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Section 16 & Insider Considerations in Today’s Market

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July 09, 2019 | Alan Dye, Hogan Lovells

Section 16 & Insider Considerations in Today’s Market

Our popular “Meet the Speaker” series, featuring interviews with speakers at the 27th Annual NASPP Conference, is a great way to get to know our many distinguished speakers and find out more about their sessions in advance of the Conference.

For today’s “Meet the Speaker” interview, we feature an interview with Alan Dye of Hogan Lovells, who will lead the session “Section 16 & Insider Considerations in Today’s Market.”  Here is what Alan had to say:

NASPP: Why is Section 16 compliance particularly timely right now?

Alan:  In all honesty, Section 16 compliance has been a particularly timely topic most years since 1991, when the SEC began requiring companies to disclose in their proxy statement and Form 10-K any late Form 3, Form 4 or Form 5 filed by any insider during the prior fiscal year. The prospect of having to identify an insider by name, in a mailing to all stockholders, for failure to report all transactions timely should be enough to get any compliance officer's attention. 

On top of that, it has now been five years since the SEC last conducted an enforcement sweep based on Section 16(a) violations, so the time may be ripe for the SEC to initiate enforcement actions against delinquent insiders. When that risk is combined with the increasing aggressiveness of the plaintiffs' Section 16(b) bar in pursuing short-swing profits, the importance of keeping abreast of Section 16 developments and compliance techniques really comes into focus.

NASPP: What is a common mistake companies make when managing Section 16 filings and how can they avoid this?

Alan: Even the most knowledgeable Section 16 compliance person will miss a Form 4 filing deadline if the company has an inadequate process for ensuring that the compliance person is made aware of insiders' transactions under equity compensation plans in advance of the filing deadline. Too often there is insufficient communication between the legal department and the HR or payroll department, resulting in the compliance person not becoming aware—until it's too late—of an insider's acquisition of a stock unit under a deferred compensation plan, or disposition of stock to pay taxes upon the vesting of RSUs. 

Compliance procedures need regular monitoring and improvement, and new personnel need to be trained immediately, to assure a timely flow of information.

NASPP: What is the silver lining to your topic?

Alan: Despite the high risks associated with Section 16 compliance, which include having your most important people at your company (i.e., officers and directors) become aware of, and suffer the consequences of, your compliance mistakes, the quality and cohesiveness of the Section 16 compliance community has resulted in the development of highly effective compliance systems and resources. With effective training, continuity within the organization, and regular monitoring of developments, anyone should be able to handle Section 16 compliance with little risk of a violation that is the compliance person's fault.

NASPP: What is your favorite restaurant or tourist attraction in New Orleans?

Alan:  There are so many good places to eat in New Orleans that it's hard to name a favorite, but I'm partial to Atchafalaya, particularly for brunch. My wife went to Tulane and my daughter is a student there now, and we all love the atmosphere, the food, and of course the well-appointed bloody mary bar.

Don’t miss Alan’s session, “Section 16 & Insider Considerations in Today’s Market,” at the NASPP Conference!

About the NASPP Conference

The 27th Annual NASPP Conference will be held from September 16-19 in New Orleans. This year’s program features close to 100 sessions on today’s most timely topics in stock and executive compensation; check out the full agenda and register today!

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The National Association of Stock Plan Professionals is the largest and oldest professional association for the stock and executive compensation community, with over two decades of leadership providing expert resources, education and other benefits for our more than 6,000 members across 32 affiliated chapters.

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