Separation Anxiety: The Impact of CEO Divorce on Shareholders

Abstract

There are at least three potential ways in which a CEO divorce might impact a corporation and its shareholders. First, it might reduce the executive’s control or influence over the organization. Second, it might affect his or her productivity, concentration, and energy levels. Third, it can influence attitudes toward risk.

We examine these in detail, and ask: Should shareholders and boards be concerned when a CEO and spouse separate? Should the board make the CEO “whole” in order to restore equity incentives to where they were prior to divorce? Is divorce a private matter, or should companies disclose this information to shareholders?

Topics, Issues and Controversies in Corporate Governance and Leadership: The Closer Look series is a collection of short case studies through which we explore topics, issues, and controversies in corporate governance. In each study, we take a targeted look at a specific issue that is relevant to the current debate on governance and explain why it is so important. Larcker and Tayan are co-authors of the books Corporate Governance Matters and A Real Look at Real World Corporate Governance.

Keywords: CEO divorce, executive divorce, disclosure, transparency

JEL Classification: G3, G30, J12, M10