October 12, 2016 By FTI Consulting
CEOs come and go frequently in today’s business environment. Much has been written about the impact of CEO transition on investors’ perceptions and stock price, especially if the transition is unexpected or poorly handled. Investors and customers are usually the company’s first concern. According to a study on CEO transition conducted by FTI Consulting in 2011, investors want to know about the new leader’s experience, track record and after an appropriate planning period, his or her vision for the future and strategy to get there. This information helps them decide how much confidence they will place in the company under its new leadership and eventually affects the company’s enterprise value. Significant energy and resources are usually dedicated to ensuring communication to these audiences in the first 100 days is clear.
When a new CEO takes the helm, employees want to know exactly the same things. Who is this person? Why is he or she the best person to take the organization forward? Does he or she know our industry well and understand what makes us who we are? How will he or she lead? As time goes on, their information needs become both deeper and more urgent as change begins to appear on the horizon.
Often, however, not as much energy is devoted to gaining the confidence of this audience. Leaders tell FTI “employees already know” or “this doesn’t affect their daily work” or “our employees don’t care about that.” Rarely are any of those scenarios the true state of things and employee confidence affects enterprise value as surely as does that of external stakeholders. The new CEO will drive changes in the interest of better serving customers and shareholders. Employees must implement, anchor and sustain those changes. Their confidence in leaders, vision and strategy matters.
There is much room for improvement on that score. According to the FTI Global Employee Confidence Study conducted in January 2016, only 34% of employees say they are very confident* in their CEO and leaders. Only 27% say they are very confident* in their company’s business strategy. The same study showed that effective internal communication is the top driver of confidence among employees, enabling them to master change (95%), better understand their role (93%), and gain confidence in future success (90%).
How, then, can a new CEO gain the confidence of this most critical audience quickly, and enable them to help drive confidence in customers and investors? Here are seven guiding principles:
New CEOs can build trust and confidence in employees from Day 1 if they commit to communicating early, often, and transparently, and to engaging their people in the process.
*Confidence was measured on a 4-point scale: very confident, slightly confident, not confident and not applicable.
**Or simultaneously with the market in the case of publicly traded entities