It seems we read daily about CEO transitions – last week alone, it was announced that Jim Skinner of McDonald’s was stepping down and Gary Pruitt was named CEO of the Associated Press. And, according to FTI Consulting’s recent study, “Communicating Critical Events: CEO Transitions and the Risk to Enterprise Value,” these changes, and how they are handled, can have an enormous impact on the company’s performance. Read the full study here.
Over the three-year period between July 2007 and June 2010, over one-third (39%) of North American companies announced a CEO transition – which FTI Consulting attributes to particularly strong pressure from Wall Street. This means that communications professionals are triply challenged – tasked with mitigating the impact of the former leader’s departure, helping the new CEO develop a personal brand, and communicating his/her company vision.
These tasks are vital because a large part of investor opinion reflects a CEO’s reputation – according to the research, 32% of investment decisions are based on the perception of the company’s CEO. And, there is considerable downside potential, as investors are 2.6 times more likely to sell vs. buy a company’s stock because of a CEO.
So what are the takeaways for communication professionals? The research gives insight into audience and message:
- Audience – Most important sources influencing investors’ initial opinion of a new CEO are customers (78%), former colleagues (69%), industry analysts (55%) and other CEOs (50%) – yet most companies focus on more conventional, yet less influential sources, including sell-side analysts (40%) and the media (27%). It’s critical to direct messages about the new CEO towards these emerging audiences.
- Message – The most important opinion driver of a new CEO, by far, is a track record of execution – while just 4% of respondents say that experience at the company is most important. So in communications, highlighting the new CEO’s track record at former positions or companies is essential.
What is your experience? What are companies that you think have handled CEO transitions particularly well?