CEO succession planning is one of a board’s most important responsibilities. However, many companies are unprepared for communicating executive transitions. A recent survey of senior-level corporate executives published by Alix Partners shows that about 50 percent of respondents felt their companies were unprepared for CEO succession, either because the company hadn’t identified possible successors or hadn’t sufficiently trained candidates for the top job.
Communications strategy is an integral part of CEO succession preparedness. Executive transitions can unfold quickly, demanding decisive action in developing the proper message and coordinating communications strategy both internally and externally. When thinking about a possible transition announcement, there are several foundational elements for successfully positioning a senior executive change.
Why is the CEO leaving?
There are a handful of standard reasons a company gives for an executive’s departure. Whether a CEO retires, steps down, is terminated, decides to spend more time with family, or pursues new opportunities, companies must present a clear rationale for the departure. Given nuances in language that could imply the motivations of the executive and company, word choice is especially important. Transitions that appear confusing, mysterious, or acrimonious will spook investors or stoke speculation.
In the age of investor activism, boards look for opportunities to demonstrate they will take action when a CEO is viewed as underperforming. This may lead to a press release that does not shower the outgoing executive with praise, therefore signaling a less-than-favorable view of the executive. Or the announcement may state the departure is by “mutual decision,” again a clear signal. Communicating CEO departure is a delicate balancing act.
When is the right time to communicate about a succession?
CEO transition announcements generally take financial markets by surprise and create immediate concern. As a result, some companies have found ways to prepare advance messaging for a planned transition to precondition the market to a future change.
For example, Kinder Morgan made a quick reference to a future CEO transition in its comments at an investor conference before an established timeline or formal announcement had been made. In another example, when dealing with a series of executive changes over the course of 15 months, Mack-Cali Realty Corp. issued an update about its executive search process six months after the CEO stepped down. Ultimately, the company named its new CEO, COO and president, CFO, and chief legal officer and secretary in one release. It should be noted that Mack-Cali’s case is fairly unique; in proprietary research, Edelman found the majority of companies identify a successor in the initial transition announcement. However, companies stand to learn from Mack-Cali and Kinder Morgan’s inventive approaches to communicating succession plans.
Who gets quoted in the release?
The presence of executive quotes in the release about their departure is another important signal of behind-the-scenes dynamics. If the outgoing CEO is quoted, this suggests some deference to that individual, especially if their quote comes first. If the chair or lead director praises the outgoing CEO in their quote, that again sends a message. However, if the chair makes a statement along the lines of “It’s time to take the company to the next level,” dissatisfaction with current leadership may be signaled to the audience, despite other symbolic cues in the announcement.
What’s the appropriate way to share the announcement?
CEO transition press releases tend to be brief, typically under 150 words. In addition to announcing via newswire, companies will notify their internal audiences directly at the time of the company’s external news announcement, and, if applicable, will also publish the news via their owned media channels (as in the case of Reddit and Twitter). Failure to get ahead of the news can make a company the target of speculation, as was the case with Proctor and Gamble (P&G) when the Wall Street Journal reported a likely scenario for P&G’s leadership transition based on analyst sources.
Employees should be briefed at the same time as the company’s news announcement, so that employees learn about the leadership change and plans for the company’s future from the source and not via the press.
How can companies leverage the media?
CEO transitions typically raise many questions with internal and external audiences, and the media is often quick to report on perceived corporate instability. Companies should consider a proactive strategy to ensure their messages around a leadership transition are understood and conveyed in the first wave of media coverage. A common strategy is to pre-brief a trusted reporter or two to secure a more holistic or accurate story at the outset of the announcement, with an embargo time established to coincide with the press release timeline. Another option is to hold a post-announcement briefing with reporters to provide greater context and answer questions.
How can companies mitigate concerns about financial performance?
The first likely question from the investment community when a company announces a CEO transition is “Does this mean the company will underperform projections?” Companies should consider reaffirmation of their financial guidance if possible at the time of the announcement. Another approach is to package the CEO succession announcement with a quarterly earnings announcement. This approach allows the company to simultaneously address any questions or concerns about financial performance.
As boards develop their transition plans, they will be best prepared for changes at the top of the organization by considering their communications approach as early in the process as possible. During transition planning, communications staff can develop materials to guide executives through a successfully executed exit process that establishes a positive narrative for both the outgoing and incoming CEO alike.
Lisa Schultz McGann is a senior account supervisor in the Financial Communications and Capital Markets practice at Edelman, the largest PR firm in the world.