When to Change Your CEO
There are several things to consider when deciding when to change your CEO, including transition planning, board cohesion, and the impact on the company’s culture and stock price. There is no right or wrong answer, but the timing is usually a good indicator of the company’s health. Read on for some tips on making the right decision.
Transition planning
Transition planning for companies that are changing CEOs is crucial. This process involves sharing the CEO’s knowledge and experiences with the new CEO. This is especially important when the CEO is hired from outside, because it can prevent early mistakes due to lack of cultural familiarity. However, it is just as important for internal successors, who will be working with a new team and constituencies.
Transition planning for a new CEO requires a collaborative effort from the board and the CEO. The board should set the onboarding agenda and the goals for the transition period. Both parties must commit to the transition plan and welcome the new CEO’s suggestions and questions. A collaborative process will enable the board and the new CEO to align their visions and practices with the organization’s mission and vision.
Succession planning should start well before the CEO leaves. A comprehensive succession plan must be in place to maximize the odds of success. The transition process must be documented and communicated throughout the organization.
Impact on stock price
The impact of changing the CEO of a company can be profound. Investors are usually concerned that the new CEO will change the company’s strategy for the worse. Also, the company’s reputation will come into play, since some shareholders may hold particular regard for the outgoing CEO. However, as long as the new CEO has a solid track record and a proven track record for reviving a company, the change should not have a negative impact on the stock price.
According to studies, stock price reactions to new CEOs are influenced by many factors. One of them is how the news spreads. If the news of the new CEO is mishandled, the share price could drop significantly. As such, it is crucial to handle the transition with care. In addition to this, companies should be careful to signal the transition ahead of time to avoid a major drop in the stock price.
After announcing the new CEO, Twitter’s stock price rose by almost 10%. However, the stock prices fell back on Friday after the new CEO took over. This raises the question of how often companies succeed in replacing their chief executives. To answer that question, TheStreet has examined the stock prices of companies that changed their CEOs.
Impact on culture
A successful culture transformation starts with a clear definition of the culture desired by the organization. This vision must be specific, yet flexible, and must impact the entire organization – front line, executive suite, and all divisions and geographies. Once the desired culture is identified, it is easier to identify other forces that will contribute to the desired culture.
For example, a global technology company embarked on a culture reset focused on improving product quality. To achieve this, the executive team created a dashboard that included 10 key metrics, including employee engagement, customer satisfaction, and attrition. Eventually, they realized a $100 million cost savings due to improved product quality and an 18% increase in employee engagement. This approach kept the entire team focused on key goals and produced tangible evidence of the culture change.
As the leader of the company, the CEO has a profound impact on the organization’s culture. He or she is the face of the company, and the culture mirrors the CEO’s behavior. During the early stages of the company’s life, the CEO helps to shape the organization’s culture.
