Disappearing market share and profits finally forced Bill Ford Jr., chairman and CEO, to step down from the helm of the company his grandfather, Henry Ford, founded 103 years ago. The Wall Street Journal reported on Wednesday, that he told the board, “I’m really struggling with trying to keep all the balls in the air. It’s a lot – perhaps too much.” While keeping his role as chairman, Mr. Ford will be replaced by Alan Mulally, chief of Boeing’s commercial airplanes unit. Though Mr. Mulally has no automotive industry experience, he had been hired by Boeing to perform a similar type of turnaround as he accomplished at Boeing.

This widely watched and widely critiqued transition is just a high profile example of what is being played out in all organizations today. It raises all the questions that CEO’s, boards, shareholders, and employees need to be asking.

• Should we hire from within or bring in an outsider?
• What should be the role of the CEO who is stepping down?
• How important is it for the new CEO to have industry experience?
• Are family members the best choice for CEO?

Booz Allen Hamilton’s report, CEO Succession 2005: The Crest of the Wave, shows that global turnover of CEO’s was at a record high with more than 1 in 7 of the world’s largest companies making leadership changes, up from 1 in 11 a decade ago. Dismissals were also at record levels with four times as many as in 1995.

The report provides key insights into succession strategies.

1. If you promote an insider to CEO, the performance may be good over the long term, but will be relatively poor during the first five years.
2. If you promote an insider to CEO and make the old CEO Chairman, you can expect performance to suffer as the new CEO struggles to establish his identity, authority, and autonomy in the shadow of the old CEO who hangs around.
3. If you bring in an outsider, you may or may not see improvement. However you may contribute to the decline of the economy because you may adversely impact the performance of both the new company and the competitor you poached. In North America, 29% of companies with negative performance had hired an outsider versus only 6% for positive performing companies.
4. If you bring in a seasoned former CEO either from your company or another, performance will likely improve in the first five years, but not as much as the fifth strategy.
5. If you bring in a first time CEO from the outside, performance will improve but only in the first five years. (see chart)

Why do outsiders perform better in the initial five years? Well, outsiders are…outsiders. They can have a more objective look at the organization. Without the emotional constraints of insiders, they can make tough decisions and set new performance standards. They have also been hired by a board anxious to turn things around…a little extra incentive!

But there are two other reasons for their performance edge in the first five years. First of all, they are more likely to take over poorly performing companies so there is a lot of opportunity for improvement. And second, most of the improvements are often “low hanging fruit” – cost cutting, force reductions, disposal of unnecessary assets. But once these things have been done, and the change has to now occur at deeper systemic levels of the organization and its culture, these CEO’s have used up their bag of tricks. They’ve brought an immediate return to the shareholders, but have not necessarily dealt with the things that create value over the long run.

Insiders, on the other hand, are generally better suited to bring about the longer term systemic and cultural changes to an organization. They have a deeper understanding of what makes it unique and valuable. But they may not have the political capital or courage to make the tough decisions in the short run, what has been called the “grim will to do the right thing”.

From a biblical perspective, these lessons are important to consider carefully. Succession challenges are not a 21st century phenomena. The Scriptures are constantly bringing up the challenge of succession whether you see it in the stories of Israel’s kings, or in Jesus’ preparation of his disciples, or the apostles’ constant advice and counsel for selecting and developing leaders for the fledgling churches. It’s also an issue in all organizations today. And it is a significant issue as we think about families and effectively developing and passing on leadership of our households to future generations.

And back to Bill Ford. How will it play out at Ford for a family member - who hasn’t been successful - to step down as CEO, but to remain on as chairman - while hiring an outsider with no industry experience? I guess we’ll know before five years is up. And the preponderance of research shows that it probably won’t be good for Ford in the long run.

Investing in Japanese car manufacturers, anyone?