ITW should say more about CEO’s health, governance expert says
BY FRANCINE KNOWLES Business Reporter firstname.lastname@example.org October 16, 2012 6:04PM
David Speer of Illinois Tool Works
Updated: November 18, 2012 7:06AM
Wall Street showed little reaction Tuesday to news that Illinois Tool Works’ Chief Executive Officer and Chairman David Speer is taking a taking a leave of absence for medical reasons and the company’s naming of an interim CEO, but a corporate governance expert contends there should be more disclosure about Speer’s health.
Tuesday, the stock closed up 1.3 percent.
The Glenview-based diversified industrial equipment maker’s announcement, which included news that vice chairman E. Scott Santi was named interim CEO and promoted to president and chief operating officer, came after the markets closed Monday and as the company undertakes a restructuring.
Last November, the company disclosed in an 8K filing that Speer was undergoing treatment for an undisclosed medical condition, but that he would continue in his role as chairman and CEO. Prior to Monday, the company had given no other updates on Speer’s health.
A spokeswoman on Tuesday declined to provide more detail on Speer’s health, citing privacy reasons.
“It’s not an issue that we are overly concerned about,” said Longbow Research analyst Eli Lustgarten of Speer’s medical leave. “Illinois Tool Works is a big company with a lot of depth in management. They’ll manage through it.”
The company is walking a fine line between shareholder interests and personal privacy issues, said Paul Hodgson, chief research analyst with GMI Ratings, which does research on corporate governance risks affecting the performance of public companies.
“Once you’ve announced a CEO has health issues that might affect their ability to perform their duties, then you need to keep shareholders regularly updated about that,” he said. “It doesn’t have to go into kind of invasive details. Having made an announcement in November and then suddenly announcing a leave of absence and an interim CEO is too long between those two announcements for shareholders to be on top of the facts.”
Morningstar Inc. equity analyst Jim Krapfel said “near term there’s not a whole lot of concern about the company because it has a well-defined strategy.”
The company, which has grown through acquisitions, has hundreds of businesses and eight business segments, including industrial packaging, power systems and electronics, transportation and construction products and other businesses. It is restructuring by focusing on fast-growing higher-margin businesses and shedding slower-growing, lower-margin businesses.
Lustgarten said Speer’s leave “is coming at somewhat of a more critical time because there is a restructuring effort within the corporation. But I’m sure David will have his input to it, he just won’t be directing it.”
Krapfel said in naming Santi president and COO, that “signals that there is a good chance Mr. Santi will become the next permanent CEO, whatever the timing ends up being.”
Santi, 51, has spent his entire career with the company. He was elected executive vice president in 2004 and vice chairman in 2008. The company said in announcing his promotion Monday that “reflects the board’s normal and carefully considered succession planning process.”
Santi has served as vice chairman for five of the company’s eight business segments.
“I think he’s in good position to get the company on course for what they’re doing,” Krapfel said.