The corporate divorce: navigating high-stakes shareholder and board disputes

In the high-stakes world of corporate governance, disputes at the shareholder or board level can feel like a divorce – emotionally charged, financially complex, and fraught with reputational risks. These conflicts often involve multi-million-pound portfolios of shares, options, and incentives, with ripple effects that can impact an individual’s career and a company’s stability. Many of these disputes are resolved through negotiated settlements, requiring careful navigation of valuation disagreements, notice periods, and reputation management. Third-party investors, whether board members or not, and specialist advisers often play pivotal roles in these delicate processes. In this Keynote, Corporate Partner Jaan Larner explores the nuances of these corporate “divorces” and how they are managed.

The anatomy of a corporate divorce

When a director or shareholder exits a company, the stakes are rarely just personal. Disputes often arise over the value of shares or options, especially in private companies where market prices aren’t readily available. Articles of association typically include provisions for independent valuation in such cases, ensuring a fair price when parties can’t agree. Notice periods also play a critical role, particularly when vesting schedules for share options or incentives are involved. A director leaving prematurely might forfeit unvested options, while extended notice periods can complicate transitions, especially if third-party investors are pushing for a swift exit.

Reputation management adds another layer of complexity. Exiting directors, particularly those with non-executive portfolios, must protect their personal brand from defamation or negative narratives that could jeopardise future opportunities. Meanwhile, companies must balance transparency with discretion to maintain investor confidence and operational stability. Third-party advisers – ranging from valuation experts to restructuring specialists – often step in to provide clarity and structure, ensuring disputes don’t spiral into litigation.

Share valuation

Where a founding shareholder decides to exit after disagreements with the board, issues can arise with share valuation. The company’s articles may require an independent valuation if no agreement on share price can be reached. The shareholder’s valuation expectations may clash with the board’s estimate, as in some cases the board may push for a lower price to protect their own interests and that of an incoming board member.

Often, an independent valuer will be appointed and will use frameworks such as a discounted cash-flow model to assess the company’s worth, factoring its growth trajectory and market trends. This process can be prescribed by the articles of association or other constitutional agreement and is usually binding on all parties..

Reputational risks

If a director faces a contentious exit, there can be a reputational risks. If a director is facing unwelcome accusations, their reputation can be in jeopardy, which can damage their chances of holding a similar position in this or across multiple sectors.

Typically, the director and the board will want to avoid a public dispute, and so a settlement can be negotiated. In these circumstances, the company may issue a neutral statement acknowledging the director’s contributions, carefully worded to avoid defamatory implications. Defamation laws, which protect individuals from false statements that harm their reputation, often guide the process in the absence of specific pre-agreed protections, ensuring the company’s announcement doesn’t jeopardise future prospects.

Investor-driven exits

What happens if a private equity investor with a minority stake but significant board influence pushes for the exit of a CEO or other board director? This can be tricky; for example, the CEO’s share options could be tied to a two-year vesting schedule, and their departure could raise questions about valuation and incentive forfeiture. The investor group will often engage a third-party adviser to oversee the exit, ensuring compliance with the company’s articles.

The adviser may also coordinate a PR firm to manage external communications, mitigating potential damage to the company’s brand. The CEO could negotiate a partial vesting of their options in exchange for a shorter notice period, allowing the company to transition smoothly to new leadership. This would allow a balanced settlement, with the investor’s desire for change and the CEO’s financial and reputational interests satisfied, highlighting the role of third-party expertise in complex exits.

The path to resolution

These issues illustrate the multifaceted nature of corporate divorces. Independent valuations provide an objective foundation for resolving share price disputes, while carefully crafted notice periods protect both parties’ financial interests. Reputation management, guided by defamation law principles, ensures exiting directors maintain their professional standing, particularly for those with non-executive portfolios. Third-party advisers – whether valuation experts, restructuring specialists, or transactional consultants – bring clarity and structure to emotionally charged disputes.

By prioritising negotiation over litigation, companies and individuals can preserve relationships, protect reputations, and maintain financial stability. The corporate divorce, while challenging, need not end in court. With the right processes and expertise, these high-stakes separations can be resolved efficiently, allowing all parties to move forward with confidence.

If you have questions or concerns about the issues raised in this article, please contact Corporate Partner Jaan Larner.