The Interim Executive

Need to fill a management position immediately, but the traditional hiring approach is undesirable? An interim executive may be the answer.

December 1 1990 by Ronald J. Diorio


Imagine your major LBO firm has just made a significant acquisition-one that was purchased at an inflated price but exhibits enormous potential for growth. Eager to get the small shop running like the business it should be, you install a president with a distinctly corporate mentality; expenses soar and revenues fall off. Who can step in quickly to manage the crisis?

Conversely, imagine that your presitigious national company is dissolving a division. The job is a critical one that requires top-tier expertise, yet it is unappealing to your senior talent. Clearly, it is not a post that will enhance anyone’s career advancement, and the job won’t necessarily be a pleasant one. However, management capabilities will undoubtedly play a pivotal role in minimizing losses. Who can provide you with immediate assistance?

Imagine that you’re the chief executive of one of the world’s largest consumer products companies. You’ve honed operations to the point where they’re virtually skeletal, and then you acquire another major corporation. Suddenly, the company more than triples in size. Now two huge work forces are operating under two different sets of personnel policies: The five-inch-thick policy manuals of both firms are obsolete. The development of a single personnel policy is more than socially desirable. It carries major morale and financial implications, and it is essential if future litigation is to be avoided. Nevertheless, reworking personnel policy will require eight to ten months, and your minimal staff makes it impossible to reassign someone for so long. Where can you turn for expert assistance?

You are the president of a European-based investment group that has identified an industry that is currently out of favor and offers tremendous potential for longterm growth. Your group begins systematically to acquire companies on a worldwide scale. However, as you become involved in operations, it is immediately apparent that, despite your brilliant financial staff and skilled managers, you need hands-on, industry-specific talent to provide line operations management until your own expertise is expanded. Who can immediately provide the critical expert management you require?

In the past, any of these situations could have spelled disaster for a corporation. Today, however, there’s a new option: the interim executive.

Interim executives are top-tier, highly experienced executives who have chosen to abandon the conventional corporate fast track to pursue assignments on a project basis. Although long popular in Japan and Europe, interim executives are just emerging as an option on our shores in response to fundamental changes in U.S. business practices.

MANAGING MANAGEMENT

The postwar era has been a period of virtually universal growth in U.S. companies. Whole new industries emerged and reached maturity, growing increasingly more complex-and generally more bureaucratic-in the process. Unprecedented competition developed in virtually every area, and management expanded to address the growing challenges. It was not until the 1970s that it became apparent that management, too, needed managing.

Then came the 1980s and struggles for survival. Leverage grew to unprecedented levels, and heightened international competition put the squeeze on entire industries. The privileged nature of management became obsolete virtually overnight, and top-tier executive firings came at a pace that probably put the gold watch industry out of business. The cradle-to-grave era was over.

A trend has emerged: The emphasis has shifted to increasing efficiency, state-of-the-art capabilities, and creativity. Those that fail will also fail to compete.

However, U.S. companies are at a point where conventional management mentality will not provide any answers. Management issues have reached an unprecedented level of complexity at a time when its membership is as limited as it’s ever been. Concurrently, challenges and opportunities are arising at an unprecedented pace on a global scale.

Generally, the traditional options cannot be tapped quickly enough in a time of urgent need, and often, they are no longer effective. Consultants are costly and provide only strategy, not implementation, and external searches and networking can take months. Permanent hires can tax the bottom line and ultimately put you back where you were before downsizing, while doubling up on the responsibilities of exising staff can sometimes limit its effectiveness.

These factors spurred the emergence of the interim executive industry on these shores. Companies that provide interim executives are essentially matchmakers: Marriages are arranged between companies with compelling management requirements and the specialized management talent that can get the job done.

The commitment is a finite one, whether it be for an interim CEO or for a project manager to oversee a plant expansion. There is no long-term obligation, and the executive stays on board only as long as the need exists.

CAFETERIA CORPORATIONS

Many of the world’s most prestigious think tanks have recently pondered the questions that come with fundamental change, and several books have resulted. William B. Johnston of the Hudson Institute has perhaps characterized current management needs most succinctly: He refers to the emergence of the “cafeteria corporation” as the corporation of the future. Such a structure would allow a company to pick and choose from available management options on an as-needed basis, keeping permanent staff streamlined and costs to a minimum. However, not even the corporate giants are likely to retain such extensive internal flexibility.

Many prominent corporations have been hiring executives informally on an interim basis for years. IBM, for example, has long looked to its own alumni, asking retirees to return for special assignments, as have other corporations with easy access to their own proven talent pools.

Additionally, Traveler’s Insurance has established a job-bank posting system from which its alumni can select short-term assignments.

The interim executive option can give every company this option, regardless of the size of the operation or the character of the need. It provides access to a wide range of talent from a broad range of industries, and it offers this solution to the great majority of companies, institutions, and government agencies that do not have their own alumni to tap.

Not all the advantages of interim talent are immediately apparent. The most important advantage is that interim executives are highly effective: Companies can often afford a level of talent for a short-term assignment that would be inaccessible to them on a permanent basis. Moreover, firms can sometimes get superior executives on an interim basis who would not want to consider a long-term assignment with these companies.

Interim executives are also available very quickly. A qualified talent pool can usually be found within 15 days after the need arises.

Another critical attribute of the interim executive is inherent flexibility. Labor, conventionally a fixed cost, can be made a variable one, and the length of the assignment or even the breadth of the mandate can always be changed.

Interim executives can also be used to train existing personnel to continue the effort once a project is under way. While their highly specialized expertise might be too narrowly focused for a permanent hire, some of that expertise can be left behind if a successor is groomed from within.

More free-floating executive talent is available for these assignments than ever before. In the wake of downsizing, company loyalty has foundered, and many executives have grown disillusioned with the conventional corporate post. Others have been given golden parachutes or offered early retirement. Some executives simply want the flexibility of temporary assignments in order to spend time with family or to travel. Others are private consultants or entrepreneurs, while still others simply thrive on crisis management and are eager to move onto another assignment after the current crisis abates.

Consider the venture capital group that was introduced to a scientist. The scientist had made a spectacular discovery of a medical product that had significant potential among the aging population. The venture capital group was captivated, and money was invested. R&D progressed, and the developmental process was expanded to four additional locations. Excitement was mounting as the FDA submission neared completion, but it then became apparent that-for all the geniuses-no one knew how to run a business. The group sought a temporary COO until a permanent successor could be cultivated.

Consider also the LBO firm that acquired a small manufacturer. Inexperienced with small business practices, the parent company conducted a search and installed a highly experienced president culled from a major corporation. Havoc resulted. The president was summarily dispatched, and a principal in the LBO company had to step in and run the business. The LBO company sought someone to lead the business while the search for the permanent executive was conducted, and appropriate people were found in less than 10 days.

Another example is a $500 million U.S. corporation that was forced to file Chapter 11. Eager to get back on its feet and lacking appropriate talent on its own staff, the company looked for an expert with considerable experience in the industry. Qualified candidates with CEO and COO capabilities were found within eight business days.

Another scenario involved a multiline European insurance company with offices throughout the continent. Historically, it had essentially been forced to run different companies in 13 different countries. Thus, it found the unification of the European Economic Community in 1992 a daunting prospect. Planning consultants were used to help its executives coordinate their strategies, but its managers did not successfully implement the programs. A hands-on strategic planner with experience in the European arena was hired to help its executives carry out a planning effort that would effectively integrate the company’s pan-European operations.

Given the high level of expertise of many executives in the interim pool, companies occasionally look to interim talent to address their long-term needs. One company, for example, has investigated the prospect of bringing in a senior-level marketing professional for an interim assignment. The interim executive’s mandate would be to conceive and implement a marketing program and then groom a permanent successor. After the assignment was completed, the executive would then be offered a seat on the board, allowing the company continued access to his marketing experience.

FILLING THE BILL

Of course, there is clearly more to the process than finding the individual with the proper experience to satisfy the corporation’s needs. The issues of proprietary information and confidentiality have to be addressed, as do the areas of corporate and national cultures, as well as language barriers.

It is also vitally important for an interim executive specialist to work closely with the client firm to position the executive appropriately, so that the individual can integrate quickly and effectively, which maximizes the executive’s impact.

The fact that the interim executive does not pose a threat to the traditional corporate structure can, in fact, allow the newcomer to play a very positive role. For example, the interim executive can preserve a position until an appropriate successor is available internally. Since the interim executive’s insertion into the existing corporate hierarchy is a finite one, the progress of an advancing executive will not ultimately be blocked-and can conceivably be enhanced. This can be a major morale booster if permanent executives are made to understand that promotional opportunities will be available to them, rather than given to new hires in the event of an urgent or unexpected need.

All of this is not to suggest that the interim hire represents a panacea. Companies in crisis are sometimes compelled to seek out one singularly spectacular executive in hopes of curing all their ills; the mandate for an interim hire has to be well-defined. Interim executives will not work when there are a myriad of issues to address that would require the skills of an entire outside organization.

Also, interim executives would probably not be appropriate in highly proprietary environments. While it is true that interim executives sign confidentiality agreements and many permanent executives do not, it is also true that limited access to such environments works best.

Also, some closely held corporations would not garner the full advantages of using an interim executive. The assignments, by virtue of their finite nature, require that the executive be integrated quickly and fully into the existing management structure. If key family members are resistant to the interim hire, the full effectiveness of the interim executive will not be realized. However, even in these situations, benefits can accrue. Interim talent can provide access to critical expertise without threatening the family’s management structure.

The 1990s already promise to bring continued downsizing and ever-enhanced competition; the desirable corporate structure is well on its way to becoming a lean and mean corps of key players. Yet the need for experienced, highly specialized professionals is only going to expand in this changing world, and interim executives will undoubtedly prove increasingly popular as an important source of talent. The interim executive may even one day become as common a fixture as the temporary receptionist is today.


Ronald J. Diorio is founder and owner of The Drakewood Resource Company, which specializes in the placement of interim executives, as well as founder and president of The Drake-wood Company, a traditional executive search firm.