Here’s the Best Path to Becoming a CEO, According to a New Study
Do insiders or outsiders most often get the CEO job? A new study shows how many C-suite leaders were promoted from within their own organizations.
Key Takeaways
- Most CEOs earn the top job by pursuing long careers within a single company.
- According to a report from consulting firm Spencer Stuart, 76% of CEOs and 80% of COOs at S&P 500 companies were internal hires.
- Insiders have an edge because they already have a deep understanding of the company’s strategy, culture and political dynamics.
Internal promotion is the dominant route to the corner office.
According to a December report from global leadership consulting firm Spencer Stuart, nearly 60% of S&P 500 companies promoted their C-suite leaders from within their own organizations, highlighting the importance of succession planning and leadership development at large firms. That tendency is even stronger at the top: Companies fill 76% of CEO roles and 80% of COO roles with internal hires who rose through the ranks, making these two positions the most likely to go to insiders.
The size of a company plays a role in these statistics. Larger companies are especially likely to tap internal talent because they can rotate high-potential leaders through multiple roles, giving boards multiple known candidates when the CEO seat opens, per the report. An internal pipeline lets boards assess executives across market conditions and strategy shifts before appointing them to the top job.
Insiders have an edge because they already have a deep understanding of the company’s strategy, culture and political dynamics, which reduces the friction associated with a transition, according to the report. Long-term executives have also established credibility with employees, investors and customers, which can be important during periods of change or turmoil.
The COO role is a particularly important springboard to the CEO position, per the report. As the executive closest to day-to-day operations, COOs can demonstrate leadership and readiness for the CEO job.
Some companies are also promoting CFOs to the CEO role. An analysis from Crist Kolder Associates found that in the first half of the year, 7.5% of sitting CEOs were promoted from the CFO position, up from 6.5% in 2015.
Related: This Company Caps CEO Pay Depending on How Much Its Lowest-Paid Employee Makes
The Spencer Stuart report showed that internal promotion rates also vary by sector. Industrial and consumer companies promote from within at higher rates, around 61% and 62% of C-suite leaders, respectively. However, healthcare and technology companies sit closer to 56%, the lowest internal share among major sectors.
Boards still use external hiring, especially when they believe the company needs an infusion of new capabilities or a direction reset, per the report. However, industry experience remains non-negotiable for most CEO and COO searches. Fewer than 20% of external hires for those positions come from outside the company’s sector. Boards tend to view familiarity with a sector as essential for the top job.
The data suggests that aspiring CEOs advance by building long careers within one company, gaining experience and developing industry expertise. Some high-profile CEOs who have risen through the ranks of their respective companies include Microsoft’s Satya Nadella, Apple’s Tim Cook and Costco’s Ron Vachris.
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Key Takeaways
- Most CEOs earn the top job by pursuing long careers within a single company.
- According to a report from consulting firm Spencer Stuart, 76% of CEOs and 80% of COOs at S&P 500 companies were internal hires.
- Insiders have an edge because they already have a deep understanding of the company’s strategy, culture and political dynamics.
Internal promotion is the dominant route to the corner office.
According to a December report from global leadership consulting firm Spencer Stuart, nearly 60% of S&P 500 companies promoted their C-suite leaders from within their own organizations, highlighting the importance of succession planning and leadership development at large firms. That tendency is even stronger at the top: Companies fill 76% of CEO roles and 80% of COO roles with internal hires who rose through the ranks, making these two positions the most likely to go to insiders.
