The $330 Million Interim CEO Mistake: What Boards Don't See Coming

Around the mahogany table, with the Alps visible through the glass facade, the chairman delivered the news that makes every board member's heart skip: their CEO was leaving - immediately. The succession plan they'd drafted eighteen months ago? Suddenly useless.

'An interim CEO will buy us time,' someone suggested, breaking the silence. Having heard this many times in our governance workshops and advisory, my colleague - Rob Langan , a former governance VP at Credit Suisse and now professor at ESADE - and I, put it to the test.

Our research across 1,500 multinational companies showed a sobering truth: this seemingly safe choice of interim CEOs typically costs companies $316 million in annual income. Even more concerning, we found a 3.2 percentage point drop in return on assets that persists three years later - effectively erasing nearly a third of typical ROA performance.

The seemingly safe choice of interim CEOs typically costs companies $316 million in year income. Even more concerning, a 3.2 percentage point drop in ROA persists 3 years later - erasing nearly a half of typical ROA.

Are interim CEOs ever the right choice? Or are they a costly gamble that boards can't afford to take?

With CEO tenures now averaging just 5 years and sudden departures rising, boards increasingly face this critical decision.

In this article, I'll share evidence-based insights to help boards protect shareholder value during these high-stakes transitions.

The Succession Plan Myth

In my advisory work and private conversations with CHROs, executive search firms, and board advisors, I've encountered a startling truth: even multi-billion dollar companies often lack formal succession plans. When plans do exist, they're frequently ignored, never updated, or "creatively aligned" in crisis moments, like when a powerful board member pushed for "their" candidate despite clear recent performance shortcomings.

The gap becomes especially clear when a CEO suddenly exits with no heir apparent. This is where the allure of the interim CEO comes in—a seemingly safe harbor in a storm. However, our data paints a very different picture.

When succession plans do exist, they're frequently ignored, never updated, or "creatively aligned" in crisis moments... like when a powerful board member pushed for "their" candidate despite clear recent performance shortcomings.

The True Cost of Interim Leadership

The data left us stunned. When we compared similar companies facing similar challenges – one choosing an interim CEO, the other making a direct succession – the performance gap was stark. The cost? $316 million in lost income. That's not a typo – it's a third of a billion dollars erased by what boards often view as a 'safe' choice.

Why do interim CEOs so often become expensive mistakes? Three patterns emerged from our research:

• Confidence Evaporates Fast: What sounds like stability in the boardroom signals uncertainty everywhere else. Employees pause initiatives, investors hesitate, and partners delay decisions.
• Strategic Paralysis Sets In: Interim CEOs face an impossible mandate: keep the ship steady, but don't chart a new course. The result? Competitors surge ahead while the organization treads water, missing market opportunities that may never come again.
• High Performers Exit Quickly: The best talent sees their career paths clouding over, and whether interim CEOs play it too safe or attempt dramatic changes, crucial institutional knowledge - especially in the C Suite and MD level - walks out the door.

When Interim CEOs Make Sense

Despite these risks, interim CEOs can be the right choice when it's hard to find the right information and make a good decision about a new CEO. An interim CEO buys the board time for a careful search, lets them test the interim leader if he or she is internal, and helps the company prepare for a smooth transition.

The common thread? Interim CEOs work when boards face situations too complex for rushed permanent decisions.

Our research identified three scenarios where interim CEOs add value

The common thread? In each case, rushing a permanent hire risks costly mistakes. An interim CEO creates space for careful evaluation when stakes are highest.

The Board's Role: Setting Interim CEOs Up for Success

Even when an interim CEO is the right choice, their success depends on thoughtful board governance. From our experience, boards must play a pro-active role by establishing:

• Robust Succession Plans: Don't wait for a crisis to think about succession - maintain an active pipeline of leadership talent. In our executive workshops we emphasize the need to make succession planning a continuous board priority, with clear actions mapped out for different transition scenarios. Regularly assess and update succession plans to reflect current realities and anticipate future needs.
• Strategic Crisis Planning: Prepare for situations where standard succession plans fall short, like sudden departures or industry disruptions. Develop specific succession scenarios with concrete steps for when and how to deploy interim leadership effectively.
• Clear Governance Framework: Define the interim CEO's authority from day one - what decisions they can make and which require board approval. A precise mandate prevents strategic paralysis and ensures the interim period advances rather than stalls company progress.

Conclusion: Strategic Interim Leadership

In straightforward succession scenarios with clear successors, direct appointments remain the better path. No need for an interim CEO when the next leader is ready.

Interim CEOs can provide a vital bridge during turbulent times - but only with proper governance. The decision to appoint an interim leader must be strategic, not reactive. Without clear plans and thoughtful oversight, interim periods risk becoming a costly - a third of a billion USD - mistake.

Boards must approach interim appointments not as a default but as a deliberate choice, one that demands the same level of scrutiny and planning as any other high-stakes leadership decision.

Share your thoughts on interim leadership in the comments below. Do you have a succession plan AND is it actually used?

#SuccessionPlanning #BoardGovernance #LeadershipTransitions

About the Author

Dr. Nicolas T. Deuschel is a strategic HR advisor and professor with over 15 years of experience in organizational change. As an executive at a Fortune 500 company and former strategy consultant, he led initiatives that saved €8 million annually by transforming human capital management. He empowers leaders to navigate resistance and achieve real ROI using evidence-based strategies.