EXECUTIVE STRATEGIES
What are the rules when the CEO gets sick?
Worst-case scenario: A company’s CEO gets diagnosed with
cancer and decides to keep the illness a secret. A few
co-workers begin to notice that the CEO seems sick and
isn’t working as much as she did a few months ago. Rumors
begin to swirl internally and in the media. Company share
prices plunge based on pure speculation.
What should this CEO have done at the moment of diagnosis?
Whatever she wanted, says Mary Ann Franz, partner at Miller
Nash in Portland, who, after searching for past lawsuits that
may have set a precedent on the subject of CEO health
disclosures, found nothing specific on the books. “While
companies traded on the New York Stock Exchange and NASDAQ must
disclose material information under SEC law, the health of an
executive doesn’t fall into that category,” Franz
explains.
Without specific legal obligations to disclose major health
problems, CEOs and companies release such sensitive personal
information based on need, which can include simple rumor
management.
Generally, health concerns are considered private, personal
issues, says Thomas Jones, a professor at the University of
Washington Business School, but the delineation doesn’t
always apply to executives. “Presumably, executives
should have some right to privacy, but when they take those
positions and are paid truly enormous amounts of money, privacy
becomes secondary,” he says.
Just as mergers and holdings affect a company’s value,
an executive’s health could shape the business’s
performance. That reality should prompt executives to consider
disclosure under certain circumstances, Jones says. “I
think they should usually opt for disclosure,” he
explains. “Because of the highly public nature of their
positions, there are huge potential consequences that come with
life-threatening health problems.”
But life threatening could mean anything from a cancerous mole
to leukemia. How and when CEOs choose to release health details
rests with them and, if they choose, with members of their
company.
“It depends on the CEO more than anyone else,”
says Franz.
Franz notes that when executives resign, they have more of a
legal responsibility to disclose why they’re leaving as
defined by SEC code. But that doesn’t mean resignations
always reveal the truth. “Many health-related
resignations are actually code for, ‘We don’t want
to tell you why he’s leaving,’” she says.
But when executives stay despite real health problems, they
face tough choices. In 2004, Apple CEO Steve Jobs underwent
surgery to remove a cancerous tumor from his pancreas. In a
pre-emptive move, Jobs sent Apple employees an e-mail from his
hospital bed to announce he would be taking a month off to
recover from the surgery. Most likely, Jobs, a notoriously
private person, admitted to the illness to protect his company
from harmful speculation that could have decreased stock
values. And the announcement created an
action-rather-than-reaction scenario, a common public relations
strategy designed to maintain an image of power and
control.
For Tripwire founder and CEO Wyatt Starnes, choosing to reveal
his health conditions followed recovery from a major illness.
After being diagnosed with throat cancer in 2003, Starnes took
a temporary leave of absence from the Portland-based security
software company while he was being treated for the
disease.
Four months after he returned to work, Starnes resigned,
citing health problems. A local paper reported that Starnes
revealed his health problems in reaction to rumors that he was
fired. “I’m wearing myself out,” he said at
the time. “It’s time to go heal myself.”
Starnes later founded SignaCert, a Portland computer security
company. He declined to comment for this story.
During the past few years, it’s been difficult to deny
the implications of serious health conditions at the executive
level: Frank Lanza, a chief at L-3 Communications, died from
cancer; Skip Ackerman, president and CEO of Panacos
Pharmaceuticals, died of a heart attack at age 58; in 2004,
McDonald’s CEO Jim Cantalupo died of a heart attack.
Issues of succession and stability have forced shareholders to
become increasingly savvy when it comes to hiring CEOs. Now,
many executive screening processes include full physical
examinations in addition to the more standard hiring
procedures.
For executives interested in making the ultimate pre-emptive
strike by staying healthy, hospitals around the country
offer thorough physicals designed for executives. In Oregon,
ODS Companies offered an executive evaluation program at Oregon
Health & Science University, but recently canceled the
program because of lack of interest.
While local executives might be taking their health into their
own hands, staying healthy could mean avoiding ambiguous legal
and ethical territory in the long run.
— Lucy
Burningham
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