Tenure, domain knowledge, and skill are all pretty different underlying things.
Promoting someone with tenure just because of their domain knowledge is an extremely good way to hit the Peter Principle. You can get people who know the system very well but don't know how to take a step back and look around and evaluate the broader context vs just plugging along the same way as yesterday. Especially if you've never hired someone with those skills to teach them. You also run into bus-factor issues and robbing-Peter-to-pay-Paul limitations around "this person's domain knowledge would be useful for this new project, but we've never ramped someone up to take over what they're doing now."
Then there are the people who manage to get tenure without actually absorbing too much of that domain knowledge... so you need to be able to evaluate that, plus skills/aptitude/potential, not just years-in-seat, when deciding who to promote, when to hire, etc.
I think you imply it, but the important part is whether someone can learn a new position.
People quoting the "Peter Principle" usually ignore that it is normal to promote beyond current skill level, since it is common to learn a position when in that position.
The Peter Principle is that eventually an employee hits a roadblock where they are failing to learn the new position. That failure is usually attributed to the person, but I would guess the root cause is usually a lack of training ability within the organisation (not commonly recognised as the problem).
I am not a manager, but I see these stereotypical misconceptions all the time... I'm not accusing you of ignorance at all: I'm just pointing out you could be clearer to help us all!
Aren't these reasons why management is supposed to exist? If they can't figure out how to manage these situations, the issue is with the managers, and the new hiring should begin there.
Promoting someone with tenure just because of their domain knowledge is an extremely good way to hit the Peter Principle. You can get people who know the system very well but don't know how to take a step back and look around and evaluate the broader context vs just plugging along the same way as yesterday. Especially if you've never hired someone with those skills to teach them. You also run into bus-factor issues and robbing-Peter-to-pay-Paul limitations around "this person's domain knowledge would be useful for this new project, but we've never ramped someone up to take over what they're doing now."
Then there are the people who manage to get tenure without actually absorbing too much of that domain knowledge... so you need to be able to evaluate that, plus skills/aptitude/potential, not just years-in-seat, when deciding who to promote, when to hire, etc.