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Indispensable execs demand higher disclosure

If companies and markets think and act as if executives are irreplaceable, key-man risks need to be more fully disclosed
Hunter Harrison in 2015 when he was CEO of Canadian Pacific Railway. REUTERS/Mark Blinch

By Robert Cyran

NEW YORK (Reuters Breakingviews) - CSX's turnaround expert Hunter Harrison is dead months after joining the railroad. A rich signing package and the $10 billion (all dollars US) in market cap that followed his arrival suggested the value of his role. But if companies and markets think and act as if executives are irreplaceable, key-man risks need to be more fully disclosed.

Harrison’s skill wasn’t in doubt. A string of successes at multiple railroads showed he had an uncanny ability to cut costs, run trains efficiently and deliver profit. When activist investor Mantle Ridge demanded he be placed at CSX’s helm, and the company reimburse $84 million in costs related to hiring him, the firm’s investors eagerly played along.

The ability of the 73-year-old to serve his four-year term was always questionable. He had undergone invasive surgeries in the past, including a heart bypass, and required a portable oxygen tank. Harrison declined letting an independent doctor examine his medical records prior to joining CSX. And he sounded poorly on conference calls and usually worked from home in Florida.

It’s unclear how sloppy the company was in its due diligence. CSX merely said he died due to “unexpectedly severe complications from a recent illness.” The same unenlightening description could be said about most deaths, making it impossible to say what the company knew and when. Unless CSX clarifies things further, investors might discount all further utterances from the company.

Health may be a personal matter, but there are limits for those selected to lead public companies. If enterprises reward executives handsomely for leading, and there are heavy investments associated with their strategies, it seems fair to require bosses to disclose more about their health.

True, CSX isn't the only bad apple. Apple claimed Steve Jobs had a virus, then a hormone imbalance, before the surprise announcement of his liver transplant, which preceded his untimely death. With the average age of a CEO at an S&P 500 firm steadily climbing and now over 57, according to Spencer Stuart, the market is increasingly full of indispensable men of unknown health.

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