Microsoft (Nasdaq:MSFT)

The 8.6% surge in Microsoft's stock the day last month that CEO Steve Ballmer announced he planned to retire is a reminder changes in the C-suite can often affect investors' perception of the company's value, for better or for worse.

Sometimes a change is necessary, pushing a stock higher in anticipation of better times around the corner. In other situations investors assume the worst, sending a stock spiraling lower.

With that in mind we’ve picked five examples of CEO retirements in the last five years that caused an unusually large move, up or down, in the price of the company's stock. By the end you’ll have a better understanding of how C-suite changes move the market and why.

Hewlett-Packard (NYSE:HPQ)

A little more than three years ago, Mark Hurd, then CEO, was forced to resign after the executive filed falsified expense reports in order to hide an inappropriate relationship with a female contractor. Although Hurd was found not to have broken the company’s sexual harassment policy, the board felt he had violated its standards of business conduct leaving it with no choice but to remove him as CEO. On the day of the resignation Hewlett-Packard’s stock lost 10% of its value or more than $10.6 billion. Meanwhile, Hurd’s severance was upwards of $40 million and one month later he was hired as Larry Ellison’s second-in-command at Oracle (NYSE:ORCL). For Hewlett-Packard shareholders, its stock hasn’t got anywhere close to where it was trading before Hurd’s resignation while the former CEO hasn't suffered one bit from his indiscretions.

Moral of the story: When the CEO resigns for reasons unrelated to the business, especially unseemly ones, you can expect some serious financial hurt.

Lululemon (Nasdaq:LULU)

When Christine Day took the reins of one of North America’s most successful apparel brands on June 30, 2008, investors were hopeful her 20 years of experience at Starbucks (Nasdaq:SBUX) would come in handy. Over the next five years Day and her team grew its brand in the U.S. like no other Canadian apparel manufacturer had ever done before. Its fiscal 2012 revenues were $1.4 billion, a compound annual growth rate of 38% over the past five years with Day as CEO. You can't do much better than that.

Then things began to unravel. Competitors started to nip at the company's heels; quality control began to suffer. However, more than anything, the 18-hour days began to take a toll on the 51-year-old. She told the board she was tired of putting in the hours and didn't want to do the travel required for its expansion outside North America. If she was getting burned out, Lululemon's results didn't seem to suffer. From her first day as CEO through her departure announcement June 10, 2013, Lululemon's stock gained 466%. In the two weeks following her surprise announcement the company's stock’s lost 28% of its value. 

Moral of the story: Don’t pin your future on a rock star CEO; they too can burn out.

Open Table (Nasdaq:OPEN)

If you live in a major North American city and dine out with any frequency, you’ve likely heard of its online reservation system. It went public in May 2009 at $20 per share; two years later it found itself in nosebleed country trading as high as $115, up 475%.

Then the proverbial wheels fell off. Although growing at a decent clip, investors came to the conclusion that it was much too expensive given the increased competition for dinner reservations. Its stock began to drop at a slow rate until then-CEO Jeff Jordan announced May 4, 2011 that he was stepping down as the top dog to be replaced by long-time CFO Matthew Roberts. Although Jordan remained with the company as executive chairman for another seven months, investors pummeled the former IPO star. On the day Jordan stepped down the company lost 15% of its value. By late 2011 shares were trading at barely above $30 each. Those who bought at the peak—on paper—lost 75% of their investment in the span of seven months. 

Moral of the story: It’s only a loss if you sell. In the 21 months since Jeff Jordan left Open Table for good, the company's shares have regained 38% of their value since their $115 high. Don’t get caught up in all the noise that occurs when a CEO steps aside. Often, it really doesn’t mean much.

Facebook (Nasdaq:FB)

I know what you’re thinking—Mark Zuckerberg hasn’t quit as CEO of the world’s biggest social media site. True enough. But what if he had? Many were calling for his head after its botched IPO was immediately followed by less than stellar second-quarter earnings results. Big-time investors felt an experienced CEO was needed to guide it higher; not a college drop-out with a penchant for hoodies. 

Fast forward to September 2013 and Facebook’s stock is trading 12.3% above its IPO price of $38. Anyone who actually listened to Zuckerberg and COO Sheryl Sandberg during the Q2 2012 conference call should have realized it was only in the early stages of monetizing its website. Since then its business—and profits—have picked up in a big way. Analysts such as Baird Research have upped the 12-month price target to $50. Momentum is clearly on its side. 

Moral of the story: Be careful what you wish for—you just might get it. Mark Zuckerberg stepping down as CEO of Facebook would have been a colossal mistake rendering the company rudderless at an absolutely critical point in its growth. Sometimes what doesn’t happen is more important than what does.  

Chesapeake Energy (NYSE:CHK)

Founders often make good CEOs. In the case of Aubrey McClendon this was true for many of the 23 years he spent running the company he founded in 1989. Over the past 15 years the company's stock achieved an annualized total return of 21%, 400 basis points greater than Chesapeake’s peers in the oil & gas exploration and production industry.

Unfortunately, McClendon’s big bet on natural gas took a toll on the company in the three years leading up to his  resignation. While directors found no wrongdoing, It didn't help that the board investigated the former CEO for improper financing arrangements regarding personal stakes he took in company wells. When he announced he was stepping down as CEO on January 29, the company's stock gained 6% on the next day of trading. More gains came after May 20 when Chesapeake hired Doug Lawler as its new CEO.  Lawler, an engineer by training, came to Chesapeake with 20-plus years of energy experience, most recently as senior vice president of Anadarko Petroleum (APC). Most importantly, Lawler brought to the table a far less flamboyant, much more methodical approach to running a company. Investors so far seem to like the move. 

Moral of the story: “Boring” can be better.

The Bottom Line

CEOs step down for all kinds of reasons. Investors, rightly or wrongly, seem to want to figure out what that means for the future. When a CEO steps down it’s best to take some time before deciding what to do with your stock. Most times it’s neither good nor bad—it just is. Much like life in general.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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