Getting Investors Ready For Your New CEO

By Maureen Wolff, President and Partner

CEO SuccessionWhen The Men’s Wearhouse dismissed George Zimmer, the company’s high-profile pitchman and executive chairman, this summer, observers were left wondering what had caused the split. The company announced it had parted ways with Zimmer, who founded The Men’s Wearhouse in 1973, on June 19, five hours before its annual stockholders meeting was scheduled to take place. It provided an extensive explanation from the board of directors via press release – six days later. In the interim, and for several days thereafter, fans of Zimmer and his iconic commercial appearances took to social media with cries of “foul.” Zimmer himself commented on his ouster through a number of media channels.

Zimmer’s split must have been particularly damaging from a communications and branding perspective. After all, it is difficult to even think of the men’s retailer without hearing Zimmer and his classic phrase, “You’re gonna like the way you look. I guarantee it.” But the travails of communicating succession aren’t limited to high-profile executives. In the past several weeks, we have seen changes or controversy at the top of a number of public companies, including J.C. Penney, Microsoft, Office Depot, Royal KPN and Vivendi.

Finding the next CEO or chairman is one issue. Communicating to investors that the board of directors has a sound plan for succession is quite another entirely. This means the challenge is two-fold: overcoming the stigma associated with internal succession discussions while a CEO – especially a successful one or a company founder – is still in place; and crafting a message that will ultimately calm investor fears about uncertainty caused by a pending transition.

Let’s be clear: Nearly any change of chief executive, whether unexpected or planned for several years, will cause at least a small amount of discomfort for investors and other stakeholders. But communicating the change poorly, or failing to have an established succession plan, creates the potential for a firestorm of uncertainty to engulf even an outperforming company in rumor and speculation.

So, to help prevent that, here are five steps you can take in communicating an executive leadership succession plan.

1)      Have a plan – By far, the best step a company can take in communicating succession is to have a comprehensive succession program already in place. According to a 2011 report by Deloitte, 85% of boards at companies with succession plans review those plans at least once a year. McDonald’s reviews its plan at every board meeting. At the same time, only 61% of public companies have any CEO replacement plan at all, according to Korn/Ferry International. Won’t it be much easier to communicate the company’s plan for replacing its CEO if a plan actually exists?

2)      Make it public – Once your board of directors has determined the CEO’s successor, you should plan to issue a press release outlining the logistics and reasoning of the plan, as well as the qualifications and experience of the positions directly affected. WEX Inc., a payment solutions company in Maine, made its plan public in May, a full eight months before it was to take effect. It said it was doing so to “ensure a seamless transition” and enable the executive team to “maintain its focus on executing” the company’s strategy.

3)      Don’t skip the details – There isn’t much point in announcing a succession plan if you don’t say what is actually in the plan. According to The Conference Board’s review of S&P 500 succession announcements last year, there are six points most companies emphasize: when the succession will occur; why the CEO is leaving; whether the incoming CEO will also be named chairman; a statement by the lead independent director or chairman supporting the incoming CEO and thanking the outgoing CEO; a statement from the new CEO; and a description of the incoming CEO’s qualifications.

4)      Introduce the CEO-in-waiting – To gauge Wall Street’s reaction to a succession plan, the most successful companies introduce the chosen successor well before he or she takes the mantle of CEO. This accomplishes two goals. 1) It helps take the temperature of the Street and establish the prospective CEO’s credibility. 2) It builds the candidate’s comfort level with the public without the burden of ultimate responsibility, something even experienced CEOs can appreciate.

5)      Remember humanity – Qualifications and past successes are critical in selecting a new CEO, but they aren’t all-encompassing. Relate those prior experiences to the company’s needs, making the incoming chief’s resume directly relevant to the company’s current situation. As focused as investors are on the facts, they also will want to know the backgrounds and values of the person the board has selected to oversee their investment.

The more we think about succession planning, the more we understand how much planning there is to communicate. By walking through these five steps, you’ll be off to a great start in effectively communicating that plan.

Maureen Wolff is president and partner at Sharon Merrill. Maureen leads the implementation of the firm’s strategic vision and provides high-level strategic counsel to clients. She is a past chairman and board member of the National Investor Relations Institute (NIRI) and a current member of NIRI’s Senior IR Roundtable. 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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Filed under Board Communications, Board of Directors, Investor Relations, Succession Planning

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