Navigating Change: An IRO’s Role to Ensure Management Transition Success

In many ways, C-Suite executive transitions are routine occurrences in the public markets. Spencer Stuart data reveal that 46 of the S&P 500 companies appointed a new CEO in 2023. According to Russell Reynolds Associates, CFO changes were even more frequent with 85 companies, or 17% of the S&P 500, experiencing a change in their senior financial leadership. Notably, the majority of these newly appointed CFOs (66%) stepped into the top financial role for the very first time in their careers.  

While common, it’s easy to see how these leadership changes can easily snowball into disruptive events for businesses if they aren’t executed with precision. This is especially true when the executives are new to the company, new to the role, or have limited experience in an investor-facing position, which data suggests is often the case. The catalyst for the leadership change can also intensify the messaging challenge, especially if change is occurring for strategic realignment or performance reasons as opposed to retirement or planned succession.  

Investor relations teams need to be ready to shift into high gear fast 

No matter how choreographed these leadership changes may seem, each new change comes with its own unique challenges. This requires the IRO and his or her staff to carefully plan, execute, and follow up throughout this critical inflection point. Ensuring a smooth transition internally while maintaining external stakeholder confidence will be key, as continuity and alignment will be a major factor in scoring success.  

Specifically, the IR team needs to be a source of sound guidance to help the new executives adapt and succeed. Simultaneously, the team needs to ensure the right messages are sent at the right time to both existing and potential shareholders and the investment community at large.  

For many IROs and their team members, this means taking on more responsibility, and getting up to speed fast, all with increased scrutiny on performance.  

Ensure transition success from start to finish 

Taking a three-phased approach to the transition period can help ensure success at each step in the transition. Here’s a closer look at the most important considerations for each stage of the change.   

Phase I: Preparing a communications game plan  

After deciding to change senior leadership, the investor relations team must act quickly to bridge any potential communication gaps and proactively maintain investor confidence.  

Prepare messaging

The first order of business is creating a messaging map, which serves as the core document for sharing the news—something that needs to be accomplished in a matter of days once the decision to change leaders has been made internally.  

With little time to prepare messaging and the utmost importance of accuracy, the team must ensure clarity on the transition and succession plan while reinforcing the company’s strategic objectives and aligning with any previously disclosed financial targets or guidance. It’s important to anticipate potential questions from investors and directly address their concerns about the transition and any perceived links to poor performance.   

Make a tactical communications plan  

Once the foundational messaging points are in place, the investor relations team must determine how to tactically release this information. For example, some companies make these management transition decisions after a board meeting before a scheduled earnings call. In this case, the investor relations officer must find a way to merge the news with the release of financials without diluting or complicating the two messages.  

In any case, it is critical to carefully plan Q&A sessions to communicate key points and determine who will respond to each question. Keep in mind that while a transition will result in new voices that need to be heard and showcased for the first time, the changes should be both gradual and logical. The legacy management team should play a significant role in all communications until the transition is fully executed. 

Assign speaking roles for external engagements 

Further, when engaging the Street, it will be important to strike the right balance between the legacy team and the newly appointed leaders, strategically divvying up speaking roles with each group chiming in where it makes the most sense. During earnings, this likely means assigning the exiting management with the task of addressing the historical quarter while inviting the incoming leader to speak to guidance, long-term targets, or go-forward strategy.  

Of course, how much airtime any newcomers receive depends heavily on whether they are internal hires who are already up to speed on the business or external hires just learning the intricacies of the organization. In the former scenario, a larger speaking role is appropriate and welcomed while in the latter case, the new executives will mostly be doing meet and greet with the Street. The more in-depth strategic commentary should be saved for later when the new executives are more fully entrenched in the business.   

Phase II: Executing day-of communications  

Once the news crosses the wire, the tidal wave of investor inbounds will start flowing through. A well-prepared investor relations team will be ready and willing to wear multiple hats as needed to support both internal and external stakeholders.  

Proactive outreach  

Importantly, the IR team must take charge of the financial narrative and immediately begin scheduling calls with sell-side analysts and top holders. Ideally, these calls will include the current management team and new management members. However, when the new C-Suite members have not been formally announced, or there is an interim leader, the investor relations officer will need to fill in and play a significantly larger role in speaking directly to the Street.  

During these initial calls, regardless of who is doing the talking, it is critical to stick to the messaging map and the prepared key points. Consistent communication will leave investors feeling a sense of continuity with the strategy. In cases where the management change is due to non-strategic or non-performance-related reasons, investors need to have a sense of “business as usual”. However, if a change is being made to help the organization achieve the next level or phase in its story, then investors should understand that the management transition is about having the right leadership in place at the right time. For example, the prior leadership team may have been more growth-oriented with a focus on raising capital and making acquisitions while the new phase requires a focus on operational excellence, prudent capital deployment, and optimizing the business to generate profitable growth. Whatever the story is, it’s important to have a united team delivering key messages to stakeholders.  

Bridge gaps with internal team members  

During the critical first few days of the transition, the investor relations team will need to diligently support the management team in any way necessary, including standing ready to provide financial details. Especially in CFO transitions or when there is an interim executive filling in until the permanent replacement can begin. This may include taking over important tasks typically led by the CFO, such as working directly with sell-side analysts to update models and rationalize guidance following earnings calls.   

Pursue new investors  

IROs and their teams will also be instrumental in continuing to develop new relationships—an activity that is likely to heat up in times of leadership transition. While top holders and sell-side analysts will be a priority, the team must also look to actively engage the company’s target investors. Some funds will view a change in leadership as an investment catalyst, and fund managers may be more interested in starting conversations.  

Phase III: Maintaining positive momentum post-transition  

Once the news is out, it is time to digest the reaction and build new relationships with the Street as needed. As an investor relations officer, coaching the new management team on the key concerns following the investor calls is essential. IROs will also need to serve as liaisons to enhance budding relationships with the Street.  

Keep building trust with the Street  

It is important to target conferences and NDRs that will allow new leadership members to gain critical in-person face time with investors and start to implement their stamp on the company. The first few quarters post-transition will largely be about setting expectations correctly, telling the new management team’s story in compelling ways, and executing against targets. Acing these efforts and building on successes, such as setting achievable targets with a beat-and-raise approach, will increase confidence with the Street and entice investors to invest in the new management team’s long-term vision for the company.  

Considering planning an investor day  

In addition to attending conferences and hitting the road, a change in leadership can be a great opportunity to host an investor day. While this is an especially important step for transformative management changes resulting from an acquisition or a change in strategic direction, an investor day can be equally critical when the new management team’s priorities and long-term vision remain aligned with the Street’s.  

Plan a check-in with investors  

Whether or not an investor day is on the agenda, it is a good idea to host a perception study once the new management has been in place for a few quarters. Such a pulse check is critical to informing an investor day agenda and allowing the investor relations team to stay ahead of any concerns.  

Send the right message and execute 

Whatever the reason, any change in the C-Suite requires companies to communicate effectively with their stakeholders. It is also an opportunity for investor relations teams to shine, especially if they respond quickly and take on additional responsibilities during the transition.  

Working with the right partners can be instrumental, too.  

If there is a management transition on your company’s horizon, or if one occurs unexpectedly, the strategic communications experts at Riveron are always ready to help. Our experts can help support the IR team’s efforts including strategic messaging, filling gaps in the financial department, fielding perception studies, and planning investor days. Reach out to Riveron to learn more and ensure your company’s management transition is well-communicated and well-perceived by every stakeholder at every step.  

Sources:  

2023 CEO Transitions | SpencerStuart.com 

S&P 500 CFO Turnover Persists, Gaining Momentum After Sluggish Start | Russell Reynolds Associates