Strategy

Can illness kill your company?

When your charismatic leader falls sick, it may already be too late to put in a succession plan.

March 2011. Jack Layton at his home in Toronto.
Photograph by Christopher Wahl

As soon as the May 2 federal election was called, the questions began for New Democratic Leader Jack Layton. Not about policy or strategy, but about his health. Layton was walking with a cane, in recovery from hip surgery, as well as coping with his continued battle with prostate cancer. Although he’s been the face of the party since 2003, his candidacy for the country’s top job has brought up issues of disclosure and privacy: How much does the public need to know about a prospective leader? And can those concerns hurt the party’s chances?

Similar questions have dogged Apple since CEO Steve Jobs underwent pancreatic cancer surgery in 2004. In January, Jobs announced his third medical leave. His unexpected presence at the launch event for iPad 2 in early March reignited debate over how essential he is to Apple’s continued success, and how much investors are entitled to know about his health. Apple’s board of directors has been criticized for not having—or failing to communicate to investors—a clear succession plan.

Succession planning is a common challenge for companies, but it’s particularly tricky for those whose CEOs are perceived essential to the brand’s performance. Even though Warren Buffett, Berkshire Hathaway’s 80-year-old chairman and CEO, assures shareholders a succession plan is in place, investor confidence is bound to be affected when the Oracle of Omaha departs. And they’re right to ask questions, say governance experts, because companies are often insufficiently deliberate in their provisions.

Stanford University professor David Larcker, who directs the school’s governance research program, says the case of Apple and Jobs’s health has convinced more shareholders and institutions to demand that corporate boards establish detailed succession plans. “If something bad happened to the CEO, a large percentage of companies are going to go into trauma,” says Larcker. “They just don’t have a ready set of people in place they can reach out to.”

Yet companies need to anticipate unexpected changes in leadership, says Merril Mascarenhas, managing partner of Toronto-based consultancy Arcus. “As soon as a CEO is appointed, there should be a succession plan,” he says. “It should be ingrained in the annual strategic plan.” Companies should have an emergency leadership transition plan in place were the CEO to become incapacitated, Mascarenhas says.

Many could learn from how McDonald’s dealt with such a crisis. In April 2004, CEO James Cantalupo died suddenly of a heart attack. Six hours later, the company named Charlie Bell its new CEO. Within weeks of his appointment, Bell was diagnosed with cancer, left the company by November, and died in January 2005. In the same statement that McDonald’s announced Bell’s resignation, it named current CEO Jim Skinner to the top job.

That kind of prompt reaction tends to be the exception rather than the rule. And if a company has no succession plan in place, it implies poor organization. “Investors start to wonder about the board and the governance of that company,” he says. “They might start peeling back the onion and looking at how the company is managed, and not like what they find.”

Tying a brand too strongly to an individual or team is generally a risky strategy, experts agree. While Layton remains the figurehead, the NDP now spotlights its bench strength in MPs like Thomas Mulcair. As in politics, it’s the company that should breed the leader, not the other way around, says Louise Wilson, director of PricewaterhouseCoopers’ people and change practice. “A key component in succession planning is establishing a leadership culture very deliberately, and grooming people to that,” she says, “as opposed to allowing one or two individuals to shape it.”