The Order is instructive for both executives and issuers. For one, the Order demonstrates that public company executives must tell the full truth in internal investigations—even when doing so may have professional and personal implications. Failure to be candid may lead not only to civil enforcement by the SEC but also—like it did for Easterbrook—a breach of fiduciary duty action by an employer.
Issuers should note that this is the first time the SEC has applied Item 402 to require disclosure of a company’s discretionary decisions regarding the characterization of an executive’s termination. Item 402(j) provides that a Compensation Discussion and Analysis in a public filing must disclose the “material factors” involved in a “contract, agreement, plan or arrangement…that provides for payment(s) to a named executive officer at, following, or in connection with any termination.” More broadly, Item 402(b)(2)(xi) requires disclosure of all “material elements of the registrant’s compensation of the named executive officers,” which could include disclosure of the basis for payment in connection with termination.
Source: Not Lovin’ It: SEC’s Settlement With McDonald’s Former CEO Highlights Continued Focus on Executive-Related Disclosures | Vinson & Elkins LLP – JDSupra