A version of this post previously appeared in IR Magazine.
An array of companies, from Google’s parent Alphabet to Whirlpool, have named new finance chiefs in the past year. That’s not surprising given the 2015 turnover rate of CFOs among S&P 100 companies at an astounding rate of roughly 25 percent. Consequently, investor relations and corporate communications executives are as likely to manage a CFO’s transition as a CEO’s during their career.
Because Wall Street views them as guardians of the numbers, CFOs set the tone for their company’s reporting, openness with Wall Street analysts and guidance framework. Ninety-four percent of investors said the CFO was the most-preferred corporate executive for information on a company’s financial disclosure, and 86 percent said the CFO was their No. 1 choice for financial modeling information, according to a 2015 Edelman study of institutional investors.
Underlying the high CFO turnover is their increasingly complex relationship with the CEO. More chief executives seek a financial right-hand executive who complements their skills, helps manage the company and thinks strategically and tactically while delivering the requisite financial and investor relations talents. Add in the demands for performance from investors and the board and it’s clear the CFO’s role is a tall order.
Analysts have even taken CEOs and boards to task over CFO departures. One recent example was the sharp questioning from a veteran bank analyst of Bank of America’s CEO last fall; the company has had four CFOs in eight years.
Get the CFO Announcement Right
So, what proves to be essential in a CFO transition, especially as it applies to investor relations and that person’s critical first 100 days? Those initial months can determine the CFO’s stature as well as the company’s direction. That’s important because, by some estimates, nearly 40 percent of executive transitions fail in the first 18 months.
First, it is important to help your new CFO make a strong first impression through the announcement. Wall Street’s reaction in the first several hours following the news is critical. Here are the essential elements to impart in the announcement press release and personal interactions
with analysts and investors:
- Provide an explanation for the CFO’s departure or transition. The Street is suspicious when no reason is given.
- Convey that the appointment doesn’t signal that something is amiss with the company’s financial
condition and financial reporting (unless it actually is –see Point #3, below!). That’s a must. - If adverse financial developments or reporting issues do exist, be sure the announcement is transparent. It will be critical to have a clear explanation of the problem, a course of action and remedies.
- If a new CFO is named, explain why in some detail and include a quote from the Audit Committee chair.
- If there is not a permanent CFO and a search is underway, include a comment from the board’s Audit Committee chair. It should explain what the board seeks in a new finance chief, whether internal candidates will be considered, whether a search firm has been retained and the anticipated time frame for a new CFO to take charge.
A Successful First 100 Days Sets the Stage for an Effective Tenure
Once the new CFO is onboard, a strong IRO can help the new finance chief lay a solid foundation in those initial 100 days by, among other things:
- Helping the CFO understand the investment community’s view of the company and help develop a perspective on where the Street’s thesis is accurate and where it is flawed.
- Communicating the new CFO’s public company experience to the Street, if applicable, and conveying how he or she plans to get to know sell- and buy-side analysts and how the IR function and program might change (i.e., access to management, attendance at analyst conferences, and any shift in the customary guidance provided about financials and the outlook).
- Recommending that external research and quantitative analysis be completed, if necessary, to
develop a fact-based understanding of the financial community’s perceptions of the company. - Assisting the CFO in establishing key relationships with the financial community in a prioritized manner.
- Supporting the CFO’s education on the company and the IR role, particularly if he/she is a “first time” CFO.
- Working with the CFO to ensure that the financial team truly comprehends the shareholder perspective, which may differ from internal viewpoints. For example, shareholders often center on capital distribution and cash flow, while finance teams emphasize the balance sheet and profit and loss performance.
- Helping shape how the company’s strategic plan is communicated to investors, including ways investors can measure the company’s progress. IR can work to help ensure the CFO’s investor communications are clear and straightforward and provide context; this builds credibility.
- Explaining the Company’s guidance practices, quiet period and other external communications practices, why they have been established and any potential go forward issues or suggested changes
- Ensuring that the CFO is familiar with social media and other new avenues of communications as it relates to disseminating information and keeping on top of what others are saying about the company. This can help curb rumors and other reports that can get out of hand and affect the company’s stock price, reputation and trust level.
- Filling in the CFO, if new to the company, about any issues with governance, corporate strategy or financial disclosures that the investment community has flagged.
CFOs play a critical financial and corporate communications role in the life of every public company. The IRO can assist the new CFO in the critical first hundred days and help that individual recognize the important role he or she plays with the financial community. This support will help ensure the CFO’s and the company’s long-term success.
Jeff Zilka, executive vice president and general manager, Financial Communications & Capital Markets.
Deb Wasser, executive vice president, Financial Communications & Capital Markets.