Why new CEO’s must present a strategy: stock price gains up to 12.4%

New CEO's must set the stage for investors with a strategy

According to research paper  ‘Cheap Talk? Strategy presentations  as a from of Chief Executive Officer impressions management’ by Richard Whittington, Basak Yakis-Douglas and Kwangwon Ahn of Saïd Business School, University of Oxford, and HSBC Business School, Peking University, Shenzhen, there are compelling financial returns to be made by new CEO’s developing & presenting strategy to their investors, and doing so sooner rather than later.

Managerial summary: We examine the impact of public presentations on company strategy by Chief Executive Officers (CEOs) on company stock prices. Adjusting for market movements in general, on average stock prices rose by 1.6 percent following these strategy presentations. Strategy presentations received larger reactions the more the CEO was unfamiliar to investors. Thus, stock price gains for new CEOs in general were 5.3 percent; for external, within-industry new CEOs, they were 9.3 percent; and for external, outside-of-industry new CEOs, they were 12.4 percent. Given that only 40 percent of new CEOs present on strategy in their first 200 days post-appointment, we suggest that new CEOs pay more attention to this potential means of communicating, especially if they are unfamiliar to investors.

This would seem a compelling reason for new CEO’s to develop and present a strategy to investors, though there are certainly other factors and cause & effect are not clear. The research doesn’t address differences based on the content or quality of the strategy presentation but rather the impact of it’s presentation and how this varies by the background and experience of the new CEO.

In our experience, developing and communicating strategy are equally important, the former being a waste of time without the latter being done well. This includes both external and internal stakeholders with investors and analysts being an absolute priority given their buy/sell/hold decisions can directly impact funding of the strategy and its execution.

In conclusion the report states:

First, strategy presentations appear surprisingly little-used. In our sample, substantially less than half of new CEOs carried out strategy presentations in their first 200 days and less than a quarter did so in their first 100 days. These proportions are even lower for external and inexperienced new CEOs. Yet, strategy presentations overall are positively received and new CEOs generate better responses from their presentations if they have external status. Second, timing can make a difference for new CEOs. Effects are greater within the first 100 days than the first 200. New CEOs and especially those that have external status should contemplate the upside potential of strategy presentations and the diminishing returns from delay.

So What? Too often the challenges of developing and selling a strategy  mean new CEO’s avoid doing so at all, or at such a high level it is nothing more than slide-ware, vapourware or cheap talk that commits them and their organisation to nothing. This is a mistake. A strategy is not a forecast – it is a compelling vision and direction, a place the new CEO is trying to navigate too in troubled and unpredictable waters driven by clear trends, a place that offers financial rewards the investors believe are attractive and attainable. It is constantly evolving and tracks not just where the organisation is going, but where it has come from. The tactics will change to cope with competitors, regulators, customers and a multitude of other variables but a good strategy stays relevant and attainable, and changes when it needs to. It is the stage on which the organisation (including the CEO) performs. Maybe a CEO that does not commit to a strategy is not a CEO worth having?

Abstract and full research here (paid)

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