An increasing concern of the executive search and succession, and the executive compensation, committees is the need to take appropriate steps to assure the health of executives for purposes of the hiring and retention processes. This is an effort in which the general counsel, who supports the work of these committees, can provide leadership.
Much of the concern on this point arises from the experience of a major transportation company, who had hired a prominent executive as its CEO, knowing that there had been prior concerns as to the executive's medical history. As part of the recruitment process, the executive refused the company's request to provide copies of medical records and to submit to a physical examination. Once hired, speculation as to his health continued, and indeed after roughly a year of employment, the CEO died following short leave of absence. Subsequently, the company adopted a policy requiring its CEO to have an annual physical exam performed by a physician of the board's choice.
The personal impact notwithstanding, CEO transitions arising from death or other material physical incapacity can have serious disruptive financial and strategic implications for a company. The full range of issues with respect to the board's right to be made aware of the health of its senior executives has not been resolved with clarity under the law (this is particularly, but not exclusively, the case under the securities laws). However, there is an increasing level of agreement amongst thought leaders that both the CEO and the board should be transparent regarding the health of the CEO and his/her ability to perform the duties of the chief executive. This may extend to matters such as "medical due diligence" in the recruitment period, specific disclosure obligations in the employment agreement, and expectations of disclosure to senior board leaders should material health issues arise. At the same time, there are legitimate concerns associated with the medical privacy rights of the executive that must be taken into account. For these and other reasons, there is no "best practice" on the extent of board oversight of CEO health issues.
The general counsel is well qualified to assist the board and its key committees on executive health disclosure concerns.
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