Recently the chief executive and controlling shareholder of Amazon, Jeff Bezos, and his wife, the novelist MacKenzie Bezos, announced that they will divorce. Thus far at least the news has not had a lasting effect on Amazon’s stock price, even though investors do not know how the couple’s 16% controlling stake in the company will be affected by the divorce. Some have suggested that investors accept the couple’s assurances that their split will be amicable. But what if that changes? Moreover, in any event, it remains fully possible that the division of their shares in their settlement could materially impact who controls Amazon, how much control Mr. (or Ms.) Bezos may have, and even how Amazon is governed. See e.g. https://www.nytimes.com/2019/01/18/business/bezos-divorce-amazon-stock.html.
Many assessing the situation have suggested that these are important questions and that in this era—in which many of our largest tech and other companies are effectively controlled by either a founding shareholder or a small group of owners—investors are rightly interested in the marital status of those who own or control the companies in which they invest. As James B. Stewart of The New York Times put it in the article linked above, “[t]he fate of such controlling shares in cases of divorce is, or should be, of intense interest to investors.”
While these issues may have been under-the-radar before the Bezos split, they aren’t any longer. Given that this issue is now front-and-center, what is the impact on the reporting and disclosure obligations of public companies and others subject to such requirements? Does a public corporation have a duty to its shareholders to inform them about the details of its CEO’s personal life, if those details might have an impact on the company?
The answer is not crystal clear. No statute, SEC regulation, or SEC comment letter specifically requires a company to disclose the personal details of its executives’ lives. In fact, when the SEC last amended its Form 8-K for current reports, it decided that its rule requiring public companies to disclose the retirement, resignation, or termination of a chief executive would not require disclosure of the reason the executive left the company, citing privacy concerns. See Additional Form 8-K Disclosure Requirements, 69 Fed. Reg. 15605 (Mar. 25, 2004).
This arguably suggests that presently there is no obligation to disclose issues regarding how the marital status of executives or controlling shareholders could impact the company. But does that remain the rule in the face of the publicity of the Bezos’ breakup, and the corresponding publicity about how much this could matter to company governance? It would seem that there is now an argument that these issues may have a material impact on a company; that these matters are thus material issues for investors; and that like other material issues, these ought to be the subject of SEC reporting and disclosure requirements.
Some companies have already chosen to make such disclosures. When Berkshire Hathaway CEO Warren Buffett underwent surgery in 2000, the company issued a press release announcing the surgery and describing the health issue and then updated the public on the CEO’s prognosis after the surgery. On the other hand, during Apple CEO Steve Jobs’ illness, Apple and Mr. Jobs made several public statements of varying levels of vagueness, interspersed with long periods of silence that the media filled in with leaks and rumors. The result was a falling stock price and disgruntled investors.
Apple’s example is instructive. Even though it was widely believed that Apple acted within the law in connection with its limited disclosures about Mr. Jobs’ health, its stock price still suffered because investors were uncertain about the company’s future. Moreover, there could come a point when information about an executive’s personal life does become “material” to investors, and the company’s failure to disclose that information could make the company’s other statements or disclosures misleading. See SEC Rule 12b-20 (17 C.F.R. § 240.12b-20.)
To avoid the charge, even if only in the media, that a company has misled investors, and to avoid a drop in the company’s stock price accompanying market uncertainty, boards and counsel might consider whether and when to disclose otherwise personal matters of the company’s chief executive or controlling shareholders. If members of the board come to view the CEO’s health or marital status a risk factor for the company, many investors may too, and disclosure may become advisable. No company wants to be the first to settle a civil enforcement action with the SEC, or a claim by investors, over the failure to make just such a disclosure.
In order even to consider making such a disclosure, though, a board must be informed of matters in its CEO’s personal life to the extent they could materially impact the company and investors. Indeed, a board could face a claim that it has shirked its duties if it does not make itself generally aware of its chief executive’s health and, in the case of a married CEO with substantial holdings in the company, whether the CEO has a prenuptial agreement with his or her spouse, and how any such agreement addresses the question of ownership of those holdings in the case of divorce.