(Photo: Carlos Osorio/Associated Press)
At the end of a marathon day in Balocco, Italy, in June, Sergio Marchionne was still going strong.
The CEO of Fiat Chrysler Automobiles, credited with saving its brands from oblivion, had introduced the company's latest five-year plan, offered some Bobby McFerrin-infused wisdom about music and creativity and taken questions from investors. Then there was a Q-and-A session with the press and a scrum with reporters after that.
A force of nature was how he seemed during the company's Capital Markets Day on June 1, just has he had ever since emerging in 2009 as a global auto chief executive. Less than two months later, he was dead.
In the days after his death, the Swiss hospital where he died said Marchionne had been treated over the previous year for an undisclosed serious illness, and questions were being raised about what company officials knew.
But if the FCA board knew of Marchionne's struggles — and that's not a certainty — is there a requirement to share more?
Despite leading Fiat Chrysler to a position of relative financial strength after its darkest days and his outsized role in modern automotive history, Marchionne's health, like that of other CEOs, could remain a secret so long as it did not affect his ability to do the job, according to experts.
U.S. securities law requires companies to disclose information considered materially relevant, but does not mandate the release of information related to CEO health. Despite the very public lives led by many CEOs and the significant amount of information companies willingly release, CEO health is often not a topic shared openly with the public.
Professor Sudip Datta, finance department chair at Wayne State University's Mike Ilitch School of Business, said the issue goes to privacy.
"There's no requirement per se about disclosing the health of the CEO to investors," Datta said, "Just because someone is a CEO, it doesn't mean someone checks all his privacy at the door."
The U.S. Securities and Exchange Commission "doesn’t say you have to disclose the private lives of the CEO or for that matter any employee," Datta said.
Ultimately, it's a gray area.
"The directors get to decide what is material," said James Dulebohn, a professor at the Michigan State University School of Human Resources and Labor Relations. "Deciding whether an executive's health is material (meaning it could affect investor decisions about buying and selling stock) is a difficult issue and you have the privacy issue as well."
What should be disclosed?
So what things are material related to a CEO and would need to be disclosed?
Datta offered several scenarios: If a CEO exploits insider information for personal gain, if he or she commits a crime, if a CEO knows about a product defect.
Joseph Holt, a professor of business ethics at Notre Dame University's Mendoza College of Business, distinguished between a legal requirement to disclose and a moral obligation to do so.
"Given how material Mr. Marchionne's role was in turning around the fortunes of Fiat Chrysler, I would say that argues in favor of moral obligation to disclose. But I would understand the board not doing so out of respect for the wishes of Mr. Marchionne and his family for privacy at a difficult time," Holt said in an email.
He noted that failure to disclose material information can involve a bad actor, such as a used car dealership knowingly selling a lemon, or a good actor in a tough situation, such as company officials weighing CEO privacy concerns against a desire to be transparent.
"By the way, whether or not one believes there's a duty to disclose the CEO's serious illness, there is certainly an obligation not to say that he or she is fine when the board knows that is not the case," Holt said. "A key moral issue in all of this is trust. Shareholders and suppliers who have been kept in the dark when their interests were at stake will not be as trusting as they were before."
Cindy Schipani, a professor of business law at the University of Michigan's Ross School of Business, said an illness or situation that effectively changes the CEOs role makes disclosure a best practice.
"When it gets to the point where the job starts to suffer or someone else has to take over, then disclosure is best," Schipani said. "It is material if the CEO can't perform the job any more."
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While disclosing such a situation is important, release of specific health details is not needed, she said.
"The specifics don’t need to be disclosed ... but whether the person is full-time, part-time, stepping aside, shareholders have a right to know," Schipani said. "(Investors are) making their investment decisions based on the leadership in part."
Schipani, however, said the SEC could provide more guidance on the issue.
"It might be helpful to boards and shareholders if there was a little more clarity, but it is tricky ... especially if a CEO is trying to overcome an issue (but) is still functional and capable," Schipani said.
Steve Jobs' health
One name came up consistently as the Free Press sought out experts to discuss whether there is an obligation to disclose information about CEO health — Apple's Steve Jobs.
The Financial Industry Regulatory Authority, in a post on the issue of CEO health, called the Jobs case "one of the most commonly cited examples of poor disclosure."
Between 2004, when Jobs said he had undergone surgery for pancreatic cancer, and 2011 when he died, Jobs' health prompted considerable speculation and vague updates from the company, according to the posting. In 2009, when Jobs took a leave of absence, the company's stock dropped 17 percent.
Steve Jobs, left, chairman of Apple Computers, John Sculley, center, president and CEO, and Steve Wozniak, co-founder of Apple, unveil the new Apple IIc computer in San Francisco, Calif. in April 1984. (Photo: Sal Veder, AP)
Experts noted that part of the dilemma for Apple's board was the belief in Jobs' importance to Apple.
"Jobs was a cultic-type figure, which made the board inordinately reticent to communicate the details they knew," Dulebohn said.
Despite those concerns, Apple has since recovered its luster, achieving a milestone as a $1 trillion company under the leadership of CEO Tim Cook.
Not all companies, or their leaders, opt for such secrecy. Berkshire Hathaway CEO Warren Buffett was one example, according to New York consulting firm Temin and Co.
"When Warren Buffett announced his illness, he made a pre-emptive strike at controlling his message, before news of his cancer diagnosis leaked out and was sensationalized by the media. It worked very well. Similar cases – where an illness was seen as serious yet recoverable, with a prescribed course of treatment available – have worked equally well," according to a report from Temin on announcing CEO illness.
"Other people have had illnesses, and they’ve disclosed that to all their employees and their shareholders," Dulebohn said, noting that when Herb Kelleher, then-CEO of Southwest Airlines disclosed he had cancer in 1999, the stock did not drop notably. Kelleher, the company's chairman emeritus, even joked about the diagnosis.
But even when a CEO's illness is not recoverable, companies have a good shot at limiting damage by properly preparing for what happens next.
Succession planning is key
Succession planning is key, according to Dulebohn, who said companies must do it for higher-level positions.
Life is uncertain, and a CEO could die unexpectedly or be incapacitated at any time.
A Free Press story in November focused on a coming wave of business-owner retirements, noting estimates that 80 percent of Baby Boomer-owned businesses lack a succession plan.
In the article, Mike Coast, president and CEO of the Michigan Manufacturing Technology Center in Plymouth, said "we know that there is a lack of succession planning among manufacturing business owners in Michigan generally. ... We should all be very concerned.”
In Fiat Chrysler's case, the person tapped to take over for Marchionne had been one of the names most frequently mentioned as a likely successor — Jeep and Ram boss Mike Manley.
Marchionne and company had clearly been involved in succession planning prior to the news of his health problems. He planned to retire in 2019 and had said on a number of occasions that the person likely to replace him would come from within the ranks of the company.
The fact that the process was under way likely helped soothe investor jitters,
"They did have a succession plan in place, but they had to speed it up," Dulebohn said.
Even so, FCA's stock price has dropped in recent weeks. The day before Marchionne's death, July 24, the stock closed at $19.28 per share. At midday Friday, shares were trading at $15.69.
https://www.freep.com/story/money/cars/chrysler/2018/08/18/ceo-health-sergio-marchionne/991462002/
