Why boards hesitate to replace struggling CEOs after interim leadership

When Yahoo! went through five CEOs in just three years, it was the subject of much press derision. Frequent leadership changes gave the appearance of internal turmoil, which rattled employees and undermined investor and partner confidence. Scenarios like this shed light on a basic truth of corporate governance: having a steady, credible CEO at the helm is generally good for business and for shareholder trust.

But what happens when a CEO resigns abruptly or is removed? The norm is to appoint an interim CEO to keep the company running while the board conducts a thorough search for a permanent successor. Investors usually accept this arrangement, if somewhat reluctantly, on the understanding that it is temporary. Months later, a carefully selected permanent CEO takes over. But what if that new CEO does not perform as expected?

This is the central question explored in a new study by Robert Langan of Esade, published in the Strategic Management Journal. The research shows that boards are notably hesitant to remove a poorly performing CEO when that executive has stepped in after an interim leader.

Langan looks at why boards behave this way and what this hesitation reveals about their underlying motivations.

The true cost of interim CEOs

The appointment of an interim CEO can lead to market instability as investors may feel unsure about the firm’s strategic direction. Skeptical investors often react negatively to interim appointments.

Major decisions may be postponed, not because they are unimportant, but because an interim leader may feel it is not their place to commit the company to long-term investments or structural changes.

One interim CEO, quoted in the study, explained: “I didn’t want to stack the company with expensive talent or commit millions of dollars in spending just a few weeks before someone permanent was named.”

Senior management teams can also experience higher turnover during interim periods as internal candidates vie for the top job, or because high-performing executives leave in response to the uncertainty surrounding the business’s future leader.

Despite the negatives of an interim CEO, business reports show that roughly 15% of the new CEO appointments in the US in early 2025 were interim leaders — up from around 9% the previous year — indicating a trend toward boards using stop-gap leadership more often.

Struggling successors are tolerated

Langan’s main finding is surprising. Boards are significantly less likely to remove a poorly performing CEO if that CEO followed an interim leader. Why? Early removal is normally very sensitive to performance, but with successors to interim CEOs, this isn’t the case.

The departure of interim CEOs influences how boards evaluate and respond to the performance of the permanent successor

“Compared to successors to permanent CEOs, those who follow interim CEOs are far less likely to experience early, performance-related departures,” says Langan. In effect, the normal rules of accountability appear to be relaxed.

While the interim CEO may attempt to be a neutral caretaker, it seems that their legacy extends on after their departure, influencing how boards evaluate and respond to the performance of the permanent successor.

Why do boards hold back?

The study set out to understand why boards are often slow to remove a struggling CEO who takes over after an interim leader. One possibility is that dismissing yet another CEO could further damage the company, especially after a period of instability. Another is more personal: directors may hesitate to act because replacing a CEO they supported would mean admitting a poor decision. A third explanation focuses on ownership, suggesting that directors with more shares may be especially cautious, fearing that another leadership change could harm the business.

Boards fear that rapid leadership changes could damage the firm’s value worse than keeping the unsatisfactory CEO

The findings are clear. Boards hold back primarily out of concern for the firm, not to protect their own reputations. In fact, directors who own more shares are even more cautious about dismissing a post-interim CEO early. This suggests they are focused on preserving firm value, not avoiding blame. Removing yet another CEO soon after an interim period can unsettle investors and signal deeper instability, even when that CEO’s performance is disappointing.

The idea that boards are acting out of self-interest does not hold up. The findings suggest that boards fear that another rapid leadership change could do more damage than keeping the unsatisfactory CEO.

Boards might be right to hesitate

This caution may be justified. The study finds that early removal of CEOs who succeed interim leaders is associated with poor market reactions. Investors appear to interpret yet another leadership change as a sign that deeper problems exist within the firm, beyond the capabilities of any single executive.

Companies such as Yahoo!, WeWork, and Twitter have experienced recurring leadership changes, which contributed to investor fatigue and internal confusion. New leaders promised to bring stability and growth, but often coincided with declining market value.

All things considered, board directors may prefer to play the long game—accepting subpar CEO performance in the short term to avoid increasing uncertainty and eroding investor confidence. In short, keeping an underperforming CEO after an interim period is a trade-off aimed at stabilizing the company’s performance over time. 

What boards and investors can learn

What emerges from the research is that interim periods can have long-lasting effects. Boards should think carefully before choosing an interim CEO, and recognize that this decision will shape not only the interim phase but also how the next permanent leader is evaluated. As Andrew McKenna, former Chairman of McDonald’s, observed, “Interim CEOs are never the best way. It’s like buying something on trial.”

Investors should not assume that a post-interim, permanent CEO will be removed quickly if their performance isn’t delivering the desired results.

As leadership volatility increases across sectors, boards may find themselves relying on interim CEOs more often. This brings key questions to light for corporate governance. Should companies invest more in robust succession planning to avoid interim periods altogether? Or should they accept that interim leadership is becoming a structural feature of modern corporate life, one whose consequences must be managed rather than avoided?