CEO Divorces: Do you have to disclose divorces to shareholders?

On behalf of Ronald H. Kauffman, P.A. posted in Divorce on Monday, October 28, 2013.

divorced impacts everyone: the rich and poor alike. When a spouse is also the CEO of a company, are there more risks? When the CEO of Continental Resources was getting divorced, shares of his company dropped 2.9%. Conversely, when Rupert Murdoch announced his divorce, shares of News Corp gained 1.4%. Why?

In the Continental Resources case, shareholders learned that the CEO didn’t have a prenuptial agreement, and some investors feared control of his shares was at stake.

But in Rupert Murdoch’s case, the divorce announcement stressed the parties’ prenuptial agreement, that there would be no spin-offs, and a divorce would have “zero impact” on the company

A new study from Stanford Graduate School of Business has examined three potential ways in which a CEO divorce might impact the business and shareholders.

1. Loss of control or influence. A CEO might be forced to sell or transfer a portion of his or her shares as part of equitable distribution, lump sum alimony or by agreement. Selling shares can reduce a CEO’s influence and impact decisions regarding corporate strategy, asset ownership, and board composition. Shareholder reaction to loss of control will vary.

2. Divorce impacts productivity, concentration, and energy levels. Divorce is stress. Generally, it is well known that employee divorces impact their productivity. In extreme cases, the distraction of divorce can lead to premature retirement.

3. Divorce can change appetite for risk. A sudden change in wealth – through loss of equity in the company they are running or other investments outside the firm -can alter an executive’s risk appetite, and impact decision making

Is divorce still a private matter? For most people it is. But if you are the CEO of a publicly traded company, perhaps in the future your divorce might be a matter which has to be disclosed to shareholders.

The Stanford Graduate School of Business article can be read here.