Should Your Next CEO Come from Your Board?

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When a company gives the CEO job to one of its own board members, people often assume that something must have gone wrong behind the scenes. Maybe the company is desperately trying to get itself out of a protracted period of tumult. Maybe the previous CEO’s departure was unexpected or forced, and only a tried-and-true board member can keep the ship sailing steadily until a permanent replacement can be found. Maybe the CEO’s departure was routine and expected, but somehow the succession-planning process just came up short.

Those are all reasonable explanations. During the past 10 years, however, as the complexity of the CEO role has increased, some companies have hired a board member to be their next leader for a different reason: It was the best option.  A growing number of companies are making this choice. From 2018 to 2023, board-to-CEO appointments increased threefold across the S&P 500 and the Russell 3000. 

Hiring a CEO from the board is still more of an exception than a rule. But there are compelling reasons to consider the possibility. Most notably, board members often can effectively adopt both internal and external perspectives. As insiders, they have a valuable feel for the company’s culture, history, and strategy; as outsiders, they can more easily challenge the company’s existing ways of operating.

But the board-to-CEO transition is a delicate one. Much can go wrong. Fellow directors may not know their colleague as well as they think they do, having worked together in only one context, and may overestimate how well their colleague understands the company’s inner workings. When internal candidates are passed over in favor of a board member, they can become demotivated and even quit. If handled without the appropriate care, a board-to-CEO transition can sap morale and destroy enterprise value.

So what’s the right way to think about the risks and rewards of selecting a board member as your next CEO? And if you decide to give a director the job, how can you—and the person you choose—maximize your chances of success?

When Does It Make Sense?  As levels of industry and geopolitical disruption rise, three factors have become important predictors of success for incoming CEOs: demonstrated efficacy in a past CEO role, institutional knowledge, and in most cases, relevant industry experience.

What Can Go Wrong?  Because board members are known entities, the specific challenges associated with their elevation to the CEO role can be overlooked. In situations where an appointment is intended for the long term (as opposed to being interim), it’s critical to be alert to four dangers.  Mistaking board expertise for readiness.  Competition within the board.  Negative reactions from internal candidates.  Nobody on the board should take on the CEO role as a favor to fellow directors or to come across as a savior to them. 

How Can You Boost Your Odds of Success?  A board-to-CEO transition can be a winning move, but it requires thoughtful effort, not only before but also after the selection of a CEO. It’s best to keep four rules in mind.  Plan early and often.  Treat board candidates just as you would any other.  Maintain credibility with the executive team and the organization.  Establish clear lanes for the chair and the incoming CEO.

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