A CEO transition can be a time of great risk for a company’s stock as Wall Street attempts to determine all that the change signals. If a change in leadership is not communicated properly it could make your investors nervous. Effectively communicating the CEO succession can help boost confidence in investors — and prevent long term harm to your share price.
Here are a few guidelines to help effectively communicate a CEO transition:
- Give plenty of lead time. If at all possible, the outgoing CEO should communicate his plans to leave ahead of time. Two or so quarters out gives investors enough time to digest the news.
- Have a transition plan that includes the outgoing CEO. The old CEO should stay on for several quarters as a consultant to the Board and new CEO.
- Transition at appropriate time. Plan and announce the transition at a time that won’t create distraction to other major company events. For example, a CEO leaving while the company is gearing up for a major product launch or preparing for an FDA approval will cause the Street to doubt the prospects or announced timelines of those projects.
- Let the Street know that you selected the right new CEO. Be transparent with investors about the selection process. Communicate that the company conducted a thorough search, did all the appropriate due diligence, and selected the best fit for the company. Describe how and why the new CEO will be the best candidate to lead the company going forward.
- Have a plan for introducing the new CEO. When announcing the new CEO to the Street, present the strategic reasons why this person in particular was selected to lead the company. But don’t forget the personal aspect of introducing the new CEO by communicating his enthusiasm for the company and its vision. Humanizing him helps create a sense of connection and confidence among investors and the public in his leadership ability. This is also the chance for a resetting of expectations and an opportunity to change the direction of the company. The new CEO will not be judged on things that were in process before he arrived, or that can be attributed to the outgoing leader. Instead, the new CEO should take this initial period to convince investors and analysts of his own vision.
- Take care with internal messaging. CEO transitions can be distracting events to employees. The goal is to keep the company running efficiently before, during, and after the transition. Emails, webcasts & town hall meetings are effective tactics to keep employees well informed and minimize distraction caused by the transition and to provide talking points. To minimize the chance of an inconsistent message getting out, make sure employees understand they’re not permitted to speak to the media or Wall Street about the company unless specifically authorized by the company.
For more about the importance of effective executive communication on stock performance, read my colleague John Woolford’s blog on what do when an earnings call goes wrong.