TheCorporateCounsel.net

Shearman & Sterling recently released its 2023 Corporate Governance & Executive Compensation Survey.  Among other topics, the survey reviews disclosure practices among the largest 100 US public companies concerning executive departures, which have been the subject of closer attention following the McDonald’s enforcement proceeding earlier this year. Here are some of the key findings:

– 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.

The survey also noted a number of interesting findings in other areas. For example, it found a 25% increase in the number of Top 100 Companies with a director specifically identified as having cybersecurity experience, and a 42% jump in disclosure of director-specific diversity information.

– John Jenkins