New York - When Goldman Sachs’s then senior partner, Gus Levy, suffered a stroke in the middle of a client meeting in 1976 and died shortly after, the bank’s management did not know who would lead the firm. No one had planned for succession.
What happened next is not entirely clear. As Roy Smith, a former Goldman partner, tells the story, Levy left a note in the top drawer of his desk in the office. It said if anything were to happen to him, the management committee should name John Whitehead and John Weinberg as co-senior partners. And so Goldman did that, Smith said.
“It was a very short period of people not knowing,” Whitehead said.
Succession planning at most major US companies has evolved considerably since then. When JPMorgan Chase chairman and chief executive Jamie Dimon announced last week that he had been diagnosed with throat cancer, the largest US bank said its board already had plans for a full range of scenarios in place.
Sudden, life-threatening ailments such as cancer present unique management challenges, which can throw a company into limbo and need more than the typical succession planning that boards do.
Companies must decide how much to tell investors, while balancing disclosure with the privacy of the chief executive and his or her family. They have to accelerate their succession planning, while remembering that the person could recover and continue to do the job. They must ensure day-to-day management can continue, but also be prepared to deal with the situation if a crisis suddenly hits while the chief is out of commission.
Treatment for an ailment such as throat cancer can be debilitating. There is often also residual damage from the radiation, which means recovery takes time.
“The real question is: how much distraction and energy and focus do you still have to keep running the company effectively?” Smith said.
It is a possibility that companies have to face. Sitting chief executives at other companies – such as Robert Benmosche at American International Group (AIG) and Warren Buffett at Berkshire Hathaway – have been diagnosed with cancer in the past.
In general, chief executives tend to be in an age group that is vulnerable to cancer. According to the National Cancer Institute, of all the people diagnosed with cancer in the US from 2007 to 2011, 24.1 percent were between 55 and 64 years old and 25.4 percent were between 65 and 74. Dimon is 58.
While companies have made progress in managing such situations, corporate governance experts said more was needed.
David Larcker, a professor at the Stanford Graduate School of Business, said: “The issue is, how do you convince shareholders that you have a really good succession plan that is more than words?”
AIG faced a problem four years ago when Benmosche was diagnosed with cancer. The insurer was struggling to recover and looking for ways to repay US taxpayers for its bailout after it almost went bankrupt in the financial crisis.
AIG chairman Robert ‘Steve’ Miller, who was only a few months into his chairmanship at the time, said the first step was to “get it out there and be truthful”.
Further, AIG said at the time that if Benmosche were unable to serve for any reason, Miller would take over as interim chief executive.
The AIG board also set its succession plan in motion. Peter Hancock, who dealt with finance, risk and investments, was put in charge of its property casualty business, a key position running operations, to develop him as a potential candidate. He was named chief executive earlier this year and will take over from Benmosche in September.
JPMorgan has not said who would step in as interim chief executive if things took a turn for the worse with Dimon. But Miller and other corporate governance experts said someone like JPMorgan’s lead director Lee Raymond could step in if needed. – Reuters