The Executive Divorce – 10 Strategies for Keeping It Private

Executives, such as self-employed presidents of closely held companies, the C suite (CEO, CFO, etc.), executive employees, officers, and directors, are charged with managing and directing other people in a company. These executives are trusted with significant responsibility including day-to-day operations and future direction of a company. As a result of this responsibility, their personal lives, if made public, may have an impact on the company they work for – particularly with respect to the issue of divorce.

When an executive is faced with divorce, the impact of the proceeding on the executive’s position within a company and the company itself may not receive the priority and privacy it deserves because divorce proceedings are a matter of public record in most states, including Illinois. Take for example the divorces of media tycoon Rupert Murdoch, CEO, Hubert Joly, and oil mogul, Harold Hamm. Each of these had a public presence that quickly attracted media attention. This brought the public to the personal issue of divorce, as well as less than desirable attention to each of the companies the individuals worked for.

The public nature of divorce demonstrates the importance of safeguarding the privacy of an executive’s divorce. Moreover, there are a number of key considerations that warrant maintaining privacy for the executive, spouse, and company. For instance:

(a)  From a personal standpoint:

i.  The high profile of those involved may attract media or other unwanted attention;

ii.  Conflict may lead to mudslinging and acrimonious litigation.  This could result in private and embarrassing details of the relationship, history, children, and life being exposed to the public.  This in turn could put the executive’s job and income stream at risk due to the details disclosed and attention taken away from job responsibilities;

iii.  Financial circumstances may be referenced expressly in filings, proceedings, and the like, making them a matter of public record.  Depending on what is disclosed it may adversely impact holdings; and

iv.  The more that is in the public record the more there is for the public, which includes family members (i.e. children), to learn.

(b)  From a company standpoint:

i.  By the nature of the marital relationship, the executive’s spouse inevitably has some degree of knowledge about the company the executive works for.  This may include: compensation structure, stock grants/holdings, trade secret information, strategic plans of the company, and other confidential information.  A confidentiality agreement with the company and executive may address some of this; however, if the spouse does not have a similar agreement the information may still go public.

ii.  Shareholder behavior as well as employee performance and retention may be influenced, which potentially impacts the company.  For instance:

i.  If the executive has a significant stake in the company, a divorce could impact the controlling interest in the company depending on how assets are divided.  This in turn could impact how the company is operated and who is in control of those operations.

ii.  The executive’s decisions for strategic movement of the company may be impacted by the divorce.  As an example, the uncertain financial position of the executive post-divorce could result in more conservative and risk-averse decision making. This can also have an adverse consequence on shareholder return, business growth, and employee prospects.

iii.  An acrimonious divorce may impact the executive’s productivity and performance.  If the executive’s productivity/performance is down this can have an adverse impact on the company he/she works for.

iii.  While the above points are clearly evident with publicly traded companies, they apply equally to closely held companies as the community and employees pay attention to what is going on and how the issue is handled.