CEO's leave puts light on governance dilemma

When Cheryl Miller was granted a medical leave of absence from her role as CEO of AutoNation, the biggest U.S. dealership group was faced with the age-old question of how to balance her right to privacy with other stakeholders' desire to know that leadership is sound.

AutoNation chose not to disclose details of Miller's medical condition or a timeline for her return in an April 13 U.S. regulatory filing that said longtime CEO Mike Jackson, 71, who stepped down last year, would fill in for Miller, 47. Companies aren't legally obligated to provide such details, regulatory and compliance experts told Automotive News, and a spokesman declined to elaborate on the filing or address whether Miller's leave had anything to do with the coronavirus or the pandemic.

But COVID-19 adds a layer of complication to a company's decision about what to disclose, in part because the virus that causes the potentially fatal disease is so contagious.

There is no indication Miller's leave has anything to do with the coronavirus. But the question is a natural one, given the number of public figures who have tested positive. Among them is former Utah lawmaker Robert Garff, chairman of another dealership giant, Ken Garff Automotive, who died in March after contracting COVID-19. He was 77.

Many companies opt to say as little as possible about a CEO's health, said David Bell, co-chairman of Fenwick & West's corporate governance practice in Mountain View, Calif.

"It may be risky to make an incomplete disclosure," he said. "And again, when you're trying to balance somebody's privacy interests and the risk to the company, that leans people toward not making disclosure."

AutoNation's board of directors met April 12 by telephone. It approved Miller's request for leave that came over that weekend, said Chief Marketing Officer Marc Cannon.

A change in leadership — even a temporary one — obligates a publicly traded company to make an 8-K filing with the Securities and Exchange Commission, experts say.

Miller has been CEO since July, when AutoNation parted ways with Carl Liebert, an industry outsider, who held the job for four months after succeeding Jackson. Miller had been Jackson's CFO for five years and Jackson said Miller was runner-up for the CEO job when Liebert was hired.

"If it impacts materially your ability to carry out your responsibilities and someone else has to come in, it has to be disclosed," said Charles Elson, director of the Charles L. Weinberg Center for Corporate Governance at the University of Delaware. "How much is disclosed will vary. What would a reasonable investor want to know? There's a real sliding scale, and a lot of debate on that."

Elson said including the illness or ailment could provide investors clarity into how serious the issue may be, or how long a leave of absence an executive requires.
Miller could not be reached for comment.

Experts pointed to varying examples of how companies have handled executive health ailments. The SEC reportedly investigated Apple Inc. over failing to share information on founder Steve Jobs' health. For years, speculation abounded over his fitness to run Apple, and "the stock price was like a yo-yo as a result," Elson said. Jobs died of pancreatic cancer in 2011.

On the other end of the spectrum, Jamie Dimon, CEO of JPMorgan Chase, was a model for how executives should approach disclosing an illness, said John Coffee, a professor at Columbia Law School who specializes in corporate governance and securities law.

On March 5, the same day as Dimon's emergency heart surgery to repair an acute aortic dissection, JPMorgan issued an 8-K that included a letter sent to employees, shareholders and clients from company co-presidents and co-COOs, whom the board named to temporarily lead the company while Dimon recovered.

David Whiston, an analyst with Morningstar Inc., said in a note to investors last week he believed Miller's health issue "is something other than COVID-19 because we don't think a medical leave would be announced for the virus."

For companies faced with an executive who may have COVID-19, Coffee said a company may opt not to disclose that if an executive was awaiting test results. But given the contagious nature of the disease, Coffee said there's little shame in disclosing an infection in a company's higher tier.
At least a dozen CEOs and CFOs have tested positive for coronavirus, but it's unknown how many other leaders have tested positive and have not told their employees and investors, public relations firm Edelman said in an article last week on the Harvard Law School Forum of Corporate Governance's website.
"The Securities and Exchange Commission doesn't require disclosures around the health of a CEO, and so far that includes COVID-19 illness," according to the post.
And while having the coronavirus may not be material to the SEC, Edelman argues for greater transparency.

"It's clear there is an obligation to disclose a positive case due to public health concerns and the need for leaders to set an example of transparency," the post said.