When Illness Comes to the Corner Office

Shareholders have every right to worry when a CEO is felled by illness, as Apple's owners are doing right now with the announcement by Steve Jobs of his latest time out for medical treatment.

Close observers of the company and its executive team seem confident in the company's bench strength. Nonetheless, there is still plenty of reason for trepidation. As John Tropman, a Directors & Boards author who has studied the implications of executive illness, wrote in our pages in 2008, "Boards and staff colleagues are left stumbling because, incredibly, there still are no accepted approaches to executive impairment."

In his thorough analysis of the organizational instability created by CEO illness, Tropman identifies three of the leading "bench" dangers:

• Office Distraction — Illness generates succession politics. As the executive’s attention wanes and his or her time becomes attenuated, others with an eye on the “executive prize” begin to strategize for power, influence, and possible succession. Major distractions develop as various executives and cadres strive for current influence and future power. The organization can suffer “mission attenuation,” in which employees begin to rivet their attention on who will be the ultimate “winner” rather than on the objectives of the business.

• Bad Decisions — Illness diverts decision making into backchannels or “non-responsible parties” (e.g., Woodrow Wilson’s wife; a boss’s support person).

• Uncertainty Reigns — Colleagues (superiors, peers, subordinates) experience problems similar to those confronted by the ill person’s family. Bosses do not want to intervene too soon. Subordinates do not want to appear overreaching but also do not want to delay intervention for fear of being faulted for undue delay. Peers are not sure what their role is, or could be, or should be, especially because they might be in line for succession if the ill person cannot resume her duties. Subordinates are perhaps in the most difficult position, because they are climbing up the power grid and anything they say is suspect.

John Tropman is a professor of nonprofit management at the University of Michigan School of Social Work and an adjunct professor of management and organizations at the university’s Ross School of Business. His co-authors on this article, titled "When Illness Comes to the Corner Office" [Third Quarter, 2008], are Robert Winfield, M.D., head of and a practicing physician at the University of Michigan Health Service and the university’s chief medical officer, and Penny Tropman, a practicing social worker, an adjunct professor in interpersonal practice at the University of Michigan School of Social Work, and a principal at Midlife Renaissance, a firm that offers wellness programs for individuals and the corporate market.

Here is a sobering bit of counsel that the three authors offer that should be taken under advisement not only by the Apple board but other boards that face this extremely uncomfortable, and not uncommon (AIG and Sara Lee, e.g., have just gone through this) situation:

Executive illness is a complex and important problem in the executive suite. The idea that one can rely on the executive to take the lead in the handling of his or her own illness is problematic for many reasons, not the least of which is that denial is characteristic of many illnesses. On the other side, “governors” — whether they be board members or staff colleagues — seem woefully ill prepared to take action.

Few options have been thought through and put in place to be readily exercisable. This gap creates and supports indecision and inactivity. Hence, we are faced with inaction on more or less every side, broken only by some dramatic event that forces steps to be taken. We owe our executives, our shareholders, and our organization’s stakeholders better than such stumbling.

Here is a slightly expanded excerpt that we ran in the Directors & Boards e-Briefing from "When Illness Comes to the Corner Office."

Stop Being Stupid

I am borrowing the title of today's blog post from one used by New York Times columnist Bob Herbert in December 2008. Here is a sample of what he had to say in his column:

"Americans must resolve to be smarter going forward than we have for the past few years. ... We have behaved in ways that were incredibly, astonishingly and embarrassingly stupid for much too long. We've wrecked the economy and mortgaged the future of generations yet unborn. ... We were stupid in so many ways. We shipped American jobs overseas by the millions and came up with the fiction that this was a good idea for just about everybody. We could have and should have taken the time and made the effort to think globalization through, to be smarter about it and craft ways to cushion its more harmful effects and to share its benefits more equally. We bought into the dopey idea that you could radically cut taxes and still maintain critical government services — and fight two wars to boot! ... It's time to stop being stupid."

This appeal to "resolve to be smarter going forward" readily applies to what goes on in the boardroom. On the day that I write this, March 12, the Wall Street Journal is reporting three developments that absolutely cry out for someone to say, "Stop being stupid." Allow me the dubious honor:

• AIG is announcing that it intends to recoup millions of dollars in retention payments slated for employees who have already left the firm.

• The Black & Decker board felt there was no perceived conflict of independence in putting on a special committee charged with appraising the company's acquisition by Stanley Works — which would trigger an enormous payout to Black & Decker's CEO — a member who was significantly invested with the CEO in a personal real estate development.

• What the WSJ describes as a "scathing report" has been released on the collapse of Lehman Brothers, alleging transaction designed to distort a clear picture of the financial soundness of the firm; a follow-up statement from a lawyer for Lehman's then CEO, Richard Fuld, is saying: "Mr. Fuld did not know what those transactions were — he didn't structure or negotiate them, nor was he aware of their accounting treatment."

C'mon, people. What is a board doing when it approves a multimillion-dollar compensation arrangement designed to reward executives to stay but will still pay them royally if they leave? What is a board doing permitting a director who is in bed with the CEO on a personal investment to be on a special committee approving his merger-instigated huge payout — and not thinking that's a conflicted situation? What is a chairman and CEO, well-documented for his hands-on role in running the firm, doing in saying that he had no involvement whatsoever in a tactic crucial to staving off the collapse of his company? (Granting that he had no such involvement, why would he issue such a statement anyway — what kind of a reflection is that on his leadership to be claiming such ignorance?)

Some of the best minds in governance believe that "courage" is the most important attribute in being a director. Last year I devoted an editor's note to that very topic. Yes, exhibiting courage in the boardroom is one way to have a governance system that functions the way it should. Another way is to stiffen the spine of the system through legal and regulatory ordering — hastily enacted legislation like SOX or some of the stuff now spewing from Washington.

A third way, and maybe the best way — thank you, Bob Herbert — is to just stop being stupid.

Fred Joseph: What a Board Is For

Fred Joseph, who "helped to create the junk bond business as chief executive of Drexel Burnham Lambert," as noted in the New York Times obit, died on Nov. 27 at the age of 72.

I had invited Mr. Joseph, then co-head of investment banking at Morgan Joseph & Co. Inc., to contribute to a "Best Board Advice" compendium piece that I was including in the 30th anniversary edition of Directors & Boards. The theme of this special issue, published in 2006, was "Wisdom of the Ages." Mr. Joseph's piece of advice certainly was a worthy one. Here is what he offered up:

"A tempting as it may be to impress your friends, a board is not merely for show and tell. As difficult as it is to share your concerns with them, a board should be used to help you make your most important and stressful decisions."

Well said, Mr. Joseph. He passes on at a much too young age. But this insight is a timeless one.

[Photo courtesy of Time Life]

Bruce Wasserstein: 'Let's Just Think About That'

So sudden — the death of investment banker Bruce Wasserstein yesterday at the age 0f 61. Tributes to his colossal impact on M&A dealmaking have been made in the Wall Street Journal, New York Times, Financial Times, and other publications.

Directors & Boards visited with Wasserstein in 1999, when he sat for a cover-story interview with our lead columnist Hoffer Kaback. Over the course of nine pages of sharply conducted Q&A, Wasserstein gave a peek into his playbook for getting a deal done.

Of all the tips and tactics discussed, there was one practice of his that he talked about that is ideally suited for helping boards in all their decision making, not just with M&A.

When the conversation turned to his admiration for one of his Harvard Law School professors, Lon Fuller, Wasserstein said this:

"I admired him both in an ethical sense and for the way he was able to shave an intellectual problem, if you want to put it that way, and look at it from many different points of view. A prism of fact, if you would. And I guess I was attracted to that way of thinking.

"He had an expression, 'Well, let's think about that.' Someone would come up with the obvious answer and he'd say, 'Well, is that right? Let's think about that.' And that's what I try to do with the people around here. You get a young, bright guy who says, 'We're going to do this to solve that.' Maybe he's right. I don't know. 'Well, let's just think about that.' I find that taking that little extra time to think about something is helpful when everyone's in a big rush."

Powerful advice for boards. In the heat of the action, when management is raring to go down a particular path, how much better a decision will be made if one or more of the directors bats back with a "Well, let's just think about that"?