The Inside Edge
Summary
Jeffrey Sonnenfeld (Yale) argues that boards should stop the “messianic” search for outside CEO saviours. Using original analysis of Fortune 500 CEO successions over recent periods, Sonnenfeld finds that internally promoted CEOs have substantially outperformed external hires on total shareholder return (TSR).
The piece highlights results for multiple time windows: over the past year, internal hires delivered an average annualised TSR of 14.81% versus -9.01% for external hires. Similar outperformance by insiders appears across 1–3 year and 3–5 year windows. Sonnenfeld lists the practical advantages insiders bring—known track records, established relationships, and quicker impact—arguing that internal succession often produces better outcomes when transitions are not forced by scandal or strategy failure.
Key Points
- Recent analysis of Fortune 500 CEO transitions shows internal CEOs outperform external hires on TSR across multiple timeframes.
- Past year: 39 internal CEOs averaged 14.81% annualised TSR; 22 external CEOs averaged -9.01%.
- Past 1–3 years: 71 internal CEOs averaged 10.16% vs 22 external CEOs at 6.35% (annualised).
- Past 3–5 years: 70 internal CEOs averaged 12.68% vs 13 external CEOs at 6.42% (annualised).
- Advantages of insiders include verifiable track records, existing trust and relationships, faster onboarding, protection against misguided outsider attributions, and morale benefits for internal talent development.
Context and relevance
This article confronts a long-standing boardroom dilemma—’make versus buy’—applied to CEO succession. It updates the debate with fresh, data-driven evidence favouring internal promotions for many public-company successions. The findings matter to boards, nominating committees, investors and executive teams assessing succession planning, succession risk and talent pipelines.
Why should I read this?
Short answer: because it rips up the playbook that says you must hire a flashy outsider to fix things. If you’re on a board, running succession planning or invested in long-term value, this is a quick, data-backed reality check that saves you time and bad hires.
Author (tone)
Punchy: Jeffrey Sonnenfeld — Yale’s leadership scholar — lays down a clear, evidence-backed case that internal successors often deliver superior shareholder outcomes. Read this if you care about practical, high-stakes decisions on CEO choice.