One of the most important tasks given to a board of directors is CEO selection.
Despite the significance, CEO dismissals are an increasing occurrence — 24.3 percent are reportedly terminated each year — and often happen without a viable successor ready.
In an environment where approximately 40 percent of successions fail within the first few months, boards need time to identify a qualified replacement without perpetuating poor company performance. That’s where interim CEOs come in.
“An interim CEO can effectively vet the operating realities of the company, providing the board with critical visibility around the unique challenges hindering the organization’s performance,” says Tim Conti, managing partner at ON Partners.
“Armed with real-time clarity, the board can then confidently set out to identify the right permanent CEO; one who’s particularly suited to address those challenges head-on,” says partner, Bryan Buck.
Smart Business spoke with Conti and Buck about interim CEOs and how they can be used to find the best long-term replacement.
What challenges do boards face when replacing an underperforming CEO?
Boards often operate in a gray area with questionable visibility into the true issues encumbering the business. Despite this, the board must quickly identify a suitable replacement to tackle the challenges facing the organization. The conundrum is evident.
When a CEO is terminated without a viable successor, often the interim leader is a sitting board member. While this can be an effective temporary strategy, it only works if the board member has the capacity and skill set — both professionally and diplomatically — to identify, understand and address the company’s specific challenges.
Another option is to appoint an outside interim CEO; one who can be inserted almost immediately, quickly assess and identify the operating deficiencies of the company, and report back to the board. This insight can then be used to determine the ideal CEO profile given the realities of the current business.
For example, a company seeing a slow but steady decline in revenue may appear to have a sales problem. The reality is there are significant flaws in the organization’s supply chain. If the board, believing they have weak sales leadership, appoints a strong sales-oriented CEO, the executive would be ill equipped to solve the actual challenges stunting the company’s growth.
What are the characteristics of a good interim CEO?
The best interim CEOs are diplomatic, investigative and analytical; skilled in quickly assessing and identifying problems as well as being highly effective communicators. These executives are accustomed to being a stabilizing force in an otherwise dynamic environment.
Their role is clear: come in without an agenda, be the bridge between the employees and the board, expeditiously assess and uncover the operational gaps, and provide real-time actionable visibility back to the board.
What advice can you offer regarding the search process for an interim CEO?
Oftentimes confidential discussions are started weeks, if not months, in advance of when a CEO transition is executed. It’s during the initial dialogue that the search partner should be brought in.
A good partner would provide a draft board of viable interim options — an ever-evolving stable of prescreened and established former CEOs with specific industry and skill set offerings. After an abbreviated interview process with the board, the selected executive is then inserted into the company for immediate assignment.
Within the first 60 days, the interim will have assessed and identified the strategic deficiencies, and presented his or her findings to the board. Once the data is understood, the board can then proceed with confidence in identifying and attracting the right CEO to expedite the company’s return to growth.
An effective interim CEO provides the board with something it desperately needs: visibility. This positions the board to hire the right CEO for the company for the long term. ●
Insights Executive Search is brought to you by ON Partners.