Corporate Governance

Executives? Personal Portfolios Hedged

By Jay D. Dean

The New York Times reported Saturday that more than a quarter of Goldman Sachs? partners used various hedging strategies from July 2007 through November 2010, based on its reporters? analysis of regulatory filings. According to a Goldman spokesperson quoted by The Times, only 10 top Goldman executives are barred from hedging their Goldman shares. One Goldman partner avoided several millions of dollars in losses by putting a collar on 175,000 shares in a transaction entered into several months prior to the financial crisis, The Times reported.

A 2010 paper by professors Bettis, Bizjak and Kalpathy found that executives tended to place hedges after significant share price increases relative to the market, and that zero-cost collar and prepaid variable forward hedges tended to precede significant declines in the company share price, according to a summary on ?Executive Pledging and Hedging? on the Stanford.edu Knowledgebase.

The SEC is drafting regulations under the Dodd-Frank Act to require U.S. issuers to disclose company policies permitting employees or directors to enter into transactions designed to hedge decreases in value of the firm stock.

Full post as published by PomTalk on February 08, 2011 (boomark / email).