Companies Turn to an Unlikely Place for Their Next CEO

As the news broke last Monday that General Electric Co. GE 4.11% had pushed out its chief executive and elevated a relatively new board member to run the conglomerate, Yale University management professor Jeffrey Sonnenfelds phone lighted up.

The calls, texts and emails from the heads of Fortune 1000 companies, Mr. Sonnenfeld said, all essentially asked the same question: Should I be worried about who we bring on boards now?

Some of the chiefs wondered whether they would be better off seeking out long-retired executives as directors because they might represent less competition for CEOs jobs, he said. They worry about very young retirees with an unfulfilled career agenda.

It is more likely for a CEO to come from a companys internal executive ranks than from its board. Between 2013 and 2017, internal candidates made up about 75% of CEO appointments at S&P 500 companies, according to an analysis by Spencer Stuart, an executive search and leadership advisory firm.

GEs choice, in contrast, highlights the director-to-CEO route. The unusual trajectory works well for some companies because directors who become CEOs bring inside knowledge and established relationships with fellow board members, said James Citrin, head of the North American CEO practice for Spencer Stuart.

Others say it can raise awkward dynamics and even some ethical questions, if a director eyes the CEOs job while simultaneously overseeing that executive, said James Tompkins, direct....

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