Many shareholders feel that directors and officers should have a meaningful investment in the companies they manage. The extent of this ownership, naturally, would vary in accordance with the financial circumstances of the persons involved. As shareholders themselves, directors are more likely to represent the viewpoint of other shareholders whose interests they are charged with protecting.

Are sales of shares by executives and directors of a public company subject to any securities-law restrictions? - etygivusyx.web.fc2.com

The Exchange has encouraged the broadening of share ownership through stock option and employee stock purchase plans, especially those plans that include all or a large portion of the company's employees. The approval of shareholders has been a prerequisite of Exchange listing of new shares for the more limited key officer plans.

The widespread endorsement of director and officer share ownership brings with it questions that concern the timing of their stock transactions. When may a director or officer properly buy or sell shares of his company's stock?

When is it appropriate to award stock options to key executives? There is no simple, uniform answer to these questions, but they do underscore the importance of a policy of adequate timely disclosure both for the benefit of the investing public and for the protection of management.

Competition requires that companies engage in active programs of research, development, and exploration. For many companies, more than half of today's sales represent new products or services invented, discovered, developed, or radically redesigned during the last ten years.

Nevertheless, more experimental projects fail than result in salable and profitable products or services. Public disclosure at the earlier stages of new developments may be premature.

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In addition, competition and the best interest of the company and its shareholders may require a veil of secrecy around new developments before they reach the stage where public disclosure is appropriate. Still, hindsight is remarkably keen and the accusation can always be made that a purchase or sale of stock by a director was dictated by inside knowledge of a future favorable or unfavorable development. Shareholders have indicated however that they want directors and officers to have a meaningful investment in the companies they manage.

So, in the interest of promoting better shareholder relationships, some general rules under which corporate officials may properly buy or sell stock in their company may be helpful. One appropriate method of purchase might be a periodic investment program where the directors or officers make regular purchases under an established program administered by a broker and where the timing of purchases is outside the control of the individual.

It would also seem appropriate for officials to buy or sell stock in their companies for a day period commencing one week after the annual report has been mailed to shareholders and otherwise broadly circulated provided, of course, that the annual report has adequately covered important corporate developments and that no new major undisclosed developments occur within that period. Transactions may also be appropriate under the following circumstances, provided that prior to making a purchase or sale a director or officer contacts the chief executive officer of the company to be sure there are no important developments pending which need to be made public before an insider could properly participate in the market:.

This timing of transactions might be even more appropriate where the report has been mailed to shareholders. For example, transactions may be appropriate after a proxy statement or prospectus which gives such information in connection with a merger or new financing.

Under these circumstances, timing of transactions may be relatively less important. Of course such periods of relative stability will vary greatly from time to time and will also depend to a large extent on the nature of the industry or the company.

Where a development of major importance is expected to reach the appropriate time for announcement within the next few months, transactions by directors and officers should be avoided. Corporate officials should wait until after the release of earnings, dividends, or other important developments have appeared in the press before making a purchase or sale.

This permits the news to be widely disseminated and negates the inference that officials had an inside advantage. Similarly, transactions just prior to important press releases should be avoided. In granting stock options to directors and key officers, the same philosophy that relates to purchases and sales may well apply. Where an established pattern or formula is part of a plan specifically approved by shareholders, the question of timing may not arise.

In taking up an option, the timing of a purchase is not usually critical as the price is set at the time the option is granted. The reasoning relating to stock options might also apply to employee stock purchase plans in which directors and officers may be entitled to participate.

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The considerations that affect director and officer transactions in stock of their own company may be pertinent to transactions in the shares of other companies with which discussions of merger, acquisition, important contracts, etc. The same considerations apply to the families or close associates of directors and officers who are often presumed to have preferential access to information. As far as the public is concerned, they also are insiders. While this assumption may be unjustified in many cases, it is a fact of life which those in positions of leadership and responsibility cannot ignore.

Some companies have adopted policies for the guidance of their personnel relating to transactions in the company's stock, as well as other areas where conflicts of interest could arise. Such policies can be very helpful to employees who have access to important confidential information, as well as to the directors and officers.

In the final analysis, directors and officers must be guided by a sense of fairness to all segments of the investing public.

Within the framework of any policies adopted by the company, the final decision with respect to securities transactions must rest with each director and officer. Each case must ultimately stand or fall on its own merits.

No single rule could possibly cover all situations; nor should unnecessary restrictions be permitted to discourage shareholders among these business leaders who play such a vital role in the success of our system of free enterprise. Particular attention is directed to Sections 10 b and 16 of the Securities Exchange Act of and Rule 10b-5 thereunder.

Transactions may also be appropriate under the following circumstances, provided that prior to making a purchase or sale a director or officer contacts the chief executive officer of the company to be sure there are no important developments pending which need to be made public before an insider could properly participate in the market: