When the news hit that Amazon (NASDAQ:AMZN) CEO Jeff Bezos and his wife MacKenzie were divorcing after 25 years of marriage, my initial thought was that MacKenzie Bezos would become one of the wealthiest women in the world. Unlike many others, I didn’t consider the possibility that the unwinding of their marriage could affect Amazon stock.
In Washington State, where the Bezos’ reside, the law states that the “community property” standard splits the assets owned by a couple in half unless they had a signed post-marital agreement before announcing their divorce. If so, the assets are split according to the details set out in the agreement. It’s not certain at this point if there was. It’s thought that they didn’t have a pre-marital agreement.
I, perhaps naively, thought MacKenzie would get half the Amazon stock held by her husband and he would keep the other half, and everyone would go on living their lives. After all, why would MacKenzie Bezos want to harm the goose that laid the golden egg? She wouldn’t.
Divorce and Corporate Governance
Some corporate governance experts believe investors ought to be very concerned about divorce and the possible effect on a company’s stock.
“Shareholders should pay attention to matters involving the personal lives of C.E.O.s and take this information into account when making investment decisions,” stated David Larker, director of the Corporate Governance Research Initiative at Stanford University’s business school.
I get the idea that you might not want to be investing in a company where the controlling shareholder was a lunatic or a PR nightmare, but in this instance, it would be easy to keep investors happy by putting all the Amazon stock held by the Bezos’ in a single entity they both control. End of story.
However, the latest news about an alleged attempt by National Enquirer parent AMI to blackmail Bezos over revealing pictures it had of the Amazon CEO, might ratchet up the ESG concerns, even if AMI is dead-to-rights wrong. Here’s why.
1 + 1 Does Not Equal 2
I’m not an ESG expert, but I would guess that Bezos’ divorce would be considered less of an ESG incident than the alleged blackmail of the CEO would be. Exposing pictures of Bezos’ naughty bits would not be something the board of directors would take kindly to.
Not to mention there could be clauses in Bezos’ contract that forbid such lewd activities. Frankly, it doesn’t bother me one bit what the man does on his own time — as Justin Trudeau’s dad Pierre use to say, “There’s no place for the state in the bedrooms of the nation” — but the two incidents looked at together could be enough to move the needle.
Sustainalytics analyzed 29,000 ESG incidents across the globe between 2014-2016. It divided ESG incidents into three categories: High-to-Severe, Significant, and Low-to-Moderate. In 69% of the high-to-severe incidents, a company’s market cap experienced a 6% decline in the 10 days immediately following the incident.
An example of a high-to-severe incident would be the emissions scandal at Volkswagen (OTCMKTS:VWAGY) a couple of years ago. Bezos’ one-two punch, would fall under the low-to-moderate category. According to Sustainalytics’ study, 50% of the low-to-moderate incidents resulted in a tiny, almost invisible decline in their market caps.
So, the divorce and blackmail incidents likely won’t affect Amazon stock.
However, should a third incident occur — bad news always comes in threes — I wouldn’t bet against a decline in Amazon’s stock price. After all, if it’s bad enough, and Bezos has to be fired by the board, who is going to lead the company?
The Bottom Line on Amazon Stock
The National Enquirer’s parent company is on record saying it will thoroughly investigate Bezos’ extortion allegations. For now anyway, there’s nothing to damage AMZN in my opinion.
I’m a believer in the Amazon business model — although I will concede Bezos is no Howard Schultz when it comes to treating employees fairly — but if a third incident hits the news, it could be a gamechanger.
And not in a good way.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.