New research concludes that first 100 days of executive tenure offers a distinct opportunity to improve share price – and much more
Somewhere in a file, all financial communications and IR consultancies will have the document and presentation ready to go for a newly appointed CEO’s first 100-days.
The plan will list investors and analysts to talk to, media movers and shakers to meet. It will recommend in-depth training to ensure that the first impression is the best it can be. It will detail new messages and visions, discuss narratives and opportunities. It will recommend a digital and social media profile. It will come with a hefty price tag.
But is the 100-day plan nothing more than an expensive ego boost for the new recipient of the hot seat? Sadly communication consultants have had little or no meaningful evidence to back up their assertions that 100-day plans are worth the paper they are written on. Until now.
Financial communications and investor relations practitioners around the globe should raise a toast to Richard Whittington, Basak Yakis-Douglas and Kwangwon Ahn for reviewing the impact of more than 900 strategy presentations given by the CEOs of leading American companies. As detailed in a recent Harvard Business Review article, the research examined what happened to a company’s share price when CEOs addressed issues such as internationalization, innovation and diversification.
Leading the findings was the fact that when a CEO talks about strategy, the impact is likely to be positive. The average share price gain on the day of such presentations was some 2 per cent, or around $1.1 billion in terms of market value. The average does obviously include the one in four CEOs whose strategy pitch led to a fall in the share price but we will not dwell upon those here.
For the purposes of today’s analysis it is most relevant to look at what happened when a new CEO made this strategy presentation within the first 100 days of having taken over. Here the difference was significant, with the average share price increasing by over 5 per cent on presentation day adding some $2.8 billion to market value.
It is also clear that the 100 days does offer a very distinct opportunity, something that we are very keen to remind our clients. The maths supports this too: the longer a new CEO waits to present, the more limited the share price reaction will be. A new strategy pitch in the 101 to 200 day framework had well under half as much impact.
Interesting too was the impact of unfamiliarity, where a CEO is appointed from outside the firm or even from a different industry. Here the effect on share price, when positive, was plus 12per cent on average and when negative, no worse that it would have been had the new CEO been an insider.
This really is a fascinating piece of research. It reinforces why this 100-day period is so important but it is about so much more than just a share price going up. Stimulating the interaction of this validation of a strategy or vision by investors and analysts with effective work with the media and a programme to bring the new strategy alive within the organisation is what will really put the mark of the new CEO on the organisation. And the facts now prove it; a 100-day plan culminating in a well-delivered presentation of a coherent and engaging strategy really is something that any new CEO should have at the top of their agenda.
Access to the full article can be found at: https://hbr.org/2015/12/wall-street-rewards-ceos-who-talk-about-their-strategies