SOURCE: Society of Corporate Secretaries & Governance Professionals

Society of Corporate Secretaries & Governance Professionals

June 23, 2016 12:26 ET

Society of Corporate Secretaries & Governance Professionals Survey on Rule 10b5-1 Finds That Two-Thirds of Corporate Boards Review Their Company's Insider Trading Policy

One-Third of Companies Publicly Disclose the Adoption of 10b5-1 Plans

NEW YORK, NY--(Marketwired - Jun 23, 2016) - The Society of Corporate Secretaries & Governance Professionals, an organization of more than 3,200 corporate secretaries and governance professionals, today released the results of a survey on Rule 10b5-1 practices. This Securities & Exchange Commission rule allows employees of publicly-traded corporations to set up a trading plan for selling stock in the company that employs them at a predetermined time. The survey found that most corporate boards review their company's insider trading policy (67%), but relatively few get deeply involved in 10b5-1 matters. Financial services firm Morgan Stanley, in partnership with multinational law firm Shearman & Sterling LLP, designed the survey.

"Increasingly, 10b5-1 plans and issuers' insider trading policies and practices are coming under greater scrutiny by investors. The Society undertook this survey to provide a deeper understanding of companies' policies with a view towards developing benchmarks and best practices for boards and corporate secretaries," commented Darla Stuckey, President & CEO of the Society. "We were pleased to find that most boards are involved in this important issue."

"Given the increased focus on insider trading by regulators, investors and the academic community, companies have been re-examining their 10b5-1 plan and insider trading policy practices from a risk management perspective, and while one size does not fit all, the survey provides useful data points for companies as they reflect on their current practices," added Stephen T. Giove, a partner at Shearman & Sterling who co-founded the firm's Corporate Governance Group.

"Notwithstanding the increased scrutiny 10b5-1 plans are receiving, the number of plans in the marketplace continues to grow, as these plans are a useful tool for employees who are compensated with equity to achieve their financial objectives while at the same time allowing companies to manage the risks associated with employees transacting in the stock of their employer," noted Christine Cognetti McCasland, an Executive Director at Morgan Stanley Wealth Management.

A significant majority of surveyed companies do not require employees to sell through 10b5-1 plans (83%). However, when plans are required for employees, it is typically for the C-Suite and/or Board of Directors. Thirty percent (30%) of companies have seen growth in the number of 10b5-1 plans at their company over the past two years, while 60% indicated the number of plans has remained static, and 10% indicated the number has shrunk.

In terms of plan length, only 37% of companies impose a minimum plan term, with 20% requiring at least six months and 15% requiring at least one year. Only 2% require less than six months. Thirty-nine percent (39%) of companies have a maximum plan term, with 17% requiring no more than two years, 7% requiring between one and two years, 13% requiring no more than one year and 2% requiring another timeframe.

When it comes to trading restrictions, 99% of companies that have 10b5-1 plans allow some, if not all employees, to sell shares during blackout periods.

Once a plan is signed, 84% of companies have a mandatory "cooling-off" period, the length of time an employee must wait before their first sale of shares. Thirty (30) days is the most common "cooling-off" period (41%), while 12% require fewer than 30 days, 8% require 45-60 days, 11% require the employee to wait until the opening of the window in the next quarter and another 11% require some other timeframe. Only 16% have no mandatory waiting period.

One-third of companies surveyed have publicly disclosed the adoption of 10b5-1 plans. Of these companies, disclosure was most commonly made for the CEO (77%), followed by the Chairman (47%), CFO (41%) and other executives (48%). More than half (55%) of companies identified Form 8-K as the method to make this disclosure. Thirty-one percent (31%) use another method such as a press release, company website posting or earnings conference call.

Methodology:

This survey was conducted through an online questionnaire circulated to members of the Society. A total of 296 respondents participated in the survey. Respondents represented a variety of industries, with company market capitalization as follows: Less than $500 million (8%), $500 million to $1.99 billion (16%), $2 billion to $9.99 billion (32%), $10 billion to $50 billion (30%), and greater than $50 billion (15%).

The full survey report is available on the Society's website.

About The Society of Corporate Secretaries & Governance Professionals:

Founded in 1946, The Society of Corporate Secretaries & Governance Professionals, Inc. is dedicated to providing members the knowledge, skills and tools to promote effective governance to benefit boards, management and shareholders. To learn more visit www.governanceprofessionals.org.

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