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Heartache at Carbo Ceramic

By Rich Duprey – Updated Nov 16, 2016 at 1:05PM

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CEO resigns over his affair with a female employee. When will they learn? And will shareholders pay?

Don't these guys ever learn? Didn't the ouster of Harry Stonecipher at Boeing (NYSE:BA) sound any alarms?

Carbo Ceramics (NYSE:CRR) CEO Mark Pearson stepped down Friday because of a relationship he had with a female employee of the company. He was immediately replaced by Jesse Orsini, who had led the company from 1978 to 2001, after which Pearson succeeded him.

A personal and apparently romantic relationship with a female employee does not rise to the level of criminality, and affairs of the heart are often difficult to control. But when you're in charge of a multibillion-dollar corporation and answerable to shareholders for the effects that your actions may have, people have a right to ask, "Man, what were you thinking?"

There's no hint that the relationship between the CEO and the employee had any effect on the company's operations, and the company said its investigation did not reveal any impact on financial results. But shareholders need to ask what sort of package Pearson is going to get in the wake of the turmoil.

When Stonecipher was forced to resign at Boeing, he got a nice going-away present to soften the blow: He still got to receive his $1.5 million salary, was given a $2 million incentive bonus, and still had use of the company car and jet. It's unfortunately not all that uncommon for shareholders to foot the bill for a CEO's less-than-ideal exit. For example, former Krispy Kreme (NYSE:KKD) CEO Scott Livengood got a $45,000-a-month "consulting" job with the doughnut maker when he was ousted, even though the stock declined from $50 a share down to $5 under his tutelage.

Unfortunately for shareholders of Carbo Ceramics, the leading manufacturer of ceramic beads used to extract oil and gas from the ground, Pearson had the earmarks of an excellent CEO and contributed much to the company's leadership position in its industry. Carbo Ceramics has a 50% market share in the ceramic proppant market. ("Proppants" are ceramic beads or granules of sand that "prop" open fractures in rock to help extract oil and natural gas from beneath the surface). Shares of the company almost tripled in price on his watch.

Even so, that's no cause for directors to give away the store as a severance package. Executives might learn from their predecessors' mistakes if they weren't richly rewarded when they're shown the door.

Reward yourself with these related Foolish articles:

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Fool contributor Rich Duprey owns shares of Carbo Ceramics but none of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.

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The Boeing Company Stock Quote
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