As chief executive officer turnover continues at a heavy pace to begin the second half of 2008, an increasing number of outgoing CEOs are being replaced by interim leaders, suggesting that more executives are leaving or being asked to leave without much notice. Companies without succession plans in place are being forced to rely on temporary CEOs at the risk of disrupting continuity, creating uncertainty among the ranks and possibly slowing any turnaround efforts, according to outplacement firm Challenger, Gray & Christmas, Inc.
There were 124 CEO departures announced in July, virtually matching the 126 in June. July departures were up 40.9% from the 88 CEO exits recorded in July 2007. For the year, 848 CEOs have left their posts, five percent more than the 807 CEOs who left through July 2007.
Of the 98 July CEO departure announcements that included succession details, 26 named interim CEOs. That represents the largest number of interim replacement CEOs this year. The average number of interim leaders taking the helm through the first half of the year was 13 per month.
Of the 656 replacement CEOs tracked by Challenger so far this year, 102 (16%) have been interim CEOs. By contrast, there were only 122 interim CEOs among the 1,027 replacements recorded by Challenger in all of 2007.
Most interim CEOs stay in their post for less than one year. So far in 2008, 71 interim CEOs have been replaced by permanent successors, including six in July. The average tenure among interim CEOs through July was about six months (.53 years), according to Challenger.
"It is preferable to have specific succession plans in place to avoid a period with an unprepared leader. However, when companies are faced with abrupt resignations or the need to quickly replace an underperforming CEO, companies are left with no choice but to name a temporary CEO to hold down the fort," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, Inc.
For the year, five interim leaders replaced CEOs who had been fired and four took the helm after the previous CEOs left due to the credit collapse. Another four interim CEOs took over amid financial losses and one was named after the previous CEO left due to bankruptcy.
"Most interim CEOs come on board to replace predecessors who leave abruptly and unexpectedly for a new position, to 'pursue other business opportunities,' or to take care of ailing family members. However, in the current economic conditions, many interim CEOs are taking over during weak earnings and difficult restructuring," said Challenger. "In these situations, the naming of a temporary CEO, while often necessary, can make it more difficult to turn things around. You basically have a period of six to 12 months in which nothing really substantial is happening with concern to righting the ship. For a public company six to 12 months of inactivity can do significant damage to earnings.
"Another three to six months can be lost upon the arrival of the permanent replacement, as he or she takes time to evaluate the companys operations and develop a turnaround strategy. Meanwhile, throughout the interim period and the transition to permanent leadership, the lower ranks are filled with uncertainty, instability and anxiety about the direction of the company. This can decrease productivity, increase turnover, deflate morale and damage the bottom line," said Challenger.
