business

As CEOs Get Older, Investors Demand to Know More on Succession

Updated on
  • Average age of S&P 500 CEOs has risen 4% over the last decade
  • Iconic chiefs of both CSX railroad and M&T Bank died Dec. 16

Photographer: Chris Goodney/Bloomberg

The same-day deaths of two aging chief executive officers -- industry icons in railroading and banking -- show why some investors and governance experts want companies to disclose more about succession plans and the health of their leaders.

CSX Corp.’s Hunter Harrison, 73, died Saturday, one day after news of his medical leave pushed the railroad’s shares down the most in six years. M&T Bank Corp. said Robert Wilmers passed away “suddenly and unexpectedly” at age 83 -- just months after the death of his own heir apparent.

These earthly departures underscore the privacy, governance and legal issues entangled in one fact of shifting demographics: As the U.S. population ages, so too do the chieftains of Corporate America. The average age of a CEO has risen 4 percent in the last decade and there has been at least one health-related change atop Standard & Poor’s 500 Index companies in each of the past three years, according to executive recruiter Spencer Stuart.

“What we’re facing is the new paradigm of work,” said Davia Temin, head of the New York-based crisis-management firm Temin & Co. “When people are in the zone of what they love to do, most of them are not going to voluntarily give that up. That means that people will work later, and maybe with a little bit more of an illusion that death won’t apply to them.”

Companies may be forced to act as that illusion fades. Even with the deaths of Wilmer and Harrison, data compiled by Bloomberg shows there are still 50 CEOs in the S&P 500 who are 65 or older. Nineteen of those exceed age 70, and three, including Warren Buffett, are older than 80.

Spencer Stuart reports average ages of 57.4 years for S&P 500 bosses and 63.1 for the directors who hire and fire them -- in both cases, gaining two years over the past decade. It’s not just a U.S. trend. In the U.K., the average age of directors has surpassed 60 for the first time, according to Spencer Stuart.

Disclosures Vary

The health issues of corporate bosses have touched U.S. companies from Apple Inc. and Berkshire Hathaway Inc. to United Continental Holdings Inc. and Goldman Sachs Group Inc., which had varied levels of disclosure that triggered different degrees of investor acceptance. A lack of clear regulatory rules left each company free to deal with the matter at its board’s discretion.

Because death is unpredictable, succession is increasingly important, Temin said. First a company has to have a clear communication plan for all contingencies, including illness and death, and have a plan for the next CEO in place that is at the very least “almost ready now,” she said. The CEO has to overcome squeamishness about discussing his or her replacement well before he or she is ready to leave, Temin said.

“They have to see clearly and make plans for every eventuality, even death,”’ Temin said.

Wilmers and Harrison

In the case of M&T, Wilmers -- renowned for his acquisitions prowess in building his banking empire -- outlived not one but two likely successors who died in the past three years. In its Dec. 16 statement, M&T outlined how Wilmers’ board and operational roles will be split among four officials. A spokesman for M&T declined to comment further for this story.

CSX already faces questions about whether acting CEO Jim Foote, who joined in October, will be able to continue Harrison’s work or whether the railroad will need to hire an outside executive. Harrison, a railroad-turnaround legend, added almost $17 billion in market value in less than a year.

The railroad is confident its “disclosures are adequate and appropriate,” spokesman Bryan Tucker said by email Sunday.

Like former Apple CEO Steve Jobs, who battled pancreatic cancer before his death in 2011, Harrison had health problems and a reputation that buoyed shares in his company. Harrison had bypass heart surgery in 1998 and missed work in 2015 because of pneumonia and the implant of stents in his legs. Before CSX hired him, he declined the company’s request for an independent doctor to review his medical records.

United Airlines also received criticism in October 2015 over initial disclosures about the health of CEO Oscar Munoz, who eventually had to have a heart transplant. Munoz, who was a top executive at CSX before United, ultimately recovered and still runs the airline. In contrast, Berkshire Hathaway Inc.’s Buffett in 2012 and Goldman’s Lloyd Blankfein in 2015 quickly disclosed full details when they were diagnosed with cancer.

CEO Privacy

One difficult area with CEO health disclosures is that chief executives don’t always share all the information they have with their companies, said former SEC Chairman Harvey Pitt, who is also the founder of Kalorama Partners.

Key executives such as the CEO, top officer and directors should sign waivers when they are hired by public companies that would allow disclosure of health issues at the board’s discretion, said Allan Horwich, a partner at Schiff Hardin and Northwestern University law professor. He’s also proposed modifying SEC rules to specifically require disclosure of any health implications that might effect an executive’s ability to run the company in the ensuing two years.

There’s been no formal move to change SEC rules, and any “pressure for rules has to come from the marketplace,” said Tom Lin, a Temple University law professor who researched CEO privacy and disclosure issues. Frankly, he said, one reason there’s no clear guidance is that some CEOs are less important to their company or industry than others.

“Not every CEO is Warren Buffett or Steve Jobs,” Lin said.

— With assistance by Thomas Black, Cynthia Koons, Jennifer Surane, and David Voreacos

(An earlier version of this story corrected the year in which Blankfein disclosed details of his cancer diagnosis.)
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