These Experts Say CEOs From Other

Industries Make Better Leaders

BUSINESS INSIDER AUSTRALIA
JUN. 24, 2013, 1:42 AM

Corporate ladder: Shutterstock

Senior executives from different industries may make better leaders than home-grown talent,
experts say.

Moving across industries isn’t always easy. NBN Co CEO Mike Quigley has been criticised for lacking
the construction industry experience to lead the network builder, while Australian Rugby Union
CEO Bill Pulver had to earn his stripes upon moving from the technology industry to sports.

But according to Byron Hanson of the Curtin Graduate School of Business, it’s far more important
for C-suite executives to have experienced certain functions (like finance or marketing) and business
climates (growth mode or consolidation) than to have sector-specific experience.

“Industry experience is not as big a success factor as what people think it would be,” he says. “My
sense of success factors is more context-related or expertise-related.

“What is the context of the organisation’s strategy or current plight or direction? For instance, do we
need a globally experienced CEO if we are growing internationally, or a turn-around executive if we
are to redefine ourselves?”

Michelle Cottrell of recruitment firm Robert Walters agrees.

“Generally, we see that CEOs and board members are employed for their relevant experience and
good performance in high-level roles, not necessarily their industry-specific experience,” she says.

“The expectation of a CEO or board member is to bring extensive experience and a working
knowledge of potential risks and opportunities that lie ahead for the company, as well as proven
experience running a company of a similar size.

“In the majority of the cases, it is expected that these skills are transferable industry to industry.”

New eyes are more curious

Hanson points to a 1996 Academy of Management Journal study that found that CEOs with
“medium or moderate experience” in an industry performed better than CEOs with high industry-
specific experience.

“The drawback of same-industry [executives] is the ‘assumption that you know how this should
work’ syndrome,” he says. “Banking is a good example of this … you often get conversations that
begin with ‘when I worked at such and such bank we did this’, yet the current practice at the bank
could be valid and just different.

“Mike Smith at ANZ for instance came from HSBC and brings HSBC DNA with him. Some of this
works but some might not.

“A benefit of cross-industry [executives] is they often focus less on what the company does, and more
on people and structures. They will take a systematic view first, and market view second; this means
they are often more curious and ask more questions because they don’t know the industry.

“This can lead to better synergised strategic choices, leveraging what is best about the organisation
and their own experience and thinking.”
Where industry­specific experience matters, and where it doesn’t

Robert Walters’ Cottrell says same-industry experience is most valued in highly regulated or very
technical industry sectors such as banking, accounting, legal, engineering and technical services.

Executives with sales and customer-focussed backgrounds will find it easiest to move across
industries, she says.

Hanson says banks are particularly prone to hiring from within the industry. “I’ve spent a lot of time
in the corridors of ANZ and 80-90% of them are career bankers … I don’t know if it’s particularly
healthy,” he says.

There are several examples of effective cross-industry CEOs in other sectors, he says, highlighting
Rio Tinto’s Sam Walsh as one example.

Walsh joined the miner in 1991 after 20 years in the automotive industry. He was appointed CEO in
January, as the Australian mining sector moved from boom to contraction.

“The context had shifted from vast expansion and global acquisitions to consolidation and taking
costs out of the business,” Hanson says, noting that those were lessons Walsh would have learned
from the car industry.

Learning executive skills

Hanson notes that some organisations may be able to promote their executives from within, but only
if a succession plan is put in place early on.

For example, Wesfarmers tends to identify future leaders early in their careers and shifts them to
progressively large roles in various subsidiaries.

“You’re expected to move,” he says. “If you stay in your comfort zone and you get pinned with that, I
think your chances of success are minimal.

“What is leadership? It’s having a vision and strategy. As for industry knowledge itself, you can learn
a business, but can you see complexity and can you see a good strategy?”

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