Goldman and United CEOs are ill – What’s next?

By Yan “Anthea” Zhang, the Fayez Sarofim Vanguard Professor of Strategic Management, Rice University’s Jones Graduate School of Business

Goldman Sachs Group’s CEO Lloyd Blankfein revealed Sept. 22 that he would undergo treatment for a curable form of lymphoma. United Airlines’ new CEO Oscar Munoz was admitted to the hospital Oct. 15 for a heart attack. There are four critical issues related to Blankfein’s and Munoz's illnesses and the impact on their companies that offer guidance for any company, large or small: the importance of a timely and transparent disclosure, the value of separating CEO and board chair positions, the role of succession planning, and the urge to care for the emotional and mental health of the ill CEO’s social peers, especially those on the board of directors and other top management team members.

1. Importance of a timely and transparent disclosure. Blankfein quickly informed the board of directors, the top management team and clients of his illness. The firm then informed the public. In comparison, United issued only a 47-word statement last Friday without revealing many details, leaving its shareholders and other observers guessing how severe Munoz's illness was and what the impact on the company would be. For most people, information about their health is their private concern. However, for those in senior executive positions of publicly listed companies, their health is a concern of various constituents such as shareholders, employees, clients and suppliers. A timely and transparent disclosure of CEO illness is important. While such disclosure may cause short-term turbulence, it can create a sense of trustworthiness among key constituents. In contrast, if the CEO and/or the company wait too long and possibly let rumors spread, constituents may question motives and wonder whether the company is trying to hide something.

2. Value of separating CEO and board chair positions. On Sept. 22, Bank of America’s shareholders voted, yet failed, to force Brian Moynihan to split his dual roles as CEO and board chairman of the bank. This move was largely driven by the shareholders’ dissatisfaction with Bank of America’s performance and to improve corporate governance. Blankfein’s illness provides another rationale for separating these two roles. As CEO and board chairman of Goldman Sachs, both positions would be vacant if Blankfein should have to leave for his cancer treatment. In contrast, when the two positions are split between two people, one can step in to shoulder parts of the other’s responsibilities. Thus, separating the two positions allows firms to better manage potential disruption and risk.

3. Role of succession planning. These incidents also highlight the critical role of succession planning. Goldman has a deep bench of talent internally and should be able to find a successor there if needed. However, if the firm has formal succession planning in place, the CEO-in-waiting would immediately be available to fill the void caused by Blankfein’s leave of absence and thus mitigate the adverse effects of the disruption. Munoz's illness, if severe, would cause a challenge for United. He was named CEO only one-and-a-half months ago after the abrupt resignation of his predecessor, Jeff Smisek. If Munoz can't go back to work quickly, United would have to look for another CEO. An example of clear succession planning is McDonald’s, which on two occasions, immediately appointed a new CEO from within when the incumbent CEO unexpectedly passed away. Not only the CEO position, but every key executive position deserves a succession plan. Formal and well-structured succession planning not only allows firms to develop the next-generation leaders, but also enables firms to better manage crises at the top that may be caused by various reasons, including severe illness and even death.

4. Urge to care for the emotional and mental health of the ill CEO’s social peers. My research partners and I recently finished a study that found that after witnessing the death of an independent director on the board, a CEO became less focused on acquisitions, as reflected in reduced number and magnitude of merger and acquisition deals. Our findings are consistent with the prediction of the post-traumatic growth theory, which suggests that the death of a social peer may increase the focal person’s awareness of death and accordingly reduce the importance of extrinsic goals such as fame and wealth in the person’s decision-making. In these two incidents, Blankfein’s and Munoz's illnesses may make other board members and top management team members of their companies think, “This could be me.” Such a feeling of empathy is part of human nature and should be encouraged. Companies should strive to create a working environment that allows their executives and employees to better balance work and life. However, it should be noted that if people are too concerned about their potential health issues or even death, their motivation to strive for good performance and firm growth can be hampered. Therefore, it is crucial for the firm to care for the emotional and mental health of the ill CEO’s social peers in a proactive manner.

Surprises happen from time to time, and very often, they are out of our control. However, companies need to be prepared to manage surprises, especially those occurring in the executive suites. Separating the CEO and board chair positions as well as having a succession plan for key executive positions can reduce the disruption of surprises. A timely and transparent disclosure can create a sense of trustworthiness among key constituents. Finally, care for other social peers’ emotional and mental health can prevent the surprises from affecting others and limit the scope of the negative impact.