Three news stories over the last few months about three high-profile, older CEOs of publicly traded companies highlight the importance of contingency and succession planning for companies of all sizes. In December, CEOs Hunter Harrison (age 73) of CSX Corp., a national freight and railroad company, and Robert Wilmers (age 83) of M&T Bank Corp., a Buffalo-based regional bank, both passed away somewhat unexpectedly. And in January, Berkshire Hathaway, run by Warren Buffett (age 87), announced two key appointments (and potential successors) to the company’s executive management team.

Aging CEOs have become more and more common over the last few years, and will likely become even more so. A recent Bloomberg article reports, “As the U.S. population ages, so too do the chieftains of corporate America. The average age of CEOs has risen 4 percent in the last decade. There are still 50 CEOs in the S&P 500 who are 65 or older. Nineteen of those exceed age 70, and three, including Warren Buffett, are older than 80.” In fact, the article says, some investors and governance experts now want companies to disclose more about succession plans and the health of their leaders.

The Market’s Reaction

  • News of Harrison’s unexpected medical leave and subsequent death pushed the railroad’s shares down to the lowest level in six years. Once it was announced that the COO would take over the reigns as acting CEO, share prices rebounded slightly.
  • At M&T Bank, following Wilmers’ death, leadership was transitioned to three vice chairmen and M&T company veterans, Richard S. Gold, René F. Jones, and Kevin J. Pearson. Share prices increased slightly following the announcement of Wilmers’ passing.
  • At Berkshire Hathaway, it was recently announced that Greg Abel and Ajit Jain will act as vice chairmen, jointly overseeing the day-to-day operations of the company, hinting at a substantive succession plan being put in place to replace Buffett. Shares rose 1.3% the same day.

While market reactions were varied, these three examples of aging CEOs demonstrate the importance of developing solid succession plans to ensure business continuity and maintain business value. One thing is certain, investors don’t like uncertainty. And, solid transition and succession plans can help reassure them that their investments will be taken care of should something suddenly happen to the executive leadership.

The Importance of Succession

Buffett doesn’t seem to have any intention of stepping aside in the short-term; in fact, he and his longtime business partner are still responsible for key investments. But, many have speculated that this latest announcement is an indication that Abel or Jain will likely succeed Warren Buffett as CEO.

Given Buffett’s age, we can assume that this announcement is designed to assure shareholders that the company will be in capable hands when Buffet is no longer around. Of course, there’s always speculation that once Buffett is gone, investors could get spooked, but that remains to be seen.

So what does this mean for smaller privately held businesses? Just like their publicly traded counterparts, business owners need to address their own mortality. It’s a difficult and uncomfortable thing to think about, but it’s necessary to ensure business continuity and maintain business value. After all, the shareholders, employees, and the owner’s family members are all dependent on the long-term success of the business. And, business owners who don’t groom a successor and have a transition plan in place are setting the business and their family up for a potential disaster.

We believe owners should:

  • Make plans for every eventuality, including a serious illness or death of the owner.
  • Choose and groom the most appropriate successor(s).
  • Document contingency and succession plans.
  • Communicate with and assure key stakeholders that there is a contingency plan in place.

Developing the Long-Term Plan

Buffett’s approach to exit planning and succession planning is a great study for all business owners – put a plan in place but know that it will change over time. Buffett started working on succession planning at least as far back as June 2006, if not before, when he filed papers with the SEC to show a plan was under way (including the announcement that he would give 85% of his Berkshire stock to five charitable foundations.) In 2007, the Heritage Institute reported Buffett’s succession plan has two primary goals: “One, leaving behind a legacy, and second, ensuring that the governance structure of Berkshire will continue to champion a unique style of leadership and investment growth.”

But, no one knows better than Buffett that the best laid plans aren’t set in stone. Earlier succession plans included leaving his fortune to his wife to manage but her untimely death in 2004 ended that plan. Similarly, M&T’s Wilmers outlived two of his likely successors – who died within the last three years. Clearly, building in flexibility for every contingency is key.

What do you want your legacy to be – for you, your business, your family? If you’re not sure if your business could run without you, it’s time to start planning. Follow the example of Warren Buffett and plan for the long-term to ensure your legacy and the future of the business you’ve worked so hard to build.


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