At a recent Compliance Week event, a chief compliance officer observed that in her public company, the compliance department and the legal department disagree on the importance of implementing a strong insider-trading compliance program. The compliance department has struggled in its efforts to get a strong program in place because the company’s legal department is not very supportive, she said. Meanwhile, the legal department isn’t interested in devoting much time or money into such a program and seems content to let employees who are foolish enough to engage in insider trading hang by their own rope. The legal department’s focus, she reports, is on avoiding corporate exposure in any insider-trading flare-up, and seems to assume that should an insider-trading investigation occur, the corporation may be better served by having no program at all rather than having one that failed to prevent insider trading.
I’m surprised to hear that a legal department at a public company would hold this view, but perhaps I shouldn’t be. Indeed, many securities enforcement lawyers have told me through the years that they continue to encounter public companies—typically smaller ones—that have no insider-trading policy or compliance program whatsoever. In any event, this compliance officer’s observations raise some interesting questions: Is it a mistake for public companies to eschew solid insider-trading policies and programs? If so, why? What are the potential consequences for having poor or non-existent policies in this area, and what are the potential benefits for having a strong program in place?
