The SEC has announced settled charges against Stanley Black & Decker Inc. (SBD), a publicly traded tools company, for failing to disclose perquisites it provided to certain executives. In addition, Jeffery D Ansell, a former SBD executive, agreed to settle charges that he caused Stanley Black & Decker to violate proxy solicitation and books and records provisions of the federal securities laws.

According to the SEC’s order against SBD, the company failed to disclose at least $1.3m worth of perquisites and personal benefits paid to, or on behalf of, four of its executive officers and one of its directors from 2017 through 2020. The perquisites predominantly consisted of expenses associated with the executives’ use of corporate aircraft.

The order finds that SBD failed to appropriately apply the SEC’s compensation disclosure rules to its system for identifying, tracking and calculating perquisites.

No civil penalty

The most interesting thing about this case is that the cease-and-desist order does not impose any civil penalty against Stanley Black & Decker, thanks to the company promptly self-reporting the perquisite disclosure failures and other conduct potentially implicating the federal securities laws, cooperating with the SEC’s investigation, and swiftly implementing remedial measures.

Some of SVB’s proxy statements failed to disclose at least $1.3m worth of perquisites and personal benefits, predominantly related to corporate aircraft usage.

According to the SEC’s separate order against Ansell, he received undisclosed compensation that consisted, in part, of $280,000 in personal expenses he charged to the company while he was a senior executive at Stanley Black & Decker. After consideration of Stanley Black & Decker’s self-reporting, cooperation, and remediation, the SEC also declined to bring charges against the company related to Ansell’s conduct.

Reg S-K

SBD is a Connecticut corporation that serves as a global provider of hand tools, power tools, and other products and services.

Item 402 of Regulation S-K requires disclosure of the total value of all perquisites and other personal benefits provided to named executive officers who receive at least $10,000 worth of such items in a given year. Item 402 of the Exchange Act’s Regulation S-K also requires identification of all perquisites and personal benefits by type, and quantification of any perquisite or personal benefit that exceeds the greater of $25,000 or 10% of total perquisites.

Under amendments to Reg S-K that were added in August 2006, “an item is not a perquisite or personal benefit,” and does not need to be reported, “if it is integrally and directly related to the performance of the executive’s duties. Otherwise, an item is a perquisite or personal benefit if it confers a direct or indirect benefit that has a personal aspect, without regard to whether it may be provided for some business reason or for the convenience of the company, unless it is generally available on a non-discriminatory basis to all employees.”

According to the adopting release for those amendments, even where the company “has determined that an expense is an ‘ordinary’ or ‘necessary’ business expense for tax or other purposes or that an expense is for the benefit or convenience of the company,” that determination “is not responsive to the inquiry as to whether the expense provides a perquisite or other personal benefit for disclosure purposes”.

Flawed disclosures

The SEC said that SBD’s system for identifying, tracking and calculating perquisites did not apply an integrally-and-directly-related standard when characterizing certain items as perquisites, which runs contrary to Item 402 of Regulation S-K and its guidance in its adopting release.

In proxy statements disclosing executive compensation paid for 2017 through 2020, which were filed in 2018 through 2021, SBD disclosed a total annual average of approximately $1m worth of “All Other Compensation” for the four named executive officers and one director at issue. The proxy statements listed zero dollars in compensation attributable to the officers’ and director’s use of corporate aircraft.

However, these same definitive proxy statements failed to disclose at least $1.3m worth of perquisites and personal benefits, predominantly related to corporate aircraft usage, that were provided to these four named executive officers and the director, thereby understating the “All Other Compensation” portion of their compensation by a total annual average of at least $325,000.

The action against SBD “not only reaffirms the Commission’s commitment to enforcing executive compensation disclosure rules, but also to incentivizing self-reporting and cooperation.”

From 2018 through 2021, SBD incorporated its definitive proxy statements into its annual reports by reference. As a result of its incorporation of deficient proxy statements by reference in its annual reports, SBD violated Section 13(a) and 13a-1 of the Exchange Act as well.

SBD also violated Rule 12b-20 under the Exchange Act, which requires that, in addition to the information expressly required to be included in a statement or report filed with the SEC, there shall be added such further material information as necessary to make the required statements, in light of the circumstances under which they are made, not misleading.

Self-reporting

In its consideration of any civil penalty in this case, the SEC considered SBD’s demonstrations of early self-reporting, cooperation, and compliance program remediation, including the following actions.

• After learning of potential misconduct, SBD promptly acted to ensure that outside counsel conducted an internal investigation under the direction and oversight of a special committee of independent directors. Prior to completing its internal investigation, SBD self-reported to the SEC’s staff about the failure to disclose perquisites referred to herein and other conduct potentially implicating the federal securities laws.
• SBD cooperated with the SEC’s investigation, including by providing to Commission staff facts developed through the internal investigation and compilation of relevant documents, information, and data.
• SBD implemented remedial measures designed to ensure compliance with Item 402 of Regulation S-K and the SEC’s related guidance. SBD also made disclosures in the Form 10-K for its fiscal year ended January 1, 2022, concerning expenses it had identified that constituted undisclosed perquisites, and made additional disclosures thereafter.

Executive comp disclosure

In a statement, the SEC’s Director of the agency’s Division of Enforcement, Gurbir S Grewal, said that the action against SBD “not only reaffirms the Commission’s commitment to enforcing executive compensation disclosure rules, but also to incentivizing self-reporting and cooperation when entities and individuals discover violations of the federal securities laws. In the end, proactive compliance enhances public trust in our markets and benefits all participants, especially the investing public”.

The SEC has been scrutinizing executive compensation and any insufficiency in the disclosure of it for a long time, bringing enforcement actions (such as against Dow Chemical in 2018 and Hilton Worldwide Holdings in 2020) for corporate board-authorized perquisites given to top executives, such as expenses associated with a CEO’s personal use of corporate aircraft and coverage of hotel stays for personal trips.

More recently, in 2021, the SEC announced settled charges against Gulfport Energy Corp. and a former executive for deficient perks-related disclosures tied to, among other things, the former executive’s use of a chartered aircraft and company credit cards. Over a four-year period, the former executive caused Gulfport to incur approximately $650,000 in charges traveling on charted aircraft for reasons such as attending a wine tasting in Napa and a poker tournament in Las Vegas.

Company credit cards

The SEC’s order also found that the former executive charged $450,000 on company credit cards where he wasn’t required to repay the expenses when due, amounting to receipt of interest-free credit, sometimes in excess of $120,000. The SEC’s order found that such travel and credit card arrangements “were not internally and directly related to the performance of his duties, and not generally available on a non-discriminatory basis” to all Gulfport employees.

Without admitting or denying the findings therein, Gulfport settled to violations of the reporting and proxy rules under the Exchange Act, and the SEC ordered Gulfport to cease and desist from further violations of these provisions but, as with SBD, did not impose any monetary penalty, citing the cooperation and remedial acts of the company.

The SBD case serves as a reminder that if SEC-regulated businesses identify possible perks-related disclosure issues, self-disclosing to the regulator immediately, cooperating with the agency’s investigation and remediating compliance program deficiencies will go a long way toward ensuring a far less costly resolution. Indeed, the Dow Chemical and Hilton matters identified above included significant penalties ($1.75m in the former). Of course, an analysis of the facts and circumstances of the alleged misconduct play a role here, but so do does an organization’s prompt and fulsome cooperation and remediation thereafter.