Recruiting new executive talent to revive portfolio companies has helped private equity funds outperform major stock indexes, says research by Paul Gompers. Why don't more public companies go beyond their senior executives when looking for top leaders?
Companies looking for the best possible leaders—and leaders looking to become CEOs—would do well to heed the model of private-equity (PE) backed companies, which often look outside their ranks when hiring for the top job and see excellent results.
Three-quarters of new CEOs at PE-owned companies are external hires, and roughly two-thirds are “complete outsiders,” finds a recent working paper by Paul Gompers, the Eugene Holman Professor of Business Administration at Harvard Business School. In contrast, one recent analysis found that 72 percent of S&P 500 companies drew new CEOs from within their own ranks.
This article was provided with permission from Harvard Business School Working Knowledge.