A friend of mine brought an intriguing problem in ethics and organizational management to me and I (she also) would appreciate reactions from those RBCers with relevant experience. I am changing a few details so that the situation is not recognizable to those familiar with it, but here is the gist.
My friend’s uncle retired two years ago after many years of leading a large international business. In the search for his replacement, there were three internal candidates: The two VPs and one other person just one rank below them. They were all talented individuals who had contributed to the firm for years.
However, an extraordinarily well-qualified external candidate got the job. My friend and her uncle agree that this fellow is a superlative professional. If ability for the head job could be rated on a 1 to 10 scale, he would be a 9 or a 10, whereas the two internal VPs were about an 8 and the other internal candidate was about a 7. Looked at solely on the dimension of individual ability, the search firm did an excellent job. But there is more to the story.
Within three months after the decision was made, both VPs had left the company. One was recruited away by a rival company with this pitch: “Clearly, your current firm doesn’t value you, but we will, so come work for us instead”. The other became an independent consultant because she concluded from her failed effort at promotion that a woman could never ultimately garner the top job in the boys’ club of big business.
The third candidate stayed, but his work performance and morale have deteriorated. He used to be the kind of guy who worked on weekends and evenings; now he is competent but always leaves for home at 5:00 pm on the dot. When asked, he says he didn’t expect to land the President/CEO position but was shocked that the two VPs, both of whom he admired, were passed over. Other people at his level who did not apply have moved on to other companies in the past two years, grumbling that the firm does not reward long-term loyalty and service.
Despite the obvious skills of the new CEO, the exodus of knowledge and talent at the near-top and the broader morale decline has hurt the firm, which has lost money two years in a row for the first time in its history.
Accepting for the sake of argument that in the abstract the person with the most ability got the job, my friend’s question is this: Was the right decision made? That is, should organizations weigh in their leadership hiring decisions the potential negative impact of being passed over on valued internal candidates (and other internal workers who are not candidates but closely watch the decision process) or should they just ignore that potential cost and pick the individual who is the strongest candidate in the abstract, irrespective of whether they are internal or external?