Pros and Cons with management changes

In the last post, I mentioned how profit warnings can crash stock price. The survey Market Reaction to Corporate News and the Influence of the Financial Crisis also show that changes in management is another factor that can have a huge impact on your valuation. When discussing the subject with an investor last week, he stressed that companies often underestimate the impact announcements about management changes (CFO, CEO etc) have on the market. The company is often in no hurry of recruiting a new CEO, while investors starting to get quite nervous about whose running the business.

Several cases proof that the investor is right. When Atlas Copco announced that CEO Gunnar Brock would retire, stock price fell nearly 7 %. But there are also cases when the market has reacted positive. When Tele2 communicated that CEO Harri Koponen will leave after only 18 months on the post, the stock price rose slightly.

One way to moderate the impact of CEO announcements is to involve more management people in IR activities as quarterly presentations, roadshows and investor meetings. The pros with this approach is that:

  • You communicate that your company have a highly competent and skilled C-suite that knows their market and primary market drives in each business area.
  • It strengthens the IR-function internally as more people understand the value of investor relations.
  • It contributes to helping you as an IRO being more versed in the company by having a network of senior executives and in the long run becoming a more credible source of information for the investment community.

Unfortunately, involving senior executives in IR activities has its cons as well. More people have to be trained for meeting media and having presentations. They have to be very well prepared for what kind of questions investors and analysts will ask.

The most crucial part is that you as an IRO still want to be the first and only contact for the investor community. You do not want analysts and investors to contact your senior executives, answering questions before briefing the IR-team.

To summarise, I think the pros are stronger than the cons. YIT has had this approach for many years and they are considered best practice when it comes to investor activities as CMD’s, roadshows and one-to-ones.

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About irinsights

Senior consultant at PR and Communications firm Springtime in Stockholm, Sweden. Focus on IR, social media & perception studies. Blog about trends and challenges for Scandinavian IR professionals, providing insights on how to use social media, corporate blogs and on-line communication to reach out to investors in a changing media landscape. Everything I post here is my personal opinion, and does not represent the views of my employer.
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