Emergency Succession - The Interim CEO

Key person risk - by definition, it’s the risk carried by an organization that depends to a great extent on one individual for its success. From the board’s perspective, the organization’s primary dependence is on the CEO, the person through whom all good things happen! From the CEO’s perspective, the key person in the organization might be someone else - the lead revenue generator, the head of creative content, the inventor, the chief IT architect, or the morning show host.

What happens when, all of a sudden, the board’s key person departs? The CEO, the ship’s operational rudder, is gone. “What does our CEO succession policy say? We don’t have one? Oh, okay … I didn’t know that. So where do we go from here? We’d better call a meeting.”

I don’t mean to make light of a serious situation. Especially today during a pandemic, when the frequency of sudden departures of CEOs, for health or performance reasons, has ratcheted up.

Ideally, the board would have a policy in place setting out an orderly process where an existing senior leader has been identified as a potential future CEO, or has the expertise and experience to take on the CEO role over time. In the case of a CEO’s sudden departure, the transition would still be relatively smooth as the new CEO (or interim CEO) would be known to the board as a key part of the management team.

But what if that’s not the case? What if there is no succession plan, or no senior staff who are ‘CEO Ready’?

The Burning Question

“Do you see any situations where the board chair or a member of the board would step in to take on the interim CEO role in the event of a sudden departure?”

I posed this question to twenty savvy directors in our subscriber network. I received a variety of incredibly well-reasoned responses. The pros and cons and the spaces in-between all made sense. Many of these directors have had to face the same question in real time. Some are dealing with it right now as their boards govern organizations where the workforce is enduring escalating employee stress levels.

Boards must pay attention to CEO succession. The savviest directors among us have a key role to play to ensure their boards are asking the right questions ─ better and faster and more to the point than ever before.

Getting straight to the responses I received and then working backwards, the conclusion is probably what you would expect. Just as the right CEO leadership style is situational, so too is the answer to the question of whether the board chair or other director should take on the interim CEO role. Half the respondents agreed to the possibility and the other half disagreed in the strongest terms.

Why or Why Not?

Because it’s complicated. Because too many boards don’t have policies to guide them in the event of a sudden departure. To drive us a little more bonkers, even if they do have a policy, it may not be current or it may not reflect today’s needs. Maybe the board hasn’t reviewed the policy for a few years and the organization’s talent pool has changed. Or maybe the organization’s strategic priorities have changed and the policy hasn’t kept up.

There are a couple of things about which everyone agreed ─ well-run boards should have this discussion at least annually, and they should have a CEO succession policy tailored to the size of the organization.

Small not-for-profits may not have the resources to pay for C-suite level talent behind the CEO, while large organizations may have the luxury of more than one option. Some may be able to afford to hire an external executive resource to ‘hold the fort’ while a CEO search gets underway. One option frequently mentioned was to bring back a former board chair to run things for a defined period.

Our Savvy Director network also agreed that a board member or board chair who agrees to serve as an interim CEO should not remain as a voting member of the board.

“If the board is managing, then who is overseeing?”

“It is difficult to oversee that which you do.”

Just to keep things interesting, there is an alternative view.

“There are a number of scenarios whereby for a number of reasons, the board does not feel that any of the existing team have the overall leadership and calibre to take on an interim CEO role and in that case, it can be very beneficial for either the board chair to take on an “executive chairman” type role on an interim basis or one of the board members with strong executive experience to take on the interim CEO role. This can happen particularly in a severe crisis where if the board aren’t quite sure that they have a sufficiently strong leader within the exec team who could take on the CEO role, they can default to a safe pair of hands within the ranks of the board who they know will be able to help navigate the organisation through the crisis.”                        - Kieran Moynihan, Board Excellence

Emergency CEO Succession

The intent of my question was to get us thinking about what we would do in the event of an emergency succession event. In their book, Governance Solutions, David Brown and Dr. Debra Brown discuss CEO Succession as a three-tiered process:

1. Emergency Succession
2. Orderly Transition
3. Long-term Talent Management

“Succession starts the day you hire a CEO, and it never stops. It is a continuous three-tiered process that takes time, thought, and strategic insight. Formalizing a process is the best thing the board can do to make itself ready for a change in CEO. After all, the succession planning process is first and foremost a business process that a board puts in place to manage risk.”
─ David Brown and Dr. Debra Brown. ‘Governance Solutions - The Ultimate Guide to Competence and Confidence in the Boardroom.’

The rest of this blog will focus on the emergency succession scenario. We’ll return with more in-depth discussion of the longer-term perspective in future editions of The Savvy Director™.

If your board is wrestling with the decision of whether to approve the board chair or another director as interim CEO, and you don’t have an up-to-date policy in place, the savvy director within you will want some discussion points to serve as guiding principles for the board’s decision.

Refinement of these guiding principles could form the basis for a new or updated board policy.

Guiding principles:

1. The interim CEO position should have a defined timeline. An indefinite appointment can send the wrong message.
2. The person appointed as interim CEO should have no interest in applying to be CEO on a permanent basis.
3. Any director serving as interim CEO should resign from the board for the duration of the interim posting, and should relinquish their voting rights to avoid conflict of interest.
4. The board should establish clear parameters for the interim CEO position in terms of strategic direction, current initiatives, financial management and human resource policies.
5. The board should be very clear as to board expectations of the interim CEO . A review of delegated authorities can help establish a level of “comfort” during the interim period.
6. A clear process should be established and communicated for recruitment of a permanent CEO.
7. Performance accountability and compensation for the interim CEO position should be agreed in advance.
8. The process for the director to return to the board should be determined in advance, including the possibility of a cooling-off period. The director should not return to the board if unsuccessful in applying for a full-time staff position.

And the decision is … a resounding “It depends.”

The bottom line is that the best course depends on the circumstances of the CEO departure, the composition and skills of the board, and the board’s confidence in the remaining management team.

In the end, it’s up to your board to decide whether or not it’s appropriate for a board chair or board director to fill the interim CEO position after a sudden departure.

In your deliberations, you might find it interesting to consider the pros and cons that emerged from our Savvy Director network. Below are some of the comments I received (only slightly edited).

Pros …

• I can see a situation where a board chair or member would step in on an interim basis while a new CEO was hired, in particular if the senior team was in need of leadership and was unable to manage the day-to-day. Whether it is required will depend on the size of the organization and how much of the day-to-day decision-making is shared with the senior team rather than held by the CEO.
• In some cases … I could see this as a good alternative. I could also see a situation where the Chair might not step in for any number of reasons. In that case it could well be that another board member with the time and skills could step in on an interim basis.
• I do know of situations where board members, or former board members, have resigned and applied for the role of CEO. To me that is a much more reasoned approach.
• Would work for a smaller to mid-size company where "sudden departure" is due to illness or impropriety, and the company has a sound strategy and the Chair/Director has a good understanding of it, and the time to become involved. Steady hands on the tiller calms people down. A bigger firm will probably have a CFO or other "steady hand" take the helm as interim because the job is more complex e.g. public company with investor and analyst roadshows.
• In smaller organizations, maybe particular to the not-for-profit area, the Board Chair may be a good interim solution.
• For some small organizations where talent is limited, having the board chair or another member of the board step in as interim CEO may be the only option. That may indicate the board may not have done some of its work, but also it is sometimes challenging in small organizations to have resources under the CEO that have the qualifications to take on the role of interim CEO.
• I believe it is appropriate when there may be multiple candidates within the organization to fill the CEO role. By having the board chair or another member of the board take on the role of interim CEO, it allows the interim CEO and the search committee to be able to do objective reviews of the potential internal candidates without giving one candidate an unfair advantage over the others.
• If appointing an existing employee to the role of the interim CEO would disrupt strategic initiatives undertaken by the company, appointing the board chair or another member of the board may be the right approach. It would allow the initiatives to continue moving forward.
• Does the board want to see a major shift in strategic positioning? If so, appointing someone from the board would be the correct approach.
• The emergency CEO is really in a holding pattern and should not make any unnecessary or major decisions or changes.

Cons …

• Managing remaining management and staff becomes a challenge from the get-go because the board has signaled that no one in management is capable to be interim CEO. This situation also shows that there was an underlying weakness in succession planning or lack thereof.
• It is dangerous to pick a board member to do a role that they may not be good at because the executive of the organization will not be very happy in general.
• It would seem that the only reason that the Chair would step into the CEO role is that the board has no confidence in anyone in the second layer of management to effectively lead the organization during a transition period.
• I would acknowledge a bias against the notion of a board chair/board member being appointed on an interim basis unless there are literally no other viable options - no money to hire an interim person from the outside to keep the ship running on an interim basis, no capacity in the senior management team, etc.
• Should the Chair take it on and remain Chair, the questioning by the board to the CEO/Chair may be consciously or unconsciously restricted. In other words, will the board be intimidated by questioning the “Chair”?
• There may be a perception of conflict of interest, particularly in the case where a board member is influencing others to appoint him or her.
• If a board member (Chair or otherwise) takes on the role and wishes to remain in the role, directors may be convinced that a search is not necessary. Opportunities to attract permanent talent for the position may be missed.
• Depending on the level of governance sophistication, a board interim CEO could blur and confuse the lines between management and governance.
• Interim means INTERIM not permanent. Interim is a caretaker. If someone is inclined (personality) to meddle and micro-manage that is also a problem. You want strategic knowledge, a calm personality, a steady hand. Keeping the boat pointed to the compass heading. Stay away from the opposite ─ narcissistic, dominant personality, micro manager.
• Does the board want to maintain the current strategy? An internal employee may then be the better option.

Your takeaways:

1. Having a formal board policy on CEO succession, a policy that addresses both short-term and long-term scenarios, is the best way to avoid confusion and indecision in a situation where the CEO suddenly departs.
2. Exercise your Duty of Care to help your board make an informed decision when appointing an interim CEO during an emergency.
3. Whoever is taking on the interim CEO role must have the genuine support of the board, and there must be clarity about the interim structure and the process to find a new permanent CEO.
4. The board’s appointee as interim CEO must have the actual bandwidth and commitment to take on what is a full-time executive role, and must be prepared to really roll up their sleeves and get seriously involved to genuinely lead the organisation.
5. The board needs to communicate clearly, thoughtfully, and carefully to the executive team and then to the employees.
6. The timeline for the interim CEO position must be clear to everyone.

We are grateful for …

… the following Savvy Director subscribers who made a tremendous contribution to the content of this article (listed in the order we received their responses). Each of them would be a tremendous addition to any board.

Carol Bellringer, Steve Mallory, Karen Swystun, Ken Holland, Ken Lamoureux, Stuart Duncan, Sharon Mathers, Dr. Aaron Chiu, Greg Doyle, Marilyn Brennan, Linda Brazier Lamoureux, Greg Arason, Judy Murphy, Catherine Kloepfer, Brian Hayward, Barry Feller, Dr. Jerry Gray, Léo Charrière, Brenda LaRose and Kieran Moynihan.

Resources:

• Governance Solutions - The Ultimate Guide to Competence and Confidence in the Boardroom by David A.H. Brown and Dr. Debra L. Brown.
• Board Excellence - Kieran Moynihan, Managing Partner 

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

Share Your Insight: What are your lessons learned on a board from a CEO succession experience?