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Houston companies looking for a new CEO must decide where exactly to look

When companies plan to restructure, it makes a difference if the new CEO is hired from inside or outside. Pexels

Star Co. is a hot mess. The business is bloated and sprawling. Its stock is tanking. Profits are down. It's clearly time for a new CEO.

But where to look — inside the company or outside? It's a decision every restructuring company faces.

Cenovus Energy tapped an outsider in 2017. General Electric, the same year, went with a longtime insider. Though it's too soon to know yet for sure, which one likely made the right choice?

Rice Business emeritus professor Robert E. Hoskisson, with coauthors Shih-chi Chiu, then at Nanyang Technological University (now at the University of Houston), Richard A. Johnson of University of Missouri, Columbia and Seemantini Pathak of University of Missouri-St. Louis, set out for an answer: Where is the best place for a restructuring company to get its next CEO?

According to conventional wisdom and some past research, change is more likely under an outside CEO. He or she can start fresh, armed with a greater mandate to shake things up.

Recent evidence, though, suggests that outsiders may actually have more trouble succeeding. That's because they lack the institutional knowledge to make the most informed choices, and the existing relationships needed to ease change with minimal pain. Insiders, this research shows, have the advantage of key "firm-specific" knowledge on everything from customers to suppliers to workforce composition.

To pin down an answer on whether it's better to stay inside or go outside, Hoskisson's team decided to look at corporate divestiture — asset sales, spinoffs, equity carve-outs — as a proxy for overall strategic change. (It's already well documented that a new CEO makes organizational changes such as personnel changes and culture shifts.)

Next, they distinguished between scale and scope. The scale of a divestiture reflects magnitude: How many units were sold? The scope reflects diversification portfolio adjustment: Does the company have fewer business lines?

Focusing on 234 divestitures at U.S. firms that voluntarily restructured between 1986 and 2009, the authors defined a new inside CEO as having been in that role two or fewer years, and with the company previously for more than two years. They defined a new outside CEO as someone who had been at the company for a maximum of two years in any role.

Heading into the analysis, the researchers expected they would reach different conclusions for scale vs. scope. And the results were just that.

New inside CEOs, they found, did carry out more divesture activities than new outside CEOs. Not having as much inside knowledge, the outside CEO was more likely to prefer a simpler divesture plan, one that didn't require evaluating each unit or asset. Instead, the professors hypothesized, an outsider was more likely to follow investors' general preferences about firm strategy.

"When a higher magnitude of corporate divestures is required, internal successors are more astute than external successors in accomplishing this objective," the researchers write. On the other hand, when a company wants to shrink the diversified scope of a business portfolio, "external successors are more likely to bring their firms to a more focused position."

The researchers also suggested future lines of study about new CEOs and strategic change. What happens when firms want to buy and sell at the same time? Does the CEO selection process itself affect restructuring scale and scope? And does an inside chief executive who won a power struggle against a predecessor perform differently than an inside CEO named in orderly succession planning?

In the meantime, the findings are clear. If your corporate board is hunting for a new CEO, it may pay to go for the fresh face. But depending on your goals, your best option may also be a top executive sitting at a desk a few steps away.

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This story originally ran on Rice Business Wisdom.

Robert E. Hoskisson is the George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University.

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Register for some of these informative online events happening throughout the month of December. Getty Images

It's the last monthly events roundup for 2020 — and this month, understandably, is a bit slow due to the holidays, but we have a roundup of the must-attend events for December.

From workshops and panels to summits and pitch parties, here are over 10 Houston innovation events you can attend virtually via online meetings. Note: This post will be updated to add more events.

December 1 — National Resilience Town Hall: Year in Review, Year Ahead

The Insurance Information Institute and ResilientH2O Partners, in partnership with the Resilience Accelerator, will hold the final session for 2020 in an ongoing series of thought-leadership among insurance, non-insurance, public sector, and technology senior executives. December's National Townhall will bring five unique perspectives together to discuss lessons-learned from 2020 and predictions for 2021's resilience and risk mitigation "agenda" across residential, commercial, industrial, government operations, infrastructure, facilities, and communities.

The event is on Tuesday, December 1, at 10 am. It's free and can be accessed online. Click here to register.

December 1 — Angel Investing 101

Learn about how to make effective angel investment decisions and find out more about the newly launched Chicago Booth Angels Network of Texas. The event's keynote speaker is Ashok Rao, serial entrepreneur and board member of Houston-based GOOSE Capital.

The event is on Tuesday, December 1, from 5 to 6 pm. It's free and can be accessed online. Click here to register.

December 1 — The Ion's Industry Day

The goal of the inaugural Industry Day is to introduce and connect minority and women owned businesses (MWBE) with The Ion's Transwestern team. The hour long event is designed to facilitate networking and connect interested businesses with Transwestern, who will run operations for The Ion and catalyze local economic growth. Following the event, interested businesses can set up a walk through of The Ion in mid-December to finalize their bid.

The event is on Tuesday, December 1, from 6 to 7 pm. It's free and can be accessed through Zoom. Click here to register.

December 2 — NASA and Your Small Business: Understanding the NASA Procurement Process

Join The Ion to learn about NASA's commitment to providing access for all categories of small businesses to participate in the procurement process.

The event is on Wednesday, December 2, at noon. It's free and can be accessed through Zoom. Click here to register.

December 3 — Capital Factory's Venture Summit

Capital Factory is calling all investors, accelerator leaders, limited partners, and more to its annual venture summit, which is taking place virtually this year.

The event is on Thursday, December 3, from 9:45 to 2 pm. It's free and can be accessed online. Click here to register.

December 3 — Evening of Pediatric Device Innovation

JLABS @ TMC and Southwest National Pediatric Device Innovation Consortium are teaming up for the sixth Annual Evening of Pediatric Device Innovation. The evening of innovation will host top experts from Houston and across the country will discuss their views on the latest in pediatric medical device innovation and updates on bringing a pediatric medical device to market.

The event is on Thursday, December 3, from 3:40 to 5 pm. It's free and can be accessed through Zoom. Click here to register.

December 3 — An Evening With Women in Corporate Innovation

Join General Assembly Houston to hear from inspiring female leaders in corporate innovation who have blazed the path to stand up and stand out. From learnings to failings and their secrets of success, this event is an opportunity to learn from the best — serious wisdom, from seriously cool women, all designed to supercharge you and your organization's success.

The event is on Thursday, December 3, from 5 to 6:30 pm. It's free and can be accessed online. Click here to register.

December 8 — The Cannon Q4 Pitch Party: Presented by Dell Technologies

Join The Cannon and Dell Technologies in hearing from new companies working in Digital Transformation Tech.

The event is on Tuesday, December 8, at 5:30 pm. It's free and can be accessed via Zoom. Click here to register.

December 8 — How to Start a Startup with Heath Butler of Mercury Fund

The Ion is hosting a startup 101 workshop with Heath Butler from Mercury Fund. You have an idea...now what? Before you start looking for funding, it's important to make sure that your idea is both viable and valuable — if it doesn't have a sound model and a market willing to pay for it, investors won't be interested anyway.

    The event is on Tuesday, December 8, at 5:30 pm. It's free and can be accessed via Zoom. Click here to register.

    December 10 — Greentown Lab's Energy Bar: Wrapping Up an Unprecedented Year

    Join Greentown Labs virtually for the final edition of the EnergyBar networking event for 2020. Greentown Labs is ready to put a wrap on 2020, an unprecedent year for us all. Between the opening of the new community in Houston and a renewed national policy focus on climate action, the organization is looking ahead to 2021. Entrepreneurs, investors, students, and friends of climatetech are invited to attend, meet colleagues, and engage in a community that is focused on climate action at work.

    The event is on Thursday, December 10, from 3:30 to 6:30 pm. It's free and can be access through Remo. Click here to register.

    December 15 — The State of Space

    The Greater Houston Partnership is hosting its first State of Space event featuring NASA Administrator Jim Bridenstine as the keynote speaker. Since his appointment as Administrator in April of 2018, Bridenstine has led NASA in advancing American aeronautic, science, and space exploration objectives.

    The event is on Tuesday, December 15, at noon. It's $35 for GHP members and $60 for nonmembers. Click here to register.

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