Gone are the days where CEOs were merely anonymous “suits” working privately within the confines of their office. Today, the CEO and the good name of the company are often one and the same. With the advent of social media, executive officers are often just as important to a corporation’s reputation and branding as is the logo on the letterhead. Further, with the ease of access to information, the public can, and does, keep a scrutinizing eye on these individuals and every one of their decisions concerning both the course of their company’s future and their personal lives. And this scrutiny is viewed not just daily or hourly, but by the minute.
Thinking back to almost exactly five years ago, a memorable example of this was the transition of the CEO role at Apple to Tim Cook after Steve Jobs fell ill, which left questions about the future direction of the company and caused numerous dips in Apple’s stock. While the public’s appetite for private information about public figures seems insatiable, in a volatile economy, something personal, like a divorce, can directly affect a company’s future.
Divorce and Business
Divorce poses a catch-22 when it comes to business. While it is unquestionably one of the most personal experiences an individual may go through, it’s also a business transaction that can greatly affect not just the party, but any associated company, its employees and investors. When a divorce involves parties who own a private company, the details and effects of the settlement may be satisfactorily limited to the spouses, their families and key employees. However, in the case of a public company, the spike driving that company into the ground can be wielded by either of the parties involved OR by trepidation of shareholders and the market. From this reality stems the critical concern of whether CEOs should be required to disclose the details of their divorce settlement.
The Illinois Marriage and Dissolution of Marriage Act specifically contains a provision addressing the issue of stocks and stock options. Section 503(b)(3) states in pertinent part: “all stock options granted to either spouse after the marriage and before a judgment of dissolution of marriage or declaration of invalidity of marriage, whether vested or non-vested or whether their value is ascertainable, are presumed to be marital property.” 750 ILCS 5/503(b)(3). Now, any and all securities acquired during the marriage are fair game for division between the spouses. Obviously, to a C.E.O., the division of their securities can not only cost them enormous sums of money, but also their leadership position within the company.
When Harold Hamm divorced his wife in 2014, the Stock in Continental Resources went from a high of approximately $80/share all the way down to approximately $35/share in January of 2015 when he actually wrote an almost $1B check to his ex-wife to settle the case. Consider that Hamm had an estate reported to be approximately $18B at that time and that he was fortunate not to have had to write a considerably larger check.
Another Billionaire divorce occurred between Steve and Elaine Wynn. At the time, Wynn had attained the status of one of the world’s wealthiest persons. After almost 47 years together, Steve and Elaine Wynn settled their divorce with Elaine receiving half of Steve’s stake in Wynn Resorts, roughly 18% of the company (valued at $741 million at that time). Luckily, the couple’s divorce was exceptionally amicable and both parties respectfully agreed to maintain their prominent roles within the company (including Elaine’s board seat), thus preserving the status quo. However, such a significant transfer of control could unnerve shareholders where the spouse acquiring ownership has not previously worked with the company.
Jeff Bezos’s Divorce
When Jeff Bezos, CEO of Amazon, and his wife, MacKenzie, announced their divorce this week, after 25 years of marriage, it sent shock-waves through social media and caused investors to take pause and wonder what, if any impact this might have on Amazon seeing that Bezos is the wealthiest man on the planet. It has also been reported that he and MacKenzie do not have a prenuptial agreement. Since Washington, where the parties primarily reside, is a community property state, MacKenzie would presumably be entitled to 50% of their estimated $137B net worth, the overwhelming majority of which is in Amazon stock.
Bezos owns approximately 17% of Amazon’s stock. If MacKenzie receives at least half of that stock, she will immediately become one of, if not the, largest shareholders in the company. She may have a seat on the board of directors and will certainly be very influential, if she chooses to be, in how the company is run moving forward. So, the question as to whether a significant number of shares will be transacted via transfer or liquidation to satisfy any settlement between the parties remains unknown, but the effect of such a transaction can be mitigated.
One approach for a company to prevent a transfer such as the one in the Wynn example is by way of a stock transfer restriction called a right of first refusal (“RFR”). More and more businesses have been implementing this restriction in an effort to prevent situations where a major shareholder, without informing the corporation, transfers a substantial amount of stock which would shift control to a new, non-consented-to party, such as a non-owner spouse. With an RFR, before a party can transfer his/her shares, he/she is required to offer the corporation and/or other shareholders the opportunity to purchase the shares on similar terms to those offered by a third party. Thus, with respect to a divorce settlement involving a transfer of an officer’s shares, the corporation or shareholders would be given the opportunity to instead purchase the shares which are being awarded to the non-owning spouse.
Shareholders want and deserve to know what twists and turns might be coming down the pipeline. Any surprise can incite an emotional reaction, which can also be the catalyst for a fatal decline in stock price. In the case of Apple, on the day Steve Jobs’ stepped down as CEO, the stock price fell a little, but mostly due to shareholders’ emotional reaction, according to economists. Though it is difficult to tell whether market conditions or the Hamm divorce brought down the stock price in Continental Resources, it leaves shareholders wondering.
Effects of Privacy
Financial analysts reason that Apple’s stock was not greatly affected in the long run in large part because of Apple’s ultimate transparency regarding Steve Jobs’ illness and the public’s awareness of its implications, e.g. the succession planning Jobs had disclosed. With that information and the early disclosures about a possible resignation, the market could price into the stock an eventual departure of the beloved CEO. With the knowledge of all the possibilities for a company’s future, shareholders have an opportunity to evaluate the situation and respond rationally in the stock market, rather than give into their emotions as they might upon first hearing of drastic change, which change may have been sensationalized without transparency.
So, should Jeff and MacKenzie Bezos get ahead of market concerns and publicize one of the most private transactions a couple can have? With divorce, an executive’s disclosure of any possible transfer of control or transaction of shares will allow the shareholders to plan for the worst, while at the same time hope for the best. At the very least, whatever the settlement is, the shareholders would be able to fairly and rationally price the change, if any, into the stock price. In the world of corporate divorce, the cliché rings true: honesty really is the best policy.
Partner and Head of Family Law Group with Beermann LLP in Chicago
 “The World’s Billionaires.” Forbes March 2011. 18 October 2011 < http://www.forbes.com/profile/steve-wynn>.