Video: CEOs at risk

Talent Names - Melissa Lee
By Melissa Lee Reporter
updated 7/10/2006 4:42:31 PM ET 2006-07-10T20:42:31

When a CEO is sick -- who has the right to know about it?

Death makes exceptions for no one -- including CEOs. Just last month, Frank Lanza, defense industry titan and chief at L-3 Communications, died suddenly of esophageal cancer. Days later, Skip Ackerman, President and CEO of upstart biotech, Panacos Pharmaceuticals, died of a heart attack.

These two separate tragedies had similar aftermaths: the deaths caught both companies by surprise with no succession plan in place. And they left investors wondering: did they have the right to know more about their CEO's health before it was too late?

“When you become the CEO, one of the luxuries you must relinquish is the luxury of privacy,” said Nell Minnow, a shareholder activist and editor of The Corporate Library. “You are so important to the future of the company that they must know. I’m not saying they have to know every hang nail you have. But certainly they need to know if there are any health issues that may affect your ability to stay in that job for the long term.”

Corporate boards now ask CEO candidates, not just about vision and strategy, but about their health. And full physical exams have become a regular part of the CEO screening process.

But shareholders -- legally -- don't have a right to know if a chief's been diagnosed with cancer, heart disease or any other potentially deadly affliction.

“Securities laws have no specific guidance or requirement for health,” said James Cox, a law professor at Duke University. “Or even a health condition that’s likely to impair continued performance of an executive – (there’s) no requirement that that be disclosed.

What happened to McDonald's two years ago was a wake-up call for many boards. After the death of CEO James Cantalupo, and then the sudden resignation of his successor because of illness, companies realized that they can lose their CEOs. And that it can even happen twice.

Still, less than 50 percent of Fortune 500 companies have a succession plan ready to go. And for companies – especially those whose CEO is seen as crucial to the firm's success -- succession plans are critical. Apple for one, says it's got one.

“If the CEO is the driving force and the public face, an untimely death catastrophe, rolling a succession plan out is the right thing to do,” said Umesh Ramakrishnan, vice chairman of executive search firm Christian & Timbers.

Preparing for the unexpected in the “C suite” is right for the company — and right for shareholders.

© 2012 CNBC, Inc. All Rights Reserved


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