Should You Appoint an Interim CEO?

Your CEO just resigned. Or was fired. Or died.  What now? Tomorrow you’re going to need someone in charge. If you don’t have a successor ready, you’ll probably decide to appoint an interim CEO—someone who can steer the ship until you find a permanent replacement.

That’s an understandable decision, especially if a sudden departure has forced your hand. But it can be costly. Boards often think of interim appointments as safe, limited, and temporary, but investors and analysts aren’t fond of them. Stock prices drop the moment the word “interim” appears in press releases, and things frequently go downhill from there: In the years following an interim CEO appointment, companies typically lose hundreds of millions of dollars, and those losses often lead to restructuring and workforce reductions.  Nevertheless, boards are increasingly making that choice.

Yet even though interim appointments often drain value and cut profitability, they can also serve as powerful tools for stabilization or transformation. The questions we need to understand is when are they most useful? And what separates success from failure?

Costs and Benefits.  Interim appointments are among the most disruptive forms of leadership transition. And the impact doesn’t end when the permanent CEO arrives. It lingers.  The author’s study found that interim periods are disruptive whether the CEO is meant to be a steady caretaker or a bold change agent. That’s because interim appointments tend to lead to the following events:  Strategic decisions stall.  The company’s best people leave or shut down.  Investors and analysts are generally unimpressed. And interim CEOs shift their focus to short-term performance.

The type of interim CEO that companies need varies with the situations they’re in. The authors have identified four main types. Finding each kind of executive has its own challenges and opportunities. Let’s explore them in more detail.  A) The fixer.  This is the kind of leader you need when a CEO is forced to step down while the company is struggling.  B)  The steward.  This type of leader is needed when a CEO is forced to step down while the company is performing solidly.  C)  The stabilizer.  This is the kind of leader you look for when a CEO departs voluntarily while the company is struggling.  And D) The caretaker.  This is the best type of leader to look for when a CEO departs while the company is performing well.

Four Key Questions.  Whether planned or unexpected, interim CEO appointments carry real risks of disruption. Strong succession planning helps prevent unnecessary interim appointments. But if an interim appointment is unavoidable, boards should use the opportunity strategically. You need to carefully consider four key questions.  What will be the interim CEO’s mandate?  Where will the interim CEO come from?  How long should the interim CEO stay?  And should an interim appointment be a tryout for the permanent job?

Interim Readiness.  Given the risks of appointing an interim CEO, it’s often wise to proceed directly with a permanent appointment. But that’s not always possible, and even if it is, interim appointments can be used as deliberate instruments for stabilization or transformation. To do that successfully, however, you need to build interim readiness into your governance alongside traditional succession planning. In practice, boards should develop internal candidates by giving real assignments, maintaining relationships with external prospects year-round, and constantly updating their view of what the next CEO must achieve.  The key is to take four strategic actions.  Assess transition readiness regularly.  Match interim situations to capabilities.  Prepare interim playbooks.  And mobilize communications and people.

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