A Director Is Considering Resigning — What Are the Disclosure Considerations?

Director departures can raise a variety of disclosure, governance, stock exchange, and securities law considerations. The nature of the departure, including whether the director is resigning voluntarily, retiring, refusing to stand for reelection, or departing due to a disagreement with the company, will determine whether an SEC (U.S. Securities and Exchange Commission) Form 8-K filing is required and what disclosure must be included.

Director departure analyses are highly fact-specific and time-sensitive. Companies should not only carefully evaluate whether disclosure is technically required but also whether existing public statements remain materially accurate and complete in light of the anticipated departure.

What Should Companies Consider?

When a director is considering resigning or otherwise departing from the board, companies should first evaluate the nature and timing of the departure and whether a Form 8-K filing obligation may be triggered under Item 5.02. In many cases, the disclosure obligation is triggered by the notice of resignation, even if the director’s service will continue through a later effective date, and the Form 8-K must be filed within four business days of the triggering event. Companies should also consider whether the board intends to fill the vacancy, reduce the size of the board, or leave the seat vacant.

Companies should also carefully assess whether any disagreement exists between the director and the company regarding operations, policies, or practices. When a disagreement contributed to the director’s resignation or removal, additional disclosure obligations, including obligations to describe the disagreement and file related correspondence as an exhibit to the Form 8-K, may apply.

Companies should also distinguish between a director voluntarily refusing to stand for reelection and a board determination not to renominate a director. A board decision not to renominate a director, standing alone, does not trigger a Form 8-K filing obligation under Item 5.02 unless the director separately resigns or otherwise departs from the board.

Because informal discussions or communications may inadvertently trigger disclosure obligations, companies should carefully manage communications regarding potential departures, including who receives notice and whether any formal acceptance process is required under the company’s bylaws or governance documents.

Director departures may also affect board and committee composition requirements, stock exchange independence standards, audit committee financial expert disclosure, governance committee and compensation committee composition, proxy statement disclosure, and shareholder or investor communications. Companies should also evaluate whether any related press release, stock exchange notification, or other public communication may be appropriate under the circumstances.

Disclosure Considerations

If a director resigns, retires, refuses to stand for reelection, in circumstances not involving a disagreement, or is removed other than for cause, companies generally disclose

• the fact and nature of the departure;
• the date notice was provided; and
• the effective date of the departure.

If a director resigns or refuses to stand for reelection because of a disagreement with the company on operations, policies, or practices, or is removed for cause, whether by resignation, refusal to stand for reelection, or removal, relates to a disagreement with the company on operations, policies, or practices, Item 5.02 requires additional disclosure regarding the circumstances of the disagreement. Companies are also required to provide the departing director with an opportunity to furnish a responsive letter for filing with the SEC.

Companies should also evaluate whether the departure affects other public disclosures, including disclosures relating to board committee composition, director independence, beneficial ownership, Section 16 compliance under the Exchange Act, director compensation and governance matters contained in proxy statements, periodic reports, company websites, governance materials, or investor communications.

Continuing Obligations of Departing Directors

Departing directors often remain subject to continuing securities law and confidentiality obligations after leaving the board. Depending on the circumstances, these obligations may include continuing Section 16 reporting and short-swing profit considerations, Rule 144 affiliate limitations for a period following departure, insider trading restrictions relating to material nonpublic information, and ongoing confidentiality obligations relating to company information. Companies often provide departing directors with a formal exit memorandum summarizing these continuing obligations.

Practical Checklist

• Has the company determined whether the departure triggers a Form 8-K filing obligation under Item 5.02?
• Has the company evaluated whether any disagreement exists that could require additional disclosure?
• Has the company coordinated any required correspondence process with the departing director relating to disagreement disclosure?
• Has the company reviewed applicable bylaw or governance policy notice requirements?
• Have stock exchange notification or compliance considerations been evaluated?
• Does the departure affect committee composition, independence, or audit committee financial expert requirements?
• Has the company evaluated the related proxy statement, governance, and investor relations disclosures that must be updated?
• Has the departing director received guidance regarding continuing Section 16, Rule 144, insider trading and confidentiality obligations?
• Have compensation, equity award, and administrative offboarding considerations been addressed?