1. Communicating Critical Events:
CEO Transitions and Risk to Enterprise Value
FTI Consulting | Strategic Communications Practice
October 2011
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2. Global leadership transitions
Research objective & methodology
Objective
§ To explore the value-at-risk (VAR) associated with leadership changes, segmented based on the
circumstances leading to the CEO transition.
Primary Research
§ FTI Consulting conducted primary research among institutional investors. In total , FTI Consulting
solicited feedback from 358 portfolio managers and analysts across 37 countries. At 95%
confidence margin of error is +/- 5.17%.
Secondary Research
§ FTI Consulting Global CEO Transition Study considered all CEO transitions among companies that
had a market capitalization greater than $10B at any point during the time period of July 1, 2007
through June 30, 2010 – This resulted in 263 CEO transitions across 35 countries.
§ To determine the value-at-risk, the selected CEO transitions were analyzed based on net stock
price performance relative to a comparable index commonly referred to as “alpha” (i.e., a positive
alpha indicates the stock outperformed its benchmark index).
2

3. Profile of the Sample Population
Global CEO Transition Study
3

4. Significant turnover of large-cap company CEOs
CEO Transitions
of companies were unplanned, or
31% announced a CEO
transition*
of those 43% not part of a
succession plan
Europe B.R.I.C.
62 CEO transitions 36 CEO transitions
North America
(23% of all European (26% of all B.R.I.C. companies)
102 CEO transitions
companies)
(36% of all N.A. companies)
Middle East / Africa
16 CEO transitions
South America (48% of all Middle East/
3 CEO transitions Asia Pacific
Africa companies) 44 CEO transitions
(75% of all S.A. companies)
(34% of all AsiaPac companies)
New CEO Details
80% had no prior CEO
experience and 77% came from within
the company
*FTI Consulting’s Global CEO Transition Study considered all CEO transitions among companies that had a market capitalization greater
4 than $10B at any point during the time period of July 1, 2007 through June 30, 2010 – This resulted in 263CEO transitions across 35
countries.

5. Importance of CEO reputation and
its influence on investment decisions
Global CEO Transition Study
5

6. CEO reputation equals one-third of investment decision
§ The perception of the CEO influences almost one-third of the investment decision
% of investment decision based on perception of CEO
30 %
Average: 31.5%
25 %
20 %
15 %
10 %
5 %
0 %
None 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
at all
6 Question: What percentage of your investment decision making process is based on your perception of the Company’s CEO?

7. CEO reputation as important as reputation of company
§ The reputation of the CEO is nearly as important as the reputation of the company, and
more important than the reputation of the company’s products or services
Key factors impacting an organization’s reputation
0% 20% 40% 60% 80% 100%
Track record of opera:onal execu:on
Compe::ve posi:oning
Record of mee:ng and/or exceeding expecta:ons
Strategic direc:on
Historical reputa:on of the company
Reputa:on of CEO
Brand equity of products/services
Ranked 1st
Culture of the organiza:on Ranked 2nd
Ranked 3rd
Global reach
7
Question: Which of the following factors has the greatest impact on shaping an organization's reputation within the investment community?

8. CEO transitions offer more risk than opportunity
§ There is more risk to the CEO appointment than opportunity
§ The propensity to sell shares because of the CEO is more than twice that to buy shares
Decision to sell stock Decision to buy stock
Extremely likely ‐ 7 Extremely likely ‐ 7
6 39% 6 15%
5 5
Neutral ‐ 4 Neutral ‐ 4
3 3
2 2
Extremely unlikely ‐ Extremely unlikely ‐ 1
0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50%
Question(s): Under exceptional circumstances, how important is the CEO to your investment decisions making process?
How likely would you be to buy a stock based solely on the CEO, when no other investment criteria are met? and How likely
8 would you be to sell a stock based solely on the CEO, when all other investment criteria are met?

9. Investor assessment of a new CEO
Global CEO Transition Study
9

10. Investors first look to prior track record and former business
associates to assess an incoming CEO
Key factors shaping initial opinions
§ The prior track record follows
the executive to his/her new Track record of execu>on 63%
company and is far and away Industry experience 18%
Personal reputa>on 10%
the most important factor for
Experience at the company 4%
investors’ assessment of the Experience at a similarly company 3%
new CEO Other 2%
0% 10% 20% 30% 40% 50% 60% 70%
Key external sources shaping opinions Avg.
§ The most influential Customers / partners 78% 15% 8% 5.35
stakeholders are those with
Former colleagues 69% 18% 13% 5.05
whom the CEO did/does
business with Industry analysts 55% 28% 16% 4.53
Other CEOs 50% 24% 26% 4.39
§ Industry and sell side analysts
are also influential Sell‐side analysts 40% 31% 29% 4.05
§ The media have the least Media 27% 27% 47% 3.47
influence on shaping public 0% 20% 40% 60% 80% 100%
opinions Significant influence Moderate influence LiFle influence
Question(s): Prior to meeting a new CEO, which factor is most important to you in forming your initial opinion of him/her?To
what extent do the following external sources influence your opinion of a newly appointed CEO? (Please rate the following on a
10
scale of 1 to 7, where 1=No influence, 4=Moderate influence, and 7=Significant influence)

11. Value-at-Risk in CEO transitions
Global CEO Transition Study
11

12. Enterprise value Risk Increases as Time Passes
Enterprise Value at at risk increases as time passes
The greater the element of surprise and the higher the potential risk of corporate strategy shifts,
the more enterprise value at risk
Value-at-risk (VAR) landscape
§ Special situations, such as strategic
Special situation
NEGATIVE α NEUTRAL α transformations, bankruptcies/restructurings and
fraud/investigations, presented the most value at-risk
Unplanned
MODERATE HIGH
standard deviation standard deviation (VAR) of all transition types, over both time periods
considered
Resignation
NEGATIVE α POSITIVE α
§ Both voluntary and forced resignations
LOW HIGH
standard deviation standard deviation
demonstrated significant VAR
Succession /
§ Succession / retirement situations resulted in
retirement
Planned
POSITIVE α POSITIVE α
LOW HIGH
limited VAR upon announcement
standard deviation standard deviation
Announcement Six mo. post start
§ VAR increases over time for all transition types:
more value is created /destroyed post-
Time (relative to announcement date) announcement, and depends on the actions and
success of the new CEO
VAR: Value-at-risk
12 NEGATIVE/NEUTRAL/POSITIVE α: average performance net of comparable indices for the circumstances and time period specified
LOW/MODERATE/HIGH standard deviation: standard deviation of α for the circumstances and time period specified

13. VAR by situation
Succession
/
re,rement
Forced
resigna,on
Voluntary
resigna,on
Strategic
transforma,on
n=150
n=35
n=32
n=14
§ Strategic
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
transformation: VAR
announced
post
start
announced
post
start
announced
post
start
announced
post
start
Avg. market capitalization change (B)
correlated to broader
corporate change.
Strategic transformations
had highest negative
alpha across all
intervals, and 2nd highest
$0
potential VAR with
unsuccessful transitions
garnering an average
$24B market cap erosion
(-17% average alpha) six
months post CEO start.
Bankruptcy
/
restructuring
Fraud
/
inves,ga,on
Health
Misc.
crisis
§ Company
n=3
n=15
n=10
n=4
circumstances more
$20.0 impact on VAR than
Transi'on
$15.8 Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
how CEO departs:
Avg. market capitalization change (B)
$15.0 announced
announced
post
start
announced
post
start
announced
post
start
Company-specific
$10.0 factors, such as fraud,
regulatory investigations
$5.0 $0.9 strategic transformations
$0.0 and restructuring/
‐$2.1 bankruptcy, have more
‐$5.0
impact on VAR than how
‐$10.0 the CEO departed (e.g.,
‐$11.6 resignation vs.
‐$15.0
succession)
‐$20.0
‐$25.0
Six
months
‐$30.0 post
start

14. Investor perceptions of risk also related to degree of
‘surprise’ and corporate change
Value at-risk due to outgoing CEO circumstances
Avg.
Forced
resigna7on / 75% 14% 11% 5.07
termina7on
Sudden departure
through death or 40% 33% 27% 4.16
illness
Voluntary
resigna7on 37% 39% 25% 4.10
Succession /
re7rement 5% 24% 71% 2.82
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Significant Value at Risk Moderate Value at Risk LiHle Value at Risk
§ Abrupt changes impact short-term enterprise value the most
Question: Under the following CEO transition circumstances, how much market capitalization do you believe is at risk?
14 (Please rate the following on a scale of 1 to 7, where 1=No value at risk, 4=Moderate value at risk, and 7=All value at risk)

15. Investor perceptions of risk also related to degree of
‘surprise’ and corporate change
Value at-risk due to Company circumstances
Avg.
Fraud /
inves:ga:on 92% 5%3% 5.80
Crisis 85% 11% 4% 5.60
Bankruptcy /
restructuring 85% 7% 8% 5.50
Strategic
transforma:on 50% 32% 19% 4.70
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Significant Value at Risk Moderate Value at Risk LiKle Value at Risk
§ Significant enterprise threats and transformations impact long-term
enterprise value the most
Question: Under the following CEO transition circumstances, how much market capitalization do you believe is at risk?
15 (Please rate the following on a scale of 1 to 7, where 1=No value at risk, 4=Moderate value at risk, and 7=All value at risk)

16. VAR is proportionate to situational urgency,
but all instances present risk
Key factors
Avg.
Managing through a
§ The more crisis (e.g., bankruptcy, 84% 10% 5% 5.62
challenging the restructuring)
situation, the greater
the threat to the Turning around poor
81% 11% 8% 5.44
operaBng performance
enterprise, the more
value is hinging on
the outcome Leading a business
61% 32% 7% 4.85
transformaBon
Addressing changes in
the compeBBve 57% 29% 14% 4.64
environment
Replacing a beloved
50% 34% 16% 4.54
leader, industry icon
Pursuing new avenues
41% 36% 23% 4.26
for growth
0% 20% 40% 60% 80% 100%
Significant impact Moderate impact LiLle impact
Question: During the first six months following a leadership change, how much impact do the following factors have on enterprise
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value? (Please rate the following on a scale of 1 to 7, where 1=No impact, 4=Moderate impact, and 7=Significant impact)

17. Management initiatives can reverse initial negative actions,
in most cases
Succession
/
re,rement
Forced
resigna,on
Voluntary
resigna,on
Strategic
transforma,on
n=150
n=35
n=32
n=14
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
announced
post
start
announced
post
start
announced
post
start
announced
post
start
Avg. price performance (net of index)
Bankruptcy
/
restructuring
Fraud
/
inves,ga,on
Health
Misc.
crisis
n=3
n=15
n=10
n=4
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
Transi'on
Six
months
announced
post
start
announced
post
start
announced
post
start
announced
post
start
Avg. price performance (net of index)
17 Six
months
post

18. Roadmap for a new CEO
Global CEO Transition Study
18

19. There is a honeymoon period for new CEOs in the first six
months to set vision, strategy and expectations
Key functions and actions of a new CEO
SeIng vision, strategy 68% 23% 9%
§ Investors expect the new Establishing appropriate expecta;ons for key
CEO to assess the stakeholders
66% 27% 7%
situation, create the vision/
Managing talent 46% 33% 21%
strategy and set
expectations Overseeing execu;on of strategy 34% 37% 29%
Alloca;ng capital and resources 29% 48% 22%
Shaping company culture 21% 28% 52%
Mee;ng stated vision, strategy 12% 19% 69%
§ Expectations for
performance are relatively Mee;ng stated financial objec;ves 10% 31% 59%
long term (mostly after the
first year) Improved market performance and valua;on 7% 31% 63%
Improved financial performance 6% 37% 58%
0% 20% 40% 60% 80% 100%
Short Term (< 6 Mo.) Medium Term (6 to 12 Mo.) Long Term (>12 Mo.)
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Question: Under what timeline do you expect to see traction / execution in the following functions?

20. New CEO’s effectiveness is measured by strategy execution
and financial stewardship
Most important measures of effectiveness
§ CEO will be held to Execu9on of the strategy 80%
his/her strategy
Financial performance 9%
*Most commonly submitted
responses include: “6 Mo. Is too
Stock performance and/or valua9on
3% short to form an opinion” and
performance “outlining the strategic direction of
the Company.”
Other 8%
0% 50% 100%
Most important financial metrics
ROIC of the business 28%
§ Stewardship of the
Company’s capital Free cash flow of the business 24%
and assets is the Revenue growth 11%
most important *Most commonly submitted
financial measure of EPS growth 10% responses include: “6 Mo. Is too
short to measure with financial
metrics” and “situational
success Other* 27% dependent.”
0% 20% 40% 60% 80% 100%
Question(s): Within the first six months following a leadership change, which of the following is most important when
20 measuring the effectiveness of a new CEO? Within the first six months following a leadership change, which financial
performance metric is most important to measuring the effectiveness of a new CEO?

21. Investors take a multi-dimensional view of a new CEO
Key factors during initial interactions with new CEO
§ Investors primarily look Grasp of the company's challenges and opportuniBes 96% 2%2%
to see how the
Knowledge of / experience with industry dynamics 92% 6% 2%
incoming CEO plans to
take command of the Vision 88% 8%4%
company
OperaBonal focus 88% 9%3%
§ A substantive grasp of
the Company’s situation A strategic plan 88% 9%3%
and plans for the future
Leadership style 76% 19% 5%
are very important
Charisma / personality 54% 30% 16%
§ Vision and leadership
style are also important 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
in initial interactions Significant importance Neutral Limited Importance
Question: During your initial interaction with a new CEO in their first 100 days, what do you look for to further establish your
21 opinion of him/her?

22. Research overview & methodology
22

23. Global leadership transitions
Research objective
The objective of our research was to explore the value-at-risk (VAR) associated with leadership changes,
segmented based on the circumstances leading to the CEO transition.
The FTI Consulting Global CEO Transition Study considered all CEO transitions among
companies that had a market capitalization greater than $10B at any point during the time
period of July 1, 2007 through June 30, 2010 – This resulted in 263 CEO transitions across
35 countries.
The CEO transitions were grouped and further analyzed by the following categories based
on the circumstances leading to the transition:
§ Succession / retirement – orderly, planned CEO transitions that resulted from retirement scenarios;
§ Resignation – including:
§ Voluntary resignation – situations in which the departing CEO left to pursue other opportunities; and,
§ Forced resignation – situations where there was evidence of a termination or forced removal from office.
§ Special situations – including:
§ Strategic transformation – significant change in strategy or market position;
§ Bankruptcy / restructuring – bankruptcies or significant restructuring ;
§ Fraud / investigation – corporate scandal/wrongdoing or federal investigation;
§ Health – death or other serious illness that results in a CEO departure; and,
§ Miscellaneous crisis – other event-driven/unforeseen circumstance (e.g., natural disasters.)
23

24. Methodology
Secondary research
To determine the value-at-risk, the selected CEO transitions were analyzed based on net
stock price performance relative to a comparable index commonly referred to as
“alpha” (i.e., a positive alpha indicates the stock outperformed its benchmark index).
§ Stock performance was benchmarked against relevant comparable indices based on the country of
domicile and local exchange (e.g., S&P 500, FTSE 100 Index, Nikkei 225 Index, Germany DAX
Index, Paris CAC 40 Index).
Net stock price performance (alpha) was measured on two intervals:
§ Transition Announced (initial announcement of CEO departure) – measures the initial market
reaction (one week prior to day of announcement) of the CEO change; one week was used to
account for potential news leakage, global market time zones, etc.; and,
§ Six-Months Post Start (succeeding CEO starts) – measures the stock performance six months
following the start date of the incoming CEO.
Each transition was further classified based on a number of characteristics to fully
encapsulate the details of the situation including background of the incoming CEO and
circumstances that lead to the transition.
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25. Methodology
Primary research – global investor survey
Survey demographics – by region
§ To further explore the value-at-risk
associated with a CEO transition, FTI 0.3% 3%
3%
Consulting conducted primary research
among institutional investors. South America
BRIC
§ Using an online survey format, FTI Middle East / Africa
33%
61%
Consulting solicited feedback from the Europe
investment community to better North America
understand the extent to which CEO
reputation in general, and leadership
changes in particular impact investment
decisions and therefore enterprise
value. Survey demographics – by AuM
§ The research was conducted globally, > 10B 22%
covering a cross-section of countries
represented by the sample set. Between 5B and 10B 7%
§ In total, FTI Consulting solicited
feedback from 358 portfolio managers Between 1B and 5B 18%
and analysts across 37 countries. At
95% confidence margin of error is +/- < 1B 53%
5.17%.
0% 50% 100%
25

26. Contact:
Elizabeth Saunders Mark McCall
Americas Chairman, Strategic Communications Americas Head of Strategic Communications
FTI Consulting FTI Consulting
T: +1.312.553.6737 T: +1.212.850.5641
Elizabeth.Saunders@fticonsulting.com Mark.McCall@fticonsulting.com
Bryan Armstrong
Managing Director
FTI Consulting | Strategic Communications
T: +1 (312) 553-6707
Bryan.Armstrong@fticonsulting.com
David Roady
Senior Managing Director
FTI Consulting | Strategic Communications
T: +1 (212) 850-5632
David.Roady@fticonsulting.com
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