F&P Quarterly: Firing the CEO – A Communication Challenge

October 2016


The last couple of years have been turbulent times for CEO’s and shareholders of Swedish listed companies, with a total of 25 CEO’s leaving their position among large cap companies. Add to this the price‐sensitive nature of such a decision and the tendency among shareholders to have less patience with executive management.

On several occasions, resignations have been preceded by intense media scrutiny and speculation. A change of CEO is today a front‐page topic, loved and widely covered by media. In addition, when an announcement of a resignation is finally made public, the tone and colour of the Board’s statement is now often more direct and sharp than it used to be; adding to the sense of crisis and sensationalistic coverage. For the 25 CEO changes in large caps over the last two years, the share price reaction relative to OMXS30 ranged from +14 % to –24 % on the announcement day, clear proof of the highly price sensitive nature of such news. In 13 of the announcements, statements like “immediately steps down”, “decided to discharge”, “not proper to lead” and “need someone with more experience”, sent clear messages that something was not delivered according to expectations.

share price







Change in the share price on day of announcement of 25 different CEO changes.

In today’s challenging market climate, steering the company in the right direction is increasingly complicated for the Board, and a leadership change impacts the company’s reputation and share price to a larger extent than it used to. A well­‐prepared, clear and unified communication effort is therefore more important than ever.



When the formal decision is taken, often on a short notice, time is often too constrained and stress levels too high to start crafting solid messages and a well thought-­‐through communication strategy and plan. The Board can and should have done much of this exercise thoroughly well in advance of an announcement, like when planning for other crisis situations. This planning includes establishing clear spokesperson structures and core messages, as well as targeting key stakeholders in order to stay in control, secure credible and consistent messaging and prevent further speculations. The messaging needs to be well timed and unified across all communications channels, including the initial press release, media interviews, investor and analyst meetings as well as communication to employees. Adding to this is the complication of the new legal regulations.



The EU Market Abuse Regulation (MAR) is applicable in Swedish law since July 3, 2016. According to the regulatory framework, companies are required to immediately disclose inside information, or decide to delay disclosure and document this decision. Delayed disclosure is only allowed as long as the Company has legitimate reasons (which normally only exists for a limited period of time), the market is not misled and confidentiality can be guaranteed. When the CEO resignation is finally disclosed, the Company must make an ex post notification to regulators that the information was delayed.

A well­‐known case on this issue is the so‐called “Daimler case”, where Daimler was sued by a shareholder for withholding public information relating to a change of its CEO. As a direct consequence of the public announcement, the share price went up, while the shareholder argued that the announcement should have been made earlier, since the decision to fire the CEO had been resolved much earlier and it was not justified to delay disclosure to the extent Daimler did.

According to MAR, the nature of and people having access to inside information must be documented immediately as it occurs. At the very moment the Board starts a serious discussion about changing the top leadership, an inside situation appears. A log book must then be opened and be available for disclosure to supervisory authorities (In Sweden, Finansinspektionen). In case of information leakage, the company has to be prepared to issue a release, irrespective of the origin of the leak.



Public large cap companies are often exposed to speculations, relating to events with great impact on the share price. Either the resignation is planned, or an unexpected change takes place, often on a short notice. A change of CEO tends to lead to widespread speculation, often by messages concealing the true reason. In conclusion, a combination of securing a well-­‐ balanced message platform and knowledge of the current legal proceedings are crucial in the event of a shift in management.