2022 – 2023 US Corporate Governance Survey: Part 2 Results

Cooley is committed to providing public companies and their boards with relevant, on-demand resources. As a part of that effort, we are excited to be conducting a multipart survey series designed to provide insights and best practices on key corporate governance topics, practices and market trends.

Here are the results and key takeaways from Part 2 of the survey series, which focused on insider trading policies and procedures.

Insider trading policy coverage

People subject to company’s insider trading policy

Nearly all respondents said that they subject all employees to the company insider trading policy, while less than half of respondents subject all consultants to the policy. A significant majority also subject non-employee members of the board of directors to the policy. Others subjected to the policy mentioned by respondents include family members of covered people and former employees, among others.

Policy coverage of director-related investment funds

Of the 86% of companies whose insider trading policy covers non-employee directors, respondents were divided on whether the policy also covers director-related investment funds.

Trading blackout periods

People subject to trading blackout periods

The most common groups identified by respondents as being subject to trading blackout periods under their company insider trading policies were non-employee directors, all employees, all Section 16 reporting individuals, and employees privy to financial or other material non-public information. Older companies are less likely to subject all employees to a blackout period, with only 20% of companies with 21+ years of maturity doing so, compared to 80% of companies with less than 20 years of maturity.

Blackout periods imposed by industry

While nearly all respondents impose regular quarterly blackout periods, life sciences companies (92%) are more likely to also impose blackout periods in the event the company possesses material information, compared to technology companies (73%).

Beginning of the quarterly blackout period

There was wide variation among respondents regarding when the quarterly blackout period begins, with the most common start date being two weeks before the end of the quarter (33%). There was more uniformity concerning when the trading window opens, with 49% and 51% of companies opening the trading window one and two full trading day(s) after the public dissemination of financial results, respectively.

Blackout period start times by industry

Life sciences companies tend to start the quarterly blackout period later than technology companies, with 44% of life sciences companies starting the blackout period at or after the end of the quarter, compared to 0% of technology companies.

Blackout period notifications

A significant majority of respondents send an email when the blackout period begins and ends to remind covered people about the blackout period. Other forms of blackout period notification identified by respondents included Slack and intranet reminders, as well as notices in the company’s shared administration portal.

Starting time notification methods

Ending time notification methods

Pre-clearance requirement

Lists of people subject to pre-clearance

While 21% of respondents use the same list of people subject to the blackout periods as the list of people required to obtain pre-clearance of transactions in the company’s securities, most respondents indicated that a different list is used. Section 16 reporting individuals and non-employee directors were the most common groups identified as being subject to the pre-clearance requirement.

Completion time for pre-cleared transactions

Respondents identified five business days as the most common time period given by companies to a person subject to the pre-clearance requirement who has received approval for a proposed transaction to complete the transaction before requiring a new pre-clearance for the proposed transaction. A few respondents who indicated “Other” allow for trading using the pre-clearance received for the duration of the applicable open trading window.

Covered transactions

Gifts of stock to institutions during a blackout period

More than 60% of respondents allow gifts of stock to a charitable, educational or similar institution during a blackout period, though these companies are largely split on whether all people covered by the insider trading policy, or only those subject to the general pre-clearance requirement, are required to pre-clear such a gift, with a small number not requiring any pre-clearance.

Gifts of stock to a family member during a blackout period

Similarly, more than half of respondents allow gifts of stock to a family member during a blackout period, with these companies again split on whether all people covered by the insider trading policy, or only those subject to the general pre-clearance requirement, are required to pre-clear such a gift, with a small number not requiring any pre-clearance.

Lending shares to a broker

Nearly three-quarters of companies do not allow insiders to lend shares to a broker, which would then allow the broker to lend the shares to an investor to sell short. Only 3% of companies affirmatively responded that this is allowed under their policy.