George Mussalli is Chief Investment Officer and Head of Research and Sevinc Cukurova is an Analyst at PanAgora Asset Management. This post is based on their PanAgora memorandum.
Appointing an Interim CEO? Not surprising if you failed the corporate governance test
- Interim CEOs are appointed by boards with shorter tenure. Board members who appoint interim CEOs have served their companies for fewer years as compared to those appointing permanent ones. This might imply lack of experience, therefore poor management. Alternatively, tenured directors might be leaving because the company is going through turmoil. In either case, we see it as a governance failure.
- A Board’s connectedness matters. Directors who appoint interim CEOs hold fewer outside board seats. This might imply lower board quality as directors are not in demand. It might also suggest that these directors are connected to fewer CEO candidates. Permanent CEO searches take less time as connectedness increases, which is further evidence on the latter argument.
- CEO duality implies lower likelihood of interim appointment upon departure. A CEO who also holds the Chairman title is more likely to be succeeded by a permanent one. This is consistent with an established phenomenon that successful CEOs are awarded board leadership as part of the promotion and succession process. CEO duality is one of the most controversial issues in corporate governance: activists pressure for separation of titles, whereas research shows duality has no universal impact on performance.