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Obligations of a public company
Securities acquired by a nonaffiliate in a
private transaction are also considered
restricted securities for a period of up to
one year.
Rule 144 under the Securities Act is a
common exemption used by affiliates to
resell their company securities, with the
following requirements:
• Holding period—The affiliate must
hold the shares for at least six months
before resale. One exception is for
shares obtained pursuant to a written
compensatory plan or contract. In that
case, Rule 701 under the Securities
Act allows resale under Rule 144
without any holding period. This resale
must occur at least 90 days after the
effective date of the IPO.
• Volume limitation—In any three-month
period, sales by the affiliate may
not exceed the greater of 1% of the
company’s total outstanding shares or
the average weekly reported volume
in the securities on the exchange during
the four weeks preceding the sale.
• Current public information—The
company must have filed all required
reports with the SEC on time.
• Manner of sale—The sale must be
made through a broker-dealer or in
certain other specified transactions
through a stock exchange.
In some cases when using Rule 144,
an affiliate must file Form 144 with the
SEC and the stock exchange on which the
securities trade.
6.4 Ongoing compliance obligations
NYSE Governance Services
The IPO is not the end of the story with
respect to ethics and compliance—in
fact, it is only the beginning. Once listed,
a company will experience far greater
public scrutiny and will have a range of
continuing obligations with which to
comply. Any weakness in its systems
or failure to comply with regulations
could cause public embarrassment to
management, reputational damage and
potential fines for the company and
individuals involved in the failure.
During the last two decades, the
role that directors play with respect
to oversight of a company’s ethics and
compliance program has expanded. The
expansion of director responsibility
has arisen from several key events,
including the enactment of the FSG. The
implementation of the FSG, however, was
only the start of the rapid development of
director oversight responsibility of
ethics and compliance programs. The
decisions in In re Caremark International
Inc. Derivative Litigation 1 and Stone v.
Ritter, 2 two rounds of amendments to
the FSG, the widespread acceptance and
application of Department of Justice
(DOJ) guidance for the prosecution of
organizations and expanded application of
the responsible corporate officer doctrine
all provide that directors must now
exercise greater oversight and control of
compliance than ever before.
Despite these fundamental changes,
organizations often fail to adequately
support directors with the vital resources
and expertise they need to exercise
effective, ongoing oversight of an ethics
and compliance program. Even if an
organization has robust ethics and
compliance practices below the director
level, failure to retain directors who are
knowledgeable about the content of the
program, and who exercise reasonable
oversight of the implementation and
effectiveness of the program, will render
the program “ineffective” in the eyes
of regulators, prosecutors and federal
judges.
Boards should periodically receive
information about:
• the structure and resourcing of the
compliance program and whether
the compliance officer has sufficient
authority to implement the program;
• the structure of the company’s
reporting system and the company’s
policies regarding responding to
suspected misconduct;
• the types of compliance training that
employees and others are required to
complete and any modifications to
those training requirements;
• the company’s risk assessment
process and results and the methods
developed by the company to
prioritize and address the risks
identified therein;
1
698 A 2d 959 (Del. Ch. 1996).
2
911 A.2d 362 (Del. 2006).
• the way in which the company audits
for implementation of the compliance
program and for substantive violations,
especially in high-risk areas; and
• employees’ perception of the company’s
culture of compliance, including fear
of retaliation for reporting suspected
misconduct, and whether employees
believe that management is committed
to compliance.
Just as vital is providing adequate
resources and authority to the person or
persons responsible for the day-to-day
operations of the program. While the FSG
and general best practices do not dictate
a particular structure or level of authority
for the person or persons responsible
for compliance, at a minimum such
individuals must have access to the board
of directors and be of sufficient rank to
effectively carry out their duties.
An organization’s code of conduct is
the cornerstone of any successful program.
But the code, along with any stand-alone
compliance policies, is a living document
that must be regularly reviewed and
periodically updated. The code must speak
to the culture of the organization and be
accessible to all employees in their native
language and at their appropriate reading
level.
The FSG state that an effective
compliance and ethics program should
take reasonable steps to periodically
communicate its standards, procedures
and other guidelines by utilizing
thorough training programs and other
communication tools. Efficient, yet
comprehensive, training is essential for
any ethics and compliance program and is
the most effective way for organizations
to ensure their employees understand
the standards to which they are held.
Training must be periodically evaluated
and reviewed to ensure the content and
presentation is accurate and produces
results. Organizations must establish
comprehensive, risk-based training
plans that take into account changing
demographics and operational and
legal factors. It is equally essential that
organizations regularly communicate
a message of ethics and compliance to
employees at all levels of the organization.
Employees take their cues on culture
and compliance from their managers, so
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