Rob Swystun, Pristine Advisers
Changing CEOs is a big thing for companies. If not done smoothly, it can lead to rumours and a loss of investor confidence. On the other hand, if done well, bringing in a new CEO can be a boost for a company, as it means getting a new perspective on things and often (but not always) leads to at least a partial shake up that can be beneficial to a company that has been lead by the same person for a long time.
Regardless of whether the outgoing CEO is long-term or short-term and regardless of whether they are an insider or an outsider and regardless of whether their stint was productive or disastrous, it’s important to communicate the succession to investors in a clear manner that will pre-empt the rumours and speculation that often accompany a CEO change.
Sharon Merrill president and partner Maureen Wolff identifies two challenges that boards face when communicating to investors that it has a sound plan for succession and five steps boards can take to effectively communicate an executive leadership succession plan.
The two challenges Wolff identifies are:
- overcoming the stigma associated with internal succession discussions while a CEO is still in place (this goes double if that CEO is successful and/or a company founder);
- crafting a message that will calm investor fears about uncertainty caused by a pending transition.
Almost all CEO swaps cause at least a ripple of discomfort in investors. If planned for years or if it is abrupt, it’s a big change and there will be some uncertainty. Companies only exacerbate the problem when they don’t communicate with stakeholders effectively.
To help prevent all that uncertainty, here are Wolff’s five steps for successfully communicating a CEO succession.
1) Have a plan
You can’t communicate what you don’t have. Well, you can, but then that strays into lying. Have one, review it at least annually and update it when necessary.
2) Make it public
Don’t wait until the succession is just about to happen. Once a board has found their replacement CEO, they should announce it well ahead of time, explaining the logistics of it, the reasoning behind the choice of the new person and their experience and qualifications.
3) Don’t skimp on the details
Rather than filling the announcement with business speak that uses a lot of words to say little to nothing, make it clear, ensuring you communicate these six points:
- when the succession will occur;
- why the CEO is leaving;
- whether the incoming CEO will also be named chairman;
- a statement by the lead independent director or chairman supporting the incoming CEO and thanking the outgoing CEO (even if they’re a jerk);
- a statement from the new CEO; and
- a description of the incoming CEO’s qualifications.
4) Introduce the new person
Not when they’re about to take over, but well before they’re set to take over, the new CEO should be unveiled. This will help establish their credibility and also help Wall Street get used to them. It will also help build their confidence when dealing with the public without the burden of actual responsibility (just looming responsibility).
5) Remember the human aspect
Regardless of what qualifications the new CEO has, they should be related to the company’s needs and how the new person will help fulfill those needs. The information that is presented about the incoming CEO should always be directly tied to how they can benefit the company.
It’s never easy making the big change at the top of the company. Investors can be a fickle bunch and they can scatter like sheep at the sound of a loud noise. But, if you are open and honest about what’s going on during succession, it should go relatively smooth and cause just a minor hiccup among investors.