Getting the Interim CEO on Board
Submitted by Richard Lindenmuth
Just what is an interim executive? This is a common question that is actually quite easy to answer. An interim executive is an experienced executive who can join your company for a short period of time (usually more than 30 days and less than one year) to address those issues that the CEO, CFO or Board would like to strengthen, reduce or eliminate thereby improving corporate performance. An Interim Exec can also serve as an Interim CEO, CFO or CRO. In all cases the interim exec has to have the authority to direct, change, implement and take action. It is not a staff or consulting position.
Why use an Interim Executive?
Searches for top talent can take a long time, mistakes are costly. Waiting is not a very good strategy at a time when the pace of the markets is increasing and employees lose focus quickly without direction. The probability of losing good talent while waiting for new direction is high. An interim executive is a seasoned individual with experience in leading organizations and improving corporate performance successfully.
It is also important to understand that an Interim Executive can provide a detailed assessment of where the company is today along with what is needed to move it forward. This provides exactly what is needed to write a detailed specification for the new executive search. The interim executive will not initiate anything that a good CEO would not do and the new arrival can put his/her “brand” on the program(s) going forward.
Lastly, the interim executive is going to lead in a direction that makes sense for the company and provide prospective candidates with a solid picture of the company today. That picture is something that forms the baseline for the new executive and provides him with a workforce focused on improving the company.
What are some of the ways to select an interim executive?
Common questions asked include: What domain experience is required? How do you measure the value of an interim exec? If everyone knows that the exec is an interim exec will they pay attention to him/her?
Domain experience is nice, but not at all a requirement. Interim execs are industry and geography agnostic. If you were to search for a sales person to develop a defense business you would certainly want someone with existing government contacts and relationships. An interim CEO on the other hand brings problems solving skills, team leadership skills, financial skills, P&L and Balance Sheet skills and judgment that crosses all industries. He/she is not coming into a Toaster manufacturer to teach them how to make toasters.
The interim exec should describe his/her approach to developing milestones that help to measure performance. A positive attitude and good communications skills are absolute requirements. The first part of the project is to develop an assessment of just where things are today. This forms the baseline for performance measurement. The next step is to develop a plan with milestones and responsibilities. There are plenty of immediate actions that can be taken during the process of developing a plan. The plan is a guide and it is common to make corrections to it as progress is made.
An interim executive has run things before and has the skills and judgment to “take charge”. 80% of the knowledge, energy, resources, experience and skills required for success sit across the table from the interim exec when he walks in the door. Today most of the management will have “Googled” the interim exec and will know more about him than he does of his new management team.
The assessment period is also the time for the interim exec to develop a “shared vision” of the company’s current status (the baseline) and what needs to be done. He/she does not enter the company with this knowledge only with the ability to develop it quickly.
Ask the interim executive what he will accomplish in the first 45 days.
The interim executive has done this before and should have a solid outline for action during the initial period of time. Interviewing the second and third tier people (the ones that actually do the work) will develop a good picture of the company today. Asking each one where the real issues are and what should be done will also result in a consistent and detailed picture of what needs to be done. Once the interviewing takes place asking key individuals (not Vice Presidents) to present various parts of the company (using only accounting numbers) to a large group forum presents an opportunity to “validate” the shared vision by listening to the presenters and the audience as the discussions take place and by restating the “facts” and establishing priorities for action during that meeting. There are no strict rules about selecting the presentations; however, it is normal for a marketing person to be asked to present a specific product/service. The presentation would include details such as specific customers, all expenses, headcount, revenues and gross margin contributions for the product/service. It will also include balance sheet items such as inventory, receivables and investments to present a complete picture. Usually an accounting person is part of every team to assure that the numbers are accounting numbers and correct. When the presentation is made it is normal to ask the presenting individual/team “if you were the president of this product line what would you do?” This keeps the focus on moving forward.
The C level executives act as the “steering committee” to listen, observe and add their comments to the mix. It is important to have all levels and functions of the company represented and to ask for their thoughts and opinions during the presentations. This broad forum also prevents the Vice Presidents from “grand standing”.
When everyone returns to their factory, administrative, product development or sales positions they will carry a very important message. The message is that the “new” person listened to their ideas and incorporated them into the plan for improving the company.
A “shared vision” is critical for success. People will not follow any leader unless they understand where they are going, what they are expected to accomplish and that they will be supported in their roles. By reaching past the vice presidents you have opened the communication channels in a non-threatening manner with the company you have listened and responded and you are now a recognized leader.
The interim exec will make assignments during this forum. Slow moving inventory can be an opportunity for example. Ask what should be done to move this inventory? Someone will provide a good idea such as “sell it to Big Lot and convert it to cash” (ideas of selling it at a discount through existing channels rarely work since that is the reason that it is slow moving or non-moving in the first place). Put that person in charge of moving the inventory and tell them in front of the forum that they will receive extra $$ for doing it. Assignments like this do not stop the person from doing their regular job or make them report directly to the interim CEO; however, they clearly demonstrate that you are in charge and they provide positive recognition for taking action. Others try to think of what they can offer to get some recognition and money.
The next important action is to share the information with everyone. Everyone wants to know how the company is doing, where it is going and how they fit in the picture. Share this with them directly. There are confidential details that should be kept to a small circle so select your message carefully. Reinforce your message by walking around and talking with as many people as practical on a regular basis. Let everyone know when a milestone is reached. Every action you take sends a message so make sure that it is a positive one.
Issues, problems, and opportunities arise in the normal day to day business and are addressed as they present themselves. Complexity creeps into any business, process or project based on normal solid business decisions. The Sales Department wants one of every product possible to satisfy all customer needs and facilitate their jobs. Engineering wants to design even better products to garner more customer interest. Manufacturing would prefer to make only one product in high volumes. In reality the balance shifts over a period of time and complexity shows up everywhere. The simple black Ford Model T gives way to a variety of products with more engineering and a higher number of manufacturing processes.
An Interim CEO will generally bring focus to an organization. Trying to satisfy all customer needs and wants is not profitable. An Interim CEO also is aware that some things could be done better; however, the Interim CEO is also cognizant that he/she cannot spend his/her time focused on improving every process in an organization. The “hand offs” from department to department or function to function in new product development or the move from engineering to production, or many other infrastructure developments add serious complexity to an organization over time. If an Interim CEO spends time focused on improving, smoothing or eliminating steps in the process instead of the vision and strategy the company will suffer. The only exception is when things are truly broken and need to be addressed for the company to move forward.
When an infrastructure, engineering, sales, IT, or manufacturing issue becomes a serious problem everyone becomes aware of the issue and the organization focuses on a solution to the problem. Even this approach can bring more complexity. One common example is when a company outgrows its IT infrastructure. Usually the quick solution is to hire more people to take the information out of the “old” system, process it and then put it back in the system for others to use. It is similar to a “break” in a water pipeline where people get buckets, fill them at the break and then put the water back into the pipeline to continue its journey to the end users. The process works in the short term and it allows the business to continue; however, over a period of time more and more people are hired, costs increase and the information flow becomes less timely. The need for different reports or information put even more pressure on the antiquated system. The management and Board may not even be aware of this patchwork process since it started slowly and was addressed quickly by the IT department.
Although the example used is in the IT/infrastructure area it is easy to find examples in almost every aspect of an ongoing business. An investor once asked us for a review of a company where the EBITDA was “the best that it has ever been”. The company was asking for a $10 million investment to become even more competitive. We went in on an interim basis reporting to the Board and found that management had addressed the recession and challenging economy by reducing headcount, cutting capital expense, eliminating slow moving products, cutting travel and advertising costs and generally doing everything possible to “hunker down” until the economy improved. The one thing that was missing was a plan and a specific timeline. While everything that was being done seemed to be correct and timely the end result was that the most talented employees left for more interesting jobs, no new products were in the pipeline, customers felt neglected, existing production capacity was underutilized and the lack of capital investment meant that machines were wearing down and competitors were spending money on improved manufacturing and production technology. Yes the EBITDA was the “best” that it had ever been; however, it was not sustainable and in reality the $10 million investment requested was needed just to bring them back to the position that they held prior to all of the cut backs. The interim exec could walk through the manufacturing, engineering and marketing processes easily since he has actually run, directed, managed, and restructured companies. A consultant would have done a “study”.
The assessment is completed. The baseline for measurement is established with milestones and a timeline. “Champions” in each area have been identified and enlisted in process. Resources have been allocated and priorities have been set.
Michael Porter listed “You do not run the company” as the first surprise of his 7 surprises for CEO’s. This is an absolute fact. Interim CEO’s have this experience and know that they need to provide support, resources and recognition to the individuals and teams actually responsible for the implementation of the “shared vision”.
Big meetings to evaluate progress are truly a waste of time. The interim CEO has regular conversations with key people asking if they need anything or have any issues/concerns. This only takes five minutes. It also sends the continual message that the senior team is supporting and interested in success. Recognizing and rewarding the individuals and teams for their successes is critical. The interim CEO also understands that every task, activity, objective and milestone cannot always be completed with great success. It is important to identify issues early and to redirect efforts in a positive way. If the objective changes or a decision is made not to proceed with that specific project the individuals on that particular team can be assigned to different projects or objectives that arise during this process. Interim CEO’s understand that everyone wants to succeed and that you cannot win every time.
The Board, investors, owners, Private Equity Group should follow progress closely. The interim CEO is creating a process for moving the company forward. He/she is working closely with C level execs as well as key tier 2 and 3 managers. The interim CEO will be able to recognize talent and capabilities of the individual producers and managers. He/she will be able to identify potential CEO’s, CFO’s, CMO’s from within the company as well as to confirm that there are none. In any event the interim CEO is developing a process that is clear and measureable and one that the new and permanent CEO will be able to mold to his objectives and put his signature on it when he/she arrives.
The results are measureable. The results show up in the financials. The results are part of a process that is expected to continue for some time unless a major external market change occurs.
Long reports describing the tenure and results of the interim CEO are not required. However, it is a good idea to have a ‘debriefing’ session with the Board and the new CEO. The debriefing should include customer/market information and it should include a listing and review of the individuals that stand out as able to grow and lead different parts of the company.
It is also a good idea to have the Interim CEO remain on the payroll for a short time longer (behind the scenes since if he/she is visible to employees there will be a tendency for them to ask him to confirm all the directions given by the new CEO. You cannot have two bosses!). He/she can be accessible to the new CEO and Board for a short time until the new CEO is comfortable which is usually 30 to 45 days.