(MoneyWatch) CEOs are put in charge of
companies ostensibly because of their experience, acumen and abilities to move a business
where it needs to go. That's one reason why chief executives get the big bucks -- an estimated 1,795 times as much as the average worker. So it's only natural that businesses want to be led by the most seasoned leader possible, right?
Not really. New research suggests that experienced CEOs do worse in running companies than those without the experience, according to the MIT Sloan Management Review.
Monika Hamori of IE Business School in Spain and Burak Koyuncu of NEOMA Business School in France studied data 501 CEOs of S&P 500 companies. The researchers found that companies performed worse when their CEO had held a chief executive position at another business immediately prior to being hired.
How much worse? Companies' average return on assets -- a measure of how effectively a publicly listed business operates -- was 48 percent lower than the average return on assets for enterprises where the CEOs were either new to the type of position or had taken some time to do something else since their previous CEO job.
One downside of having previous experience at the helm, according to the study: the executives who had just come off another CEO job carried over too much from the previous company, relying on their experience instead of focusing on the individual conditions at the new company. They essentially tried to apply lessons learned under other conditions and a different corporate culture to the new company, where those circumstances might not apply.One lesson of these findings is that managers must avoid blanketly superimposing their experience onto the needs and circumstances of other companies. The authors suggest that a company hiring a CEO should either put the candidate in a temporary role or on the board of directors for a year before giving him or her control. This allows the new executive to become acclimated, let go of assumptions and avoid "decision-making shortcuts."