UPFRONT IOD supports tougher insider trading law

A recent story in the NZ Herald could give people the impression that the Institute of Directors doesn’t exactly approve of proposed legislation changes that provide tougher penalties for insider trading.
Not the case, says IOD chief executive Nicki Crauford.
“Insider trading is effectively stealing, so something that says we can’t do it is absolutely fine with us. We’re in favour of robust securities legislation because we don’t want to create the perception that our directors are bunch of cowboys.”
Neither does the Institute want to deter people from taking up directorships or shy away from buying shares in company in which they sit on the board. Which is why the IOD made submission on the Securities Legislation Bill that is currently in front of Parliamentary Select Committee.
This, says Crauford, targeted just two aspects of the proposed changes that risk pushing the good behaviour criteria to somewhat untenable extremes.
The first is removal of the “approved procedure” provision that, under existing legislation permits company directors and officers to buy or sell shares during designated “window” periods – providing assurance that inside information is not being used. Without this, directors could be open to liability as “information insider” on an ongoing basis and could discourage any buying or selling.
“If the shares are part of the director’s compensation, for example, that remuneration may become inaccessible for an extended period,” the IOD points out.
It recommends that this approved procedure provision be reinstated on the grounds that its removal discourages share ownership by directors.
“One of the major criticisms of directors is that they are not aligned with the interests of the company,” Crauford comments.
The second aspect of its submission relates to banning provisions which automatically deliver five-year ban on working as either director or manager to anyone convicted of breeching the rules.
“That applies even if it’s simple technical breech – like failing to file information within certain deadline. It’s basically taking away the source of someone’s livelihood for what could be just an unintended technical breech,” says Crauford.
That, the IOD says, is “draconian and unreasonable”. Instead it suggests more discretionary approach in which the seriousness of the offending can be determined by the courts. If it’s serious then there are already provisions for the imposition of ban up to 10 years long.
The Select Committee is due to report on the Securities Legislation Bill in June this year.