When Oracle Corp. announced late last week that chief financial officer Greg Maffei would be leaving a little more than four months into the job, many observers credited Goldman Sachs analyst Rick Sherlund with “outing” the situation. That's because Sherlund had raised questions about the finance executive’s whereabouts in a report published earlier that day.

Aside from the destabilization questions that the departure has raised among the investment community—Oracle has seen three CFOs come and go within the last two years—the incident has raised additional questions about 8-K filing requirements and whether the company violated Regulation Fair Disclosure.

Sherlund

In the report, Sherlund raised concerns that Maffei had been away for more than two weeks, leading to the cancellation of both an analyst meeting and an appearance at a Goldman Sachs conference. "Management has not directly commented on the status of Mr. Maffei, other than to say there have been executive 'scheduling conflicts' and 'family issues,'" wrote Sherlund. "We have grown increasingly convinced that there are legitimate questions regarding Mr. Maffei's status at the company."

Further down in the report, Sherlund noted that the previous evening, Oracle Co-President Charles Phillips at an investor conference made no reference to Maffei when talking about how the company is managed, “referring to himself, Safra Catz and Larry Ellison (oddly making no mention of co-President and CFO Mr. Maffei) and then in discussing the finance department noted the depth and experience of individuals in this department..."

When Phillips referred to 10 people in the finance department that have been at the company 15 years or longer, Sherlund wrote, “again we find it odd there was no mention of the CFO Mr. Maffei who runs this department.”

Sherlund then pointed out that when Phillips was asked whether Maffei was committed to Oracle, Phillips “indicated that he could not speak for Mr. Maffei, that at some point Mr. Maffei would need to comment for himself, and that Mr. Phillips did not want to talk further on the issue.”

So, clearly there was some strong indication that the company was communicating that Maffei may no longer be committed to, employed by, or actively working on behalf of the company.

Later in the day amid widespread rumors, speculation, and a drop in Oracle’s stock, the software company announced that Maffei, in fact, had decided to leave Oracle and that “he's looking at a terrific professional opportunity.”

Definitely An 8-K Item

Samuels

If Maffei had resigned several days earlier, however, attorneys say the company was obligated to have made this announcement in an 8-K. “The change of a CFO is definitely an 8-K item,” says Lawrence Samuels, partner at McGuireWoods who head of the firm's Corporate Services practice in the Chicago office.

Indeed, Paragraph (b) of Form 8-K's Item 5.02 requires disclosure when the company's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions retires, resigns, or is terminated from that position. The item also requires disclosure when a director retires, resigns, is removed or declines to stand for re-election and the company is not required to provide disclosure under Item 5.02(a).

Companies, however, are not required to provide explanations for the executive departure.

FORM 8-K, ITEM 5.02

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

(a)(1) If a director has resigned or refuses to stand for re-election to the board of directors since the date of the last annual meeting of shareholders because of a disagreement with the registrant, known to an executive officer of the registrant, as defined in 17 CFR 240.3b-7, on any matter relating to the registrant's operations, policies or practices, or if a director has been removed for cause from the board of directors, disclose the following information:

the date of such resignation, refusal to stand for re-election or removal;

any positions held by the director on any committee of the board of directors at the time of the director's resignation, refusal to stand for re-election or removal; and

a brief description of the circumstances representing the disagreement that the registrant believes caused, in whole or in part, the director's resignation, refusal to stand for re-election or removal.

(2) If the director has furnished the registrant with any written correspondence concerning the circumstances surrounding his or her resignation, refusal or removal, the registrant shall file a copy of the document as an exhibit to the report on Form 8-K.

(3) The registrant also must:

provide the director with a copy of the disclosures it is making in response to this Item 5.02 no later than the day the registrant file the disclosures with the Commission;

provide the director with the opportunity to furnish the registrant as promptly as possible with a letter addressed to the registrant stating whether he or she agrees with the statements made by the registrant in response to this Item 5.02 and, if not, stating the respects in which he or she does not agree; and

file any letter received by the registrant from the director with the Commission as an exhibit by an amendment to the previously filed Form 8-K within two business days after receipt by the registrant.

(b) If the registrant's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions retires, resigns or is terminated from that position, or if a director retires, resigns, is removed, or refuses to stand for re-election (except in circumstances described in paragraph (a) of this Item 5.02), disclose the fact that the event has occurred and the date of the event...

The SEC had initially proposed that companies be required to disclose the reasons for the departure of an officer; however, the Commission ultimately agreed with opponents who were concerned that requiring disclosure of reasons such as personal infirmity may cause unnecessary embarrassment to the departing officer. Also, some dissenters suggested that, if the officer leaves for reasons other than those disclosed by the company, the disclosure potentially could lead to a defamation action by the officer against the company. Other opponents believed that requiring disclosure of a disagreement regarding matters such as company policy or strategy between two officers “would usurp the typical corporate decision-making process,” according to the SEC.

Maffei

In fact, according to published reports, Maffei has sparred with co-president Safra Catz, who will take on the CFO duties. Maffei, however, disputed this theory, telling Bloomberg, "This is not about do I love Safra, do I love Charles, do they love me. It's more about what I want to do."

So, was there a possible Reg FD violation? Afterall, Sherlund indicated that Phillips did not refer to Maffei while discussing the finance department, noting the company’s co-president “indicated that he could not speak for Mr. Maffei, that at some point Mr. Maffei would need to comment for himself.”

Phillips did say this at an investor conference. “If he made the statement, he made it to everyone,” says another securities lawyer who did not want to be identified because he wasn’t sure whether Oracle was a client of his firm.

Adds Samuels: “A lot of it seems like inferences from the lack of specificity.”

We'll keep subscribers apprised of developments. In the meantime, the report by Goldman Sach's Rick Sherlund is in the box above, right.