March 28, 2021
By Mike Lorelli
Maybe in a huff, the board “had enough” and decided to take the CEO’s head off. Or maybe, the CEO had enough and leaped at another opportunity. And then, life being what it is, maybe there are unforeseen health situations, or perhaps there is an unsettled company issue that needs to be worked through, so it is not the ideal time for the board to be recruiting an A player. The board may want to pause and get the house in order. Lastly, there are circumstances where there is an immediate need for a particular skill set, but not a permanent need.
So, let’s assume we “got here” for whatever reason, and now the board has to both calm the waters and serve as the rudder. There are relatively few times when the board has worked on this in advance; there may be an independent director who can step forward and keep the ship afloat. But not typically. An increasingly familiar alternative is to bring in an interim CEO. It has its advantages and disadvantages. The good news is that there is a robust inventory of executives willing to take on these interim CEO lives.
More good news: the right interim CEO has a unique biology and can fly in Sunday night to show up at 7:30 am Monday. The board sends out the appropriate email message to the organization. The right interim CEO will demonstrate work ethic by being the first person in the office (every day). They hold a staff meeting at 8 am on Day 1 and set the agenda for the day, week, and month. And holds a Town Hall meeting at noon to communicate that they are there to help and no honeymoon period is needed: Let’s all get to work.
For the board, there is no permanent commitment with an interim CEO. But what about the view from the interim CEO? The interim CEO can tackle some of the tough issues that may have been the gorillas in the room. In one interim CEO engagement, I found that I had a chief of staff, at the cost of over $200,000 a year. This was not the White House. When I confidentially queried the VPs about this role, the general response was: “We were all wondering how long this would take you.”
An interim CEO can be a disrupter in the most positive sense of the word and clean up these messes. Don’t be spooked in the reference process if you hear, “There was some collateral damage.” That may be exactly what the doctor ordered. Certainly, do reference checks, but don’t expect God to be available.
Be prepared to pay top dollar. When you go for Lasik surgery, I don’t think you’d rush to the surgeon who advertised $499 per eyeball. Same for the interim CEO. Keep the compensation package simple and consider a flat monthly, all-in retainer rather than a typical salary plus bonus plus equity. Your cap table is probably already tapped out. So, think in terms of 1.5x to 2.0x (base only) what the former CEO was making. The right interim CEO is living a grueling life 24/7. You get what you pay for. I had one board wince at my fee, remarking that it was a lot more than the present CEO was making. My polite and respectful response: “I guess you got what you paid for.”
When hiring an interim CEO, go for experience with a stomach for the challenge—someone who has all the right skills and yet has the sensitivity to respect the sacred cows.
Mike Lorelli was a PepsiCo president, twice, followed by five private-equity CEO engagements. He serves on several boards. Reach him at MKLorelli@gmail.com.