What Happens When an Interim CEO Takes Over?

Twitter chief Dick Costolo is leaving his post in two weeks, and co-founder and chairman Jack Dorsey will be taking the reins as interim CEO. It’s not the company’s first leadership shakeup, but unlike previous ones, it’s a response to sluggish performance, rather than to rapid growth.

So what happens now? In 2007, researchers at the University of Virginia explored the interim CEO phenomenon, and their findings provide context for how Twitter will fare under Dorsey.

Interim CEOs are quite common. Seventeen percent of successions at publicly traded firms between 1996 and 1998 included the appointment of an interim CEO for at least 45 days.

They don’t stay long. The vast majority of interim CEOs stay for at least a quarter (92%), but just a third of them stay on for more than a year.

Performance suffers. Firms that appoint an interim CEO as part of their succession process have lower return on assets and are more likely to fail than those that appoint a new permanent CEO right away.

But chairmen do better as interims. The majority of interim appointments are insiders, and 42% are the current chairman (like Dorsey). The researchers found that firms that appointed the chairman as interim CEO were less likely to fail and had better return on assets than firms that appointed a non-chairman.

The search for a new CEO may be less biased. One of the main benefits of an interim CEO, according to the researchers, is that it makes it easier to search for a new chief executive unencumbered by the interests and biases of the old CEO. Sitting executives can exert influence on the search for a replacement, often in order to preserve their own legacy.

Interim CEOs don’t rewrite the strategy. Though interim appointments may be more common in cases where the shareholders disagree with the sitting executive on vision, interim CEOs tend not to take on big strategic reorientations during their tenure. The researchers interviewed three former interim CEOs and conclude that they focus their “attention on short-term, tactical crisis management.”

Of course, Twitter’s transition isn’t necessarily typical. In the researchers’ sample, interims were more likely to be older than the executives they replaced. Dorsey is 13 years Costolo’s junior. Dorsey is also Twitter’s former CEO, and has also reportedly coveted a return to the top job. In an interview Thursday, he said he’s focused on his role as interim CEO, but didn’t rule out taking the position full-time. Finally, Dorsey is also the CEO of Square and will continue in that role simultaneously.

Research suggests that Dorsey’s status as co-founder and chairman leaves him relatively well positioned to navigate the transition. But perhaps the biggest clue as to whether he’s truly taking an interim role vs. auditioning for the job will be the moves he makes in the next few months. If they’re mostly tactical, that could be a sign the company is waiting for a new CEO to adjust its path. If he starts making major changes to strategy and vision, that might mean he’ll be around for a while.

This blog first appeared on Harvard Business Review on 06/12/2015.

View our complete listing of Leadership Development blogs