August 12, 1999
Southwest's Chairman Has Cancer; Succession Issue Is Raised
By REED ABELSON
've got a little dab of prostate cancer which will soon be
irradiated out of existence."
In characteristic fashion, the chairman and chief executive of
the Southwest Airlines Co., Herb Kelleher, told employees Wednesday
that he was starting eight weeks of radiation treatment for
prostate cancer in Houston. His condition, he wrote in a memorandum
to them, was not serious, and he apologized for troubling them with
this "tidbit."
The company also played down the news. In a news release,
Southwest emphasized that Kelleher, 68, planned to be in the office
throughout his treatment -- and even included a quip that Kelleher
thought his colleagues would be disappointed to find him in the
office so much, given his usual heavy travel schedule. Kelleher
also held a brief news conference.
The company's stock barely budged, falling 12.5 cents Wednesday,
to $16.375.
Unlike a few years ago, when companies were reluctant to talk
about the health of their top executives, Southwest was quick to go
public with the news about Kelleher. The subject has lost much of
its stigma since Andy Grove, the chief executive of the Intel
Corp., talked about his experience with prostate cancer in a
Fortune magazine cover story in 1996.
"It's not unlike erectile dysfunction," said Gerald C. Meyers,
the former chairman of American Motors and a business professor
emeritus at the University of Michigan. Who "would talk about that
six months ago?"
But while companies are much more open about what might be
ailing their top executives, and are obliged to disclose anything
serious, there is another sensitive issue that fewer are willing to
discuss: the company's succession plan should something happen to
the chief executive.
Southwest, which had come under criticism for not being more
open about who might succeed Kelleher well before Wednesday's
announcement, is particularly close-mouthed. A recent shareholder
resolution, for example, called for Kelleher to divide his duties,
given his penchant for smoking and flying, so that the company
would no be longer be subject to "one-man rule," and Business
Week ran a scathing commentary earlier this month about his lack of
a successor.
Although Kelleher's prognosis is very good, according to his
doctor's statement, the news clearly fuels concern over whether
anyone at Southwest could take Kelleher's place. Kelleher and his
larger-than-life personality is closely identified with the success
of the company.
Kelleher co-founded the airline in 1971 and has held the titles
of chairman, chief executive and president since 1981. Southwest,
the nation's fourth-largest carrier, has been praised for its
winning combination of low costs and high customer service, and
Kelleher has managed to engender huge loyalty among the company's
employees.
"He really represents a lot of the spirit of Southwest," said
Steven J. Colbert, a senior analyst for Jurika & Voyles, an
investment management firm in Oakland, Calif., that is a Southwest
shareholder. While Colbert said the company had many good managers,
he said that he would like to have a better sense of who might be
in line to take over if something were to happen to Kelleher.
The company has a succession plan that has been reviewed by its
board, a spokeswoman said, but the details of that plan have not
been made public because identifying future leaders might be
divisive.
"It is not acceptable if there is no succession plan," Meyers
said. "It is understandable and desirable if the company does not
lay out all its succession plans in a premature way."
Some analysts say that Southwest has sufficient management
talent to replace Kelleher, even if it is unclear which of the
senior executives might be among those in the race. "They know
what the formula is and wouldn't have to tinker with it," said
Raymond F. Neidl, an analyst for ING Barings.
Acknowledging Kelleher's outsized reputation as "a kind of a
superman," Meyers agreed. "What is making that business go is not
the leader, it's the business model."
But despite the light tone employed in Wednesday's disclosure,
there is little doubt that investors are taking the issue of
succession seriously. While Kelleher has indicated that he expects
to keep running the company through the end of next year, when his
current contract expires, if not much longer, every company needs
to prepare for the chief executive's sudden departure as well as
eventual retirement, according to Charles M. Elson, a professor at
Stetson University College of Law and an expert in corporate
governance.
Even Grove, who was never forced to step down at Intel as chief
executive because of his illness, had very clear succession plans,
he noted.
