A range of changes across key business variables can lead to stock volatility.
Booming and bursting bubbles (see “China”), government bailout deals (think “Greece”), earnings releases and even inflation can drive stock prices up and down.
But lately, executive changes have been playing a major role in the share price volatility of major footwear and apparel companies.
Back in April, Iconix Brand Group’s shares fell more than 20 percent following the announcement of COO Seth Horowitz’s resignation, which came just two weeks after CFO Jeff Lupinacci’s departure on March 24.
Then, just this week, the share price of Vince Holding Corp. was down more than 16 percent after the company announced several executive changes—the major one being the departure of CEO Jill Granoff after an undisclosed transition period.
An executive switcheroo can really take a toll on investor confidence and, by extension, a company’s stock.
Here are four reasons why.
The Change Came Unexpectedly
Investors pumping their funds into a footwear company’s stock rely on earnings reports, analyst commentary and other predictive analytics to create their expectations for the stock. Therefore, abrupt and unanticipated changes that were not alluded to during an earnings call or shareholder meeting can make investors understandably skittish.
This is particularly true when an ousted executive isn’t ready for retirement or experiencing a known illness or family crisis. Often, in such scenarios, his or her departure is in line with a carefully outlined and disseminated succession strategy. A good example is the case of Nike Inc.’s Phil Knight who, after 40 years at the firm, spent a year building a succession plan before laying it out to the public.
An Affinity for Previous Leadership
When Connie Rishwain, president of Ugg and Deckers Brands’ Fashion & Lifestyle division, announced her plans to exit the company back in April, the firm’s share price took a tumble.
Market watchers speculated that investors were disheartened by the departure of the 20-year Deckers’ veteran.
Rishwain had helped lead the classic shearling boot brand into an over-a-billion-dollar business and investors were likely concerned about the firm’s strategy for replacing her. Management has said they would not rush the process for replacing the longtime leader considering she leaves big shoes to fill.
Not to mention the stock could take another dive if investors are displeased with the incoming executive.
Fear of Impending Collapse
When people with a vested interest in a firm begin to jump ship, the market takes notice often driving both sentiment and share price down.
If top executives take flight, particularly in close proximity, market watchers often speculate that something both monumental and negative—of which the general public is not yet aware—has happened internally.
Rather than wait for the presumably damaging news to be revealed, investors begin backing out fearing an impending collapse or another adverse business predicament.
Signs of Managerial Instability
Turnover is a fact of life in Corporate America but if a company is swapping out top executives left and right, investors tend to respond negatively.
Experts say stability, particularly in managerial structure, is often viewed as an important characteristic in a firm’s business model. And if a company fails to secure long-term buy-in from the c-suite, investors may feel compelled to withhold their buy-in also.
Sometimes however, the market is excited to see an executive shake-up.
In May, Crocs Inc.’s share price rose following a series of managerial changes. COO Scott Crutchfield left the company and the COO slot was eliminated altogether and Chap Kistler’s position as SVP of Global Supply Chain was also eliminated. Simultaneously, the firm added the roles of SVP of Global Sourcing and SVP of Global Distribution & Logistics to be filled by Phil Blake and Dennis Sheldon, respectively.
In this case, Sterne Agee analyst Sam Poser said, “management changes were for the best.”