Fiat Chrysler’s announcement that its hard-charging CEO was being replaced following “unexpected complications” after a surgery did not offer many details: the kind of surgery. Details about the complications — or their severity.
But corporate governance experts say that as CEO disclosures go, the announcement about Sergio Marchionne offered more than companies are required to share. It also reflects the dilemma that boards of directors face when balancing CEO privacy, the needs of shareholders for information and a growing ethos of transparency about the health of high-profile executives.
“There has been a meaningful trend in the detail that’s in the press releases” when CEOs depart, said Jason Schloetzer, a professor at Georgetown University who studies CEO succession. “No longer do you see as many that are just boilerplate. The fact that they talked about complications from surgery suggests more information than shareholders would have gotten in the past.”
Reports say the complications followed recent surgery Marchionne, a well-known dealmaker who has been described by a former Chrysler CEO as a “legend” for his performance leading the combined automaker, had on his right shoulder. A company spokeswoman, Shawn Morgan, confirmed Marchionne had shoulder surgery but would not comment on the nature of his complications or offer further details about his health “out of respect for him and his family.”
Yet in a statement Saturday, chairman John Elkann clearly suggested the complications were acute and had surfaced recently, saying “I am profoundly saddened to learn of Sergio’s state of health. It is a situation that was unthinkable until a few hours ago, and one that leaves us all with a real sense of injustice.”
Tom Lin, a law professor at Temple University who has studied issues around CEOs and privacy, says there is no mandated securities or corporate law requiring companies to disclose health conditions of senior executives, noting that any such requirement could run into conflict with health privacy laws. There is, however, a standard that’s “encapsulated in a concept called ‘materiality’ ” — or what a reasonable investor would expect to know to make an informed decision — that can lead companies to offer details on CEOs' health conditions.
However, that varies from one company to another, Lin said.
“Not every company’s CEO is Warren Buffett or Tim Cook or Sergio Marchionne,” he said, suggesting the high-profile, largely successful tenure of the 14-year veteran could have prompted the board to share more. “Law- and policymakers have left this decision up to the board of directors of each company because they’re best positioned to know how important one executive is to the future of a company’s success in ways that outsiders just aren’t able to assess.”
Fiat Chrysler, which handed the reins immediately to its Jeep brand head Mike Manley, was also well positioned to talk about succession because Marchionne was expected to retire next year, meaning a plan was already in the works. Marchionne was also CEO of the luxury carmaker Ferrari, which said it planned to name board member and former Philip Morris International CEO Louis Camilleri as a successor, noting it had “learned with deep sadness during its meeting today that [Marchionne] will be unable to return to work.”
While it’s hard to tell whether boards are necessarily disclosing more — we don’t know what what’s not being disclosed — governance watchers say there appears to be more willingness to share details about a CEO’s health. Yale School of Management Senior Associate Dean Jeff Sonnenfeld said that was possibly spurred by the debate that raged when Apple shared little about then-CEO Steve Jobs’s health. Sonnenfeld pointed to disclosures by Goldman Sachs and JPMorgan Chase about cancer diagnoses of their respective CEOs, as one example.
“Those CEOs acted admirably with transparency we wouldn’t have seen before,” Sonnenfeld said. The debate around Jobs’s health “was a threshold, milestone moment.”
Others say slight upticks in CEOs' ages — the average departing CEO was 60 in 2017, compared with 58 in 2012, according to Schloetzer — could be having an impact. “The average age of a departing CEO is increasing, and the average tenure of a departing CEO is increasing,” he said. “There at least looks like the possibility that having an unexpected health risk would also be increasing.”
Another reason may be that in an era of social media interest in CEO transitions and the #MeToo movement, boards may provide more detail to deflect other concerns. “Companies want to show the culture’s clean,” Sonnenfeld said, even if it means “a modest sacrifice of privacy” from the CEO.
He also noted the irony that Camilleri, Ferrari’s new CEO, had been CEO of Altria Group, which owned the majority of Kraft Foods in 2004 when Kraft employees were told their CEO, Roger Deromedi, had been admitted to a hospital. According to a report in the Wall Street Journal at the time, Kraft told employees that Deromedi was admitted for an “undiagnosed medical condition” but then said nothing more, leading to uncertainty for investors.
Said Sonnenfeld: “I’ll bet he learned from the experience."