Novo Nordisk shares nosedived on the day its new chief executive, Maziar Mike Doustdar, was appointed. But that shouldn’t have come as a surprise to investors. Minutes before the news of Doustdar’s appointment on Tuesday, the Danish pharmaceutical giant reported a profit warning, slashing its operating profit growth by around a third to the new normal of 10% to 16%. It also forecast slower-than-expected top-line growth. The company appears to have attempted to clear the deck for its new CEO, but far from being a unique strategy to reset expectations with investors, it has now become a “pretty common practice,” according to Michael Field, Europe market strategist at Morningstar. Field said that companies do this to “give the new CEO a chance to succeed and hit the ground running, without having to deal with quarterly profit warnings for a year or more after they join.” “If they can ‘kitchen sink’ earnings around the CEO appointment, then the new CEO should be quickly able to show improvement in the business, which is good for everyone involved, and of course, the share price,” he added. Other Stoxx Europe 600 index companies have exhibited similar strategies. A tried-and-tested technique For instance, on June 9, Swedish medical device maker Elekta announced the appointment of its new CEO, Jakob Just-Bomholt. The following day, the company released the results of a “proactive” review to “improve the quality” of its orderbook, which showed that it was about 4.9 billion Swedish krona ($503.7 million) short of its previous estimate. The stock fell 4.7% — the biggest drop since April’s U.S. tariff-related volatility. “A new CEO was announced yesterday, but the investor update on Tuesday brought some further surprises that one might normally have expected to be announced at a later date,” said JPMorgan analyst David Adlington on June 10. “We note that one option for the new CEO to generate renewed investor interest could be to rebase the guidance.” IT software and service company Tietoevry did the same on July 21. Endre Rangnes, who had been interim CEO since May, was officially confirmed as chief executive and President. The following day, the Finnish technology company reported its interim half-year report, which said organic growth would go into reverse by 4%. “While we can recognize our strengths and achievements, we have not succeeded in delivering adequate financial performance and have suffered from lack of growth over an extended period of time,” Rangnes said in his second communique to investors as chief executive. The stock dropped 13% on the day. The automaker Renault also pulled off the tried-and-tested technique on July 15. Instead of making a dedicated alarmist filing, the company lowered its profit forecast for the year during its scheduled half-year results. It did, however, announce Duncan Minto as interim chief executive officer five minutes before its earnings. In Renault’s case, the automaker had announced its new strategy only a month earlier under its former chief executive Luca de Meo, who abruptly exited the company to lead ailing luxury goods maker Kering . Renault’s stock, which had already been bruised by the shock exit of its former CEO a month earlier, fell another 18.5%. The stock market is littered with many such examples of chief executive appointments that are immediately surrounded by profit warnings. “The CEO themselves may advocate for this as a condition of them joining,” Morningstar’s Field said. “Instead of uncovering mess after mess, the new CEO may simply ask the board to fully evaluate the business ailments beforehand and allow them a fresh start.” ‘Every situation is different’ Yet, investors have been unable to model the behavior and look past efforts by companies to reset. Why? “Mainly because every business situation is different,” Field said. “There are no hard and fast rules, which makes it tough for investors to know how much bad news has already come out, or when there is more to come.” The case for “buying the dip” in the stock price on such supposedly predictive behavior from companies has also been challenging. “If a CEO is really clearing the deck, then there is likely a lot of bad news already priced in to the shares as a result,” Field said. “That said, every situation is different, and investors really need to assess if a change of leadership can actually fix the business or if there are structural issues that will continue to lead to worsening results.” Woes with Novo Nordisk’s share price are well understood among investors. The stock had declined by more than 60% since its all-time high in June 2024 on disappointing topline growth of its blockbuster weight loss drugs. Perhaps the reset in guidance from Novo was warranted, since investors punished its U.S. competitor Eli Lilly too, sending its shares lower by 5.6%.