No new chancellor was named for the Minnesota State system Thursday after all.

After a nationwide search that produced three finalists, the Minnesota State Colleges and Universities board of trustees made a surprise announcement that they hadn't found the right person for the top job, essentially the CEO of the state's largest provider of higher education.

Instead, the board voted unanimously to name Devinder Malhotra, a former interim president of Metropolitan State University, as interim chancellor. He will succeed Steven Rosenstone, who is retiring in July after a rocky relationship with faculty and other unions.

"This is a critical moment for our colleges and universities," said Michael Vekich, the board chairman. "Each of the finalists had their own strengths. But as we evaluated the feedback we received from our stakeholders it became increasingly clear that we have not yet found the right person to lead Minnesota State over the years ahead."

Minnesota State, formerly known as MnSCU, will continue to search for a permanent leader while Malhotra takes the interim role Aug. 1. He is coming out of retirement to oversee 16,500 employees and lead a system that serves nearly 400,000 students as it navigates financial challenges.

"We are in the midst of rethinking our focus and purpose, our organizational culture and our modes of operation in order to effectively prepare all Minnesotans for a rapidly changing world around them," he said Thursday, the day after he was offered the job. "It would be fair to say we are rethinking our profession."

He said the system has critical work to do with the broader community as well as with legislators. Officials are pursuing $178 million in new state funding in the next biennium — with some funds to be used to freeze tuition.

While Malhotra has a good relationship with faculty, Jim Grabowska, president of the Inter Faculty Organization, said he was surprised a permanent successor wasn't named. Grabowska, who was on the 19-member search committee, said he thought there was a qualified candidate.

"I'm disappointed it resulted in a failed search," he said.

Joe Wolf, a Minnesota State University Mankato student who leads the student group for seven state universities, agreed that Malhotra is well-respected but was surprised by Thursday's decision. "Any one of [the three finalists] would have done a great job," he said.

'Best possible interim'

Rosenstone, who has been chancellor for six years, announced last spring that he will retire when his contract expires in July. Beginning last fall, a committee that included faculty, staff and students led the search.

Ten of 43 applicants were selected for interviews and the board named three finalists on Monday: Michael Martin, chancellor emeritus of the Colorado State University System; Keith Miller, president emeritus of Lock Haven University in Pennsylvania; and Cathy Sandeen, chancellor of the University of Wisconsin Colleges and University of Wisconsin-Extension.

The board interviewed the finalists and held forums with faculty, staff and students this week. Based on that feedback, the board decided to defer a permanent decision in favor of an interim deal with Malhotra, who was described as a collaborative, visionary leader with an economics background to lead the system through its financial issues.

The system, which includes 30 colleges and seven state universities, announced new strategies last year after a warning of deficits of $66 million to $475 million a year by 2025.

Malhotra was the interim president of Metropolitan State University from 2014 until his retirement in 2016. Before that, he was provost and vice president for academic affairs at St. Cloud State University.

Vekich said the board will focus on the leadership transition before reviving the search. He added that Malhotra, who will get a salary of $350,000, will likely stay in the role for a year.

"They picked the best possible interim leader they could have ever picked," said Kevin Lindstrom, president of the Minnesota State College Faculty. "We'll find good solid leadership in Dr. Malhotra … keeping the system moving forward."