implement novel strategies that internal candidates may not have even considered. It also makes it easier for the new leader to make the hard decisions that may be necessary around personnel and budgets. 

3) Removing top talent from the competition 

When you recruit a sought-after executive, not only is your team strengthened by their leadership and experience, but your competitors are weakened, especially if you’ve lured them away from a competing firm. There’s also an overall employee morale improvement in knowing that a top leader would rather work with your firm than the competition. 

3 Reasons to promote from within 

1) Save time and money 

Finding and recruiting top talent for a leadership position can be a costly endeavor.

Putting resources behind a recruiting process that could take two months on the low end means investing time and money to advertise, source candidates, interview, do vetting and background checks - and the effort will likely require an expensive outside executive recruiting service. And on top of the hiring process, external candidates also earn on average 18% higher salary than a promoted internal candidate – while at the same time showing lower performance in the first two years as they familiarize themselves with your business. 

2) Your firm is already on the right track 

If your current CEO steps down or retires, and your business is already on a solid track of success with future prospects looking bright, an internal candidate will be able to use institutional knowledge to make sure that positive path is maintained. They’ll also already have established relationships with the existing leadership team and will likely be viewed as the best candidate for the job – leading to fewer leadership disagreements and a clear and unified path forward. 

3) Retention and morale 

According to exit interviews, the number one reason employees choose to move on from their current job is a lack of career development opportunities. From the employee perspective, seeing a colleague advance to a leadership role within the organization reinforces the idea that engagement and performance in the firm is rewarded. This can have a ripple effect, energizing your current employees and improving overall morale and performance. It may even sway employees who were considering leaving to stay. 

At the end of the day, the right choice for your next executive leader depends on a lot of factors that may be unique to your particular firm. Internal and external candidates bring with them their own pros and cons – the trick is balancing those factors and taking advantage of the opportunities provided by your new leader.