Recruiting Your Next CEO – Practical Advice for Canadian Boards

In almost every organization, appointing the right CEO is crucial to success. Although certain
recruiting practices around the world are similar, a number of them differ from country to
country.

For example, consider the percentage of CEOs chosen from candidates inside the organization
versus those recruited on the outside:

• In the United States, a number of studies suggest that approximately two-thirds of CEOs came from inside their organizations.

• In Canada, by contrast, an analysis of the data indicates that the percentage of CEOs who had been internal candidates varies widely. In the private sector, among the largest 50 companies ranked by revenue, fully 80 percent of CEO appointments are internal. Among companies ranked 400 to 500 in size, however, the proportion drops to 50 percent. Outside the private sector, the percentage declines again: In Crown corporations, hospitals, educational institutions, economic development entities, non-government organizations, associations and charities, the proportion of internal appointees is fewer than 35 percent. (Organizations who’s CEOs were either founders or family members were purposefully excluded from the analyses.)

There are two reasons why Canadian Boards so frequently recruit CEOs externally.

Transparency is one reason: In Canada there is an expectation that CEO searches should be open
to outside candidates, especially in the non-profit and public sector domains. Size is the other
reason: As Ram Charan noted in a 2005 Harvard Business Review article ‘Ending The CEO
Succession Crisis’: “General Electric had around 225,000 workers in 1993 when Jack Welch
identified 20 potential successors; over seven years he winnowed the number to three. In CEO
succession, it takes a ton of ore to produce an ounce of gold.” The vast majority of our
Canadian organizations are simply not large enough to consistently produce candidates who are
fully “ready when needed”

Recruiting a new CEO from outside the organization is a complex process. This article will
suggest guidelines that boards and search committees can use when they must recruit a new
leader. Drawing on Canadian research and best practices, it sets out a general framework that
can be customized to each situation.

This article is featured in the 2008 May/June issue of the Ivey Business Journal

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