Nvidia's stock took a significant hit this week, falling 5.47% on Tuesday after a 4% decline on Monday—a combined loss of roughly 9.5% over two days—despite little in the way of company news. CEO Jensen Huang has reportedly been attempting to maintain business as usual following his admission of an extramarital affair with Alice Huang, a former executive at Nvidia customer Megaspeed whom U.S. intelligence agencies suspect was spying for China. The most notable development appears to be that Nvidia's board has retained the law firm Wachtell, Lipton, Rosen & Katz to conduct an investigation.

What happens next remains largely uncertain, even for experts who study corporate crisis management. Two corporate governance professors—Ann Lipton of the University of Colorado and Todd Henderson of the University of Chicago—agree there's no real precedent for a CEO entangled in a suspected honeypot scenario. While they have opinions on what the investigation should examine, they're watching the situation unfold like everyone else.

"There have actually been affair cases and sexual harassment cases," Lipton noted, but she quickly added that she's unaware of prior cases involving potential national security compromises. Henderson, whose research focuses on corporations, securities regulation, and law and economics, emphasized that much depends on facts few people currently possess—most critically, what, if anything, Alice Huang obtained from Jensen Huang. Secrets about Nvidia's fabs or chip designs would matter to the Justice Department; ordinary corporate information likely would not.

Lipton characterized the investigation led by Nvidia's independent board members with their own outside counsel as perhaps the most "standard" element of the entire affair so far. She also observed that an investigation will be "exactly as thorough" as the directors running it want it to be—which is also standard practice. Henderson made a related point about incentives, noting that Washington law firms conducting internal investigations "know who pays their bills." He didn't suggest that's occurring here.

Lipton identified three lines of inquiry: whether the law was broken, whether Huang violated Nvidia's internal policies, and whether the board was misled—including how forthcoming he was and when he was on notice. Notably, as reported Monday, Huang hired a PR crisis firm known for handling sex scandals a full year ago. Of course, the driver could have been about the affair alone. It's unclear when Huang learned Alice Huang was a suspected spy. The board said in a Sunday statement that Nvidia has "no reason to believe that either national security or NVIDIA secrets were compromised."

Henderson similarly stressed the importance of what Huang knew and when. He described two scenarios: In one, Huang hires a PR firm because an extramarital affair is embarrassing, without knowing who the woman is. In the other, he knows she is a suspected Chinese spy. "I think that's very different," he said. "If I were a board member and the CEO of a company with very sensitive technology was in that situation, I would be furious if they didn't tell me." Not telling the board that you have cancer "or that you've been sleeping with a Chinese spy," said Henderson, "seems to me to be a fireable offense."

Either way, Lipton expects shareholder suits, and she said two kinds are possible. Securities fraud, which she said is "only about lying," is the most obvious—and Nvidia is already facing a proposed class action lawsuit alleging that Nvidia and Huang misled investors by describing the company's Megaspeed dealings as routine. "You can have as many affairs with Chinese spies as you like," Lipton said. "You just can't lie about it under the federal securities laws."

A mismanagement claim under Delaware law, where Nvidia is incorporated, is much harder. Employees do "stupid or reckless or damaging things all the time," she said, and courts don't let shareholders sue each time. Shareholders bringing such a claim on the company's behalf—known as a derivative suit—must first show the board is incapable of handling the problem, usually by proving directors are implicated or so beholden to the CEO that they can't act independently.

Nvidia's 10-member board has a track record of loyalty and deference to Huang, as outlined in a Tuesday morning report. Still, the investigation those "independent" directors have announced with outside counsel makes that very difficult. Lipton cited, for example, a shareholder suit over alleged mismanagement at McDonald's several years ago, after its chief people officer was accused of harassment and its CEO had a relationship with a subordinate. Ultimately, the court found no reason the board couldn't deal with the misconduct on its own.

Even if none of this ends up threatening Huang's job, the episode raises other governance questions that don't look great in retrospect. Nvidia operates with a famously flat structure, with more than 60 direct reports to Huang, and the company doesn't appear to have a succession plan—which Lipton called "a danger for any company."

Huang's children also work at Nvidia. His son Spencer is a director of product management, his daughter Madison is a senior director of product marketing, and his son-in-law, Nico Caprez, works in business development. Some employees believe he is grooming successors, and when asked last month whether Madison is in line for the job, Huang didn't dismiss the idea, saying instead that it's not something he'd wish on her. Lipton called hiring the kids poor corporate hygiene, even though founders have long done it. (Kimbal Musk is on Tesla's board because he's Elon Musk's brother, she noted.) Directors are supposed to act only for stockholders, but founders get more latitude as long as the company is thriving.

Henderson similarly calls himself a strong "anti-nepotism person," sharing that when his father worked at Westinghouse's nuclear research lab, there was an absolute ban on hiring employees' children. "Like, fine for them to be working there," he said of Huang's children working at Nvidia. But "the idea that one of his kids would succeed him" at a publicly traded company the size of Nvidia "seems crazy," he added.

What Nvidia may have gotten more right, from a governance standpoint, is what it doesn't have: dual-class shares. Huang reportedly owns about 3.6%, so he doesn't control the vote. That makes him "easier to dislodge," Lipton said, even though he is deeply integrated into the company in other ways. Neither professor is rooting for or against Huang, each made clear. The simple truth is that with voting control on top of Huang's holdings, the board would have even less flexibility. Without it, the board has a few more options.