When the CEO is sick, how much disclosure is enough?
On Monday, United Airlines named an interim CEO after the company’s new leader, Oscar Munoz, suffered a heart attack late last week. Munoz had been on the job only about a month, and United said it’s too soon to know the course of his treatment or the timing of his recovery, so they’ve tapped the company’s general counsel to lead in his absence.
As a publicly traded company, United had an obligation to disclose that change in leadership to its investors, said Peter Barack, a securities lawyer and partner at Barack Ferrazzano.
But absent such a shift, it can be difficult for boards of directors to balance medical privacy issues with employees’ or investors’ desire for information.
“Staying silent about the health situation of an executive is generally not a problem under the securities laws unless there’s what we call an affirmative duty to speak,” said Barack. “There would have to be an expectation that the problem would have a material, unfavorable impact on net sales, or revenues, or incomes.”
The amount of information or updates Apple provided during Steve Jobs’ long battle with cancer prompted discussions about whether companies should be required to share more information with their investors, though the law hasn’t changed.
“The other side is that there’s also a question of privacy,” said Thomas Lys, an accounting professor at Northwestern’s Kellogg School of Management. He said CEOs are people, after all, who likely don’t want to confront life-and-death issues in the public spotlight.
Ironically, the more powerful a CEO, Lys said, the less likely a company will share health information.
“Now the reason this is somewhat paradoxical is that when the CEO is more powerful, he also has a much bigger impact on corporate affairs, and this is when, actually, you would hope you get more information,” he said.
However, it is notable that both JP Morgan and Goldman Sachs promptly announced the cancer diagnoses of their CEOs recently.
Tom Gorman, a partner at the law firm Dorsey & Whitney, said that even without rules forcing more health disclosures, he believes more companies are increasingly volunteering it, adding such information is increasingly relevant in the age of the superstar CEO.
“People might start to decide not to buy the stock, might decide to sell the stock, might change their views of how they want to invest,” he said. “That’s actually, that’s the danger of having a superstar CEO. That kind of thing can start changing valuation views on your company.”
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