The average age of a US CEO has risen 4% in the past decade, and because death is unpredictable, succession planning is increasingly important
Southfield, Michigan — The same-day deaths of two ageing CEOs — 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 executives.
CSX Corporation’s Hunter Harrison, 73, died on Saturday, one day after news of his medical leave pushed the railroad’s shares down the most in six years. M&T Bank said Robert Wilmers died “suddenly and unexpectedly” at age 83 — just months after the death of his own heir apparent.
These deaths underscore the privacy, governance and legal issues entangled in one fact of shifting demographics: as the US population ages, so too do the chieftains of Corporate America. The average age of a CEO has risen 4% in the past decade and there has been at least one health-related change atop S&P’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 & Company. “When people are in the zone of what they love to do, most of them are not going to voluntarily give that up. This 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; 19 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.
A CEO has to overcome squeamishness about discussing their replacement well before they are ready to leave … They have to see clearly and make plans for every eventuality, even death
The issue has touched companies from Apple and Berkshire Hathaway to United Continental Holdings and Goldman Sachs Group, 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. A CEO has to overcome squeamishness about discussing their replacement well before they are ready to leave, Temin said. “They have to see clearly and make plans for every eventuality, even death.”
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 December 16 statement, M&T outlined how Wilmers’s 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 $17bn in market value in less than a year.
The railroad is confident its “disclosures are adequate and appropriate”, spokesperson Bryan Tucker said by e-mail on 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. He 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, in 2012, Berkshire Hathaway’s Buffett and, in 2016, Goldman’s Lloyd Blankfein quickly disclosed full details when they were diagnosed with cancer.
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
One difficult area with CEO health disclosures is that CEOs don’t always share all the information they have with their companies, said former Securities and Exchange Commision (SEC) chair 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 affect 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.”