Prenups would ease corporate divorces

PUBLISHED : Monday, 14 November, 2011, 12:00am
UPDATED : Monday, 14 November, 2011, 12:00am


Everyone around the world is getting a prenup, but not in Hong Kong. It's not a pretty idea, but is eminently sensible. Indeed, the notion is so powerful there ought to be a mandatory corporate version for companies when they hire CEOs. That might help in corporate 'divorces', where many companies have had to shell out tens of millions just to sack incompetent executives.

With divorce cases reaching a record high of 20,000 last year, the odds are increasing that the city's newly-weds will never get 'till death do us part'. But good ideas often run against sentiment. Who wants to think about death while celebrating birthdays? Those caught up in premarital bliss rarely fret about unromantic problems like dividing assets and hiring lawyers.

But the trend all over the world has been for the courts to recognise prenuptial agreements. This has been the case in the US, some European countries, Australia and recently Britain. Even mainland courts now recognise such agreements. Hong Kong should follow their example.

Properly done, a prenuptial agreement helps speed up a divorce, almost always painful and bitter for both sides. It helps minimise disputes and avoid huge legal fees.

It's an anomaly that there aren't more companies using the contractual equivalent of the prenup when they hire chief executives and other top managers. Disproportionate executive compensation in the US and Europe has been partly blamed for contributing to the Western financial crisis by encouraging CEOs to take excessive risk. Like couples in love, companies get excited when they find and hire their new wunderkind CEOs. In the heat of the moment, money is no object; no terms are too extravagant.

By the time the CEO turns out to be a dud, it's too late. He or she demands to be paid their pound of flesh to disappear into the golden sunset. But with a prenup, couples and companies can do the smart thing.