* Micron CEO death revives questions about governance
* Few companies disclose whether top execs are insured
* Some experts say outside risk is a good release
By Ben Berkowitz
BOSTON, Feb 7 (Reuters) – The death of Micron
Technology Inc Chief Executive Steve Appleton in the
crash of an experimental plane is raising fresh questions about
what a company should disclose to investors when a senior
executive has a high-risk hobby.
There are plenty of corporate chieftains who indulge in
risky pastimes. Oracle Inc CEO Larry Ellison, a sailor
and pilot whose adventures are part of his Silicon Valley
mystique, competed in the storm-plagued 1998 Sydney to Hobart
Yacht Race. Six men died and nearly two-thirds of the boats in
the race did not finish.
Other CEOs engage in physical pursuits that might be
considered dangerous for anyone, let alone the head of a major
corporation.
US Airways Group Inc Chief Executive Doug Parker has
run with the bulls in Pamplona. Google Inc CEO Larry
Page kiteboards. Virgin Group mogul Sir Richard Branson has
attempted to set a number of world records including trying to
circle the planet in a hot-air balloon.
Appleton was a well-known daredevil who performed stunts at
air shows when he wasnt scuba diving, surfing or racing
off-road vehicles — all while running a $7.85 billion
enterprise that employs more than 26,000 people.
Appleton had crashed in 2004, badly injuring himself and
triggering questions from governance experts about whether he
was taking excessive risks.
When he crashed last Friday, the 51-year-old executive was
flying an experimental, self-assembled, single-engine plane. The
National Transportation Safety Board is investigating the crash.
His death has analysts wondering about Microns plans for
the future, given the company was reported to have been a
potential buyer for Japanese chipmaker Elpida Memory Inc
. Micron, the last US memory chip
maker, has also been struggling with falling prices and
formidable Asian competitors.
The companys shares fell as much as 6 percent after-hours
on Friday after news of Appletons death.
SHOULD INVESTORS KNOW?
Experts say this should be a lesson for other companies.
Its very important that a public company CEO be candid
with the stakeholder audience whether thats an investor or the
people who he works with, said Hank Boerner, chairman of the
Governance Accountability Institute. He said Micron had not
mentioned in its annual reports or proxies that Appleton had
such risky pastimes.
Micron declined to comment on its disclosure policy around
Appletons activities, or any insurance it may have had on him.
If it would move the needle for an investor to buy, sell or
hold, that is material, Boerner said, adding that US
securities regulators have repeatedly reminded the boards of
public companies that they have a positive obligation to
oversee risk.
Boerner likened it to people seeking the presidency of the
United States. By aspiring to the office, they acknowledge that
they must give up a certain amount of privacy and activities
that could interfere with their ability to serve.
But could the risks actually lead to rewards for a company?
A University of Notre Dame professor who has researched
risk-taking by CEOs in their personal lives says there is strong
evidence that they need such pursuits for their own good and the
good of the company.
When they tend to have adequate or proper outlets for that
creativity, it adds value, said Matthew Cain, an assistant
professor in the Mendoza College of Business at Notre Dame.
If you take this away from them it could push them into
pursuing improper outlets for those urges, Cain said,
suggesting that illicit sex, drugs or alcohol abuse could be
possible substitutes.
Cain said risk-takers tend to exhibit what psychologists
call behavioral consistency. They act the same at work as they
do on weekends.
Cain and a colleague published a research paper last
November showing that CEOs who were private pilots tended to
take on about 15 percent more leverage than non-aviators and
were 40 percent more likely to make a corporate acquisition.
Reed Kathrein, a northern California attorney who sues
public companies on behalf of shareholders, said he was not
familiar with any lawsuits over a chief executives lifestyle.
For the CEOs activity to be material to shareholders, it would
have to be both a secret and truly daredevil, he said, adding
that he would consider behavior such as Appletons material
because it could affect ones ability to get insurance.
INSURING DAREDEVILS
Many public companies carry what are called key man
policies on male or female top executives, though few
acknowledge it.
Two Indiana University professors conducted a study released
late last year in which they sought to examine the relationship
between key men and corporate returns.
For the study, they examined every filing of every publicly
traded non-financial company in the United States. They found
that nearly 82 percent of them made no disclosure about whether
they carried key man policies. Nearly 10 percent specifically
said they did not carry them.
Only 8.8 percent of the companies said in filings that their
key men were insured. On average, each of those policies was
worth about $3.85 million, but some were worth as much as $60
million each.
A senior executive at a national insurance brokerage said
that when it comes to insurance, boards have an obligation to
have a contingency plan in place, particularly if a CEO keeps a
high-risk lifestyle. He said the degree to which a company could
face legal questions depended upon what happened to its stock
after an accident.
Talking specifically about Micron, the broker said, If
trading opens substantially lower it could be the case that a
plaintiffs attorney or two or three will start to conduct an
investigation.
Micron shares fell 2.8 percent on Monday, wiping nearly $217
million off the companys market capitalization.
Attorney Jeffrey Kingsley, a partner in the insurance
practice of Goldberg Segalla, said death-defying executives
would almost certainly be covered under company insurance
policies protecting directors and officers.
Kingsley said recreational activities generally are not
considered when insurance companies are deciding what to include
in a policy. What the CEO or the officer does in their
recreation time is far more of a grey area, he said.
To be sure, there are grey areas and then there are grey
areas. For every company that tolerates a daredevil like the
late Appleton, there are companies that look far less kindly on
the recreational habits of their CEOs.
For example, Hewlett-Packard Co parted with Mark
Hurd in 2010 after he had allegedly fudged expense reports to
cover a relationship with a female contractor. Boeing Co
ousted Harry Stonecipher in 2005 for alleged sexual
improprieties.