CEO Transitions and the Risk to Enterprise Value
Evaluation of 263 CEO Transitions Across Companies Based in 35 Countries
June 5, 2011
Senior Managing Director
CEO change presents more downside risk than upside potential, with enterprise risk extending well beyond the point of transition. Further, there is more value at risk in unplanned CEO transitions. In particular, the greater the surprise and the higher potential for corporate strategy shifts surrounding the transition, the more enterprise value is at risk.
Investors generally grant new CEOs a 6-month “honeymoon” to set the vision & strategy for the company ...
But the value at risk also increases over time, irrespective of the circumstances related to the transition. Recognizing this environment, boards and new CEOs must take action before, during and after a leadership change to carefully manage the risk inherent in a CEO transition, while setting the agenda for the future.
To understand the risks in CEO transitions, the Strategic Communications practice of FTI Consulting recently studied the impact of CEO transitions on enterprise value. FTI also surveyed members of the financial community to learn how CEO changes affect their investment decisions, expectations of incoming CEOs, and performance guidelines.