How private should a leader's private life be?  As investors increasingly want more information, questions regarding if and  how much of a CEO's private life a company should disclose become important.

Literary critics in the mid-twentieth century proposed  the idea that a work of art must be judged only in relation to the context of the artist's life and beliefs.  This has subsequently been dubbed the intentional fallacy.  In a paper entitled, "Intentional Fallacy and the CEO: Disclosure at the Intersection of Privacy and Securities Law," University of Miami business law professors Patricia Sanchez Abril and Ann Olazábal argue that similar faulty reasoning is being applied by investors and others trying to forecast the success of companies by scrutinizing the private lives of their leaders.  CEOs have historically not typically been the subject of intense public scrutiny.  Personal equity ownership has increased leading to increased interest in company performance and consequently CEO behavior.  Many CEOs have reached the same level of public scrutiny as celebrities. Recent news items are only adding to the dilemma, as CEO scandals and issues with exorbitant executive pay seem to dominate the headlines.

Should the market be privy to the private facts of a CEOs life?  If so, where should the line between public and private be drawn? Health issues? Moral issues? Family matters? Are some personal details necessary or are they the byproduct of a voyeuristic society that feeds on celebrity scandal?  Current privacy laws can offer little protection for CEOs, mainly because of their high profile and newsworthy status.  However, some scholars have called for SEC-mandated disclosure of private CEO information in the securities context.

Proponents of disclosure argue that the behavior of the CEO in his or her private life is a fair indicator of morality and important character traits critical to that CEO's professional life, which in turn affects corporate fate. For example, consider the cases of Leo Dennis Kozlowski and Martha Stewart. Mr. Kozlowski was a well-documented spendthrift in his personal life, spending $2 million on his wife's birthday party. This personal trait carried over  into his role as the CEO of Tyco.  This connection was confirmed in the public's eye as Kozlowski was convicted of grand larceny for stealing more than $600 million from his company.   In 2004, Martha Stewart was convicted of obstruction of justice and lying to investigators and the stock of her namesake company, Martha Stewart Living Omnimedia, Inc. declined by 65%, despite the fact that there was no evidence that she acted illegally in her role as CEO.

The public's interest in CEOs' private affairs also goes beyond cases of scandal and wrongdoing into the very health and wellbeing of the CEO.  For example, Steve Jobs's gaunt appearance caused Apple's stock to drop and fueled rumors of serious illness.  After Jobs confirmed those rumors Apple's stock underwent further fluctuations tied to his appearance and announcements of his condition.

Abril and Olazábal argue against further legal regulation mandating disclosure of private facts, stating such calls for reform are based on faulty logic premised on the assumptions that anecdotal evidence regarding private life activities sheds light on personal characteristics and core values; (2) the CEO single-handedly affects corporate performance. Citing research in social psychology, law, and business, the authors debunk the common conclusion that  "the private lives of CEOs affect corporate performance.".  Abril and Olazábal remind the reader that the critics of the intentional fallacy in literature reacted to "a trend they deemed unsound, prejudicial, impracticable, and distracting" and advocated "refocusing the critical inquiry away from the often-unknowable personal history and context."  In the same manner, the authors argue "that securities law would be unduly burdened by further mandatory disclosures regarding the lives and idiosyncrasies of CEOs. Its focus should remain on verifiable facts rather than attenuated inferences."