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Risky Business: What If the CEO Has a Risky Hobby?

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

March 22, 2012

The death of Steven Appleton, the CEO of Micron Technologies, in the crash of his experimental plane last month highlighted the issues faced by companies whose CEOs have risky hobbies. What are the board’s duties in that situation? And what disclosure issues are presented?

In a Wall Street Journal article last week, “Executive No-Fly Zone?”, Joann Lublin pointed out that, in these cases, many boards of directors would like to prevent the CEOs from flying stunt planes. In the case of Appleton, who had previously been seriously injured in a crash in 2004, it’s not hard to imagine that the board had at least considered the issue.

My partner, Bill Mower, was interviewed for the Journal article and stated:

The Micron tragedy should be a wake-up call for boards, . . . . [Many boards now will discuss whether the boss's hobby] is something the directors should be worried about.

As Lublin points out, it’s difficult to restrict the CEO’s activities without a clause in an employment contract. And the desire to fly airplanes or drive fast cars may be the type of attribute associated with the personalities of many CEOs. However, especially after the publicity surrounding Appleton’s death, if the CEO is involved in these types of activities, the board should at least consider whether any action is merited.

Mower also raised another great point about legal considerations in these situations. Boards "should consider tucking a CEO's highly dangerous recreational behavior into their risk-factor disclosures,” he told the Journal. Not a bad idea - if the CEO’s hobbies put him or her at enhanced risk, it’s not hard to imagine a class action lawsuit if the CEO is killed or seriously injured and the company’s stock drops.

As 10-K season reaches its peak, it will be interesting to see whether any companies make this disclosure.


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