In The SEC has charged James R. Craigie, a former director of consumer goods packaging manufacturer Dwight & Church Co., Inc., with violating the proxy rules. The charges are based on allegations that Craige served as an independent director without informing the board of his close friendship with a company executive. The SEC’s civil complaint states, “As a result of Craigie’s concealment, Church & Dwight’s proxy statements in 2021 and 2022 contained misstatements of material fact when they represented that Craigie was an independent director.” These charges break new ground by outlining circumstances in which, in the SEC’s view, a personal friendship with a member of management is inconsistent with disclosure that a director is independent.
Craigie was the CEO of Church & Dwight Co. Inc. from 2004 to 2015 and served as a non-independent member of its board of directors from 2004 to 2019. After a cooling-off period following his retirement as CEO, the board determined that Craigie was independent as of January 2020, and he was elected as an independent director at the 2020 shareholders meeting. The board also determined that Craigie met the independence criteria in 2021 and 2022. Church & Dwight’s proxy statements for those two years identified Craigie as an independent director.
The board based its determinations that Craige was independent on his responses to the company’s annual D&O questionnaire. The questionnaire stated that, for a director to be independent, the board had to determine that the director had no material relationship with the company. The questionnaire listed “industrial, banking, consulting, charitable, and familial relationships” as examples of potentially disqualifying relationships. However, the questionnaire also asked whether a director had “any other relationship” with Church & Dwight or its management. In 2021, 2022, and 2023, Craigie answered “no” to this question.
The SEC alleges that Craige’s questionnaire responses caused the 2021 and 2022 proxy statements to contain false and misleading information because, between January 2020 and March 2023, he maintained a close personal relationship with a member of Dwight & Church’s executive team. Among other things –
Craigie frequently vacationed with the executive and the executive’s spouse, including six trips to eight countries. Craigie paid more than $100,000 for the executive and his spouse to join Craigie and his spouse on these international vacations. The executive also occasionally stayed at Craigie’s apartment in Miami, and Craigie took the executive and his family on boat trips in New York, Connecticut, and Miami.
When Church & Dwight began a CEO succession process, Craigie allegedly shared confidential details about the process with the executive and took steps to better position the executive for succession.
The Commission also alleges that Craige actively concealed his relationship with the executive from the board. For example, he asked the executive not to mention one of their upcoming vacations to anyone at Church & Dwight. In addition, he offered to help the executive prepare a presentation to the board but told him “do not mention me at all as it would make me appear biased toward you as the next CEO.”
In February 2023, Church & Dwight became aware of Craigie’s relationship with the executive, and the board formed a Special Committee to assess Craigie’s conduct. The Special Committee found that Craigie failed to disclose his close personal friendship with the executive and that he had disclosed confidential information about the CEO search. The board then determined that Craigie was no longer independent, and Church & Dwight made this disclosure in its 2023 proxy statement.
Without admitting or denying the allegations, Craigie agreed to an injunction against further violations of the proxy provisions, a civil penalty of $175,000, and an order barring him from serving as an officer or director of any public company for five years.
While the facts in this case are extreme, the Commission’s action raises questions about the line between permissible and impermissible friendships between directors and members of management. Many directors might be viewed as having some level of personal relationship with one or more company executives. It is not possible to determine whether this case is simply a reaction to an unusual situation or whether it marks the beginning of SEC scrutiny of these types of relationships. However, it would be prudent for directors to be inclusive in their D&O questionnaire responses concerning any personal friendships they may have with members of management, especially senior company executives.
Comments