CHAPTER 03 CEO Succession Trends and Best Practices
– Personal reasons. CEOs occasionally and unexpectedly resign for personal reasons, which may include health concerns or family matters. Personal reasons were cited in the departure of the CEOs of both New York Stock Exchange (NYSE)-listed Tyson Foods Inc. and TSX- and NYSE-listed Nutrien Ltd. When personal reasons are cited, there is often some share price decline and increased trading volume, as these departures are rarely accompanied by much notice to the market. Some may also view a departure for personal reasons as a subterfuge concealing a more troubling “ real” reason for the CEO’s departure, which in turn could cause investors to lose confidence in the company. – Legal non-compliance. More rarely, a CEO may be forced to resign because of a breach of law, pending litigation or investigations, or criminal activity. In June 2021, NYSE-listed Lordstown Motors Corporation’s CEO resigned after a special committee of the board investigated inquiries made by the SEC and discovered that some of the company’s statements regarding vehicle pre-orders were inaccurate and misleading. Legal non-compliance, or even allegations of legal non-compliance, calls into question not only the CEO’s ability to continue to serve the company, but also the board’s effectiveness in overseeing management and the company’s affairs. Impact of Unexpected CEO Departure Without a Succession Plan CEO departures can have severe consequences for a company, depending on whether the departure was planned and how clearly the company communicated the transition. – Reputational damage. After an unexpected CEO departure due to mismanagement or misconduct, the company will invariably suffer reputational damage. However, reputational damage can occur even in the absence of such events when an unexpected departure occurs without an obvious succession plan in place because it highlights the board’s lack of appropriate oversight and preparedness. It also signals to the broader market and competitors that the company is going through a challenging transition as it scrambles to find a new leader. – Stock price volatility. Increased stock price volatility and declining stock prices, sometimes for prolonged periods of time, are often by-products of unexpected CEO departures. Trading volumes spike as shareholders re-evaluate whether they still have confidence in the company and whether they agree with the board’s choice of successor (if one has been named). In 2021, on the day Nutrien announced that its CEO was stepping down immediately, trading volume spiked 93% from the prior trading day, and the share price dropped 3% by the end of the day and remained at
Reputational damage can
occur even in the absence of such events when an unexpected departure occurs without an obvious succession plan in place because it highlights the board’s lack of appropriate oversight and preparedness.
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Davies | dwpv.com
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