From Boardroom to C-Suite: Why Would a Company Pick a Current Director as CEO?

From Boardroom to C-Suite: Why Would a Company Pick a Current Director as CEO?

By
David F. Larcker, Brian Tayan
Stanford Closer Look Series. March
2017

Many observers consider the most important responsibility of the board of directors its responsibility to hire and fire the CEO. To this end, an interesting situation arises when a CEO resigns and the board chooses neither an internal nor external candidate, but a current board member as successor. Why would a company make such a decision? In this Closer Look, we examine this question in detail.

We ask:

  • What does it say about a company’s succession plan when the board appoints a current director as CEO?
  • What is the process by which the board makes this decision?
  • Are directors-turned-CEO the most qualified candidates, or do they represent a stop-gap measure?
  • What does the sudden nature of these transitions say about the board’s ability to monitor performance?