Disclosure obligations for a director resignation: a review of the reporting requirements, and recommendations for ensuring compliance.

• Author: Allen, Jessica Lochmann
• Position: BOARD PRACTICES

COMPANIES SHOULD BE AWARE of the disclosure obligations triggered by the resignation of a director. While these obligations may seem straightforward, companies should implement safeguards to ensure compliance with disclosure requirements, especially in situations where the timing of a resignation is ambiguous.

SEC reporting requirements

Under Item 502(b) of Form 8-K, if a director resigns from or refuses to stand for re-election to the board, a company must disclose that the event has occurred in a Form 8-K filed within four business days of the triggering event. If the director furnished the company with any written correspondence concerning his or her resignation, the company must file a copy of the correspondence with the Form 8-K. Further, if a director resigns or refuses to stand for re-election because of a disagreement with management, the company must disclose the event date, the committee positions held by the director and the circumstances surrounding the event.

Determination of whether a director has given a notice of a decision to resign is a facts and stances test. While a disclosure obligation clearly arises when a director gives an unambiguous notice of resignation either immediately or at a specific future date, questions arise where a resignation is ambiguous, conditional or is "springing" upon the occurrence of certain events. SEC guidance states that notice of a "decision to resign" triggers a Form 8-K reporting obligation, regardless of whether the notice is written, conditional, or subject to acceptance. Mere "discussions or consideration" related to a resignation do not trigger a Form 8-K reporting obligation. Further, "springing resignation" requirements, including resignation requirements upon failure to receive a majority vote or upon a change in principal employment, raise questions about the timing of a resignation. In these cases, SEC guidance provides that disclosure is not triggered upon a director submitting an irrevocable letter of resignation conditioned upon the director receiving a majority of votes, but that it is triggered by the board's decision to accept the resignation.

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Questions about the timing of a resignation may also arise when a director indicates her intention to complete her current term but not seek re-election for a subsequent term. In this case, a company must consider whether the board has had parallel conversations about the desire to re-elect...