Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP Executive Officer Departures: Is your Disclosure Adequate? | 34 Action Items for Executive Officer Separations The following is a list of action items for companies planning for an executive officer departure. • Quantify Potential Severance Payments and Benefits. Before engaging with the executive officer, the company should quantify all potential payments that may be made to the executive officer depending on whether the termination is voluntary or involuntary. If the executive officer is a named executive officer, the quantum of payments should be compared against the amounts disclosed in the company's most recent proxy statement (or other relevant prior disclosure). This review should also include a review of any restrictive covenants to which the executive officer may be subject and, in light of recent legal changes in this space, the enforceability of such covenants. • Document Board and Management Considerations. A board or management may decide to terminate an executive officer without cause even in the face of evidence that a for cause termination of such individual may be possible. When making such a determination, care should be given to adequately document the reasons for terminating the executive officer without cause and recording the factors considered in making the decision. • Be Consistent in Disclosure. All disclosures and public statements should be vetted to ensure they are not contradictory as to the reasons for the executive officer's departure. • Examine the Impact of the Departure on Other Executive Officers' Rights. Agreements with other executive officers should be reviewed to determine if any of their rights are triggered by the executive officer's departure. For example, an executive officer may have the right to resign with good reason and terminate employment with severance if a particular executive officer is terminated or if reporting lines are changed as a result of a departure. • Prepare an Internal Communications and Succession Plan in Advance. Investors are not the only constituents impacted by an executive officer's departure. Companies must consider— before an executive officer's departure is even contemplated—a proper succession plan. The executive officer should agree to cooperate with the company after departure, and, in some instances, it may be advisable to have the former executive officer remain as a consultant to ensure a smooth transition. Transitional roles and services continue to be a common practice among public companies, with 42% of executive officer departures at the Top 100 Companies using these arrangements. Further, a leader's departure may impact the morale of the workforce, so representatives of management should be prepared to explain the transition and answer any questions from team members.