Question

How to explain what is Corporate responsibility and insider trading? If a person is over heard talking about company plans in a public place by a competitor can the information be used by the person that heard the information legally or is that a form of insider trading? What is the corporate responsibly in this scenario?

Answer 1

If a person is overheard talking about company plans in a public place by a competitor, the information cannot be used by the person that heard the information either legally or ethically because it is a form of insider trading. This situation violates both: the corporate responsibility and the insider trading rules.

Insider trading:

Insider trading can be defined as trading of a company’s stocks, bonds or other security options by using non public information about the company gained from a person of authority of that company. It is an unethical practice because it gives a few people and unfair advantage due to their non-public information access while the remaining people invested in the company’s stocks don’t have this information. Many company employees have confidential company information due their work obligations and when they use this knowledge before it is available to entire public to gain advantage in the stock market; it is termed as Insider trading. They might do stock transaction themselves or share with their friends but still they will be called the insiders and it will be termed as illegal. Companies usually restrict the trading rights of these employees having confidential information. Thus if the insider trading is done, which is buying and selling of the company’s stock as per the company’s rules, regulation and other restrictions, then it is not termed illegal.

In this particular scenario if a person overhears a competitor’s company related information, he/she is not permitted legally to use it for personal gains. Any information received if used for personal gains will be unfair to all shareholders of the company stock and thus is termed as illegal insider trading irrespective of whether this information was heard in a public place or in the company premises.

Corporate responsibility:

All corporate have a responsibility towards its stakeholders (customers, employees, suppliers, shareholders) to be ethical and fair to them specially with sharing of information. They are not allowed to give information which will give one party more advantage over the others. Corporate build a successful image by showing responsibility in all its deliverables so that it does not harm any of their stakeholders. Companies face relaxed restrictions and earn licenses when they make efforts to provide more jobs for community or better environmental care. Similarly the ethical rules laid down by the company should be diligently followed by all this employees

In this particular scenario no company employee should have a discussion about company related information in a public place as they are confidential. The information was shared in a public place which can be accessed by all even the competitors and puts the company stocks at a disadvantage.

The corporate responsibility in this scenario is to avoid any company related discussion in a public space so as to give all the shareholders and equal opportunity to trade in share market. Any information should be shared through proper authorised public channels and should be accessible to all stakeholders to have a fair trading.