New Kid in Town

There’s talk on the street; it sounds so familiar.
Great expectations, everybody’s watching you
                                                     New Kid in Town, Hotel California, Eagles, 1976

With the average tenure of 8 years for CEOs and 5 years for CFOs, it’s going to happen – there’ll be a new kid in town.  The new kid will need to be introduced to the street, expectations will need to be managed and everyone will be watching to see what happens.

C-suite tenure 2

Source: Korn Ferry Institute C-Suite Age & Tenure Study 2016

Of course, a lot depends on the situation.  Is it a planned transition?  What factors drove or precipitated the change? Is the new CEO or CFO an internal or external candidate?  What is their background? What are the company’s challenges or opportunities? What is investor sentiment like?  The answers to these questions will inform the introduction process.

If it was a planned transition, the business is doing well and the new leader is an internal candidate who is at least somewhat known by the street, then a “business as usual” approach may be fine.  But then again, when does that happen?

All new CEOs and CFOs – particularly external hires – need an acclimation period to understand the company’s issues and formulate a plan.  Generally, investors understand that so brief introductory calls focused on the new leader’s experience should be sufficient initially.

However, in more challenging environments or where activists are involved, investors may demand time with new leadership right away.  In such cases, it may be important for the lead independent director to make a statement or perhaps even meet with activists.  Carefully weigh the risks of having the new leader – particularly new CEOs – spend time listening to investor feedback early on. This could be beneficial for informing his/her thought process and strategic priorities.  It may also earn him/her early support if investors feel they’ve been heard.  Conversely, it can consume valuable time better spent developing a go-forward strategy.  In the end, investor sentiment should be one – but not the only – guidepost.

Throughout the initial transition, investor relations has – as always – an internal and external role. Internally, investor relations should provide the new leader a SWOT (strengths/weakness/opportunities/ threats) analysis identifying key risks from an investor perspective as well as background on sell side coverage, a profile of investor style and turnover plus a risk/opportunity assessment of top investors.  It’s also important to take the new leader’s pulse as to their experience, comfort and understanding of the investor community to optimize the new leader’s future investor interactions.

Externally, investor relations’ initial role is to highlight the new leader’s relevant experience and keep investor expectations at bay as the new leader’s strategic plans develop.  Of course, the new leader will need to engage on earnings, which may be before their strategies are fully formed.  Depending on the timing of earnings, the new leader should thoughtfully articulate key learnings, areas of focus and priorities without making premature promises or announcements.

By their third earnings calls, CFOs are often considered old hands.  However, at the same point, the typical new CEO is beginning a 2- to 3-year period filled with significant strategic moves.  Given the likely pace of change, there probably won’t be time for a formal CEO debut tour or investor day. Its important to be flexible during this time and explore different opportunities for investors to get to know the new CEO.  For example, hold webcasts in conjunction with strategic announcements to expose the CEO to investors in addition to participating in high-profile conferences and non-deal roadshows.  Once a significant portion of the change agenda is in play, consider hosting an investor day or other forum to outline the company’s transformational vision and financial targets.

When a new kid is in town, use it as an opportunity to reset the company’s narrative and investor relations priorities. Be flexible, be open and optimistic, because while the …

People you meet, they all seem to know you.
Even your old friends treat you like you’re something new.
New Kid in Town, Hotel California, Eagles, 1976

Lisa Ciota
President/Founder
Lead-IR Advisors, Inc.

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