Back in June, 2009, Apple Inc. (NASDAQ:AAPL) suddenly announced that its legendary co-founder and CEO, Steve Jobs, had gotten a liver transplant. As we all know now, Jobs eventually died of pancreatic cancer in 2011.
From an apartment in Chengdu, China, which I was visiting with my son, I quickly wrote an angry screed for my editors at ZDNet, squeezing it out through a neighbor’s unprotected WiFi connection. It became the most popular thing I wrote there, because most every reader disagreed with me, saying Jobs was a private person.
But he is also CEO of a public company, I replied in the comments, and you’re setting a precedent here other companies may use later at the expense of shareholders.
One just did.
CSX Loses Its Leader
CSX Corporation (NASDAQ:CSX), the Jacksonville-based railroad whose tracks run past my house, announced the death of CEO E. Hunter Harrison over the weekend, just days after saying he would take a “medical leave.”
The press release on his leave wasn’t specific, and stories on his death still just say “complications from a recent illness.”
What is worse for the CSX stock owners is that Harrison was no ordinary railroad executive. He was a unique force in the business, having turned around both the Canadian National Railway Company (NYSE:CNI) and Canadian Pacific Railway Limited (NYSE:CP), and having joined CSX just in March with a four-year contract to slash costs and improve results.
Before Harrison came to CSX, a year ago, shares were languishing in the mid-$30s. Recently, just before his death, CSX stock was in the high-$50s. News of his passing sent the shares down nearly 10%, on Friday and weekend trading, and they were due to open at less than $52 Dec. 18, with more losses expected.
The Board’s Responsibility
Hunter Harrison was the Steve Jobs of railroading. He can’t be replaced.
Did the board know of his illness when they hired him? When they encouraged people to pile into CSX stock? When did they learn he was dying? Did any of them sell shares last week?
These are hard, uncomfortable questions, but they need to be asked. It is true that CSX’s most recent price run-up was in-line with its peers, as the whole transport sector seemed to wake up at once at the end of November.
But, at minimum, Harrison’s death is robbing CSX stock owners of those gains.
Governance experts, like my critics a decade ago, say the board must weigh “privacy rights” in disclosing problems with a CEO’s health. Bloomberg reports that, despite having had pneumonia and leg stents in 2015, Harrison declined CSX’ request that his medical records be reviewed by an independent doctor before his hiring. The company hired him anyway.
It seems the NFL’s Jacksonville Jaguars may have been more demanding of Tom Coughlin than one of its biggest employers were with Harrison. The Jaguars are privately held.
The Bottom Line on CSX Stock
CSX stock owners are now out roughly $5 billion in market cap because 12 people felt that their CEO’s “privacy rights” trumped their responsibility as directors of a publicly-traded company.
In November, 19 of the company’s 27 analysts still had a buy rating on the stock, but some hedge funds recently trimmed their holdings.
Being a public company is supposed to mean something. It’s all in the name, public. If you want to hide behind privacy, stay private. But if you’re going to take the public’s investment, your leaders become public figures.
It’s not just confidence CSX stock owners should worry about. It’s the likelihood of a suit against their board. This story is not over.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
