Quality of management is a key investment consideration for many funds. So when the CEO of a public company changes, it is a big deal. Rumors will swirl, and Wall Street will crave to know what this change means for the strategy of the business. A thoughtful investor relations plan from announcement through the transition will let the new CEO establish credibility, lock in current shareholders and attract new investors.
Some investor relations issues to keep in mind:
Do not rush to put the new CEO in front of investors: As a rule of thumb, investors grant a new CEO three months to get up to speed and formulate his/her strategy. The CEO can interact with investors during the honeymoon period, and frequently will be required to, but he/she is not expected to have all the answers. During this period, the broader investor relations team (typically the CFO and investor relations contacts) is a stabilizing force providing consistency in the day to day management of investor and analyst relationships.
Immediately schedule a trip to meet with investors just after the honeymoon period: Immediately after a new CEO comes on board, establish dates on the calendar for face to face visits with investors following the 3-month “grace” period. With a meeting scheduled on the calendar, investors are more apt to feel comfortable providing the new CEO with the necessary time to digest the business so the meeting can be productive.
Don’t let the new CEO be blindsided: Provide him/her with briefing on shareholders’ historical interaction with the Company, their questions and their concerns. Conduct a mock Q&A around these issues so the CEO is prepared.
Do not try to fit the new CEO into the old box: Every CEO has a unique personality which should be reflected in the Company’s presentation to the Street. Metrics and disclosure protocol should stay largely consistent, but investors will welcome the CEO making stylistic changes to how the company is presented. Go for it.
Establish clear guidelines around CEO accessibility: Building and maintaining constructive relationships with the Street is vital. To that end, a CEO must balance availability to shareholders with driving the business. In a well-meaning effort to please this new constituency, an incoming CEO risks becoming too available -- a difficult precedent to reverse. After the grace period, set aside bi-monthly or monthly blocks of time in which investor calls with the CEO can be scheduled. Calls outside of these blocks can of course be set up on a one-off basis if important issues or questions are presented, but introductory calls or general questions should be handled by the CFO or investor relations team on a day to day basis.
Make the most of this opportunity: A CEO change often signals a positive directional change for a Company and is an excellent opportunity to engage and re-engage with investors and analysts. Transparency and continued clear communications are key to a successful CEO transition.
John Nesbett, President, IMS