In this new post: "To buy or not to buy," Gunster Securities and Corporate Governance Practice Group co-chair and Society member Bob Lamm offers a well-considered rebuttal to SEC Commissioner Jackson's recent call for Rule 10b-18 stock buyback rule reforms that encompass compensation committee review, deliberation and disclosure of anticipated corporate stock buybacks relative to executives' ability to - in Jackson's view - inappropriately "cash out" their long-term incentive compensation (reported on here).
Among other things, Bob notes the following:
- The stock buyback rule doesn't insulate companies from Rule 10b-5 liability, i.e., companies can't lawfully repurchase their stock while in possession of material non-public information. Likewise, with the exception of valid 10b5-1 plans, company insiders are prohibited from selling their stock on the basis of material non-public information.
- Commissioner Jackson implies without substantiation that insiders' sales of their stock in the buyback context is somehow inconsistent with companies' focus on long-term value creation.
- Commissioner Jackson's sought-after compensation committee disclosure fails to recognize that individual executives - not the company - may elect to sell (or not) their stock, and that they are more often than not precluded from doing so based on both the company's normal-course insider trading policies and executive stock ownership & retention requirements.
- As a point of clarification, stock buybacks are a capital allocation matter and thus not best suited to compensation committee oversight.
The foregoing notwithstanding, Bob supports consideration of particular aspects of Commissioner Jackson's suggestions - namely, a reassessment of the stock buyback rules and more-frequent-than-quarterly disclosure.