Divorce in the workplace: how to prevent a personal tragedy from spilling over.

Although divorce is primarily a personal tragedy, it can also spill into the workplace, even costing you your job--not to mention a good portion of your wealth and reputation. In recent years, a number of very public divorces involving chief executive officers have done just that. Let's analyze a few of these cases and see what lessons can be extracted:

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A Mess at Mass Mutual

The issue of divorce hit the well-regarded mutual company Mass Mutual on February 24, 2004, an otherwise quiet day. At a routine board meeting, a director called for a delay because Claire O'Connell, the wife of CEO Robert J. O'Connell, demanded entry to address the board. The board member stepped out and received her "message"--that her husband and a top executive named Susan Albano were having an affair.

When this report prompted an investigation into O'Connell, the board committee conducting the investigation hired a law firm--a customary practice. In the subsequent report, O'Connell's "shadow" retirement account was roundly criticized. Similar in concept to a 401(k) plan, this type of account allows executives to trade hypothetical assets that may gain or lose paper value based on the real return of the assets in question--with the company, rather than the market, making good on the return. O'Connell allegedly selected some of the hottest IPOs for his account and realized gains of $18 million in a single day--dramatically expanding the company's obligations.

Who approved and oversaw his investments? You guessed it--Albano. In addition to the retirement account issue, the report noted that both Albano and the CEO had changed the company's anti-nepotism rules and hired their sons. The report prompted O'Connell's immediate dismissal.

O'Connell is now involved in civil litigation regarding his termination. Worse yet, he is apparently under criminal investigation. Albano was also terminated. The report never concluded that the affair took place. O'Connell denied the allegation, but employees reportedly told the board that they had suspected an affair for some time. The result was not only the loss of his CEO seat, but reputation-damaging civil and possibly criminal litigation.

Of course, O'Connell's wallet is also at stake, because Claire O'Connell's subsequent divorce proceedings demand an equitable share of his wealth.

The Takeaway: The O'Connell affair outcome was doubly unfortunate, because O'Connell's business performance was strong and the company prospered under his leadership. However, the accusation that he had stepped over the line ethically demanded an investigation--which, in turn, unveiled further issues that intensified demand for his dismissal. Lesson No. 1: A scandal provoking scrutiny of your private life will also put your business life under the microscope.

Boeing's Brouhaha

In comparison, the Henry Stonecipher affair was handled rather quickly and without tremendous publieity. A long-term leader of Boeing, 68-year-old Stonecipher was well thought of until he had an affair with a female executive. When the affair was reported to the board, Stonecipher admitted his involvement.

Once again, employees--who discovered the romance through the lovers' email exchanges--reported the affair. Stonecipher was terminated and a severance package agreed to without litigation. The woman employee was also terminated. Stonecipher's wife of more than 40 years is now seeking a substantial portion of his wealth in divorce proceedings.

While the Boeing board wisely did not release the report about Stonecipher, the affair did not escape media attention. The Boston Herald gleefully reported, "Boeing CEO Musta Been Plane Nuts."

The Takeaway: An affair with an employee today, whether real or perceived, forces the board to take action. Decades ago, prior to formal ethics rules and Sarbanes-Oxley, boards sometimes overlooked such affairs. But no longer. Lesson No. 2: When you act on an overwhelming attraction for a co-worker, be forewarned: More than your personal relationships are at stake.

Welch's Woe

Jack Welch retired from General Electric as one of the most highly regarded CEOs in the land. However, his divorce subsequently brought great public embarrassment to the compensation committee of GE, as well as to Welch himself. It also cost Welch many of the benefits in his employment contract. What's more, the prenuptial agreement Welch negotiated with his second wife, Jane, had expired after 10 years--unfortunate timing as that is precisely when Welch began his affair with Harvard Business Review editor Suzie Wetlaufer.

Welch's wife, a former lawyer, outmaneuvered her husband in the tumultuous divorce that followed. Initially, her attempt to challenge the monthly support Welch provided her pending the division of the property looked dicey. She rallied, however, by launching a PR attack. Jane Welch filed court papers listing every single perk that Welch received from GE, including a New York apartment, tickets to athletic and cultural events, country club dues, fresh flowers, dry cleaning, and, yes, even vitamins. Welch's lawyers tried to get this now infamous list of perks sealed, but the judge refused.

The public criticism of GE and of the former CEO that ensued ultimately forced Welch to "voluntarily" relinquish $2.5 million a year in perks and refund certain other prior payments. It dented Welch's reputation and probably accomplished his former wife's mission--increasing the ultimate amount of the settlement. Eventually, GE itself was sanctioned by the Securities and Exchange Commission as a result of the perks paid to Welch.

Welch initially fought back by spreading the word that his wife was having an affair with her chauffeur and bodyguard. But eventually he hired a new lawyer who wisely advised him to cut his losses and negotiate a settlement. After a long battle and arduous negotiation, a confidential settlement--reportedly north of $100 million--was reached.

The Takeaway: Ideally, Welch's prenuptial would have been in effect during the divorce, and would have included an agreement to keep any dispute private and confidential and that all papers would be sealed. Lesson No. 3: A prenuptial or post nuptial agreement together with a confidentiality provision is probably a must for many CEOs. Rather than an expiration date, opt for a sliding settlement that increases with the tenure of the marriage.

Wendt's Folly

The very messy divorce of Gary Wendt, then-CEO of GE Capital, somehow became an issue of what the wife of a CEO is worth. Wendt offered his wife a generous settlement that included payment of $8 million, plus $250,000 a year in alimony, for a total settlement of $11 million. Lorna Wendt, however, argued she was entitled to half of his hard assets and half of his stock options, restricted stock, deferred compensation and supplementary executive retirement benefits. GE was forced to disclose all of the facts concerning these awards.

In court and to the media, Lorna Wendt presented herself as a kind of Mrs. GE Capital. She raised the kids, allegedly provided invaluable career advice and entertained his business colleagues at their home in Stamford. As a result, she wanted half of Wendt's total wealth--a departure from standard settlement practices. While the law provides for equitable division of property, courts have long followed the "enough is enough" rule in divorces involving large sums of money. This rule seeks to ensure that the divorced spouse will not suffer any diminution in her lifestyle, but stops short of treating marriage as a business joint venture.

The Wendt divorce rapidly turned into a PR war that Wendt could only lose. Lorna Wendt was heralded as an advocate for corporate spouses everywhere. The case was debated widely--and heatedly--out of court. Women's groups supported Lorna Wendt's cause, which was presented on TV, radio and in other media.

In court, the judge pointed out that equitable does not mean equal and rejected Lorna Wendt's argument that anything less than 50 percent of the assets would amount to gender bias. Indeed, had he accepted this argument he would have changed 300 years of law. But no one came out looking good in this dispute, and the judge heaped criticism on both Wendts. He questioned Lorna Wendt's lifestyle requirements, which included a $130,000 annual clothing budget and annual personal travel expenses of $96,000. In the end, the judge awarded her $20 million--half of Wendt's hard assets, plus a portion of other forms of compensation.

The Takeaway: In divorces involving wealthy people, a 50/50 split is almost never the result. Often, there is fierce debate around the "enough is enough" rule when vast wealth is at stake, with a huge gap in the divorce parties' opinions as to the definition of "enough." Lesson No. 4: To propose a settlement of significantly less than a court may award is to invite an emotionally and financially costly legal battle. Instead, consult experienced lawyers who can generally predict what a court will provide and negotiate a compromise.

Arthur H. Kroll is CEO of the Hartsdale, N.Y.-based KST Consulting Group and is author of Compensating Executives.

RELATED ARTICLE: BEST PRACTICES

* Have a prenuptial agreement. Rather than an expiration date, the amount given to a spouse in the event of a divorce should increase with length of marriage.

* If you missed getting a prenup, push for a postnuptial agreement. It is difficult but not impossible. Done right, it is as enforceable as a prenuptial agreement.

* Agree on a confidentiality agreement. In any divorce, no PR statement will be issued directly or indirectly.

* Seal all court papers.

* Require mandatory mediation with complete confidentiality.

* Don't have an affair with an employee. If the board discovers it, it will have little choice but to terminate both parties regardless of performance. The ensuing investigation may also turn up more serious indiscretions.

* Don't attack your soon-to-be ex-spouse publicly. It can only hurt you personally and financially.

* Don't attempt a compromise proposal of far less than the amount the spouse may get in court.

* Don't be indiscreet. As Stonecipher discovered, emails between lovers tend to get spouses angry.

Source: KST Consulting Group