Ann Lipton raises the longstanding question of whether corporations have disclosure obligations with respect to the private lives of CEOs--especially those in the celebrity subset thereof--and the related questions of whether those CEOs have fiduciary duties to their corporation about how they conduct their lives and whether boards have Caremark duties to oversee those lives.
There can be no dispute that a corporate fiduciary’s personal information and behavior might be relevant to investors and to the quality of his/her stewardship. The health of corporate executives has frequently come under scrutiny (e.g., Steve Jobs, Sumner Redstone, Hunter Harrison); Martha Stewart’s private trading in an unrelated corporation ultimately impacted her own company; the private affairs of a partner could have company-wide repercussions; an executive’s drug habit may impact the company in unexpected ways; heck, even a CFO’s golfinghabits may be relevant to the quality of corporate financial statements.
Joan Heminway (who has written on the topic) draws a distinction between imposing disclosure obligations and imposing fiduciary duties:
Ann's post, which posits (among other things) that corporate chief executives might be required to comply with their fiduciary duties when they are acting in their capacity as private citizens, really made me think. I understand her concern. I do think it is different from the disclosure duty issues that I and others scope out in prior work. ...
... Yet, even where there is no technical conflicting interest or breach of a duty of loyalty, there is a clear business interest in having corporate managers—especially highly visible ones—act in a manner that is consistent with corporate policy or values when they are not “on the job.” While voluntary corporate policy or private regulation may have a role in policing that kind of director or officer activity (through service qualifications or employment termination triggers, e.g.), I do not think it is or should be the job of corporate law—including fiduciary duty law—to take on that monitoring and enforcement role.
Imposing fiduciary duties on CEOs with respect to how they conduct their private lives does pose really hard questions, especially in our present dystopia in which the toxic combination of social media and identity politics turn every indiscretion into world shaking crises. Yet, as the #metoo movement has reminded us, there are all too many cases in which powerful people (like celebrity CEOs) have not merely been indiscreet but have in fact committed appalling acts that call into question their judgment and have generated serious bad news for their corporations.
But where and how do you draw the line between saying a CEO has a fiduciary duty not to engage in icky consensual sex and a fiduciary duty not to act like Harvey Weinstein or Eric Schneiderman?
The same issue arises, of course, with respect to a question I find even more interesting; namely, to what extent should a board have Caremark duties to monitor a CEO's private life. Personally, I think Caremark is not limited to law compliance programs. A board presented with red flags relating to serious misconduct--especially misconduct in a sphere of life directly related to the corporation's business (think Weinstein)--has a duty to investigate. But, again, does that mean the bard should hire private investigators to track the CEO 24/7?
