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Corporate Fallout From Failed Marriages

When one of your executives is in a bitter divorce, corporate information can find its way into the public record, sometimes to the embarrassment of the company.

February 27, 2003
Related Topics: Wrongful Discharge, Miscellaneous Legal Issues, Termination
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A string of high-profile divorces among corporate executives have brought thewhole issue into the public eye. Recently, the wife of Ernst & Young’schief executive officer, Richard Bobrow, won access to the company’s financialdocuments during divorce proceedings--a move that would allow her lawyers todetermine Bobrow’s exact compensation. But no one requested that the files besealed, so they became a matter of public record. Suddenly, this privately ownedfirm saw its internal financial details become quite public.
    Similarly, lastyear, when former General Electric CEO Jack Welch landed in divorce court, hiswife revealed details about his cushy retirement package (which included a fancyapartment and goodies like free flowers and laundry service). The news raisedsuch ire that Welch decided to reimburse the company for its largess. The bottomline: Divorces can lead to the public airing of all sorts of corporateconfidences. Lynne Z. Gold-Biken, chair of the family law department of thePhiladelphia- based law firm Wolf, Block, Schorr and Solis-Cohen LLP, offersguidelines on how to keep a painful personal situation from becoming a problemfor the whole company.
Why did executive divorces create such problems for GE and Ernst & Young?
A corporation should never be doing anything that could embarrass it if thestockholders knew about it. It wasn’t that Jack Welch wasn’t the best CEOever, because he is. It wasn’t that he wasn’t worth every penny that theyultimately paid him. It was the form in which it was paid that was distasteful.So if they had quantified what it would cost for him to do his dry cleaning andpay for his apartment, and paid him, say, $500,000 a year more in severance,that would not have been as distasteful. Because everybody knows he made thatcompany and made his stockholders wealthy, nobody would have objected. It wasthe idea that his stockholders were paying for his dry cleaning that made itoffensive. So it wasn’t the amount of money, it was the form of it that wasembarrassing.
 
So what does HR need to keep in mind when executives divorce?
In most cases the spouses don’t know as much as Mrs. Welch knew. But theylearn everything there is to know in the process called discovery. There shouldbe an agreement that any information given to a spouse [during discovery] isgiven under a confidentiality agreement, so it can only be used in litigation.What you do in a discovery process is you say, I’m giving this information toyou in order for you to be on an equal playing field, so we can figure out howto whack up our property. Not so you can turn me into the IRS, embarrass me inpublic, or use it in the press.
 
And is there advice HR could give execs who are in the middle of a divorce?
Nobody should just turn over anything--and the corporation should take thatposition. You want to get divorced? Too bad, but before you give out anycorporate information, you make sure that whoever gets it can only use it forthe purposes of litigation--no other purpose. I do it all the time: You want theinformation? Sign the confidentiality statement that says you’re only using itfor litigation. I’m not turning over stuff otherwise.
 
At what point should the confidentiality agreement be submitted?
It’s not a bad idea when you [hire] a corporate executive to have thespouse immediately sign these statements, saying: "Any information you learnabout the corporation will not be used to hurt the corporation." The variouslegal departments ought to be looking into the possibility [of theseagreements].
 
Can you make the spousal agreement be a prerequisite for the executive’shire?
Your company’s legal departments should be looking into what your statewill permit under these circumstances. I can’t speak for every state. But as acorporate lawyer, I would sure want to know that my corporate secrets are notgoing to go out the door. People learn things that can really hurt acorporation. It’s like if you’re a player on a football team and you learnall the plays, when you go over to another football team, can you use all that?This is not a game, this is serious stuff. You don’t want somebody leaving thecompany and taking corporate secrets, so you make them sign statements that theywon’t get hired by a rival for two years--but it also covers their ability toshare the information. Well, their spouses should share in that too--these guyscould be talking in their sleep.
 
What should the agreement look like--is it a basic confidentiality agreement?
It must make it clear that the spouses can’t reveal any corporate secretsor any inside information. Obviously, each one has got to be drafted for thecircumstance. In some cases it will cover corporate secrets, in other cases itwill cover financial information. You can’t use a boilerplate confidentialitystatement. It’s got to be specific to the facts of the case. It’s got to betailored.
 
Why is that?
Do you want to give the same prescription every time anybody’s got a cold?If it’s a cola company, you’re going to say: "If you learn the formula,you can’t reveal it." If it’s an investment firm, you’re going to say:"If you learn the name of clients and contacts, you can’t reveal them."
 
Any final advice?
Corporate America needs to be aware of the impact of divorce on their bottomline. Just as abuse has an impact on the bottom line of a corporation, so doesdivorce. The HR department ought to be providing communication skills and[similar] courses for executives so they can make their marriages better andstronger. Because it really is in the interest of the corporation to keepmarriages together. Divorce costs them a lot of money, for many reasons: time,productivity, bad publicity. But I’m very serious about these communicationskills. When people start getting in trouble with their partners, if they knowthere’s a place, as part of their perks, that they can go to for [counselingand help], it would cut down on the divorce rate, which would obviously cut downon this problem.
 The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

Workforce, March 2003, p. 64 -- Subscribe Now!

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