Audit Analytics tracks all director and officer changes disclosed in Item 5.02 of 8-Ks and, using a custom taxonomy, classifies the nature of the departure and the general reason for such change, if provided. In a previous post, we looked at departure trends of Chief Executive Officers and Chief Financial Officers. In this analysis, we look at general departure trends of Chief Operating Officers (COO) and General Counsels (GC) filed in an 8-K Item 5.02 between January 1, 2016 and December 31, 2018, excluding departures disclosed for interim positions.
Unsurprisingly, resignations top the list of departure actions for COOs consistently across the three-year period, followed distantly by retirement. Departure actions including personal leave, administrative leave, deceased, and employment ceased have been grouped into an “other” category.
Reasons for departures were calculated as a percent of total 8-K Item 5.02s that provided a reason for a COO or GC departure.
The most common reason provided for a COO departure across the three-year period is a position change within the company. This type of change is often a COO assuming a different role at the company, such as a promotion to CEO.
Other top reasons provided for a COO departure include leaving to pursue other opportunities and personal or health reasons. In 2018, the number of COO departures by reason, other than a position change within the company, were significantly similar- an anomaly not seen with CEOs, CFOs or GCs.
Overall, the number of COO departures was greater than the number of GC departures across 2016, 2017, and 2018, indicating there is more movement among individuals holding COO positions than GC positions.
For GCs, resignations also top the list for departure actions across the three-year period. Similar to COOs, the second most common departure action is retirement.
Top GC departure reasons provided include a position change within the company, other opportunities and mergers & acquisitions. A position change within a company for a General Counsel can be a title change. For example, a “General Counsel” may transition to a role such as “VP Legal” or “Special Legal Advisor”.
In comparison to COOs, GCs departed from their position more frequently due to corporate restructuring. Corporate restructuring may be financially-driven; for example, cost-saving initiatives during restructuring can include a reduction in corporate positions.
Consistently for both COOs and GCs, around half of the 8-Ks analyzed did not provide a reason for the departure; although, as a percentage of position departures, more reasons were provided for COOs and GCs than for CEOs and CFOs. This may indicate companies may be slightly more forthcoming in regards to details surrounding their COO departures and GC departures.
Departures due to a long-planned retirement or unexpected circumstances, such as an illness, are routine and nothing to raise alarm. However, when an officer resigns suddenly or without notice, the board, as part of its oversight obligation, may want to conduct an inquiry into the circumstances surrounding the event. Certain circumstances, such as concerns regarding management or professional responsibility, are indications of bigger problems.
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