Perspectives

The decision to hire a new CEO represents a critical inflection point for any company.

When the stakes are this high, companies must carefully weigh potential risks and benefits for all candidate profiles. This almost always includes a discussion about the viability of first-time CEO candidates and whether prior experience should be a requirement of the role. The short answer: it depends.

Hiring first-time CEO candidates brings inherent advantages:

• Allows for a broader, more diverse talent pool including “best athletes” and internal culture carriers
• Candidates are hungry to prove themselves and typically more open to opportunities that seasoned CEOs might decline
• Often more affordable and able to be recruited from more desirable brands
• Some data suggests first-time CEOs actually outperform their more seasoned counterparts

That said, executives lacking direct CEO experience do carry risks:

• Credibility challenges outside and inside of the organization, especially among internal executives who felt qualified for the position
• Learning curve for new responsibilities such as fundraising, cash management, or capital allocation
• Potential inexperience with Board dynamics and stakeholder management
• May initially prioritize too much in an effort to prove themselves

Ultimately, whether a company should hire a first-time or an experienced CEO comes down to situational factors including the candidate pool for consideration, the business context, and the priorities for the role.

To help work through these considerations, we’ve compiled a framework for determining CEO candidate viability based on countless executive searches we’ve conducted for diverse retailers, brands, and private equity firms.

Here are some of the most important factors to consider:

Candidate Pool

Prior experience requirements inherently limit the talent pool that will be considered for a search. Although many companies prefer CEO candidates who have done the job before, this group can bring its own challenges:

• Sitting CEOs can be difficult to recruit from successful companies, especially if the hiring company is smaller, less successful with more compensation at risk, or even viewed as lateral
• Often requires tradeoffs in desired experiences and characteristics, forcing concessions on pedigree or scale
• Skews towards later-career executives who may have career missteps or are less current on new-era skills
• Significantly narrows options when paired with other restrictive factors such as relocation or below-market compensation

Therefore, companies should be purposeful in setting prior CEO experience as must-have criteria with full understanding of the impact on the executive talent pool they will meet.

Business Context

When determining prior experience requirements, companies should consider the business context in which the CEO will be operating:

Private Equity Portfolio Company CEOs
Private equity firms seek to maximize returns while minimizing risk, and they seek to hire executives who have previously delivered results like those spelled out in their investment thesis. Given their emphasis on investor optics, value creation, risk mitigation, and exit timeline, PE firms often seek external CEO candidates with prior success in the role.

There are some exceptions, such as PE models that provide more hands-on operational support for portfolio leaders. Some firms are also more focused on candidates’ execution abilities than their prior experience, as portfolio companies can operate under a lean approach that forces more "doing" vs. purely managing. Seasoned CEOs may be less willing to dive into the details and execute with less support.

Public Company CEOs
Public companies typically have an internal pipeline of CEO-successor candidates with strong reputational equity who deeply understand the culture and have support from the Board. Even though they lack direct CEO experience, they're often a company’s first choice - among the largest US corporations, approximately 80% of new CEOs are promoted internally.

However, public companies must consider how the new CEO will be viewed by external and internal stakeholders, including other top executives within the company who may have wanted the job. For this reason, public company Boards typically conduct external searches to benchmark external CEO talent against internal succession options before selecting a candidate. This exercise helps substantiate the new CEO’s suitability for the role regardless of whether an internal or external hire is made.

CEOs of Founder-Led Companies
The founder's ongoing role must be clearly defined before bringing in a CEO. If the founder intends to step away from the business, then an experienced CEO with a defined operating playbook may be more appropriate. This is also true if the founder seeks a CEO who can lead the company into the complete unknown, such as hyper-scaling growth or positioning it for an exit.

Conversely, if the founder intends to remain involved in some aspect of the business, then a first-time CEO who fits in the company’s culture and can accommodate the founder when necessary may be a better fit.

Candidate Profile

Many important factors determine a candidate’s suitability for a CEO job, and prior success in the role is just one of them. Before candidate evaluation begins, the search committee should rank their priorities and ensure CEO experience is appropriately weighted in context of other success factors:

• Industry knowledge: Deep industry expertise can outrank prior CEO experience, particularly in specialized industries
• Expertise: What channel knowledge, product or brand pedigree, technical skills, functional experience, business model experience, and/or geographical expertise is needed to perform effectively?
• Growth stage: Turnaround, transformation, start-up, or high-growth - does the candidate have demonstrated success leading a business from a relevant point A to point B?
• Track record: Is their prior success relevant to the task at hand? Are there missteps to consider?
• Reputational equity: Perception of the candidate in the market and stakeholder impact. How do they reference?
• Business scale: Is their prior success in organizations of relevant size and resources?
• Scope: Do they have the right breadth of general management exposure and P&L ownership?
• Support system: Alignment between candidate experience and organizational infrastructure. Will the CEO report to a Chairman, and if so, what role will they play?
• Adaptability and relevance: Demonstrated ability to learn, grow, and succeed in the face of new challenges. Intellectual curiosity and connection to the industry, culture, and world at large?
• Culture and vision alignment: Is there alignment between the candidate’s personal and professional values and the organization's culture and mission?
• Personality and approach: Does the candidate’s leadership and communication style fit with the organization's culture and trajectory? Do they have the natural gravitas for the role?
• Availability and affordability: Are the timing, geography and compensation requirements realistic?
• Passion for opportunity: Does the candidate demonstrate desire for the role and passion for the industry, company, and the work that needs to get done? How confident are they in their ability to succeed?

Key Takeaways

Great CEOs have one thing in common: they were all given first-time CEO opportunities at some point in their careers.

Whether a company should hire a first-time CEO or a seasoned CEO for their top job depends on a complex combination of factors including the desired candidate pool, the business context, and the candidate profile priorities. Ultimately, examples abound of successes and failures from seasoned and first-time CEOs alike. A thoughtful and objective hiring process that considers all factors is critical to hiring a CEO who is set up to thrive.

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