James R. Craigie, who had previously occupied prominent positions at manufacturing company Church & Dwight, has been charged by the SEC with acting as an independent director without disclosing that the was close personal friends with a company executive.
He has agreed to settle paying a $175,000 penalty and agreeing to the imposition of a five year ban from holding the position of officer and director without admitting or denying the charges.
According to the SEC’s complaint, Craigie had been CEO of Church & Dwight, which produces Arm & Hammer and OxiClean, for over eleven years. In 2020, shareholders elected Craigie as an independent director at the company’s 2020 annual shareholder meeting.
This process required confirmation that Craigie was truly independent and did not have any material connections to the company. The board substantially relied on Craigie to disclose any relationships he might have with company executives.
An expensive friendship
Unbeknownst to the board and the shareholders, Craigie had been close friends with an unnamed executive. According to the SEC, this friendship involved Craigie hosting the friend on international vacations that he paid more than $100,000 for.
Craigie neglected to share this relationship with the company, and ultimately attained the position of independent director.
In 2021 and 2021, Church & Dwight released its annual proxy statements under Regulation 14A and Regulation S-K. Those listed Craigie as an independent director under New York Stock Exchange listing standards and Church & Dwight’s Corporate Governance Guidelines.
The proxy statements contained erroneous information because Craigie was never actually fully “independent,” the SEC said.
The agency also stated that this non-disclosure materially benefitted Craigie because it allowed him to participate in a CEO selection process in which his friend was standing.
During this period, Craigie never disclosed the relationship. In fact, he encouraged his executive friend to conceal it as well.
“Shareholders expect independent directors to exercise autonomous judgment in their decision making, free from undisclosed conflicts,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement.
“By concealing his relationship with a company executive, Mr. Craigie undermined the board’s director independence process and compromised the company’s disclosures.”
CEO succession
This close relationship caused problems when the executive came up as a potential CEO candidate during a succession process. As an independent director, Craigie was able to participate in the elections.
Craigie ultimately disclosed confidential details about the selection process to his friend. He also recommended his friend’s former colleague for the position, and intimated that the appointment of this colleague could give his friend a viable succession path to the role, the SEC said.
This situation unwound when Church & Dwight discovered the relationship in early 2023. The board considered the non-disclosure a violation of company policy requiring candor and subsequently voided Craigie’s status as independent director.
Rule violations
For his role in failing to disclose his friendship in company proxy solicitations as an independent director, Craigie was charged with violating:
- Securities Exchange Act Section 14(a); and
- Securities Exchange Act Rule 14a-9, covering false or misleading statements in proxy statements and solicitations.
Penalties
If the settlement is approved by the court Craigie will be prohibited from acting as an officer or director of a publicly traded company for five years and will pay a $175,000 fine.
Craigie will also be enjoined from further violations of the Exchange acts’ proxy provisions.
