Temporary CEOs Can Introduce Permanent Problems

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Despite 10 percent of CEO transitions initially filled with interim roles, this should be a last-resort default option, as the problems with interim appointments are numerous.

The stock of the recently bankrupted iconic car rental company Hertz tripled just after former Ford CEO Mark Fields took over the wheel as interim CEO this fall with his bold $4 billion purchase of 100,000 Tesla cars to build EVs into Hertz’s fleet. We’ve recently seen interim CEOs step into a wide variety of enterprises, including semiconductor titan Intel, Canada’s leading broadband provider Rogers Communications, the renowned fashion house Versace, the edgy retailer American Apparel, cable channel AMC Networks, high-flying digital behavioral heath startup TalkSpace and the women’s rights advocacy group Time’s Up.

However, despite 10 percent of CEO transitions initially filled with interim roles, this should be a last-resort default option.

The problems with interim appointments are numerous. Research associates such solutions with poor performance—not only as the cause of the interim appointment but also as predictor of subsequent poor performance. A large-scale systematic study by Gary Ballinger and Jerry Marcel in the Strategic Management Journal concluded, “Interim CEO successions will lead to the type of disruption that can harm firm performance, even after a permanent successor is appointed.” 

The poor performance of interims is due to: 

1) Limited discretion of interim bosses, as they feel they are walking on eggshells—afraid to overstep their authority to commit the board and a permanent successor to a new strategic path.

2) Strategic paralysis leads to atrophy in technological investments and market positioning in competitive industries.

3) Employee reversion to cautious routines and inaction, as they are unwilling to take needed bold moves out of concern that their new, permanent boss won’t appreciate the risks taken and sacrifices made—or, worse yet, will look at them askance.

 4) Politicization of internal management decision-making from the ripple effects of leadership disruption of interim appointments.

5) Fallen trust of customers and other stakeholders reluctant to rely on proposals by interim CEOs who lack credibility to deliver on commitments that may not be honored by a permanent successor. 

Why then would any board turn to an interim CEO? These moves are the consequence of the following governance failures:

Egregious CEO conduct that throws a shadow over public confidence in the reliability of incumbent management. American Apparel Founder Dov Charney’s bizarre, indecent appearances and volatile style, on top of repeat charges of sexual harassment, led the board to install a fellow director.

Failure to groom internal successors amid unstable leadership staffing. With Hertz suffering four failing CEOs in five years, the board was fortunate to have a new director, Mark Fields, who had recently led the recovery of a major automaker to the highest profits in its 100-year history, introduced revolutionary new technologies and revived legacy brands.

Mistaken mythology that beloved, charismatic, long-serving leaders cannot be followed without a grieving period for constituents. Mourning continues but the enterprise must move onward and not wallow in a culture of grief. My book, The Hero’s Farewell, reports on my research on highly effective successors who followed corporate legends but were not clones of their predecessors. Even clergy like popes, ayatollahs, televangelists, chief rabbis and congregational pastors have proven that beloved exiting leaders can be followed by equally beloved new leaders.

Self-interested professional associations with problematic, hard-to-place professionals. This pathology is often found in educational, religious and other nonprofit transitions, where nomadic poor performing guild members are shuffled across institutions just as their weak leadership or character failings surface.

Unfulfilled late-career agendas of ambitious, early-retired fellow board members. The highly successful but low-key Fritz Henderson led GM out of inherited distress only to have the rug pulled from under him by a telecom exec on his board who had recently retired from his own firm. 

Boards can’t perpetually kick the can down the road. Companies need courageous leaders, not custodians. 

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