The Australian Institute of Company Directors hit out strongly at claims that directors have been “insider trading” shares in companies which they oversee. AIDC boss, John Storey, criticised the findings of research complied by leading corporate governance advisory service, Regnan, which noted that “directors of 32 of Australia’s largest 200 companies actively purchased shares within eight weeks prior to material earnings upgrade or takeover announcement.” Regnan also found that “directors of 23 of Australia’s 200 largest listed companies actively traded shares during the period between books-close and results release.”

Despite the damning figures, Storey claimed that:

We reject categorically the insinuations that insider trading is rife among directors [and that] the applicable rule on each occasions is not whether the dealing is within an arbitrarily designated window or black-out, but whether the market is fully informed.

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In a technical sense, Story is correct – insiders trading shares would not necessarily constitute “insider trading” in a legal sense. That is because the Corporations Act specifies for the offence to be made out, not only must the insider acquire or dispose of financial products, but they must also be aware that they possess inside information.

However, while trading shortly before a takeover announcement or earnings upgrade is not categorical evidence of insider trading, it certainly gives rise to the apprehension that insider trading is occurring (and looking at Regnan’s figures, it is difficult to come up with any other conclusion). Alternatively, if Storey’s argument is carried through, and the directors noted in the Regnan study did not have “insider knowledge” at the time they traded shares (after book-close or before a takeover) one wonders, exactly how competently they are undertaking their role?

It’s a lose-lose for Storey and the AIDC – either directors are rampantly insider trading shares, or they would be failing to exercise diligence in their role – arguably, if directors don’t possess insider knowledge about their company, what exactly are they being paid for?

Crikey has taken issue with Storey in the past, notedly, when the AIDC claimed that the personal liability attaching to directors was too burdensome, especially with regards to workplace safety. Despite the strident claims, the AIDC were only able to come up with two examples of directors being personally liable for employee deaths, and in both cases, the liability appeared entirely justified. While Storey is merely doing his job and representing the interests of directors – his arguments should be treated with the same degree of reticence as ambit claims raised by other self-interested unions like the CFMEU or AMA.

It is difficult to deny that directors are privy to a large degree of information which, as Steve Vizard will attest, can give them a financial advantage when trading shares. Instead of shooting the messenger, the AIDC should be supporting a “black-out period” prior to announcements which may materially affect a company’s share price. If for no other reason than investors can have faith that well-paid director’s are acting in the interests of the company at all times, and not looking to make a personal windfall.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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