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The signs that investors wanted new CEOs at Lloyds and Aviva
A 3% jump in Lloyds’ (LLOY) share price upon news that chief executive António Horta-Osório is leaving next year would suggest investors are happy to see him go. While the broader stock market was up on the same day (6 July), the bank’s price movement was nearly twice the rise in the FTSE All-Share.
Measuring the share price reaction to management change can tell you a lot about how investors rate a person.
For example, Disney’s shares fell nearly 4% upon Bob Iger saying in February that he was standing down as chief executive. Commentators suggested that his replacement, Robert Chapek, was a surprise choice given his lack of experience with streaming and direct-to-consumer offerings that are central to Disney’s future.
The share price reaction represented investors’ way of saying ‘are you sure you’ve appointed the right person?’ as much as disappointment at the timing of Iger’s departure. The latter had been expected to stay until the end of 2021.
Having the right person running a company is crucial to a company’s success and to investors’ returns.
They are the ones with the final say on strategic decisions and in a world where governance is a crucial part of the investment case, investors need to have faith in the person behind the wheel.
António Horta-Osório did a lot to repair Lloyds following the global financial crisis. He helped fix the balance sheet and returned the business to private ownership.
A stronger financial position led to resumption of dividends which was perhaps the most important thing for shareholders who held the stock through years of turmoil, waiting patiently for the income taps to be turned back on.
Dividends are off the menu once again as the whole banking sector is discouraged from paying out cash rewards to shareholders during the pandemic. That’s not Horta-Osório’s fault, so why did the share price rise on his resignation? It’s more down to the market looking for new leadership to take the business forward. Horta-Osório was a fixer, now the bank needs a grower.
It’s a similar story with Aviva (AVV) whose share price jumped nearly 4% on 6 July after Maurice Tulloch stood down as chief executive after just over a year in the role for family health reasons.
At the time of his appointment, some commentators were shocked that Aviva had taken so long to appoint a new CEO only to then pick an internal candidate.
There were suggestions that an outsider might have brought some fresh thinking to the company’s strategy – and perhaps those wishes are now being fulfilled with ex-Axa UK boss Amanda Blanc replacing Tulloch.
Investors often welcome a new person at the top, but equally they can get nervous if someone looks like they are going to rip up the game plan entirely.
Shares in both Lloyds and Aviva have been languishing for some time so any improvement on the current strategies would be welcome.
Whoever replaces Horta-Osório at Lloyds needs to remove layers of bureaucracy that make it hard for decisions to be made quickly. As for Aviva, there has long been talk of breaking up the business and the pressure is on Blanc to get the chopping board out to see how best to slice it up.