Part 3 // Cooley // Global Law Firms

Cooley is committed to providing publicly traded companies and their boards with relevant, on-demand resources. As part of that effort, we are pleased to conduct a multi-part he survey series designed to provide insight and best practices on key corporate governance topics, practices and market trends.

Below are the results and key takeaways from Part 3 of our research series focused on policies and procedures related to hedging and collateralizing company securities.

hedges and pledges

Addressed by policy

The majority of corporate respondents address hedging and covenanting of company securities in their company’s insider trading policy or in another policy. In particular, companies with policies that respond only to hedging or not responding to hedging or pledges have less than his five-year maturity as a publicly traded company and a market capitalization of less than $500 million.

Hedged item

Prohibitions for All Employees and Directors

Nearly three-quarters of corporate respondents prohibit all employees and directors from hedging company stock.

Hedging policy covering company securities

Almost all corporate respondents’ hedging policies cover all corporate securities regardless of how they were acquired.

Prohibition of hedging of company securities

Corporate respondents were largely unanimous in that they would never allow hedging of corporate securities.

collateral collateral

Variation between companies

There was wide variation in the coverage of pledge policies among company respondents. While more than half of respondents outright prohibit all employee and director pledges, 18% allow certain groups of employees and/or directors to pledge, and the rest generally disallow some people Commitment is prohibited. It’s worth noting that less than a third of her tech companies have banned pledges for all employees and directors.

Permission to pledge securities

Most company respondents never allow pledges, but a few companies allow pledges if they are pre-approved or if certain enumeration criteria are met. Respondents indicated that these criteria are usually related to limiting the pledge to a certain holding percentage, the pledgee’s financial strength, the existence of alternative collateral, and the status of the lender.

margin account

holding company shares

More than three-quarters of corporate respondents never allow people to hold company shares in margin accounts.

Banned by role

The majority of corporate respondents prohibited at least some people from holding company stock on margin accounts, with the most common prohibitions applying to all employees and directors.