The John M. Olin Center

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55. Nitzan Shilon, CEO Stock Ownership Policies – Rhetoric and Reality, 05/2014; forthcoming in the Indiana Law Journal, Volume 90, Issue 1 (2014).

Abstract: This paper is the first academic endeavor to analyze the efficacy and transparency of current stock ownership policies (SOPs) in U.S. public firms. SOPs generally require managers to hold some of their firms’ stock for the long term. Following the 2008 financial crisis, firms universally adopted these policies and cited them more than any other policy as a key element in their mitigation of risk. However, my analysis of the current SOPs of S&P 500 CEOs disputes what firms claim about these policies. First, I find that SOPs are extremely ineffectual in making CEOs hold on to their firm’s stock; this is because the way these policies function generally allows CEOs to immediately unload virtually all the stock they own. Second, I show that firms camouflage this weakness in their public filings. I explain why my findings are troubling, and I propose a regulatory reform to make SOPs transparent. Transparency can be expected to push boards and shareholders to improve the actual content of these policies.