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health. A CEO battling a life-threaten-
ing disease might have to step down
suddenly, or be limited in his or her
ability to travel and do other aspects
of the job. Think Steve Jobs’s recur-
ring treatment for pancreatic cancer.
In those cases, the board needs to
know and most likely tell the public.
But what about more common
cases, when the board doesn’t know
whether the disease is life-threaten-
ing? In these cases, the board should
plan for the worst, while respecting
the CEO’s right to privacy until a
worst-case scenario actually material-
izes. This means putting aspects of
the succession plan in motion and
taking steps to groom internal talent,
but not necessarily disclosing these
actions to the public until it’s obvious
that the CEO’s prognosis won’t im-How boards of
directors decide
whether to disclose
information about a
CEO’s private lifeBYDAVIDLARCKER ANDBRIANTAYANIt’s Personal.
It’s Public.
W
hen does the personal become everybody’s business?
That’s the question that boards of public companies often
have to ask themselves. And the answer is often a difficult
one.
Public companies’ boards are responsible, of course, for
monitoring the performance of their chief executives. While
the majority of their focus is—and should be—on the CEO’s on-the-job perfor-
mance, directors can’t ignore aspects of the CEO’s personal lives that can have
a real impact on the company’s bottom line and stock price.
After all, a CEO’s personal life can influence company culture and ethics and
set the tone for corporate behavior. In addition, risky behaviors or poor health
can affect a company’s results, not to mention heighten the need for a depend-
able succession plan.
The tricky part for directors is knowing when to get involved, as well as
when to let shareholders know that personal matters might be a problem.
Here’s a look at several different kinds of issues—and how boards might make
that decision.MIKEL JASOPhysical health.It’s obvious why a board would be interested in a CEO’s
prove. Some shareholders might com-
plain about the board’s public silence,
but privacy laws trump these con-
cerns until a CEO change is probable.Lifestyle.Beyond health, the board
has to evaluate whether personal hob-
bies or habits put the CEO at a higher
risk of dying—for example, a penchant
for hang gliding, mountaineering, sky-
diving or chain smoking. Even mun-
dane factors, such as a CEO’s personal
spending habits, might influence cor-
porate results. A 2015 study in the
Journal of Financial Economics found
that CEOs who spend lavishly in their
personal lives oversee companies with
looser internal controls
and a higher likelihood
of fraud or financial
misstatement.
But how can a board
decide which behaviors
should set off alarm
bells? Directors should
keep tabs on a CEO who
makes unrestrained use
of corporate assets or
mixes personal and
professional worlds.
For example, if a CEO brings family
and friends on the company jet,
schedules conferences in resort loca-
tions, or hosts extravagant parties
that commingle corporate and per-
sonal guests, boards should make sure
the CEO demonstrates that personal
costs aren’t being transferred to com-
pany accounts. A willingness to take
on significant personal debt should
also raise eyebrows, if it demon-
strates a penchant for excessive risk-
taking.
By contrast, other activities—such
as owning a local sports team or sit-
ting on a large number of charity
boards—require less oversight. The
litmus test is whether the activity in-
volves corporate resources, exposes it
to financial or reputational risk, or
distracts management from its pri-
mary focus of running the company.Divorce.Not every CEO divorce is
worthy of board attention. But boards
need to know what’s going on before
they dismiss a divorce as irrelevant.
For instance, a CEO getting divorced
might have to sell substantial
amounts of stock to settle the divorce
agreement. A sudden loss of wealthcan affect attitudes toward risk, caus-
ing CEOs to become more aggressive
to “earn back” what they lost in the
settlement. Divorce can also affect
productivity and professional focus.
For boards, this might require fos-
tering a closer personal relationship
with the CEO or relations with C-
suite members who can keep them in-
formed of any negative impact on the
CEO’s focus, engagement or morale.
The board also might recommend en-
gaging a professional life coach.Bad behavior.Boards also need to
be alert to questionable behavior that,
even if legal, sets the wrong tone for
the organization. In
recent years, many ex-
amples of bad behav-
ior have made the
news, including abu-
sive language toward
colleagues, falsifica-
tion of résumé creden-
tials, drunken-driving
violations and lying to
the board about extra-
marital relations. In
extreme cases, bad be-
havior becomes a major distraction,
eventually leading to conflict at the
highest levels and termination.
Again, the key question for the
board is whether the behavior vio-
lates trust or sets a bad example for
employees overall. A CEO who is ar-
rested for a DUI might be forgiven if
it is not an egregious offense and he
or she is honest, open, transparent
and remorseful. Same for a CEO who
overstated a credential when applying
for a first job out of college, with the
misstatement lingering from one ré-
sumé to the next. However, behavior
that suggests a deeper willingness to
cut ethical corners when not super-
vised undermines the basic trust be-
tween the CEO and the organization
and needs to be addressed sternly,
even if it involves termination.Mr. Larckeris the James Irvin
Miller professor of accounting at
the Stanford University Graduate
School of Business.Mr. Tayanis
a researcher with the Corporate
Governance Research Initiative at
Stanford’s Graduate School of
Business. They can be reached
[email protected].Taking on
significant
personal debt
should raise
eyebrows.Copyright©2019DeloitteDevelopmentLLC.Allrightsreserved.Uniqueproblemsneed
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