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(originally published by Booz & Company)


Why Your Next CEO Should Come from Inside

One professor at Harvard Business School refers to the benefits that come from the interaction of different skill sets and personalities as “creative abrasion.” Great leaders understand that there is strength in recruiting for diversity so that teams of insiders never get a monolithic view of things. The melding of those different perspectives drives creativity.

S+B: Given the news events of the last few weeks in particular and the turnover in financial services, what can we learn from the recent run of sudden successions? And what can we glean that’s not obvious?
Based on press accounts of Merrill Lynch and Citigroup, I would say that we have very large, complex organizations now operating in the financial sector. They are tremendous in scale and scope. The job of running them is immense. These institutions are under enormous pressure to perform short term. Managing the balance between short-term performance and risk management and building for the long term is complex, and is probably beyond what one individual can fully oversee as CEO.

There need to be teams working together that can discuss all the dimensions of the problems facing the firm. It certainly seems in this instance, in both cases, that risk management really broke down. And it’s not clear to what extent the teams were working to control that process. We appear to have firms that were focusing mostly on delivering results. Merrill’s drive for profits and Citigroup’s immediate need to deal with scandal seem to have taken priority over long-term risk management. When we look around, we can see that, apparently, most financial institutions have some garbage on their balance sheets. The ones that are getting hurt are those that didn’t recognize that early enough and start hedging against it.

It’s discouraging that, at each of these companies, when the board of directors decided the circumstances required changing the CEO, there were no obvious inside candidates to choose. That is the dilemma facing companies that haven’t thought enough, in advance, about developing the executive talent they will need.

Author Profiles:

Steven Wheeler ([email protected]) is a senior vice president with Booz Allen Hamilton based in Cleveland, Ohio. He leads the firm’s work focused on strategic leadership and has served multiple industries with a focus on consumer packaged goods and durables.
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  1. Joseph L. Bower, The CEO Within: How Inside Outsiders Are the Key to Succession Planning (Harvard Business School Press, 2007): New research on the challenge of finding the next chief executive. Click here.
  2. Chuck Lucier, Steven Wheeler, and Rolf Habbel, “The Era of the Inclusive Leader,” s+b, Summer 2007: Annual CEO succession study reveals the average time frame a leader has for change: seven years. Click here.
  3. Steven Wheeler, Walter McFarland, Art Kleiner, “A Blueprint for Strategic Leadership,” s+b, Winter 2007: How to build an organization in which executives will flourish. Click here.
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