CEO Exit “Codes” Can Be Cracked, So Craft Departure Announcements Carefully

September 6, 2017

Cryptic press releases announcing CEO departures can reveal more information than companies realize, thanks to an algorithm developed by a German linguist. Daniel Schauber, founder of research firm Exechange in Frankfort, developed a scoring system to interpret the often-vague language of CEO departure announcements. He wanted to determine whether departures were voluntary or forced. Historically, there has been no way to tell. While Item 5.02(b) of Form 8-K requires public companies to disclose when a CEO “retires, resigns or is terminated from that position,” companies only need to “disclose the fact that the event has occurred and the date of the event.”

There is thus no requirement to disclose the reason for a departure, but most companies do, giving rise to euphemisms such as “resigned for personal reasons,” or “decided to leave to pursue other opportunities.” Enter linguist Schauber. As noted in a recent article that originally appeared in The Wall Street Journal on August 14, “by analyzing company announcements and other data, his proprietary formula produces a ‘Push-Out Score’ ranging from zero to 10. A zero indicates a completely voluntary departure, and a 10, an explicit ouster.” The article cites numerous factors that influence the scoring of a particular departure, including: the use of ambiguous language, the omission of praise for concrete successes, the timing of the departure, whether a permanent successor is mentioned, the age of the departing CEO and whether he or she has concrete plans for the future. Companies are advised to craft their CEO departure announcements carefully.

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