The Advisors' Blog

Perks are a sensitive topic for investors – and as Meredith blogged last week, they may take you to court over the board approvals. In addition, the SEC’s Enforcement Division frequently investigates whether they are properly disclosed. A recent Bloomberg Law article from Jones Day identifies which types of perquisites are most likely to draw regulatory scrutiny. Here’s an excerpt:

Personal travel is the perk most frequently flagged by the SEC, appearing in all but two cases in the last 10 years. Most of those cases involved travel on commercial or chartered aircraft for vacations, sporting events, or other personal activities. Personal use of a company owned or leased aircraft came up in seven cases.

In those situations, the SEC requires a company to report the “aggregate incremental cost” of the executive’s personal use of the aircraft—that is, the direct operating cost attributable to the personal travel. In one case, the SEC faulted a company for disclosing the taxable value of its executives’ personal use of company aircraft, rather than the aggregate incremental cost — a much higher figure.

Several cases involved undisclosed payments for family and friends to accompany an executive to business events, such as a board meeting to which directors’ spouses were invited or to customer and industry receptions.

Not all the travel in these cases had an obvious personal purpose. In one case, a company reimbursed its CEO for flights to attend entertainment events sponsored by a company supplier. But in the SEC’s view, merely having a connection to the company’s business wasn’t enough to justify nondisclosure, because the travel wasn’t integrally and directly related to the executive’s duties.

The article says that undisclosed payments for personal expenses, personal entertainment, personal transportation (e.g., company vehicles), charitable donations, professional services, and housing expenses, round out the most common enforcement topics. The article then gives several pointers to mitigate risk. Check out our “Perks” Practice Area for our treatise chapter and other practical resources that can help you navigate this topic.

– Liz Dunshee