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Shearman & Sterling LLP Executive Officer Departures: Is your Disclosure Adequate? | 30 Insights Executive Officer Departures: Is your Disclosure Adequate? Matthew H. Behrens and Eitan Y. Morris Public companies are no strangers to the tension that can arise from balancing the obligation to provide the markets with material information regarding their arrangements with executive officers and the desire to both protect the reputations of the company and the executive officer and executive officer's privacy and, at times, avoid the possibility of litigation with an executive officer. In the past year, this tension has come to the fore following a renewed focus on disclosures surrounding executive officer departures—particularly in cases where the board of a company may have reason to terminate an executive officer for "cause." In such instances, especially when severance is paid, the completeness of disclosures is being called into question and, relatedly, the termination decision- making processes of boards and companies are being placed in the spotlight. This article summarizes the disclosure requirements of U.S. domestic public companies with respect to departures of their executive officers and the debate as to whether those disclosure rules require, following such a departure, the disclosure of the reasons, or the "why," for the departure in addition to the "what," the fact that the departure occurred. This article also analyzes recent trends in executive officer departure disclosures and discusses other considerations when an executive officer departs, including ISS reaction and contractual obligations. Form 8-K and Annual Proxy Disclosures When certain executive officers depart from a company, whether voluntarily or involuntarily, the immediate disclosure that companies must confront is current disclosure on a Form 8-K (or within a periodic disclosure if the timing of the departure aligns with the disclosure's filing). Although at first blush the content of this disclosure appears relatively straightforward, it is sensitive disclosure, and recent actions by the SEC, as well as statements by ISS, heighten its sensitivity. Under Item 5.02(b) of Form 8-K, companies must disclose within four business days of the event the fact that any named executive officer, president, principal financial, accounting or operating officer or any person performing similar functions retires, resigns or is terminated from that position. Note that the triggering event for this disclosure may be earlier than the actual date of termination, resignation or retirement if the executive officer has provided (or been provided with) notice of an intention to retire or resign or of an upcoming termination of employment. Although Item 5.02(b) disclosure appears on its face to be limited to the "what"—namely the fact of the event and the date of its occurrence—additional disclosure under Item 5.02(e) of Form 8-K may be required if the executive officer is to receive severance payments or other compensation or benefits in connection with the termination of employment and those amounts are not materially consistent with amounts previously disclosed by the company. Notwithstanding that companies may conclude that the severance payments in connection with a termination are aligned with what has otherwise been previously disclosed (for example in a proxy statement), recent SEC action against McDonald's Corporation has demonstrated that a company's determination to not disclose this information may be subject to challenge. 1 In addition to current disclosure on Form 8-K, Item 402 of Regulation S-K requires executive compensation disclosures to be made in annual proxy statements, including disclosure of the amounts actually paid to a named executive officer that departed during the covered period. Although there is no stated requirement to discuss the reasons for an executive 1 See Stephen J. Easterbrook, et al., Securities Act Release No. 11144, Exchange Act Release No. 96610, 2023 WL 143292 (Jan. 9, 2023).