Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP 33 | Executive Officer Departures: Is your Disclosure Adequate? Executive Officer Departure Disclosure Trends We reviewed Form 8-K Item 5.02(b) disclosure of executive officer departures filed by the Top 100 Companies from January 1, 2022, through May 13, 2023 to examine whether any shift in disclosure approaches can be identified. Other Terminations Termination with Cause Involuntary Separation Termination without Cause Resignation Retirement Disclosed Reason for Executive Departure 48 20 28 2 1 1 Retirement Resignation Termination without cause Involuntary separation Termination with cause Other terminations 3 Of the executive officer departures disclosed in Forms 8-K filed by the Top 100 Companies during the period reviewed, none characterized the executive officer's exit as being a result of the "mutual agreement" or "mutual decision" of the company and the executive officer. However, a survey of these disclosures reveals that describing an executive officer's departure as "mutual" in other ways remains a common practice. Although the sample size and the period of review is limited, the fact that none of the Top 100 Companies used historically common phrasing to characterize the termination may be an indicator of the beginning of a shift in disclosure practices. Separation payments were disclosed in connection with 23% of executive officer terminations, with 17% of executive officer retirements disclosed describing amounts paid to executive officers in connection with their retirement, including six companies that described new agreements executed in connection with the executive officer's retirement. Separation payments were also described with respect to one of the terminations characterized as a termination without cause, one termination characterized as an involuntary separation and approximately half of the other termination descriptions identified. In certain of the disclosures, the company expressly indicated that the circumstances of the executive officer's termination of employment were consistent with a "qualifying termination" under the company's existing executive severance plan or the executive officer's employment agreement. There was no indication that any new entitlements were not disclosed. In this set of termination disclosures, there does not appear to be any perceivable shift in approach, which suggests that companies are not expanding disclosure to cover an explanation of why they determined to make (or not make) payments under existing entitlements. 3 "Other terminations" includes descriptors "step down," "depart" and "leave." Combination of New and Existing Entitlements with Mixed Disclosure New Entitlement Existing Entitlement with Description of Payments Existing Entitlement with No Description of Payments 20 35 35 10 Disclosure Practices of Separation Compensation Combination of new and existing entitlements with mixed description of payments New entitlement with description of payments Existing entitlement with new description of payments Existing entitlement with no new description of payments