Rob Swystun, Pristine Advisers
Too often, when companies get busted for violation of fair disclosure rules, they trot out the “our employees didn’t know any better” excuse, which simply doesn’t fly with the Securities and Exchange Commission (SEC).
You can claim employee ignorance all you want, but the SEC will still slap you with a fine in the tens of thousands of dollars.
Sometimes, it’s individuals that have to take the brunt of those fines, like when the SEC recently charged First Solar’s former head of investor relations Lawrence Polizzotto $50,000 for a violation. It eschewed fining First Solar itself, saying the company provided extraordinary cooperation by self-reporting the violations and that it maintains an environment of compliance, which the company developed through its disclosure committee and Reg FD training for employees in charge of managing the company’s public disclosure.
Because it’s better for a company to spend money on training than fines, it’s worth it to provide education in Reg FD, insider trading and general responsibilities of employees who work for a public company. And not just a single day of soon-to-be-forgotten training just before the IPO. That stuff needs refresher courses every now and then.
If it’s been a while since you’ve refreshed your employees’ training about what it means to work for a publicly traded company, president and partner at Sharon Merrill Maureen Wolf suggests giving some refresher courses in these three areas.
1) Regulation Fair Disclosure – Training in Reg FD and in the handling and distribution of material, non-public information entails teaching employees, management and board members about materiality and the methods the SEC considers compliant to disclose material information. Having given this type of training to its employees was one of the reasons First Solar got off so lightly from the SEC.
2) Life as a Public Company – While many people take working for a public company for granted, a lot of young, talented people who have never worked for a public company are unfamiliar with how the corporate culture is different from a private company. And employees that make the switch from private to public when their employers issue their IPO need an introduction to what the whole public thing means for them and the company. Introductory courses should cover:
- investor relations,
- corporate reporting,
- new compliance, and
- disclosure responsibilities and procedures.
They should also address social media use at a public company. (More on that next week.) Plus, it may be a bit confusing for employees who are making the jump from private to public, so there should be some explanation as to why things need to change once the company goes public.
3) Wall Street 101 – The purpose of Wall Street 101 training is to educate employees who may have little familiarity with how the company’s stock trades and who exactly is involved in that trading. It’s meant to introduce employees to:
- financial market concepts such as stock market mechanics,
- roles of the buy side,
- roles of the sell side,
- interpreting analyst research, and
- basic terms like OTC, IPO and any other acronyms they might run into along the way.
By preparing employees, you can significantly reduce the risk of them or the company of having a Reg FD issue or a potential insider trading violation.