The Impact of CEO Divorce on Shareholders

When a couple divorces, many people in their lives may feel the effects – children, family, friends and other people in the couple’s social circles. But if one spouse is a CEO of a company, those effects can also have a large negative impact on the shareholders of that company. That’s the conclusion of a new study by Stanford Graduate School of Business.

Shareholders and CEOThe study, titled Separation Anxiety: The Impact of CEO Divorce on Shareholders, warns shareholders of that they need to pay close attention to the details of the CEO’s lives when making any kind of decisions about investments. The report points out several ways a CEO’s divorce can affect the financial health of a company.

If part of the CEO’s divorce settlement involves transferring or selling shares of company stock, this may leave the company vulnerable to a reduction in control. Even speculation on how a CEO’s divorce settlement may turn out can cause a drastic decline in stock values.

The emotional and physical effects of the divorce can have a negative effect on a CEO’s decision making and business strategy skills. In some cases, it may even force the CEO into an early retirement.

If the CEO’s financial worth has taken a hard hit from a divorce settlement, they may be more inclined to take great risks which could hurt the corporation. Or, on the opposite end of the spectrum, they could be overly cautious when making business decisions, which could also hurt the corporation.

The report concluded with several interesting points for shareholders to ponder, including whether or not companies should offer financial incentives that would offset any financial loss a CEO has suffered from a hefty divorce settlement, leaving the CEO with the same net worth they had before the divorce. The theory being that it would help avoid the possibility of too much or too little financial risk taking.

Another point raised is whether or not corporations should be required to disclose to its shareholders that the CEO is getting a divorce – something they are not currently required to do. Do shareholders have the right to know?

There are many complicated legal issues that can arise between partners or shareholders in a business. It’s important to have a knowledgeable Naperville business attorney representing you and protecting your financial investments.