If You Go Away

Do you have an exit strategy?
Eila RanaFebruary 8, 2007

Everyone knows investors hate surprises. But that’s what Benetton’s investors got in November. Overshadowing the €1.8 billion fashion group’s quarterly results announcement, the company dropped not one, but two, bombshells — both CEO Silvano Cassano and CFO Pier Francesco Facchini had resigned, effective immediately. The two colleagues formerly at Fiat, who joined Benetton in 2003, didn’t even stick around for the conference call with analysts. By the end of the week, Benetton’s shares slumped nearly 9% amid plenty of speculation about the reasons for the speedy exits.

A press release said that Cassano left the top post (but would remain on the board of directors) because his turnaround programme was nearing completion. But with five months remaining on his contract, many observers assumed that the real reason must have been a rift between him and the Benetton family over the firm’s global growth strategy. As for Facchini, Mara Di Giorgio, Benetton’s director of investor relations, convinced few analysts on a conference call with the explanation that he resigned for “personal reasons” that were not linked to Cassano’ s departure.

Though the public might never know the full story behind the Benetton departures, the episode serves as a timely reminder of how closely investors monitor the conditions under which senior executives leave companies. With the average tenure of finance chiefs steadily falling, all CFOs should consider their exit strategy, one that allows them to leave their old employers on good terms while keeping options open for future job moves. As the Benetton example shows, a hasty, poorly explained departure can tarnish the reputations of both the company and the departing executive.

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The Golden Rules

Ideally, a company should announce the departure of a key executive at an AGM or other regular investor meeting, with a successor already waiting in the wings. It also helps to set the departure date shortly after a results announcement so as to give the impression that the successor is beginning with a clean slate.

Thought should also go into the announcement itself. A carefully crafted statement goes a long way towards appeasing jittery investors, not to mention squelching potentially damaging rumours or speculation. Various corporate governance codes provide basic guidelines about when announcements should be made and the basic form that they should take. But companies shouldn’t be afraid of going beyond what’s required by those codes, says Jeremy Rickman, head of the European CFO practice at recruiter Russell Reynolds. A statement from the chairman or CEO, and in some cases the departing CFO, about the departure and how it will impact the company can be useful. “Otherwise, the market makes it up,” asserts Rickman.

Of the CFO departures at FTSE 100 companies last year, only one — in October by Naguib Kheraj of Barclays — is notable for its candour. After three years as the bank’s finance director, Kheraj wanted a change in direction. “I have never considered myself a lifetime finance director and I believe now is the right time to move on to the next stage of my career,” he said in a statement.

Though Kheraj’s honesty is welcome, CFOs should avoid making announcements that could come back to haunt them. Consider the case of Helen Weir. Four years ago, retailer Kingfisher announced that she was resigning as CFO to “seek a more operational management role.” Within months, however, she landed the CFO job at Lloyds TSB bank, which one institutional investor described as “a little odd,” bearing in mind her reasons for leaving Kingfisher.

The Final Stretch

What happens after the announcement is also important. Just ask Jim Smart. Last autumn, he found himself out of a job after helping craft the £7 billion (€10.6 billion) merger between Alliance UniChem, an Anglo-French health-care distribution firm, and Boots, a UK chain of chemists where he was CFO. Despite the accolades Smart won during the merger process, the top finance job at the merged group went to George Fairweather, Alliance’s CFO.

Smart had reached a critical juncture in his career, with his performance during the months before his departure sure to be scrutinised by potential future employers. Despite being passed over for the top finance post, Smart remained engaged. “My take on it was I had a duty to my people and Boots’ shareholders,” he recalls. “My entire focus needed to be on ensuring Boots delivered the right results [before the merger] and got off to a flying start if the merger did go ahead.” Among other things, that meant steering Boots through the £1.9 billion sale of Boots’ over-the-counter drugs manufacturing division and spending several months working closely with Fairweather to integrate the finance functions. At the same time, Smart enlisted the help of Stork & May, a career advisory firm, to plot his next move. “Having their advice about what was around in the market and how I should present my experience was enormously helpful,” he says.

Smart says it was important that he served as a role model for the 400 finance staff at Boots, many of whom were also facing redundancy. “All you can do is concentrate on doing your job well,” he says. “The people who know you inside the company and the people you deal with outside the business see what you’re actually doing and that’s what really counts.” Rickman, of Russell Reynolds, concurs. “The market appreciates people when they stick around and do the job right up to the day they leave,” he says.

During his last months at Boots, Smart kept a low external profile, allowing Fairweather to handle investor meetings through the final stages of the merger, which was completed in July. This helped Smart avoid getting entangled in speculation and rumours about machinations among executives at the merging firms.

Other CFOs would be wise to follow Smart’s example, even when potentially unflattering rumours emerge, says Paul Lockstone, director of the finance and investor relations practice at Edelman, a public relations agency. “There’s only so much you can say, and then it’s usually not constructive,” he notes.

Fortunately, negative publicity wasn’t something Smart had to contend with. In the end, his dedication and loyalty served him well, as he emerged as a hot contender for two vacant FTSE 100 posts. He recently accepted an offer from Friends Provident, a financial services group whose CFO, Philip Moore, became CEO.

Executives at Benetton, including new CFO Emilio Foà, will wish that future executive exits can be as smooth. And its investors will hope that next month’s results announcement won’t be as surprising as the last one.