North America Retail Sector Leader & Senior Client Partner
The New Boss Isn’t From Around Here
The fact that the clothing retailer was picking a new CEO wasn’t surprising. The struggling company’s long-time boss was forced out a few years ago and a string of successors hadn’t turned the firm around.
What was surprising was that the retailer picked someone whose only experience with clothing was wearing it or shopping for it, not working at a company selling it.
CEO turnover is on the rise across corporate America. According to one survey, nearly 800 CEOs left from January through May, an 18% jump from 2022. Last year, by some measures, was the highest level of CEO turnover ever. Most of these bosses have been replaced either by candidates working at the firm already or at least in the same industry. But over the past several months, a string of struggling fashion and apparel retailers have turned to outsiders to end their own slumps. CEOs who have had recent experience at hoteliers, toy companies, and even tire manufacturers, have swooped into retail.
Apparel companies, especially those that historically relied on malls for sales, have struggled as e-commerce and social media increasingly influence how Americans buy goods. If the industry is lacking success stories, the thinking goes, perhaps one from another field could help. “There are only a few high-performing retailers out there and the rest want someone who’s had a string of successes,” says John Long, Korn Ferry’s leader for its North America Retail practice.
Experts say retail might not be the only industry willing to look for executive talent outside their own field. As enhancing the customer experience becomes a key focus, many business-to-business organizations or firms used to selling their goods and services on price alone are finding that their own bench of executives might not have the right traits to help. Desperation, experts add, is also making some boards look outside their respective industries for leadership. “If things are completely off the rails they might go look for an outsider,” says Maria Amato, a Korn Ferry senior client partner who works with clients on employee engagement and productivity issues.
The advantage of bringing in an outsider, experts say, is that the new boss can look at everything from a fresh perspective. Many of the retailers making leadership changes had, for decades, been go-to stores or brands for American consumers. Indeed, at some of the firms currently making switches, things were fine or better, until the pandemic. Even among the savviest of leaders there might be a hesitancy to make changes which deviate significantly from a successful past. “That encumbrance from the past can be the biggest challenge,” Long says. Plus, some insiders may be unwilling to “throw all the toys on the floor,” he says, when it comes to evaluating products, strategies, or even people. An outsider has no such sacred cows.
Of course, experts say that if hiring an outside-the-industry-CEO was always the right answer every company would do it. Some industries have steep learning curves; a software executive might not realize that the manufacturer she was hired to lead had already tried the three strategies she successfully implemented at her old organizations. Outsiders also can be viewed with suspicion, Long says, and changes could take longer to implement.
Predicting whether an outsider or insider will succeed is often a flip of a coin. Studies from the 20th and early 21st centuries aren’t particularly conclusive one way or another. A 2022 study from professors at the University of Newcastle found that new insider CEOs outperformed new outsider CEOs since the COVID-19 pandemic began, but only under very specific circumstances, the organization was sitting on a lot of cash and had a high proportion of upper-middle managers who had worked their way up through the organization. Long says that a new CEO, whether they’re an internal candidate, someone from a peer company, or a recruit from a completely different industry, has to quickly determine whether the company teams they are inheriting are agile, or at least willing to be nimble. “It’s the only way to pull off a successful sustainable transformation,” Long says.
Learn more about Korn Ferry's Board and CEO Services capabilities.