Succession planning is among the most important priorities for corporate boards and their top executives.
It is a topic many prefer not to discuss, but health issues can impact top executives, suddenly, especially as they age.
The concern about planning for change at the top is not limited to CEOs or chairmen. Increasingly, general counsel, too, are getting closer to retirement age especially if they are part of the Baby Boom generation. Companies need to be prepared if such a high-ranking executive leaves suddenly.
The concerns were highlighted with Jamie Dimon’s throat cancer diagnosis. He is J.P. Morgan’s chairman and CEO. He plans to remain chairman and chief executive of J.P. Morgan Chase for an additional five years, The Wall Street Journalreported.
Yet, questions have arisen such as should the company consider separating out the chairman’s and the CEO’s position. Another important point is has the company addressed who can succeed him, temporarily or permanently.
Dimon’s prognosis is “excellent” and the illness is “curable,” according to a memo he sent to employees.
Still, Dimon, 55, will likely need to lessen his workload while he gets eight weeks’ worth of medical treatment.
“When you hear the ‘C word,’ everyone freezes,” Deborah J. Cornwall, managing director at Corlund Group, told The Journal. “The CEO and the board and the corporation are far better served by full disclosure than by playing ostrich and pretending it will go away—because it may or may not.”
She says the board should say soon whether a leave of absence is needed.
Yet, David Ellison, who manages a portfolio that includes J.P. Morgan shares, is not worried about J.P. Morgan’s long-term planning.
“In an organization as large and as complex and as managed as it is, I’m not that worried about succession,” Ellison told The Journal. “He’s grooming four or five people, and that will work out just fine.”
Overall, powerful people, who have multiple titles at companies, may have to leave for reasons other than health concerns. Just look at American Apparel where Dov Charney was removed as chairman and is likely to be removed soon as CEO.
A fight is brewing there, as shareholders are divided about his future role. In fact, the day after he was removed, Charney “began to discuss with the Supporters potential changes to the composition of the Board and management,” according to a recent filing with the Securities and Exchange Commission, quoted by InsideCounsel. Charney also wants the issue to go into arbitration in an effort to remain on as the company’s president and CEO, according to The Journal. He was forced out because of “misconduct.”
In another instance, the resignation of Target CEO Gregg Steinhafel illustrates the importance of succession planning, as well, InsideCounselsaid. A massive credit card breach late last year was seen as the main reason for the early exit.
These situations all show the importance of adequate succession planning. It is important for companies to discuss the uncomfortable.