On Dec. 1 the star of the Fast and the Furious movie franchise Paul Walker unexpectedly died in a car crash. At the time of his death, Walker was in the middle of filming the seventh installment of the blockbuster series. The film’s production has, predictably, been completely upended.
As the unexpected death of a movie star can throw a film’s production into calamity, so too can the sudden death of a company’s CEO rock a company to its core. However, unlike movie studios, companies can designate a replacement in the event of a tragedy ahead of time.
That's not to say it's an easy conversation to have. For companies, designating a line of succession, especially how succession works in the case of a sudden death, can be pretty awkward. After all, establishing parameters for “what happens if I suddenly die?” can be unbearably morbid. But to maintain the health of a company, it’s a necessary undertaking.
Unfortunately for many companies, rather than deal with the sticky political issues that may arise from naming the next boss while the old boss is still alive, they simply never get around to it. So if an unexpected tragedy is to befall a CEO and a successor hasn’t been established, a company can find itself without a leader, which can cause negative repercussions for years afterwards.
Three companies in particular serve as a stark warning of what can happen if a CEO’s “understudy” is not picked out ahead of time:
1993: Household International, now a subsidiary of HSBC Financial
A former member of the Fortune 100, Household International was at one time one of the biggest players in the financial sector, distributing credit cards and consumer loans throughout the US, UK, and Canada. However, the sudden heart attack of CEO Edwin Hoffman in April 1993 left the company without its head.
Over 37 candidates were identified, and the search for a replacement took over a year to complete, with Donald Clark eventually winning the gig.
While Hoffman’s dreams of turning Household into a world leader in consumer finance ended up being followed through with, his leadership was sorely missed. Household would get dinged to the tune of of $485 million for predatory lending practices. The following month, the company would be merged into HSBC with an ending valuation of $15.2 billion.
2000: The Wendy’s Company (WEN)
Wendy’s was started by affable pitchman Dave Thomas, who successfully led the company from a single location to the upper echelon of fast food franchises. In the 80s and 90s, Thomas became the face of Wendy’s starring in over 800 commercials while stepping down from the CEO role to focus on his role as spokesman. In 1999, Wendy’s was the third-largest burger chain in America. Then tragedy struck, with CEO Gordon Teter dying suddenly as a result of a heart attack in Dec. 1999.
With nobody lined up to take his position, Thomas had to step back in as a sort of interim president. He was forced to appoint a five person committee to handle the CEO position, and a frantic search began for a replacement. Three months later, John Schuessler, a longtime employee, finally landed the job. The company’s shares plunged 7.8 percent on the announcement.
Though the effects weren’t felt immediately, the company would not hold onto its lofty position for long. Under Schuessler, the company lost a significant portion of its value, shedding nearly two-thirds of its value in 2003 alone.
2002: Triangle Pharmaceuticals, now owned by Gilead Sciences (GILD)
Pharmaceutical company Triangle was one of the hottest healthcare companies in the late 90s, raising $180 million in capital between 1995 and 1999, including a warchest of some $41.4 million in cash and liquid investments. The company, however, was struggling to develop their flagship product, an HIV drug called Coviracil. Their CEO David Barry suddenly died of a heart attack in Jan. 2002. The company had both lost their Vice President of Research and their leader. The CEO position would remain vacated for 189 days, the longest amount of time a publically traded company has gone without replacing a CEO in the last 20 years.
Though the company eventually found its successor in the middle of the year, the company faced a dire financial crisis, reporting that its $68 million cash on hand wouldn’t last a year. Eventually, Gilead would acquire the company for $484 million, or $6 a share, representing a 33 percent premium.
For Triangle it spelled the end for a multi-million dollar company that never saw a cent of revenue. However, it was not all for naught: their flagship HIV treatment eventually saw the light of day, and currently sells under the brand name Emtriva.