Abstract
Outsider CEO selection is one of the most difficult decisions for boards due to lack of information for evaluating suitable candidates. We hypothesize and find evidence that boards use their professional networks to obtain information about outsider CEO candidates in a sample of 318 outsider CEO appointments in S&P 1500 firms from 2004-2013. Our hypothesis that direct ties provide more reliable information and are thus more likely to lead to a candidate being selected than indirect ties was supported. We did not find support for the hypothesis that ties to members of the nominating committee or to more senior board members increase the likelihood of being selected, which indicates that in outsider CEO selection information quality matters more than individual board members’ role or status.
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