Protecting the Bottom Line: The Value Proposition for Executive Protection
By TorchStone Senior Analyst, Ben West
Establishing an Executive Protection (EP) program for corporate executives requires delicate navigation. In our years of experience, TorchStone has frequently encountered executives who decline protection, even when a threat assessment indicates protection is needed. The executives cite privacy concerns, the desire to keep a low profile, the ability to protect themselves, and, most often: cost. Granted, corporate EP programs are not cheap—at least not good ones. However, it is important to differentiate between cost and value when making this important decision.
Market Value Loss
A review of the impact of recent CEO deaths on share price, market value, and overall company morale paints a clear picture of how damaging it can be to suddenly lose a CEO. The continuity of CEOs and other C-suite executives is imperative to a company and its shareholders. If executives are reticent to implement additional security measures for personal or cost reasons, they must consider the likely decline in the company’s value for shareholders if an event were to occur due to the lack of those security measures. Quite frankly, executives owe it to their investors and shareholders to stay alive and well.
UnitedHealthcare Group Inc. stock declined 20% in the two weeks after the assassination of the CEO of its UnitedHealthcare Insurance business on Dec 4, representing tens of billions of dollars in lost market value. The company’s share price has not recovered and, as of mid-February, UnitedHealthcare is reportedly seeking to lay off staff over the coming months. The CEO’s murder is not the only reason for the decline—the company also cited rising medical costs and a costly cyberattack—but losing the CEO of an important business unit in a highly publicized, ideologically motivated attack on the company was clearly a major blow.
UnitedHealth Group Inc Stock Performance Over the Past Six Months. (Google)
Impact of Loss of Leadership
The aftermath of Brian Thompson’s death at UnitedHealthcare and other examples listed below show that the potential downside to losing a CEO far outweighs the costs associated with EP programs.
CEO deaths do not have to be the result of violent crime to cause huge disruptions to their company and shareholders. Statistically, CEOs are more likely to die or become incapacitated for health reasons, so keeping executives healthy is a major concern, along with keeping them safe. A March 2012 study by David F. Larcker and Brian Tayan titled, Sudden Death of a CEO: Are Companies Prepared When Lightning Strikes?, found that out of 12 instances of CEOs who died on the job between 1994 and 2012, the company’s stock price fell at least 1% on the announcement. Considering that the average market value of a Fortune 500 last year was $86 billion, even a 1% decline in stock price represents hundreds of millions of dollars in market losses. However, according to Larcker and Tayan, the average impact of a CEO death was a 2% drop in stock price, representing short-term losses of $1.7 billion in market value for today’s average Fortune 500 company.
Source: David F. Larcker and Brian Tayan, Sudden Death of a CEO: Are Companies Prepared When Lightning Strikes?; March 2012
Other CEO Attacks
The murder of Brian Thompson is the most poignant example of attacks on a CEO impacting the broader company. There are, of course, other examples of recent attacks on CEOs.
On July 13, 2020, an assistant followed tech investor and entrepreneur, Fahim Saleh, into the elevator in his building and brutally murdered him in his Manhattan apartment. The motive of the attack was related to the assistant’s embezzlement of hundreds of thousands of dollars from Saleh’s personal accounts and was not related to Saleh’s interest as a tech start-up investor. However, the murder does appear to have negatively impacted the companies Saleh was involved in. For example, at the time of his death, Saleh was serving as the CEO of Nigerian delivery service, Gokada. After Saleh helped the company raise $5 million in 2019, the company took a turn for the worse in the years after his death. It announced staff layoffs in 2022 and declared bankruptcy by the end of 2024. Saleh’s death was certainly not the only challenge the company faced – Gokada’s bankruptcy filing cited regulatory and market challenges in Nigeria—but the loss of his leadership marked a negative turning point for the company.
Silicon Valley tech developer and investor, Bob Lee, was stabbed to death in San Francisco on April 4, 2023. The murder later proved to be the result of a personal dispute. At the time of his murder, Lee was Chief Product Officer of MobileCoin, a privacy-focused cryptocurrency. MobileCoin was already struggling from issues that predated his murder, but the company’s position has only worsened since his death.
The impacts of unexpectedly losing a CEO obviously extend beyond just share prices and market value. On September 24, 2023, a man with a violent criminal past followed tech start-up CEO, Pava LaPere, into her Baltimore residential building and killed her. The company she founded, EcoMap, was located on the first floor of the same building where she was killed—EcoMap employees found her body on the rooftop of her building. The start-up company closed for several days after the murder and relocated the office out of the building, which was then a crime scene. Ultimately, the company survived, despite the tragedy and partly because of the outpouring of support the company received after the murder. Last year, Inc.com profiled the company’s evolution since the murder, highlighting the challenges—both emotionally, for the employees that went through it—and financially. Employees credited LaPere with building “a team and a set of practices and values” that allowed the Chief Operating Officer to step into the role of CEO after her death. However, the loss of LaPere was clearly a major setback to the company.
EP Program Can Be Invaluable
Running a business is difficult enough, but overcoming the challenges of unexpectedly losing a critical leader of a company can set a company back months or even years—if they overcome them at all. Establishing an EP program is an option for hedging against the potential disruptions of losing a CEO. That’s not to say that every executive requires a comprehensive 24/7 EP program, or even a tailored “as needed” EP program, but they should at least consider the overall value of such a program to the company before balking at the cost.