Five Imperatives to Manage Credibility through an Effective Leadership Transition

 

CEO transitions, both planned and unplanned, have become commonplace within the global business environment. If improperly managed and communicated, leadership change can pose more risk than opportunity to a company’s enterprise value.

Last year was a near record year for our team in terms of leadership transition across the corporate executive spectrum. Our team witnessed more than 15 CEO transitions among both public and private companies we support with investor relations and/or corporate reputation consulting.  Leadership turnover cycles have clearly accelerated over the last two decades as many companies seem to transition in some form or fashion every 4-5 years.  It’s certainly possible that this is simply a question of skillset matching, where an operational CEO may be favored today, but a growth-focused leader is needed tomorrow (or vice versa).  Or does this reflect that Boards of Directors feel more pressure today to act quickly when market pressures or valuation concerns persist longer than expected?

To level set, here are a few quick stats:

According to SpencerStuart, public company CEO transitions, as measured by the S&P 1500, declined slightly in 2023 to 136. 

  • Over the last two years, roughly 10% of companies per year undergo a CEO change.
  • Gender diversity remains important and over 82% of the new CEOs were “first timers”.

Amongst private companies, we see a much different story.  Challenger, Gray & Christmas reported that CEO turnover at U.S. private companies came in at 1,914 transitions, which was up over 55% year-over-year in 2023.

  • The average age of an outgoing CEO dropped from 63 in 2017 to 56 in 2023 as well.

These trends demand that boards and leadership teams must maintain an executive leadership transition plan. Given the challenging macroeconomic conditions, market volatility, decreasing average age of CEOs, workforce challenges including return to work and resurgence of union activity, it’s a safe bet that an uptick in CEO turnover will continue into the foreseeable future.

Meanwhile, the cost of poor communications planning and reputation mismanagement during succession is high.  The Harvard Business Review previously estimated that the amount of market value wiped out by poorly managed CEO and C-suite transitions in the S&P 1500 is close to $1 trillion a year. Lost investor returns, impact to company valuation, lost intellectual capital, and the risk of underperformance by replacement due to poor planning can all deeply impact an organization’s long-term trajectory.

Companies must do a better job engaging investors, employees, target markets, and policy makers during CEO transition.  The days of an informal, ‘we-have-the-guy-next-in-line’ succession plan are over. CEO succession planning should start the day the new CEO begins.

Leadership change represents an important opportunity to tell a new story about where an organization is going and why that matters to its most important stakeholders. In partnership with the board, and once organizations develop succession plans, it’s critical to begin positively shaping perceptions early in the transition process. Alpha’s strategic approach centers around five key imperatives:

  1. Take time to listen before developing and publicly articulating the new CEO’s vision to show consideration and demonstrate that new leadership is listening to key audiences. Succession planning and CEO transition planning offer opportunities for companies to listen, learn, and understand where reputation risk might surface during leadership transition. We encourage listening tours of all critical stakeholders (customers, employees, investors, and regulators, if applicable).
  2. Communicate openly with all stakeholders. Using the learnings from those listening tours, now is the time to begin the process of incremental communication with these critical influencers. Each audience has unique expectations and concerns, and all must be addressed with transparency.
  3. Reinforce the new CEO’s narrative with other voices. While the CEO’s voice is most important, theirs shouldn’t be the only voice. Foster trust from each stakeholder group by supplementing CEO engagement with relevant leaders’ voices from within the organization.
  4. Consistently reassure stakeholders where they can expect continuity and do so with frequency and consistency. Effective and impactful tailored content, via proper channels to ensure reach with our target stakeholders, is critical. Convey that time and attention has gone into planning and provide a clear snapshot of the future.
  5. Take every opportunity to demonstrate that the current leader and board are in total alignment and at the forefront of decision making. Organizations must work to ensure the CEO and board are in lockstep through succession and transition planning and work to leverage every opportunity to convey alignment, especially to investors and employees.

We suspect CEO transitions are likely to continue at a higher pace than historical norms. Properly planned and executed transitions create an opportunity for organizations to bolster corporate reputation, protect shareholder value, and successfully position the CEO as a leader from day one.