that level for more than two weeks before recovering. In early 2022, Nutrien once again announced an unexpected change of CEO following which its share price dropped 4%. – Internal issues. CEO departures, especially unexpected ones, can also have negative implications for the company’s other senior officers. They may struggle to align themselves with a new CEO or disagree with the board’s handling of the previous CEO’s exit. An incoming CEO may also shuffle the management team at the start of their tenure, resulting in other members of management pre- emptively departing to seek out more secure positions elsewhere. Accordingly, the external and internal communications about a CEO’s departure are particularly important in preventing the unintended loss of other valuable members of the leadership team. – S hareholder activism. Shareholders are attuned to the actions of a board and may demand change when they have concerns regarding the process by which a CEO is replaced or have questions about the board’s approach to succession planning generally. – Business continuity. Lastly, a change in CEO will have implications for the company’s future, whether or not the succession was planned. The new CEO may have a different vision for the company that results in a strategic pivot, or unique aspects of the company may make the transition particularly challenging. There can also be a loss of institutional knowledge and core relationships with key suppliers, customers, regulators and other stakeholders. Disclosure Trends with CEO Departures Companies’ legal disclosure obligations in the context of a CEO departure, whether planned or unexpected, can be complex. Our data reveal some interesting trends
with respect to the governance practices of U.S. and Canadian public companies and the impact that notice of CEO departures can have on a company’s share price: – Press release/material change report. All U.S. and Canadian issuers that we reviewed issued press releases announcing their CEOs’ departures. However, practice diverged when it came to filing a material change report (for Canadian issuers) and a Form 8-K (for U.S. issuers). In Canada, a material change report is required whenever a change in the business, operations or capital of an issuer occurs that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer. National Policy 51-201 – Disclosure Standards specifically references “the departure of the company’s CEO” as possible material information. In the United States, a Form 8-K is required in a variety of specified circumstances, including the resignation or termination of senior executive officers. Although 100% of issuers filed a Form 8-K announcing a change in CEO, only 50% of Canadian reporting issuers in our study filed
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Governance Insights 2022
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