In fact, the study says, the best time to appoint an outsider CEO is during periods of corporate stability. A CEO’s outsider status by itself had no significant bearing on shifts in corporate strategy, the authors found, but outsider CEOs are better able to effect meaningful change when they join a company during good times than when they arrive during a turbulent period. As the authors write, the findings fly in the face of the conventional assumption that “outsider CEOs are more likely to take risks and initiate immediate changes, or that outsider CEOs are heroes who take bold actions in highly turbulent circumstances.” 

Combining several databases, the authors analyzed midsized and large publicly traded companies in the airline industry and seven branches of the chemical sector that operated in the United States between 1972 and 2010. These industries experienced many ups and downs during the nearly 40 years studied, giving the researchers an abundance of data across two very different sectors that both value innovation and forward-thinking approaches. 

In line with previous research, the authors analyzed the first three years of a new CEO’s tenure, measuring six indicators that have been widely recognized as drivers of corporate change: post-succession changes in a firm’s advertising intensity, research and development activity, plant and equipment upgrades, non-production overhead, inventory levels, and financial leverage or debt. They also ranked the CEOs on a scale of “outsiderness.” For example, a new CEO with no previous experience at the firm or within the industry would be considered an extreme outsider. 

The authors defined corporate stability as the comparative absence of sociopolitical and financial turbulence during the firm’s changeover from one CEO to the next. They first took into account the nature of the predecessor’s departure—whether it was expected, as in the case of a planned retirement, or unexpected, as in a firing. Previous research has suggested that in the wake of unplanned dismissals, anxious boards often scramble to find a suitable replacement who may not have as much clout as someone who went through a normal recruitment process. The authors also considered how long the previous CEO had been in charge and the recent financial performance of the firm. 

After controlling for a wide range of factors, including the firms’ size and age, the authors found that old habits and beliefs die hard: Companies were much more likely to turn to an outsider CEO during periods of industry volatility or unusual growth. During relatively calm times—when firms enjoyed high returns on assets, for example, or had an heir apparent to the CEO waiting in the wings—boards were much less likely to look outside their own executive suite for a new leader.