This isn’t a pleasant topic. But it is one we have to cover. What happens when a CEO dies?
Illnesses happen, freak accidents happen. Life happens. Death happens. Such is the case for French oil-giant Total (NYSE: TOT).
News broke Monday that Total’s CEO, Christophe de Margerie, was killed along with three others when his plane struck a snow plow during takeoff and crashed at an airport in Moscow, Russia.
As a result, the stock went…up?
That’s right, the stock actually rose the next day. But it’s not like investors were happy about the CEO’s death and sent shares higher. Shares of Royal Dutch Shell (NYSE: RDS.A) – which tend to trade similarly to shares of Total – also rose.
Shares of both companies rose by almost 3% on Tuesday and fell on Wednesday, reacting more to macroeconomic forces than the death of Total’s CEO. It seems to me that the market didn’t react to the accident at all.
It’s not like every time a CEO dies the stock should tank. But I do suggest you consider this possibility as a risk the same way you should consider risks to the business model and the threat of competition when evaluating investment opportunities.
It is really tough to generalize about what a stock might do when a CEO dies. In the case of Total there doesn’t seem to have been much, if any, reaction. But that’s not always the case.
In 2012 the CEO of Micron Technology (Nasdaq: MU) was killed in a small-plane crash. The stock fell 3% during the next trading session and 15% over the next six months while the Nasdaq rose 5%.
Some CEOs are absolutely central to the identity of a company.
Imagine if a CEO like Elon Musk were killed in a freak accident. Besides being incredibly tragic, it could also be catastrophic for shareholders of his companies. I’m certainly not the only one who considers Musk central to the success of Tesla (Nasdaq: TSLA) and even SolarCity (Nasdaq: SCTY) where he is the Chairman.
The same could be said of Amazon (Nasdaq: AMZN) and its high-profile CEO Jeff Bezos, Starbucks (Nasdaq: SBUX) CEO Howard Schultz or Tim Cook of Apple (Nasdaq: AAPL).
Apple actually has some experience with this.
Though he wasn’t the CEO at the time, Steve Jobs was still the acting Chairman of Apple’s board of directors when he passed away in late 2011. The stock fell by a little less than 0.5% the next day while the Nasdaq index rose by more than 1.5%.
But the effects of Steve Jobs’ absence are still felt today. For years Apple hadn’t released a new product, only updated versions of products Steve Jobs had launched himself. The stock fell by roughly 40% from its 2012 highs as it struggled to shake off this legacy.
Even with the launch of Apple Pay and the announcement of Apple Watch, Apple is dogged by questions of whether its creative engine is gone now that Steve is no longer with us.
It’s impossible to predict something like a freak accident that might kill or seriously injure a major company’s CEO. But if you’re buying shares of companies where the CEO is a central part of the company’s success or identity, it’s important for you to understand the inherent risks.
What happens to a stock if a CEO dies is difficult to predict. But you should understand that a company with a high-profile CEO – especially one that is also the founder or creative engine – could be deeply affected by such a tragic event.
Disclosure: I personally own shares of Apple.
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