When a CEO Has Covid-19, Boards Must Decide What to Tell Investors


(Bloomberg) -- Chief executives of big public companies, like most everyone else in the U.S., are at risk of exposure to the Covid-19 virus—but if a CEO tests positive, experts say that’s probably a “material risk” to shareholders. The big question is: What must executives and directors reveal, and when?

Tom Lin, a Temple University law professor who has researched CEO privacy and disclosure, recommends transparency.

“Given what’s happening in the world and how the marketplace and society is really focused on this sort of pandemic,” he said, “it would be prudent for any CEO who’s been diagnosed with Covid to disclose it to their board, at minimum, and probably to their shareholders.”

The average age of an S&P 500 CEO crept up to 57.9 years last year, on the threshold of the 60-year mark after which the U.S. Centers for Disease Control and Prevention says people are most at risk if they contract the virus that causes Covid-19. Almost two dozen chief executives in the index, including Berkshire Hathaway Inc.’s Warren Buffett, are 70 or older. In each of the past five years, at least one CEO in the measure has been replaced for health reasons.

The CDC says that the virus in the U.S. probably cannot be contained and that the focus is now on mitigating the impact on society and trying to slow the pace at which the virus spreads, to avoid overwhelming the health system with a glut of patients. The World Health Organization declared the outbreak a pandemic on Wednesday, saying cases outside of China have risen 13-fold. The U.S.’s top infectious-disease specialist told lawmakers the pathogen is 10 times more deadly than the seasonal flu.

Even if a CEO or a top executive is seemingly healthy but is maintaining a recommended 14-day self-quarantine, companies should consider disclosure, Lin said. Imagine the effect on the company’s stock if news of the executive’s isolation should leak on social media, he said.

Lin pointed to JPMorgan Chase & Co.’s Jamie Dimon as a model example of CEO health disclosure. The bank last week announced that Dimon had emergency heart surgery and was temporarily ceding duties to two of his subordinates. Dimon also quickly disclosed health issues in 2014 when he was diagnosed with cancer. Executives who have been similarly forthcoming include Buffett in 2012 and Goldman Sachs Group Inc.’s Lloyd Blankfein in 2015 when each was diagnosed with cancer. Others, like Hunter Harrison of CSX Corp., who died in the job in 2018, and Steve Jobs of Apple Inc., who did not reveal the extent of his cancer, were criticized for being less forthcoming. But there is not always a clear line showing when a CEO can keep a health matter private.

“Not every CEO is Jamie Dimon, and not every company is JPMorgan Chase, so it’s very context driven,” Lin said.

There are no specific U.S. regulations that require CEOs to disclose health issues to anyone, including their boards, unless there’s been some specific agreement to do so, said Allan Horwich, a professor at the Northwestern Pritzker School of Law and a partner at Schiff Hardin law firm. In each case, it’s a judgment call for the CEO and the board, he said.

The board will have to assess how crucial the executive is to the company’s operations and factors such as whether the CEO has a pre-existing health condition that might make the Covid diagnosis more serious, Horwich said. The CDC says older patients with heart and lung disease are particularly vulnerable. More and more people are already working remotely, so self-quarantine itself might not be very disruptive and thus less material. It all depends on what facts the executive and the directors have in front of them, he said: “We don’t have any magic formula.”

©2020 Bloomberg L.P.

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