Experience Does Not Guarantee Success for Hiring CEOs

Chief executive turnover was at an all-time high in 2024, when more than 2,220 company leads stepped down from their positions. How good are hiring boards at replacing them? And do they get better the more they do it?

Researchers posed these questions in a recent publication in Strategic Management Journal.

"Most people improve with practice, but we find that this doesn't hold true when it comes to directors selecting new CEOs, despite the high stakes," said Rich Gentry, chair and professor of management at the University of Mississippi. "We found that directors with more past experience in CEO hiring do not tend to select better-performing CEOs.

"In fact, there's some evidence they may do slightly worse."

The researchers included Gentry; Steven Boivie, the Carroll and Dorothy Conn Chair in New Ventures Leadership at Texas A&M; Inn Hee Gee, assistant professor in the Division of Management and International Business at the University of Oklahoma; and Scott Graffin, head of the Department of Management at the University of Georgia.

The team reviewed the hiring processes of CEOs from S&P 1500 firms – a mix of top U.S. companies of all sizes – from 1999 to 2020.

"Hiring a CEO is very difficult, and it is almost impossible to know in advance who would be the perfect CEO," Boivie said. "Because of that difficulty, it is easy for boards to overinterpret their prior experiences and to believe they should copy those same patterns.

"If directors know that they need to avoid overgeneralizing from their prior experiences, then they might make fewer hiring errors."

The lead position in any organization often comes with high pressure and high stakes, meaning the decision to hire is an important one, the researchers said.

"CEOs are asked to manage two different things," Gentry said. "One is the short-term stock market performance. At the same time, they're asked to keep the company going for the long term."

Former film photography giant Kodak, for example, faced harsh criticism after its CEO pushed the company to invest in digital photography – a smart move in the long term. But at the time, analysts criticized the decision for harming short-term profits. Kodak ultimately filed for bankruptcy and restructured, despite being ahead of the curve technologically.

In contrast, Microsoft's board saw long-term success after hiring CEO Satya Nadella in 2014. Nadella's embrace of cloud computing helped revitalize the company and dramatically grow its value while maintaining short-term profits.

The researchers gauged the performance of CEOs using metrics such as firm performance adjusted for industry norms and company condition at the time of hire. They found that just because a board member has been on the hiring team for a CEO before doesn't mean they've hired a successful one, or that they know what to look for in a leader, Gentry said.

"That's superstitious learning – the concept that 'I've done it before; therefore, I probably know what I'm doing,'" he said. "Most humans have this concept of self-efficacy, but when it comes to a rare and complex event like hiring a CEO, it doesn't always work that way."

Most directors face this decision only once or twice in their tenure, making it difficult to build reliable experience, the researchers said.

"The implication of this study is that relying too heavily on prior hiring experience and overgeneralization can result in less successful hiring," Gee said. "As Steve noted, if directors acknowledge these limitations and approach each hiring decision with deep contextual understanding, they may be able to avoid decision-making errors."

To hire better, more successful CEOs, boards need to rely not on previous experience, but on structured evaluation and multiple perspectives while treating each hiring as a unique event.

"CEO successions are rare, complex and highly context-specific events, making it easy for directors to misattribute what worked before," Gentry said. "Our findings suggest that boards likely need more systematic support – beyond accumulated experience – when hiring new CEOs."

Top: Despite frequent CEO turnover, a new study indicates that company directors aren't always good at hiring CEOs just because they've done it before. In fact, they may even repeat past mistakes, an Ole Miss business researcher says. Graphic by Stefanie Goodwiller/University Marketing and Communications