How IROs Can Transition New CEOs Into IR Leaders
It is not easy being a public company CEO. Pressure from the Board, shareholders, customers, regulators and other key stakeholders often results in churn at the very top of organizations. According to U.S. research sponsored by that country’s Conference Board, the average tenure of CEOs is 9.7 years.
This means IROs occasionally find themselves in the position of helping to onboard a new leader. For IROs who have worked through such a process, it can be both rewarding and nerve-wracking. In this issue of IR focus, we examine different CEO transition scenarios and provide practical, actionable advice that your colleagues have found useful in helping to acclimatize their new CEOs.
CEO Transition Scenarios
About a quarter of new CEOs are recruited from outside organizations. Outsiders are sometimes brought in when a Board wishes to adopt a new strategy or, in layman’s terms, to ‘shake up’ a company and its workforce as part of a business turnaround.
Outsiders may also be recruited in situations where there is no obvious successor within an organization. This happens frequently in smaller companies and is not necessarily a sign of Board or shareholder dissatisfaction with a company’s strategy or performance; rather, it is an indication of limited bench strength.
When an outsider is recruited, he or she may or may not have had public company experience. Leaders without public company experience will need extra support from the investor relations department.
In most cases, CEOs are appointed from within their organizations. This does not necessarily mean the appointee is an expert in investment community relations. In some cases, the internally appointed CEO comes from operations and may only have had ‘drive by’ experience in working with investors or analysts, through participation in investor days or annual meetings. This scenario presents unique challenges for the IRO. Occasionally in such situations, incoming CEOs believe they have more knowledge of investor relations than the IRO.
Regardless of the Board’s motivation in hiring, or the background of the new appointee, every CEO will seek to put his or her mark on the organization within a short time. The standard definition of ‘short’ is the first 100 days after assuming the role. This became the benchmark for judging leadership prowess after United States President Franklin Roosevelt used the term in 1933 in discussing the first 100-day mandate of the 73rd Congress.
Since then, leaders in politics and business have been all too aware of that arbitrary timeline for action. IROs should be attuned to it as well because from the day the new CEO starts, the clock begins to tick. IROs who are prepared to provide rapid insights are far more likely to become trusted advisors to the new CEO than IROs who take a more laissez-faire approach.
Putting a ‘mark’ on the organization is defined differently depending on the context in which the new CEO has been hired. For a company in need of a turnaround, the CEO will wish to forcefully break with the past through a strategy or business model remake. For CEOs entering a situation where the company is performing well, making their mark will lead to more subtle refinements to strategy and nuanced messaging to shareholders. Either way, the IRO must be prepared to adjust programming to suit the situation.
Best Practices for IRO-Led CEO Onboarding
By recognizing that time is of the essence in acclimating the new CEO, experienced IROs come to their first meeting with the boss carrying an open book, an open mind and open ears.
The definition of book in this case is a briefing binder that contains shareholder ownership data, institutional shareholder profiles, sell-side research, the annual IR strategic plan and IR activity reports. All of this information should be left with the new CEO but the IRO must also be prepared to provide an insightful verbal synopsis of the state of the company’s investor relations. Outsiders in the CEOs chair also appreciate a brief history of the company from a shareholder’s perspective – and who better to provide this than the IRO?
The definition of ‘open mind’ means be willing to entertain new approaches to investor relations or internal IR department management processes. Most CEOs, even those whose prior work was in the private realm, have their own strongly held beliefs regarding best practice management and will look to test the IRO on his or her willingness to be flexible and receptive to new ideas. For example, many CEOs are data-driven and will want their IROs to bring forward supporting evidence in any discussion of IR strategy or tactics.
It is not uncommon in the first meeting with a new CEO to be asked what the company could do better. A well-thought out answer to that question demonstrates a continuous improvement mindset that the new leader will appreciate. It also provides an opening for the forward-thinking IRO to address IR program deficiencies or opportunities for advancement.
‘Open ears’ means – through active listening – using the first meeting to begin to formulate a sense of the CEO’s management style and preferences. In managing the overall business, some CEOs believe in delegating authority and accountability, while others adopt a command and control style, with all important decisions made at the top. It is important for IROs to know the CEO’s style so that they can adopt it and explain it to shareholders.
In preparation for the initial meeting, IROs should study how other public companies manage CEO transitions from an external communications perspective. Recent case studies worthy of examination include CEO transitions at Empire Company Limited, Rogers Communications and Canadian National Railway Company (CN). Fortunately, it is easy to listen to archives of quarterly analyst calls hosted by new CEOs as part of the information gathering process. The IRO’s ability to describe how other new CEOs manage their first calls – and the analyst questions that follow – can be extremely insightful for CEOs who have not been through the transition process before. In situations where the CEO has been parachuted in from another organization, IROs should also review the CEO’s predecessor company for clues on how it was managed and how it communicated with investors.
One of the key questions new CEOs grapple with is when to meet institutional shareholders for the first time. A company’s Board of Directors will have a point of view on this question, but the IRO should be prepared to weigh in as well. CEOs may choose to defer such meetings, feeling that during their first 100 days they run the risk of looking ill-informed. Another school of thought is that it’s important for CEOs to send an early message that they are open to listening to shareholders’ perspectives as part of developing a business plan.
Of course, it’s only a question of when, not if, such shareholder meetings take place. The IRO should devote considerable time to prepare the CEO for these meetings. The preparation should include helping the CEO to anticipate shareholder questions and drafting appropriate answers. Common shareholder questions to a new CEO address the company’s strengths and weaknesses and plans for change; they must be answered in a careful manner that demonstrates the CEO’s command of the situation.
Shareholders will be particularly interested in the new CEO’s future plans. Unless the new CEO was previously on the disclosure committee, time must be devoted to educating the CEO on disclosure policy and the need for caution in making forward-looking statements. In most cases, CEOs in these situations are already aware of the pitfalls of disclosing too much but may not be fully aware of past disclosures made by their companies. Disclosure statements from the new CEO that contradict statements made by the old CEO will be a source of dissonance for shareholders and should be avoided unless made intentionally.
Overall, being a new CEO is incredibly challenging. Investor relations is an important but usually a relatively small part of a leader’s many responsibilities. Anything the IRO can do to reduce the CEO’s learning curve will be welcome. IROs who have participated in the process of onboarding a new CEO find it to be a career moment when trusted advisor status can be earned and secured for the future.
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