When the Private Impacts the Public

By: Esmat Hanano, Spring 2019 IAC Student Intern

On February 8, 2019, Amazon’s stock closed off from its opening price by $26. What could lead to such an usual drop? If you guessed it was external factors, such as continuing trade tensions with China, you’d be wrong. Surprisingly, the dip in Amazon’s stock is linked to Amazon’s CEO, Jeff Bezos. Bezos has been dealing with the fallout from a blog post he wrote accusing the National Enquirer of extortion. The post details the National Enquirer’s attempts to blackmail Bezos with threats to release salacious photos of the Amazon CEO. From a public relations standpoint, Bezos’s post is a shrewd tactic to get ahead of an embarrassing story. From a financial standpoint, however, the post could cause headaches for Amazon and its investors. Although the drop in Amazon’s stock price is relatively minor, the impact from Bezos’s behavior could become a distraction that further drives the price down.

As shown by Amazon’s closing numbers on Friday, investors associate the behavior of a company’s CEO with the success of the company. Studies suggest that this association may be a good indicator of company success, and there has been a recent trend bearing out this premise as well. Tesla’s CEO, Elon Musk, is another recent example of when the private impacts the public. Musk engaged in a series of odd behaviors late last year that culminated in an emotional New York Times interview where he claimed to be facing immense pressure from his different ventures. Similarly, Uber and Apple faced their fair share of swings as their CEOs’ private lives impacted the value of the company. Uber’s first CEO, Travis Kalanick was forced to step down after a video of him arguing with one of his drivers surfaced and led to accusations of a hostile work environment at the tech giant. During Steve Jobs’s tenure as Apple CEO, he regularly faced questions about his health that affected the company’s stock price.

For the retail investor, these examples of news-generating CEOs provide a lesson in vigilance. Retail investors should monitor all aspects of the companies they invest in—not just the day-to-day stock price. A CEO’s behavior can have both positive and negative long-term impacts on a company, and retail investors should be aware of how that behavior impacts their own investments.