• Tyson Foods Enforcement Proceedings Underscore Importance of Disclosure of Perquisites
  • May 23, 2005 | Author: Jill R. Radloff
  • Law Firm: Leonard, Street and Deinard, [incorporation phrase format]Professional Association - Minneapolis Office
  • The Securities and Exchange Commission recently announced that it had settled enforcement proceedings against Tyson Foods, Inc., and its former Chairman and CEO Donald Tyson. According to the SEC Press Release, Tyson Foods, in proxy statements filed with the SEC from 1997 to 2003, made misleading disclosures of perquisites and personal benefits provided to Don Tyson before and after his retirement as senior chairman in October 2001. The SEC also charged Tyson Foods with failing to maintain adequate internal controls over Don Tyson's personal use of company assets. Don Tyson was separately charged with causing and aiding and abetting Tyson Foods' disclosure violations. The Wall Street Journal noted that the "perks Don Tyson received were striking even in an era of lavish executive compensation."

    As detailed in the SEC Press Release, the SEC had alleged, among other things, that in its proxy statements for 1997 and 2001 Tyson Foods:

    • failed to disclose over $1 million of perquisites received, including $424,121 in housekeeping, lawn maintenance, automobile maintenance and telephone service that were not disclosed due to the Tyson Foods' internal control failures, and an additional $595,656 of perquisites (including gross-up payments for taxes) that were mischaracterized in the Tyson Foods' 1998, 1999 and 2000 proxy statements as "performance-based bonuses," instead of as perquisites, due to a strategy to preserve Tyson Foods' tax deduction for Don Tyson's compensation;

    • used the misleading expression "travel and entertainment costs" to describe perquisites that could not be considered "travel" or "entertainment," such as over $372,539 in payments for personal expenses paid for Don Tyson and his friends; and

    • failed to separately identify by type and amount perquisites that exceeded 25% of Don Tyson's total perquisites, such as personal expenses, use of company homes, personal use of company aircraft and/or residential services.

    While the violations detailed were extreme, the enforcement proceedings demonstrate the SEC's continued sensitivity to the proper and complete disclosure of all perquisites.

    In addition, the SEC made a number of other important points in its Press Release.

    • The SEC found that the failure of the Tyson Foods' board to approve certain perquisites was a failure of internal controls. Many of the perquisites which were not disclosed were neither raised with nor authorized by Tyson Foods' compensation committee or its board of directors. Board members were unaware, until the SEC's investigation, that Tyson Foods was paying for substantial personal expenses incurred by Don Tyson and two of his friends or that Don Tyson's family and friends regularly used Tyson Foods' aircraft -- even when Don Tyson was not on board. Nor was the board aware, until November 2002, as a result of an internal company review of perquisites, of the housekeeping, lawn maintenance, telephone services and automobile maintenance provided to Don Tyson and his family and friends. The Tyson enforcement proceedings detailed lavish executive compensation; however, they serve as an important reminder for boards of all public companies to be aware of and to evaluate and, if proper, approve all perquisites in accordance with law and best compensation practices. They also reinforce the importance of internal controls -- even outside the context of a company's internal controls audit. It also means, among other things, that tough, probing questions must be asked of management, even of management personnel who dominate a company and its business, as Don Tyson did.

    • The SEC found that Don Tyson aided and abetted Tyson Foods' disclosure failures. Specifically, Mr. Tyson signed annual reports which incorporated the misleading proxy statements. In addition, he signed officers and directors questionnaires which did not disclose the perquisites. Before signing them, Mr. Tyson failed to read the questionnaires or take action to ensure the accuracy of Tyson Foods' disclosure of his perquisites, even though he was the only individual who possessed certain information necessary to accurately complete the questionnaires. The SEC's action demonstrates and reinforces the necessity for careful review of officers and directors questions by those who sign them. Directors and officers are reminded that they ultimately will be held responsible for the content of such documents.