Whenever I speak about properly communicating a CEO transition, I talk about the importance of having a plan. But not all companies undergoing a management change have the advantage of foresight. So let’s discuss them both: the transitions that are well-planned, thoughtful and strategic, and those that must be managed on the fly. Here are three things to remember before your company changes CEOs, no matter the reason.
1) Have a plan
If you know your CEO is preparing to step down, you can’t claim ignorance when the day does come. The Board should have a comprehensive succession program already in place. This will enable it to select a successor well in advance, either hiring internally or bringing the individual on in a steppingstone position, such as COO. Trust us: It will be much easier to communicate your succession plan if you actually have one.
On the other end of the spectrum, your Board and IR team should have a crisis plan in place, in case the CEO leaves suddenly. The plan should detail who would step in on an interim basis, detail that person’s qualifications, explain the Board’s search process and have a timeline for when that process will be completed.
2) Make a good first impression
By hiring well ahead of the handoff date, you present the CEO-to-be with the opportunity to build rapport with the investment community before stepping into the corner office. That means informal, low-pressure introductions at investment conferences and non-deal investor meetings and participation in quarterly conference calls. An external candidate will benefit from having time to learn about the company before having to demonstrate that knowledge to investors. The grace period afforded new CEOs during transitions is unforgivingly brief, so extra time behind the scenes will pay off handsomely once the transition is made public.
In a crisis hiring, the company will need to make two introductions, of the interim and permanent CEOs. The introduction of the interim CEO is made to reassure investors that the Board is confident this is the right person to oversee the business until the permanent CEO is named. The announcement of the permanent CEO seeks to reassure investors that the Board made the right decision. Either way, meeting face to face with the top investors and covering sell-side analysts will be crucial to the success of this transition. A shadow period will be improbable -- unless the interim CEO is a strong candidate for the permanent position – so they should be prepared for a crash course in corporate culture and operations to make the best impression in public interactions.
3) Communicate the plan
Once the succession plan is in motion, get the word out to investors and sell-side analysts as early in the process as possible. The more notice you provide, the more orderly the transition will appear. And by effectively communicating the CEO’s transition, you will help alleviate investor uncertainty and garner support for the successor. Ideally, the company will make a series of announcements via press release, beginning with the hiring of the CEO-apparent, assuming this is an external candidate.
We could argue that communicating the plan is even more important in a crisis scenario – but also more difficult. In many cases, the Board will have very limited information about the timing for naming a replacement, and it is unlikely it will already have one waiting in the wings. You do have an opportunity to sell the Board’s vision for the next CEO, though. Use the announcement of the current CEO’s exit as a de facto commercial for the position. List the qualifications and experience you are looking for and how these tie into the Board’s strategic vision for the company.
Once the new CEO is in place, the window of opportunity to demonstrate progress will be small. Take advantage by clearly outlining the new corporate strategy or explicitly affirming the existing one. Consider having an investor day within the first few quarters of the CEO’s appointment to communicate the strategy in greater detail and generate support from investors. Whichever type of transition you have, the goal for your communications strategy should be to present a thoughtful, orderly transition and to establish positive investor relationships with your new CEO. By walking through these steps, you will be in a solid position to give the new chief executive a running start.
Maureen Wolff is president and partner at Sharon Merrill, an investor relations strategic advisory firm that includes among its services Regulation FD, disclosure and Wall Street 101 training for employees, management and boards of directors, perception studies and targeted investor outreach. She is a National Investor Relations Institute Fellow, Senior Roundtable Member and Honorary NIRI Boston Director. She is a trusted advisor to CEOs, CFOs and boards of directors on critical communications issues including corporate governance, shareholder activism and proxy contests, CEO succession planning and disclosure issues.
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