Yesterday, SEC Commissioner Robert Jackson spoke at the Center for American Progress. Commissioner Jackson focused on stock buybacks and reported on research undertaken by his staff regarding buyback activity. He noted that the recent tax law changes led to many companies buying back stock. In the first quarter of 2018, American corporations bought back $178 billion in stock. Commissioner Jackson noted that there is evidence that corporate executives use buybacks to cash out the shares of the company they receive in stock-based compensation. The Commissioner's staff studied 385 buybacks over the last 15 months. The data collected shows that buyback announcements led to stock price increases. In half of the buybacks that were reviewed, at least one executive sold shares in the month following the buyback announcement. The Commissioner noted that while executive sales are permissible, the sales diminish an executive's alignment of interests with those of the company's stockholders. Commissioner Jackson noted that executives should have "skin in the game." As a result of his findings, Commissioner Jackson called for an open comment period to review the Commission's rules regarding buybacks, and for an update to existing rules in order to prevent executives from using stock buybacks to cash out. He appeared to suggest that the Rule 10b-18 safe harbor should be conditioned on preventing executive sales of stock in proximity to buyback activity. Please see the full text of the Commissioner's remarks here. The study results are available here.
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