July 18, 2017 – Perrigo Company, a global provider of over-the-counter pharmaceuticals and other healthcare products, said that its board of directors has retained Spencer Stuart to help find its next chief executive officer.
CEO John T. Hendrickson is retiring. He plans to remain with the company for up to 60 days after his successor is hired, to ensure a smooth transition.
The search is being overseen by the board’s nominating and governance committee, which is comprised of chairman Jeff Smith, Brad Alford, Rolf Classon, Gary Cohen and board chair Laurie Brlas. Spencer Stuart’s search will include the assessment of both internal and external candidates. Roughly just 16 percent of CEO posts are filled by outsiders, so odds are high that the replacement will come from inside the company.
Founded in 1887, Perrigo is the world’s largest manufacturer of over-the-counter healthcare products and supplier of infant formulas for the store brand market. The company is headquartered in Dublin, Ireland.
Why Consider Outsiders
A PwC report found that over the past several years more big companies have been deliberately choosing their new CEO from outside of the company as part of a planned succession, an indication that hiring an outsider has become more of an intentional leadership choice than a necessity.
Outsiders accounted for 22 percent of all CEOs brought in via a planned succession between 2012 and 2016, up from 14 percent in the 2004 to 2007 period, said the report. In addition, almost three quarters of all outsider CEOs were brought in during planned successions during that same period, up from 43 percent in 2004 through 2007.
The majority of companies, however, have continued to promote insiders to the CEO position, and the study’s authors believe this will remain the preferred succession planning practice (77 percent insiders versus 23 percent outsiders in 2016). Outsider CEOs, for their part, have caught up and closed a performance gap that the study previously found between outsider and insider CEOs, possibly strengthening the case for considering a new leader from outside the company.
“Hiring an executive from outside a company to serve as CEO used to be seen as a last resort,” said Per-Ola Karlsson, partner and leader of Strategy&’s organization and leadership practice for PwC Middle East. “That is not the case anymore with the disruptive market-related changes that companies are facing today.”
While an internal CEO candidate may have an excellent record of achieving the business goals a company has pursued in the past, Mr. Karlsson said boards recognize that insiders might lack the skills needed to lead and see through the changes necessary to win in the future.
A recent Mullin International online poll conducted by Greenwich-based Hunt Scanlon Media, “Insiders vs. Outsiders: Which Candidate Type Fits Best, and When?” found that promoting from within remains a preferred way for organizations to address their leadership needs. But when executive recruiters are brought in to openly recruit for vacant positions, they are often given mandates to look wide and deep for candidates, and that typically results in the search shifting to a hunt for outsiders.
When asked why internal candidates are given preferential treatment for job openings, 40 percent of the respondents said “knowledge of the organization,” followed by “sensitive to corporate culture” (33 percent), and “demonstrated potential” (27 percent). When asked what primary attributes external hires bring, 40 percent of respondents pointed to “innovation.” Another 40 percent said “change,” while 20 percent thought that outsiders brought “fresh perspective.” When asked if companies are “risk averse” when it comes to expanding their leadership ranks with outside talent, a third responded that they were.
Insiders are ‘Safer Bets’
According to recruiters focused on finding talent for the C-suite, at least half of all job openings are filled by internal candidates before they’re introduced to the public job market. This perhaps suggests that companies have relatively reliable bench strength even though leadership development is seen as stagnating at many companies. The main reason given: Companies prefer to promote from within.
Bridging the Skills Gap With Insiders
There has been an emergent skills gap that has plagued almost every industry. While organizations have implemented a series of measures to improve oversight of labor costs and value returns, they have focused more on improving the quality of talent acquisition than they have on sustaining employee performance.
For those searches that go to recruiters, with a clear mandate to look wide and deep both inside and outside a client organization, internal candidates still surface more often and get the job about 80 percent of the time.
Recruiters say clients generally like to be seen as making bold moves, but at the end of the day many remain risk averse when it comes to hiring elite executives, especially into their highly protected upper leadership ranks. They look at insiders as safer bets. Knowing this mindset going in, recruiters say they advise their clients that have an inside candidate who is 70 percent as strong as an outside choice to hire the insider. Fit and culture seem to be the deciding factor.
“There is a greater risk when you bring somebody in from the outside that it won’t work out,” said Kathleen Yazbak, founder of Boston-based Viewcrest Advisors, a boutique search firm focused on finding leadership talent for mission-driven and high-performing companies, social enterprises and philanthropies.
Internal candidates know the business model, organization goals and inside cultures, say recruiters, and oftentimes they have the requisite skills required. They know the customers, clients and co-workers. They have also established relationships with colleagues and their organization’s leaders. But, more importantly, they have already shown their potential. They can, therefore, assimilate faster and will be likely more satisfied in their new roles than outside hires.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Will Schatz, Managing Editor – Hunt Scanlon Media