Appointing an Executive Officer — What Disclosure and Compliance Issues Should Companies Consider?

When a company hires or promotes an individual to an executive officer role, there is a series of processes to consider, including determining whether certain disclosure obligations have been triggered. The process also spans board approvals, employment documentation, corporate governance orientation, board relations, and other external communications. The precise scope of the process should be tailored to the company, the executive officer’s role, and the company’s stage of maturity.

Approvals

The board of directors should approve the appointment of a new CEO, president, chief operating officer, chief financial officer, principal accounting officer, and other officers identified in the bylaws of the company. Companies should review their bylaws to determine whether board approval of an officer’s appointment is required based on the position the individual will hold as an officer of the company.

The board should also adopt banking and investment account resolutions and any applicable security clearance exclusion resolutions.

The board’s compensation committee is typically responsible for approving the terms of the employment agreement, any change in control agreement (unless using a previously approved standard form), the compensation package, and any equity grant for the new executive officer.

Securities Law Matters

Item 5.02(c) of Form 8-K mandates a filing when a company appoints a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or person performing similar functions. A completed directors and officers (D&O) questionnaire will help ensure a timely and accurate filing.

Executive officers will often be subject to the reporting regime of Section 16 of the Securities Exchange Act of 1934. Section 16 obligations are among the most time-sensitive aspects of the onboarding process and should be initiated as early as possible. If the executive does not already have EDGAR (Electronic Data Gathering, Analysis, and Retrieval) filing codes, a Form ID must be submitted to the SEC. Companies should also obtain a limited power of attorney from the executive to facilitate the filing of Section 16 forms and a signed authorization permitting use of the executive’s electronic signature in SEC filings in accordance with authentication and attestation requirements. A Form 3 is due within 10 calendar days of the individual becoming subject to Section 16, and a Form 4 is due within two business days of any reportable transaction, such as an inducement equity grant. Those deadlines run from the triggering event, not from the date EDGAR access is obtained.

Companies should plan both external and internal communications regarding the executive officer’s appointment, including a press release and an internal company-wide communication. Companies listed on the New York Stock Exchange (NYSE) should consider whether notice to the exchange is required and review and satisfy any applicable state corporation law filing requirements for changes in officers. External messaging and an FAQ for customers and investors should also be prepared as needed to support a coordinated announcement.

Employment Documents

Core employment documentation typically includes an offer letter or a more formal employment agreement and a nondisclosure and proprietary information agreement, both of which the executive must sign. Additional documentation may include an indemnification agreement, confirmation that a background check has been completed, and a completed D&O questionnaire.

Corporate Governance Orientation

Companies should ensure that the incoming executive has received and, when required, formally acknowledged each of the company’s key governance policies and that appropriate discussions on governance matters have been held. At a minimum, this should cover the company’s code of business conduct and ethics, insider trading policy, any associated Rule 10b5-1 trading plan policy, stock ownership guidelines, corporate governance guidelines, Section 16 obligations memorandum, corporate and shareholder communications policies, and executive compensation clawback policy.

Board Relations

Integrating the new executive officer into the board’s working relationships is an important early step. Companies should arrange introductory meetings between the executive and key directors, particularly the chairs of committees whose work intersects with the executive’s role. The executive should receive the board calendar with invitations to the meetings that they are expected to attend.

Practical Checklist

Approvals

• Get board approvals
• Get compensation committee approvals
• Complete background check

Employment and Other Documents Signed and Completed

• D&O questionnaire
• Approve the employment agreement, nondisclosure and proprietary information agreement, change in control agreement, and equity grant agreement

Securities Law Matters

• Analyze Form 8-K
• Obtain the executive’s EDGAR filing code or file a Form ID, complete EDGAR Next registration, and include limited power of attorney
• File initial forms 3 and 4

Corporate Governance Orientation

• Obtain acknowledgement of the code of business conduct and ethics and insider trading policy
• Distribute key policy documents, including stock ownership guidelines, corporate governance guidelines, and Section 16 obligations memorandum
• Set up a meeting for the executive with the legal team regarding disclosure committee operations and any expected certifications

Board Relations

• Schedule introductory meetings with key directors and committee chairs
• Provide the board calendar and grant board portal access
• Set up a meeting with the general counsel to discuss board dynamics

External Communications

• Issue a press release
• Plan internal company communication
• Update website
• Satisfy NYSE affirmation requirements
• Submit required state corporation law officer-change filings
• Prepare external messaging and customer and investor FAQ