Regulatory: Revisiting hedging and pledging policies

The increasing level of disclosure, heightened investor scrutiny and consideration accorded by proxy advisory firms has caused many companies to adopt or alter policies

Over the past few years, there has been considerable focus on policies addressing the hedging and pledging of securities by public company employees, executives and directors. In particular, significant market volatility has brought to light some key issues arising from the pledging of company securities by employees, executives and directors of public companies, including concerns as to whether an individual’s interests remain aligned with shareholders through his pledging of equity awards or other shares owned to secure loans. Similar concerns exist with regard to hedging and monetization arrangements, where employees, executives or directors may seek to continue to own company securities obtained through the company’s benefit plans or otherwise, but without the full risks and rewards of ownership.

Background on hedging and pledging transactions

Adopting or revisiting policies

The increasing level of disclosure, the heightened investor scrutiny and the consideration accorded by proxy advisory firms has caused many public companies to adopt policies about hedging, monetization or pledging transactions, or revisit existing policies to consider whether the scope or coverage of such policies should be changed. The options that companies have pursued include:

Contributing Author

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David Lynn

David M. Lynn is a co-chair of Morrison & Foerster LLP's Public Companies and Securities Practice. Mr. Lynn's practice is focused on advising a wide...

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