What should companies consider when it comes to hiring the best CEO? What determines their employment or continuation of it inside a company? Is it a matter of skills or external conditions? As they search for the ideal leader, companies need to find an executive that is the perfect combination in the appropriate moment.

1. How to hire the best CEO for your company
By Jason Hanold
Image courtesyof WorldRelief Spokane atFlickr.com

2. What should companies consider when it comes to hiring the best CEO? What determines their
employment or continuation of it inside a company? Is it a matter of skills or external conditions?
As they search for the ideal leader, companies need to find an executive that is the perfect
combination in the appropriate moment. But what is it that drives the search for a new executive
partner and why do some CEOs get fired, while others hold on to their positions?
Researchers have concluded that the performance of executives -in comparison with their
colleagues in the same industry-, as well as the conditions of the industry itself are determinative
factors for the permanence of a leader in charge of a company.
In the past, studies about executive turnovers tended to conclude that companies would mostly get
rid of the leaders with the poorest performance level within their industry.
However, more recent studies have shown that, even though it's common for corporate boards
to compare CEOs to their colleagues within the same industry, performance must not be
evaluated without considering the conditions of the sector.
These conditions are important when the CEOs are evaluated as well as when it is necessary to
substitute one with a poor performance, according to investigators Camelia Kuhnen, associate
professor of finances in the Kellogg School of Management and Andrea Eisfeldt, associate professor
in the University of California in Los Angeles.

3. “We don't believe that it is surprising that the conditions of the industry are important, because
these conditions have an impact in the external options of the CEOs and the companies”,
according to Eisfeldt.
Why replace a CEO?
Investigators Camelia Kuhnen and Andrea Eisfeldt point out that if regulations have changed or
international competition has intensified, there could be an incompatibility between the talent of a
CEO and the appropriate strategy for the future.
Letting a manager go is a big decision. After all, fixed costs do exist once an executive is fired.
Besides separation, there is a loss of productivity while a replacement is found. Also, there are
rewards to replace the outgoing executive, and often, a raise for the person who comes to take the
job.
Kuhnen and Eisfeldt created a model that shows that the companies seem to understand this
need of having the correct leader.

4. Since the conditions of the industry are permanently changing, there is a reshuffling of top
executives in the companies, and only those with the most abilities that relate only to their kind of
business will stay there.
The rest is replaced, probably within the industry, but when said industry is in trouble, it is more
likely that the company will lure an outsider.
It's all a matter of having an appropriate skill set at the right time.
Image courtesyof reynermediaatflickr.com

5. The perfect CEO
The ideal situation would be that in which a CEO would possess several skill sets, but an executive
typically fits into one of two categories.
We’re talking about someone who can be an astute executive for business growth by doing things
like, say, attracting more customers, increasing capital or creating a strong team; or an executive
who is good at improving efficiency through the implementation of cost-reducing measures, firing
people or selling divisions that are not quite up to the expectations.
“Our work shows that managers do have certain fixed abilities, this could be thought of as a
‘style’”, Eisfeldt says.
“CEOs usually have a competitive advantage in a single dimension”, Kuhnen adds, explaining that
that advantage is related both to previous experience and personal interests.
So what determines if a CEO stays or leaves? Kuhnen and Eisfeldt’s research reveals certain
patterns in layovers and hirings of high level executives:
● When an industry is in trouble, companies will look for a CEO outside of it.
● The CEOs with the most skills will tend to survive executive reshuffling.
● Companies look for CEOs with specific skills that will adapt to them.
● Industries that need leaders with non-specific skills are likely to fire their CEOs easily.

6. When is it necessaryto go a different way
When an industry is shaken by lack of regulations or international competition, profits often go
down. According to Eisfeldt and Kuhnen, under these circumstances, the need for a strategic
change is the most important one.
Companies usually look outside their industry for people with high levels of general skills that are
desirable in an innovative way, and people who demand a high price.
When the need for new blood is the most important thing, it is also usually important to find and
adapt the right person for the job.
“Someone with an appropriate skill set gets paid a lot, and someone with the wrong skill set
doesn't get paid as much”, Kuhnen says.
Eisfeldt says that bringing someone from the outside can say a lot about the state of the industry.
“It is an enormous action that speaks about the fact that the company really needs something
different. It shows that whatever the strategy they were using before, it wasn't really the best.”
However, the investigators point out that the external conditions are not the only factors that
matter. Companies that don't have a good performance are more likely to fire their executives.

7. “We ascertain that the fact that the conditions of the industry are important doesn't mean that
boards will act differently in peak times, in comparison with recessions. They are always looking for
the best catch, but as the conditions of the industry change, they might deteriorate as well”.