Microsoft taps insider for top spot like most companies; outsiders can bring more risk

The Associated Press

FILE - In this Tuesday, Nov. 19, 2013, file photo, Microsoft CEO Steve Ballmer speaks at the company's annual shareholders meeting, in Bellevue, Wash. Microsoft announced Tuesday, Feb. 4, 2014, that Satya Nadella will replace Steve Ballmer as its new CEO. Nadella will become only the third leader in the software giant's 38-year history, after founder Bill Gates and Ballmer. Board member John Thompson will serve as Microsoft's new chairman. (AP Photo/Elaine Thompson, File)

Associated Press + More

By CANDICE CHOI, AP Food Industry Writer

NEW YORK (AP) — Companies looking for a leader face a big question: Pluck a CEO from the rank-and-file or a fresh face from outside the organization?

Microsoft decided to take the former path. The software giant on Tuesday tapped 22-year company veteran Satya Nadella for the top job.

The appointment suggests the company isn't looking for a radical change in the way it operates. It's a move companies including Coke and Chevron have made to fill their corner offices. Others such as Procter & Gamble even make a habit of grooming CEOs from within.

While outsiders may bring a fresh perspective, they also come with more risk. Meanwhile, homebred insiders can bring many other benefits to the CEO suite, such as extensive knowledge of the company's structure and culture.

That's a big reason why about two-thirds of CEOs have traditionally been hired from within, says Sydney Finkelstein, a professor of strategy and leadership at the Tuck School of Business at Dartmouth and author of "Why Smart Executives Fail."

"There's always more risk when you go outside," says Bob Damon, executive chairman of the Americas for Korn Ferry, an executive search firm.

Still, corporate history is dotted with examples of companies who have gone with outsiders, with varying results. Some companies even try one route, and then go back the other way when that fails.

And with so many industries from technology to retail undergoing dramatic changes, experts say more companies will likely look to outsiders for new energy in the years to come. Here are some examples of how the two different paths have played out in the past:

BEST BUY: OUTSIDER

Best Buy faced a double whammy in 2012: its CEO Brian Dunn left amid allegations that he violated company policy by having an inappropriate relationship with a female employee. At the same time, its business was eroding due to tough competition from discount stores and online retailers.

So the consumer electronics retailer decided to look outside for a fix — far outside. It hired French turnaround expert Hubert Joly as CEO in August 2012.

Since then, Best Buy has cut jobs, closed stores, changed store layouts and implemented a price-matching policy to compete with online rivals and discounters. The company had disappointing sales during the holiday shopping season, raising concerns about the electronic retailer's turnaround plan.

But most analysts say Best Buy is in a better position than it was before Joly came aboard, and the turnaround will be a long-term effort. Share movement shows investors seem to back Joly; the stock has nearly doubled since the beginning of 2013.

COCA-COLA: INSIDER

CEO Muhtar Kent joined the world's biggest soda maker as a marketing trainee in New York in 1978 when he was 25. Kent has talked about the months he spent on delivery trucks, getting up before dawn to stock shelves and build displays at grocery stores.

He went on to hold a variety of leadership positions around the world, including general manager of the Turkey and Central Asia region and president of the East Central Europe region.

In his book, former Coca-Cola CEO Neville Isdell even recalls working with Kent to build up the company's business in Eastern Europe, saying "Muhtar was my most valuable lieutenant on the ground."

Since Kent ascended to the spot in 2008, Coca-Cola has taken market share away from rival PepsiCo Inc. and significantly expanded its footprint in developing markets. Still, the company has been struggling to grow sales of its flagship soda business back at home and in other developed nations.

CHEVRON: INSIDER

Thirty years after joining the company as a financial analyst, John Watson ascended to the CEO spot in 2010.