By Russ Banham
Carrier Management magazine
It may not be a trend, but it is nonetheless interesting that several insurance companies in recent months have announced the appointments of interim CEOs. Just when you think there is nothing newsworthy to report, another press release flies into the editor’s email inbox with an additional announcement.
In many but not all cases, an interim CEO is a temporary job, the case at SiriusPoint Ltd., where interim CEO Daniel Malloy stepped aside in September for new CEO Scott Egan. In others, the title is just a placeholder for the real thing. This appears to be the situation at QBE North America, where interim CEO Julie Wood, appointed in August 2023, was named the permanent CEO a month later.
The elasticity of the word made us curious about other aspects of interim appointments, including their skillsets, the scope of responsibilities, and their unique challenges and expectations, not to mention why insurers lately seem to be making such announcements. To be fair, it’s not a horde of interim CEOs. Aside from QBE NA and SiriusPoint, CSAA Insurance Group also appointed an interim CEO recently, as did InsurTech Vesttoo (a whole different story). Kemper and Selective named interim CFOs—not the same thing but close.
Ash Athawale said he, too, noticed what he called “a bit of a trend in the insurance industry to appoint interim CEOs and new CEOs.” The senior vice president and group managing director at talent solutions and business consulting firm Robert Half attributed the inclination to the impact of the pandemic. “Having got their companies through the most turbulent times, they’re thinking, ‘Do I really want to return to the office?’ They’re exhausted, done their duty and decide to step out.”
Another possibility is the industry’s rush toward digital transformation before Big Tech disrupters like Google decide to make a move into the business. “Given the impact of recent losses attributed to natural catastrophes, insurers might look for someone like a tech guru to come in as an interim CEO and fix things,” Athawale said.
Benjamin Finzi, who leads the Chief Executive Program at audit and advisory firm Deloitte, tossed in his perspective. “In an industry facing general long-term disruption from weather events, the board may perceive the attributes of the current CEO no longer fit the times,” he said. “An interim CEO presents the opportunity to test out the person for some time before making a longer-term selection.”
What Is an Interim CEO?
There are several types of interim CEOs (and other C-level executives), depending on organizational need. Here’s a few examples:
- If the incumbent CEO unexpectedly resigns, dies or is forced out, the heir apparent named in the succession plan may not be ready for prime time. In such cases, another top executive or member of the board like the chairman may be asked to step in on an interim basis as the search for a more permanent CEO ensues.
- If a company has hit the rocks, the board may decide to fire the current CEO and parachute in a seasoned CEO, typically from the same industry, on an interim basis to right the ship. Tough decisions are made to sail forward, followed by the hiring of a more permanent CEO.
- More and more companies see interim CEO appointments as an audition for the real thing. Some interim CEOs are eager to become CEOs; others have no such plans.
- As our astute editor intuited, there are more interim CEOs than there have been in the past.
On that last point, researchers at the University of Virginia published findings in 2009 on interim CEOs in Strategic Management Journal indicating that 17 percent of companies had appointed an interim CEO for a minimum of 45 days between 1996 and 1998. The majority of interims were insiders, chief among them the board chairman. A 2020 study in the Journal of Corporate Finance, however, discovered that 27 percent of companies appointed interim CEOs in 2014, the most recent statistics on the subject. Nearly half the appointments (46.2 percent) followed a forced CEO departure.
“It’s more common than one might think,” Jason Ralph, a McKinsey partner serving financial services institutions on strategy, growth and performance transformations, commented on the recent increase in interim CEO appointments.
“In an industry facing general long-term disruption from weather events, the board may perceive the attributes of the current CEO no longer fit the times.”
Asked if the appointment of an interim CEO indicates a failed succession plan, Ralph said not necessarily. “A clear succession plan and time frame is one of the most important responsibilities of the board, but the time frame isn’t always easy,” he explained. “There are many reasons why a CEO leaves abruptly, which is when you see the most frequency in interim CEO appointments.”
If an incumbent CEO unexpectedly resigns or is forced out, the internal candidate in the succession plan may not be “fully proven to take the position on,” he said. “In such cases, it is not uncommon for the board chairman to assume the role on an interim basis to create some distance from the previous CEO.”
Athawale echoed these comments. “If a crisis forces the current CEO to resign, the succession plan may not be fully finalized, or the next-in-line CEO may not be up to the task yet,” he explained. “At the emergency board meeting, the previous CEO in retirement may be called upon to take the reins on an interim basis while the board members look for someone else.”
Someone else, according to Finzi, could also include “the CFO, chief operating officer, division leader, or in some cases, the general counsel. It depends on how long they’ve been with the organization and their operational capabilities. They understand they’re not expected to become the long-term CEO, although it sometimes happens, but are being tasked to handle a crisis. Their personal mindset in becoming the interim CEO is one of servant leadership.”
Not all interim CEOs expect to become, or want to become, the long-term CEO. As Athawale put it, “Sometimes the board will reach out to someone internally about their interest in becoming interim CEO, and they’re surprised when the person says they’re not interested in being ‘tested out’ for the role. ‘That’s great for you, but is it the right job for me?’ they say.”
As it turns out, an interim CEO becomes the permanent CEO on a more frequent basis now than in the past. According to the Journal of Corporate Finance study, the organizations in the 1990s were more likely to appoint interim CEOs as temporary caretakers, particularly when the incumbent CEO suddenly quit or was forced to resign. In the mid-2010s, however, many companies used the interim position as a testing ground to become the CEO. Approximately one-third (33.2 percent) of interim CEOs eventually were promoted to the permanent CEO position, the researchers found.
“It’s the ‘try before you buy’ phenomenon,” said Mike Schafer, managing director, Interim Executive Practice, at management consulting and recruiting firm Korn Ferry. “Typically, if the person is being tested for the full-time CEO position, they’re informed the job is theirs if they successfully execute a set of strategic and operational changes. Some interims, particularly those drawn internally, are open to that, and some aren’t. If they pass, the search often begins for an external candidate.” Schafer’s work typically entails parachuting a seasoned external CEO or CFO into a company on an interim basis.
Who to Choose
In selecting an interim chief executive after an unplanned CEO exit, boards generally look at possible candidates inside and outside the organization. Most times, said Finzi, “the internal choice is consistently the better choice as an interim, as it encourages stability at a time of instability. You want someone with a good understanding of the culture, long-term vision and operational goals to maintain calm and avoid a sense of crisis.”
In some cases, an external candidate may be the right fit. “It all depends, of course, on the board’s assessment of what is needed, but if the directors are looking for an outsider with a fresh perspective and an external lens on the business, the resource allocations or challenging functional expectations, someone outside the organization may be the better stabilizing force,” said Ralph. “The flip side is they don’t know the culture or have relationships with top teams.”
Whoever is chosen, the job is meant to be short-term. Putting a limit on the duration of the interim CEO appointment—and sticking to it—is a best practice, the interviewees commented. “The longer the interim CEO leads the organization, the greater the degradation in job performance. This is especially the case if the person was selected in a rush and is not an exact fit, and a crisis deepens or emerges,” said Finzi.
What are the skillsets that assist an exact fit?
In many cases, they’re the same attributes sought when recruiting a permanent CEO: leadership, strategy, communication, problem-solving, management and decision-making, the interviewees said. The difference is the circumstances for which these abilities are employed. “Sometimes the interim CEO is relied upon to quickly deliver ‘no regret’ actions, particularly if the company is in financial distress,” said Ralph, citing the need to make personnel changes and work through regulatory challenges.
Alternatively, a company that loses its CEO but is not threatened financially may have other reasons to appoint an interim. “I can tell you that digital transformation is certainly in the forefront of what many insurers are looking for in an interim CEO,” said Schafer. “It depends on the company, whether it’s in crisis, looking to plot a new direction, needing a bandwidth of new skillsets to transform digitally, or just seeing an outside perspective for a short period of time.”
Related article: The Role of the Fractional Executive in the Insurance Industry
Korn Ferry has been retained by insurance carriers for this purpose, he said, adding that he’s not at liberty to disclose client names. “Carriers are challenged by disruptive competitors in underwriting, products and distribution; an interim CEO with a fresh perspective can reset the strategy accordingly,” said Schafer. “We’ve got a portfolio of CEOs and other executives here at a point in their careers where they want to use their experience and knowledge to effect needed transformational change.”
Assuming an interim CEO becomes the permanent CEO in a relatively short period of time, the situation at QBE North America, the company’s future is generally brighter, according to the research published in the Journal of Corporate Finance. “In the long run, promoted interim CEOs have better firm performance than permanent CEOs who are appointed directly, suggesting a better firm-CEO match,” the study states.
At a time of rapid technological innovation, evident in cloud automation, data and analytics tools, and fast-emerging Generative AI solutions, the insurance industry will benefit by a fresh perspective at the top, whether the person is an interim or more permanent CEO.
“We’re at a point where we need to see the profile of CEOs shift broadly in insurance, due to the demands placed on organizations to apply technologies in new ways across the business to drive transformation and also from a diversity perspective,” said Ralph. “Minorities are very underrepresented in insurance. The profile of the CEO needs to change.”
Russ Banham is a veteran business journalist and author.