When CFOs Resign: How to Prevent Investor Worries

When CFOs Resign: How to Prevent Investor WorriesThe way that a CFO resigns will affect his legacy almost as much as the actual work he accomplished during his tenure. Unfortunately, CFO resignations are among the most scrutinized senior level management moves, and leaving without a plan can create chaos.

Take, for instance, the resignation announcement of CFO Dag Anderson from Vestas, this last week. Though the company immediately appointed Marika Fredriksson as his successor, shares closed down 2.8 percent. This isn’t the first time this has happened, however, as shares have historically dropped in the wake of a resigning CFO. One of the most prominent examples is when David White resigned from Nvidia, driving shares down 6 percent. A similar reaction happened when Jeff Epstein left Oracle, leaving shares 1.5 percent lower than before.

A Resignation Strategy for CFOs

Even though Dag Anderson announced that he was leaving Vestas for personal reasons, investors became worried – hence the market volatility. When a CFO resigns from a company, investors almost always believe that there is a secret or sinister motivation behind the departure. Did the CFO leave because of disappointing earnings? Is accounting fraud or a financial scandal about to surface? What does the CFO know that we don’t?

No other top management shake-up causes unease among investors like the resignation of the CFO. It is for this reason that clear and timely communication is effective for a smooth transition. While companies will want to ensure the transition is smooth internally, public perception must be considered as well.

To quell any concerns from investors or the public, companies and CFOs should be quick to effectively communication the transition. Key pieces of the announcement should:

  • Reassure the audience. To prevent or calm any worries, companies should reassure consumers about the reasons behind the departure as well as be transparent about the plans for transition.
  • Pre-empt potential rumors or concerns. Transparency is especially important when a CFO resigns, because if gaps aren’t filled in, then there is room for rumors and speculations to thrive. Don’t leave gaps or vacuums in the announcement. Fill-in these key pieces of information so audiences don’t have to.
  • Focus on timing. The more time the public has to soak in a CFO resignation, the better the announcement will be received. When Borders Mark Bierley left 9 days before the company was scheduled to announce his earnings, perception solidified into reality that he was abandoning a sinking ship.

By carefully planning the public announcement of a CFO resignation, both the CFO and the company can maintain their credibility and prevent investor panic. By taking pro-active measures, companies can prevent a public relations crisis and instead focus on their responsibilities.