HIRING IN-HOUSE A Shallow Talent Pool

German businesses like to promote from within, even at the highest level of management. Some experts say that is not always wise.
CEO Marijn Dekkers (l) will be replaced by CFO Werner Baumann in May.

Werner Baumann is a classic example of a high-flying German executive. Bayer’s director for strategy ticks all the boxes: the average age of a senior executive is 53, and Mr. Baumann was born in 1962. On average, managers join the board at the age of 47, and most frequently have a degree in economics. Mr. Baumann, who has two economics degrees, became a Bayer board member in 2010.

And at the start of May, Mr. Baumann will become a typical German chief executive when he takes over the top job at Bayer after 28 years' experience with the company.

The pharmaceuticals and life sciences giant is proud that, once again, it has found a chief executive from within its own ranks. That’s how most big German companies like it.

Three quarters of DAX-listed companies have chief executives hired from within, according to figures from Odgers Berndtson, a respected executive recruitment agency. Filling a vacancy at the top by hiring in from outside is still a rarity in Germany – although many experts say companies benefit from a fresh pair of eyes looking at operations and company culture.

Trust is a key factor with internal hires. That kind of trust is a valuable currency these days. Klaus Hansen, head of Odgers Berndtson Germany

But keeping business 'in house' counts for a lot in German boardrooms. “Trust is a key factor with internal hires,” said Klaus Hansen, the head of Odgers Berndtson in Germany. If a supervisory board has known a candidate for many years, it can really make a difference. “That kind of trust is a valuable currency these days,” Mr. Hansen said.

That may have been a key factor when Bayer hired Mr. Baumann, who is regarded as a protege of Werner Wenning, a former Bayer chief executive and current chair of the supervisory board. It was Mr. Wenning who brought Mr. Baumann onto Bayer’s board six years ago.

A plus point of a home-grown chief executive is that he or she already has a network of internal contacts. This can be important in today’s vast organizational structures. “Ideally, they’ll have a real power base within the company,” said Thomas Tonkas, head of the German office of executive search consultants Russell Reynolds.

One important example of this is Joe Kaeser, chief executive of Siemens, who joined the engineering multinational in 1980. Mr. Kaeser, say Siemens insiders, is thoroughly familiar with lower levels of management, and careful to keep their support. His predecessor, Peter Löscher, who was brought in from outside, is felt to have lacked this network, and he struggled as a result.

Time pressure can also favor an internal candidate. These days, restructuring and corporate strategy are not subjects that can be dealt with overnight. But nonetheless executives are expected to produce quick results. “That often rules out lengthy familiarization processes, which an external chief executive might need,” said Mr. Hansen.

Colleagues, too, often want an internal hire. “That gives a powerful signal to the next generation of managers,” said Mr. Tomkos, the head of Russell Reynolds. “It shows the company really believes in training its managers to succeed, and that careers there have real potential.”

When Bayer’s supervisory board looked outside the company to hire Marijn Dekkers as chief executive in 2009, many took it as a sign of poor executive development within the company. But six years later, it seems that Mr. Dekker was exactly the right manager for the job.

There are a lot of situations in which an internal pedigree is no advantage. It can even be a positive disadvantage for managers. Thomas Tonkas, Head of Russell Reynolds, executive search consultants

Adidas is also looking for fresh thinking in the boardroom. Kasper Rorsted, will soon take over as chief executive at the athletic equipment giant. He arrives from Henkel, where he has spent the last eight years as chief executive. Adidas was under pressure from activist investors, who pushed for an outside hire after Herbert Hainer’s 15-year tenure at the top. Now they want Mr. Rorsted to deliver increased profitability.

Companies going through periods of upheaval often look to outside executives. “There are a lot of situations in which an internal pedigree is no advantage. It can even be a positive disadvantage for a manager,” said Mr. Tomkos. For example, a board might want a chief executive to make a radical break with the current corporate culture, or oversee a digital transformation of the company.

When it was looking for a chief executive, Bilfinger, the construction service provider, had a specific mission in mind: dump the existing strategy and start again from scratch. Clearly a job for an outsider, so last year the company hired Per Utnegaard, previously chief of air cargo firm Swissport.

An outside hire can also be the right move when a company needs a successor to a long-standing or larger-than-life head. Internal candidates may struggle to follow in those footsteps. Linde, the prestige industrial gases and engineering firm, hired from outside in 2013 when it picked Wolfgang Büchele as successor to long-standing chief executive Wolfgang Reitzle. Mr. Reitzle’s record of success and reputation as a patriarch made him a tough act to follow.

Human resource and staffing specialists recommend at least one external candidate for any executive search. Even lower down the executive chain, they say, a breath of fresh air can benefit any company. Especially at lower levels, a regular influx of outsiders can give a significant boost to a company, said Mr. Hansen of Odgers Berndtson.

 

Bert-Friedrich Fröndhoff leads a team of reporters which covers the chemicals, healthcare and services industries at Handelsblatt. To contact him: [email protected].