Why A CEO’s Success Might Depend On Their Experience Of Board Diversity

How well a new CEO does might depend on what their previous company looked like.

Why A CEO’s Success Might Depend On Their Experience Of Board Diversity
[Photo: shironosov/iStock]

A new CEO often has big shoes to fill: Just ask Starbucks CEO Howard Schultz’s successor Kevin Johnson as he takes over the helm this year. But if there isn’t a clear successor, a company will look further afield to find a new leader (think: David Sacks at Zenefits, or Paula Schneider at American Apparel).

But why do some outside CEOs fail at their new companies while others succeed?

Researchers at Arizona State University wanted to see if board diversity played a role in a new outside CEO’s success. ASU’s research team studied 188 cases where an executive was brought in to lead a Fortune 500 company between 1994 and 2007. Each of those companies’ boards were assessed for seven diversity factors including education level, functional area of expertise, industry background, and whether there was any members with an Ivy League background.

The research revealed that when the new board is more diverse than the leader’s former one, the CEO did not always meet success expectations. According to the study, a CEO had only a 3.6% greater chance of leaving the new company within three years if the diversity measures were about the same between former and current boards. And the odds that a board member will resign were only 6.9% higher when the diversity measures were about the same between the CEO’s present and previous boards.

Therefore, the researchers concluded that managing diverse teams is a necessary skill to succeed as an incoming CEO. They recommend developing that strength by both reporting to diverse teams and working on cross-functional ones, as well as serving on a more diverse board themselves.

Read More: Fitting In Or Standing Out: Which Gets You Ahead Faster?

About the author

Lydia Dishman is a business journalist writing about the intersection of tech, leadership, commerce, and innovation. She is a regular contributor to Fast Company and has written for CBS Moneywatch, Fortune, The Guardian, Popular Science, and the New York Times, among others.

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