A question I am often asked fits nicely into this discussion and the question is often prefaced by the observation that many on social media and on bulletin boards are so critical of CEOs and other officers for selling their shares – shares that are often acquired for a fraction of the prevailing market price. The question comes in many forms but the plainest version I have been asked is “does it not destroy Investor confidence when this happens?”.
A simple question with no simple answer and answering “depends” does not answer the question at all. But “depends” is probably the correct answer. Much like the above discussion on short sellers and other market manipulators, one must know the true motive of the person making such statements as well as the true motive of the Insider that is selling their shares.
Oftentimes, the founders of a company have sacrificed much pursuing their dream – quitting jobs, selling assets, draining savings, mortgages, unsecured loans, and so forth. And this does not address the countless sleepless nights. What I do know is true is that if an Insider, such as the CEO for example, draws a salary then that is met with heightened criticism in public domain and often by cowards hiding behind silly pseudonyms and using hard to trace third party servers. The critique appears logical and is usually along the lines of the CEO is drawing a salary while the company does not have positive cash flows and is therefore at the expense of shareholders.
If we accept as a basic premise that CEOs, and other Insiders and Founders, are entitled to earn a living and to even start to repay any debts incurred, then is it best to do so by drawing a salary and depleting cash reserves or through the sale of their shares (often obtained through low priced options) that depletes their equity stake while simul-taneously adding to the public float? That is a philosophical question in part and an individual and company specific question in part. When you pay for any item or service … buried in that price are salaries and disbursements to shareholders.
80