Shortly before the holidays, news of CSX’s CEO passing renewed the debate on CEO health disclosures. My sympathies go out to his family, friends, associates and the people who looked to him for leadership.
Seeing the news reminded of my own decade-old experience with the passing of my former company’s CEO. At the time, I was fortunate to work with outstanding leaders who created the best practice for communicating about a CEO’s health and death.
When it comes to the health of a CEO or any person seen as pivotal to company success, there are no specific SEC disclosure requirements. Indeed, there is no duty to disclose so long as that silence is not misleading or does not result in previous disclosures becoming materially false. However, public companies are required to disclose known risks and uncertainties that may materially affect future results as well as the departure of executive management. A CEO’s inability to perform his/her duties – depending on the duration – can be perceived to fall under these requirements. Accordingly, there is an underlying assumption that such news will be shared.
Now, the question of what to say, how to say it and when, is difficult no matter the circumstance. Complicating matters are the very real personal relationships both inside and outside the company that make such communications potentially fraught with emotion.
Recognizing this, it’s useful to have a disclosure framework that considers:
- the executive’s importance (both real and perceived) to the organization and its strategy;
- the nature of the circumstances, the impact on the CEO’s ability to perform his/her duties and expected duration;
- status of contingency or succession plans.
Be sure to seek out input and perspective from the board, senior management, legal and human resources as well as key external advisors as necessary. Designate key spokesperson(s) and family liaisons. Think about potential ongoing disclosure needs and the types of information or permissions that may be needed as the situation evolves.
In the end, these are very personal matters. Issues of the transparency and disclosure expected of a public company need to be balanced with kindness, honor and respect for the individual.
Lead-IR Advisors, Inc.
(Reference: February 2009 Compliance Week article Rules for Disclosing a CEO’s Unexpected Absence by Harvey Pitt, Founder, Kalorama Partners and former SEC Chairman)