January 28, 2022

Director Independence: Staff Questions Service as Corporate Secretary

This recent Bass Berry blog discusses a recent comment letter exchange in which the Staff questioned a registrant’s conclusion that a director who also served as its corporate secretary was “independent” under applicable Nasdaq rules.  Here’s an excerpt:

Because the determination of director independence is crucial for maintaining SEC and stock exchange compliance (as well as Delaware law process protections in some situations), in-house and outside securities counsel often closely scrutinize the facts and circumstances of various relationships to confirm that director independence would not be jeopardized. Companies will often produce written memoranda that carefully analyze the specifics facts and circumstances of a director to help support the board’s determination that a director or director nominee is “independent” under the applicable standards.

It is with this background that we found interesting a recent comment letter exchange in which the Securities and Exchange Commission (SEC) Staff questioned the registrant about its disclosure that a director was deemed independent notwithstanding the fact that the director was then-serving as the company’s corporate secretary.

The registrant took the position that the director was “independent” under the rules because (i) a corporate secretary position is not included in the definition of “officer” as defined by the SEC, and (ii) it did not consider the corporate secretary position as an employment relationship because the director did not receive any compensation for serving in the role and had only performed minor services in the role.

The blog also notes that the director agreed to step down from his position as corporate secretary in order to help resolve the comment. I linked to the registrant’s response letter in the first paragraph, and it is also presented in its entirety in the blog. The Staff did not comment further, and the final prospectus (p. 60) continues to classify the director as independent.

John Jenkins