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Common Misconceptions about Company Insiders 

By Elisa Shoenberger

Public company insider compensation can sometimes appear mystical in its complexity. As a result, there are some popular misconceptions. In this article we debunk three of the most common myths surrounding public company insiders.

Myth: Insiders Are Required to Report All Stock Ownership 

Mostly false. Remember, insiders are people who are either company directors, officers, and shareholders who own more than 10% of a company’s stock. While a company insider is required to report on their stock holdings at that company, they do not necessarily have to report on stock holdings elsewhere.

However, if they also own 5% or more of another publicly traded company, they they do have to file a schedule 13D or 13G. But they could still hold stocks in a variety of companies that they are not obligated to publicly report. 

Myth: The amount of stock holdings on the proxy statement is the exact amount the prospect has in the company right now. 

Mostly false. A proxy statement reports stock holdings as of a specific date and you can find this date in the preamble to the beneficial ownership table. Since proxy statements are only published once a year, that count of stock will get outdated. We know that a lot of stock transactions can happen in a year! Plus, a person may have stock options or other derivatives vest in months after the proxy statement and convert to stock.  

Form 4s provide more up to date information about stock holdings since the Form 4 reports on changes in stock ownership. But as we know, stock prices fluctuate… a lot. You can safely bet that the price of the stock will change from the day that it is reported in a profile to the day the profile is read by the development officer.  

So, what does that mean? It means that the stock values reported in the profile should really be considered estimates, not exact. Unless something really big happens, like the company files for bankruptcy or goes private, the value of stock should be reasonably close to value reported in the profile.

Myth: Once an insider, always an insider. 

False: We know that people move from company to company over the years. Some may go from the private sector to the public sector, and vice versa. For example, let’s pretend Jane Smith was an insider director for ABC Company in 2012, but she resigned from the board in 2016. During the time she served on the company board the number of shares she owns will be reported in the proxy statement and she must report changes in her stock ownership by filing a form 4.

But when Jane Smith is no longer on the board, she is no longer considered an insider and thus no longer required to publicly disclose her stock ownership in the proxy or in form 4 filings.

So, what does that mean? It means we know she had stock during that period, but we will not know if she still owns those stock shares, if she sold the shares immediately, or if she sold them slowly. We can only know how much the stock was worth at the time she left the board or, if we assume she still owns the shares, the present day value. It’s still a good indicator of wealth, since we do have some information about the insider’s finances that we would not normally have for non-insiders. 

Want to learn more? 

Consider signing up for the Prospect Research Institute’s SEC Insiders workshop series!

Resources

Author Elisa Shoenberger has written about philanthropy for Inside Philanthropy, Association of Fundraising Professionals, the Daily Dot, Brainfacts.org and others. She has spoken at several fundraising conferences for both international and local chapters of APRA and others. She has published with the Boston Globe, Wired, Slate, Huffington Post, Business Insider, and many others. She has written In Good Company: A Guide to Corporate Fundraising (2021); Disruptive Philanthropy: A Guide to Donor Advised Funds (2022); Volatile Opportunity: A Guide to Cryptocurrency and Fundraising (2023). 

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