In an interesting judgement, a dismissed CEO was awarded damages in excess of $2.2 million arising out of the wrongful termination of his employment.
The company had announced that the CEO would be leaving its employment. This followed discussions and negotiations between the CEO and the chairman of the company.
A few days after that announcement, the CEO arranged for the sale of a substantial number of shares in the company held by him and his wife. Approximately 18 days later the company announced a downgrade of its forecast earnings from $24.7 million to $18.7 million.
The company dismissed the CEO for reasons that included an allegation of insider trading. The judge held that none of the reasons given for the termination of the CEO’s employment justified that termination. In the case of the insider trading allegation, the judge found that the CEO was not aware of potential downgrade and that his share trading did not contravene the terms of the relevant company policy.
This case emphasises the need for companies to have an appropriate policy regarding trading by employees in its own shares. Any policy should clearly define when and how employees should obtain consent prior to any such trading. This is particularly so in the current climate where more and more companies are requiring or encouraging senior managers to have “skin in the game” through share ownership and where companies are including share option schemes as a substantial part of executive remuneration.
This is not simply a matter of whether there is any illegality but also whether any trading meets what the politicians call the “pub test”.