The era of internal CEO promotions is waning as companies increasingly look beyond their ranks for top leadership.
Large corporations have traditionally favored internal elevations to the corner office. In 2024, however, a record number of external candidates ascended to the top job at S&P 1500 companies. According to Spencer Stuart, 44% of new CEOs appointed last year came from outside the company, a 12% increase from 2023. This shift is particularly pronounced among mid-cap companies, where 58% of incoming CEOs were external hires. At Fortune 500 companies, however, 76% of CEOs are internal appointments.
Several factors are driving this trend, including the need for leaders with fresh perspectives to navigate growing business uncertainty. “Whenever you find that the business is in a state of uncertainty, whether at the industry level or company level, boards become more open-minded about looking outside the company,” says Jason Baumgarten, head of global board and CEO practice at Spencer Stuart. This is especially true for underperforming companies, where boards recognize the value of leaders with varied expertise and a novel perspective.
Another driver is the volatility and faster pace of change across industries like tech, consumer goods, and health care, which saw the highest rates of external CEO appointments. In health care, 53% of new CEOs were external hires, while tech and consumer goods each reported 50%.
In these sectors, boards are prioritizing leaders who can navigate sustainability demands, adapt to rapidly shifting consumer behavior, and drive transformation amid high-speed disruption. “If you see more change going forward than stability, you may need a different kind of leader or an outside lens,” Baumgarten explains.
External CEOs bring objectivity and a fresh approach, allowing them to assess challenges more clearly because they aren’t emotionally tied to past decisions or the outgoing CEO’s strategy. This detachment can make them more effective change agents, says Baumgarten.
By contrast, industries that prioritize stability and continuity are less likely to hire outsiders. In financial services, 64% of CEO appointments were internal promotions, while 60% of industrial CEO hires came from within. Internal CEOs are often seen as a lower-risk choice in these instances because they already understand the company's culture, strategy, and internal dynamics, making for a smoother transition.
Yet another factor fueling the rise of external hires is a growing preference for seasoned leaders, making them especially attractive candidates for companies undergoing transformation, particularly in small and mid-cap firms. In 2024, 21% of incoming S&P 1500 CEOs had previously led a public company—an eight-percentage-point increase in three years.
Ultimately, the decision to appoint an external CEO reflects a company’s specific challenges and the broader business landscape, says Baumgarten. As industries continue to evolve, external CEOs are proving to be valuable assets, offering fresh expertise, strategic vision, and the ability to drive meaningful change in an increasingly complex business environment.
