Does a CEO have to have industry experience to be great?

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In class this week, we talked a lot about CEO’s and what they are worth. What should their compensation packages be and who has the right to decide? Rather than focusing on the actual monetary value on a CEO’s head, I wanted to talk about what to value when choosing a CEO. How does a company find a CEO who will transform their company in to something spectacular, like Steve Jobs did for Apple?

Just recently, Gap has announced that they will be closing 200 of their stores by 2013 (which is one in every five of their stores).  Howard Davidowitz (president of Davidowitz & Associates and a long time retail insider) stated “The Gap’s problems are far simpler than that. They are not selling fashion people want to own.” When asked why this is, Davidowitz explained that Gap’s CEO, Glenn Murphy, is a very competent executive, but lacks the experience needed to right the ship. Fashion people win in fashion companies. I’ve never seen a numbers guy come in and be successful in a fashion company. I’ve never seen one example of it.” Most people in the fashion industry have agreed that bringing in an outsider to run a fashion company just doesn’t work. Before becoming CEO of Gap, Glenn Murphy was CEO of Shoppers Drug Market. Many including Davidowitz seem to be convinced that removing Glenn Murphy would brighten Gap’s future tremendously. Gap has experience falling sales, lower profits, and slow turnover of inventory since Glenn Murphy took over. Experts believe it is because he just doesn’t know how to get the right merchandise at the right price in the right place at the right time. If an executive does not have a thorough understanding of all these things it is impossible to give consumers what they want.

After reading about Gap’s decline and the mixed reviews on CEO Glenn Murphy, I started wondering whether this was true for all industries or just fashion. Fashion is a completely different world and not being familiar with it makes decisions tough in a fast changing industry. But can’t this logic be used in any industry? If a CEO doesn’t understand a business how can he/she run it?  I’d disagree that it is impossible for a CEO outside an industry to do well. I think the odds are definitely against them. There are obvious advantages in having industry experience. And someone who has been a part of it is much more likely to have a passion for it. If I was hiring a CEO I would look for one who understood the industry and liked the industry. However, I would not rule out a candidate simply because they ran a company in another industry.

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7 Responses to Does a CEO have to have industry experience to be great?

  1. Jordi says:


  2. JWitty says:

    This post reminds me of a similar question posed during the 2008 Presidential Election. Does a President need to have experience in economics to help fix a broken economy? While that answer would appear to be a resounding “YES!” at this point (Sorry, Obama. I voted for you but where’s the progress, already?), I’m not sure it’s the same with CEOs. I believe most industries are relatively alike, and that it requires a strong leader with a vision to effectively run any company.

  3. KCasty says:

    I think fashion is a unique industry in which it is more important to be familiar than many others. I definitely think it is important for CEOs to have familiarity with the fashion industry to an extent. I don’t think a CEO of a fashion company has to be the best-dressed man in the room with the best taste in clothing and accessories. It would be more important for the buyers, for example, to have up-to-date, or even ahead-of-the-curve fashion sense. However, to the extent that the CEO helps to choose the positions that work directly with clothing selection, then he/she would need to be fashion savvy.

    It is important in fashion for the CEO to be familiar with fashion not just for his/her success in running the company, but also for the image of the company. For example, my sister is a financial analyst for Burberry in New York City. Everyone that my sister works with is extremely trendy in their apparel choices, and everyone is encouraged to wear Burberry as much as possible (though my sister doesn’t make quite enough to abide by this rule every day). This rule is support the image of Burberry and its workers as clean-cut and put together.

  4. Jordi says:

    Funny graphic. Where did it come from?

  5. Cander says:

    I’ve actually wondered this myself. Personally, I think its highly dependent on the industry. I feel that a retail executive could apply their experience fairly consistently no matter the type of store. However, you look at banking or construction companies and I feel that there is some specialized industry knowledge that you would expect your top executive to understand.

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