The recent news of the sad and untimely death of Micron's Steve Appleton should have investors asking some rather pointed questions of corporate boards of directors. Foremost among them should be something along the lines of this: if CEOs are truly so essential to the future of a company and so difficult to replace (as is often argued when the subject of CEO pay arises), then why don't boards do more to keep them safe?
Unheeded Warnings and an Untimely Death
Though we do not wish to compound the pain of Mr. Appleton's family, nor trivialize his death, the fact remains that investors had some warning that he enjoyed risk-taking. Appleton was a serious stunt pilot and also enjoyed motocross and off-road racing. After he suffered meaningful injuries in a 2004 stunt plane crash (injuries that arguably were not revealed to investors in a timely fashion), he reportedly told a "USA Today" reporter that, "the older you get, the more risk you should take."
Consequently, his death while flying an experimental fixed-wing aircraft early in February cannot be considered a complete surprise. More troubling still are the anecdotes and rumors that he either ignored a request from Micron's board to tone down his risk-seeking hobbies after the 2004 crash, or such a request was never made on the basis that he'd never accept it.
Now, Micron finds itself in a difficult transition as the semiconductor cycle is turning. What's more, Appleton was a good CEO who had positioned Micron in such a way that it had been weathering downturns better than ever before. It seems all the more unfortunate for Micron shareholders that not only are they deprived of many more years of excellent leadership, but that it is an unnecessary and avoidable loss.
Hardly a Rare Case
Although I cannot immediately recall another recent example of a CEO dying in the pursuit of adventure and excitement (Steve Fossett was wealthy and well-known, but not a CEO), it is not because Appleton's interests outside the office were so unusual.
Larry Ellison, Oracle's famous CEO, is well-known for enjoying adrenaline rushes and has owned military-grade aircraft to pursue them. Likewise, Bill Gates has a well-known love of supercars that stretches back to his Microsoft days (as does famous filmmaker George Lucas), and people do not generally pay hundreds of thousands of dollars (or millions) for cars with 700+ brake horsepower just so they can do 70 mph on the highways.
Perhaps no one embodies the adventurer-CEO persona better than Virgin's Richard Branson. Branson has famously enjoyed fast cars and fast boats for as long as he has had the means to do so. In fact, Branson has crossed the English Channel in an amphibious car, and has had a go at an around-the-world balloon flight, as well.
Can This be a Good Thing?
It's certainly not news that many CEOs fit a personality type that emphasizes bravery, risk-taking and supreme confidence in addition to vision and leadership. Along those lines, a CEO willing to push a military-spec plane to its limits or free-climb sheer rock faces is likely not to be fazed when it comes to playing hardball with a supplier or market rival. Moreover, a CEO who has those instincts and traits may not find personal satisfaction solely from reporting good earnings every 90 days.
In some cases, these larger-than-life CEOs have turned their personalities into verifiable corporate assets. Whether or not Ellison's need for speed and constant need to win has helped Oracle may be debatable, but Branson has certainly garnered a great deal of attention for Virgin that it otherwise would not have had. Along similar lines, it could be argued that Donald Trump's very business model depends upon him being the Trump that he portrays in the media.
Is This any of Our Business?
I have no doubt that some readers will argue that these are grown men (and overwhelmingly they are men) and they have a right to do whatever they please with their free time. Besides, life is haphazard and far more CEOs have died from sudden heart attacks than adventure sports or risky behaviors.
That's true, but it also misses a point. CEOs are not regular employees; they are charged with the direction of businesses that in many cases employee hundreds or thousands of people, as well as the stewardship of billions in shareholder capital. That is, after all, why they are paid as much as they are, and with that pay there comes along certain responsibilities that likewise don't necessarily apply to everyday people.
Said differently, when hundreds of people depend on you (at least in part) for their livelihood and thousands more depend on your performance for their financial well-being, you cease to be an untrammeled private citizen. Just as courts have found boards of directors liable and responsible for confirming a CEO's background, qualifications and ongoing facilities for performing the duties of a CEO, it does not seem so unreasonable to imagine a legal obligation to either restrict potentially risky CEO behavior or at least publicly disclose it.
Consider, as well, the examples from the sports world. It is standard practice among the major sports leagues to include clauses in contracts that expressly forbid activities like flying private planes, riding motorcycles, skydiving and so on. When promising Chicago Bulls forward Jay Williams severely injured himself in a motorcycle accident, it voided his contract with the Bulls (though the team did give him $3 million for rehabilitation expenses when it subsequently released him).
It's also worth noting that it's not just the sports world that imposes these restrictions. Many companies require key employees to sign contracts that govern their behavior both in and out of the office, including proscriptions and restrictions on risk-taking activities.
The Bottom Line
Perhaps great CEOs are like artists and must be allowed to express themselves fully to really achieve their best results. Certainly there's something to be said for companies led by people who are not afraid to face risks and are constantly looking to push the envelope of what's possible.
The problem that arises from this is one of sustainability. While investors accept the risk that a company's leader may die unexpectedly due to health problems or true accidents, most investors do not consider the risks inherent in racing, flying or adventure sports in their investment analysis process. Moreover, boards of directors do not seem to go out of their way to inform investors of this potential risk factor, even while simultaneously awarding fat bonuses and salaries on the basis of the CEO's irreplaceable value to the firm.
While it is unlikely that risk-seeking CEOs are going to quit their hobbies just because a board asks them to, investors have a right to know what they're getting into when they become co-owners of a company. Given that successful investing is often about minimizing the influence of controllable and diversifiable risks, perhaps boards of directors need to reassess and reassert their authority when it comes to limiting unnecessary risks to their ongoing corporate leadership.
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