A Blog by Jonathan Low


Jan 11, 2016

United Air's CEO Has Heart Transplant: Managing the Sometimes Conflicting Obligations Between Transparency and Privacy

Whose rights predominate? JL

Susan Carey and Joann Lublin report in the Wall Street Journal:

The transplant surprise rekindled questions about how a company in United’s position balances an ill executive’s right to privacy against shareholders’ need to be kept apprised of key events.
The news that Oscar Munoz, chief executive of United Continental Holdings Inc., underwent a heart-transplant operation raised new questions about how and when the airline has disclosed information about his health status since his heart attack 12 weeks ago.
Mr. Munoz’s surprise surgery shocked some employees and investors in light of his statement, distributed by the company in early November, that he would be back on the job during the current quarter. That statement seemed to indicate that the company and its CEO had a high level of clarity about his health outlook, whereas the prognosis and timetable for full recovery for someone on the waiting list for a heart transplant is often uncertain.
United, which issued a brief statement Wednesday confirming the transplant, said late Thursday that Mr. Munoz had been progressing with an implanted medical device, but that a transplant was considered to be a preferable outcome. It said he had started resuming meetings and other company activities last month, and had been cleared prior to Wednesday’s surgery to return to work in coming months.
The statement quoted Dr. Patrick McCarthy, chief of cardiac surgery at Chicago’s Northwestern Memorial Hospital, as saying the surgery went well and that given Mr. Munoz’s “excellent physical condition” and rapid improvement before the transplant, “we expect a quick recovery and a return to his duties as CEO.”
United said Mr. Munoz’s return might now be delayed until the start of the second quarter. Henry Meyer, United’s nonexecutive chairman, said he is comfortable with the prognosis for a full recovery, based on information from the CEO’s medical team and the board’s consulting cardiologist. “We will, of course, be monitoring Oscar’s progress closely,” he said, “and both his and the board’s focus will be on the best interest of our shareholders.”The transplant surprise rekindled questions about how a company in United’s position balances an ill executive’s right to privacy against shareholders’ need to be kept apprised of key events. United didn’t disclose that Mr. Munoz, who turned 57 earlier this week, had his heart attack, which occurred on Oct. 15, until four days later, when it named General Counsel Brett Hart as acting CEO. Before Wednesday, it had given scant information about his health status since then, other than his statement on Nov. 5 about his plans to return.
Jim Corridore, an equity analyst for S&P Capital IQ, said Thursday that Mr. Munoz’s return to the helm “could be pushed out after such an invasive procedure.” He said he hopes the company “will outline some succession planning soon. We see this issue as a potential overhang on the shares.”
Nell Minow, vice chairman of ValueEdge Advisors, a firm that promotes good governance and shareholder rights, said she thinks United has handled disclosure about the CEO’s condition “very poorly.” Thursday’s update was “better but inadequate,” she said.
United reiterated Thursday that Mr. Munoz is expected to return by the beginning of the second quarter, and said it would have no comment about criticism of its disclosures.
Mr. Munoz’s absence has extended the management turmoil that dates to early September, when his predecessor, Jeff Smisek, was ousted. Executives have been juggling duties and trying to hew to Mr. Munoz’s vision even as they contended with vacancies on the bench.
Earlier this week, United’s 10th-largest investor, hedge fund Altimeter Capital LP, received Federal Trade Commission approval to allow it to take a more active role in its investment—9.3 million UAL shares as of Sept. 30. “We are obviously concerned about the situation with Oscar and have confidence the United board will do the right thing,” an Altimeter spokesman said, declining to comment on the firm’s intentions.
The outlook for heart transplant patients includes numerous variables. Dr. Randall Starling, director of the heart-transplant program at Cleveland Clinic, said recovery generally includes 10 to 14 days in the hospital, weekly follow-ups for four to six weeks, numerous tests and cardiac rehabilitation three times a week for 36 sessions.
“If I had a 57-year-old patient who had a successful transplant today and he asked when he could return to work, I’d say two to three months, best-case scenario. Average, closer to four to six months,” said Dr. Starling, who said he has treated more than 1,000 patients. Others, he said, can take a year or more. In most big transplant centers in the U.S., 90% or more of the patients are alive and well a year later, he said.
Waiting times for a new heart also vary widely. The median wait for a donor heart in the U.S. in 2013-2014 was 324 days, according to the United Network for Organ Sharing, a nonprofit group that manages the organ-transplant system under contract with the federal government.
But a number of factors can affect that. They include location—in part, because regional population differences and variance in donor-organ participation affect the supply of organs—and degree of illness. The sickest patients are called first if they have the right blood type, degree of immune-system match, genetic makeup and weight. The organ-sharing network said the median wait for the sickest heart-transplant candidates was 108 days in 2013 and 2014.
Separately on Thursday, United disclosed in a federal filing Mr. Munoz’s employment agreement, which he hadn’t finished negotiating when he fell ill. The five-year contract, dated Dec. 31, will have an initial base salary of $1.25 million annually and make Mr. Munoz eligible for cash bonuses and long-term incentive awards. The accord awards him a signing bonus comprised of $5.2 million in cash and $6.8 million in equity awards vesting over three years. It is expected that he will take on the additional role of chairman at or before United’s 2017 annual meeting, according to the filing.


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